Indosat AR10 ENG

2010 Annual Report
dIsclaIMer This is the Annual Report for the year ended December 31, 2010 and prepared in accordance with Bapepam-LK Rule X.K.6 and X.K.7. Section 20-F in this Annual Report is adopted from the Annual Report on Form 20-F which we have filed to the US -SEC. In this Annual Report, references to Indosat, Company, we, us, and our are to PT Indosat Tbk and its consolidated subsidiaries. All references to Indonesia are references to the Republic of Indonesia. All references to the Government herein are references to the Government of Indonesia. References to United States or U.S. are to the United States of America. References to Indonesian Rupiah or Rp are to the lawful currency of Indonesia and references to U.S. dollars or US $ are to the lawful currency of the United States. Certain figures (including percentages) have been rounded for convenience, and therefore indicated and actual sums, quotients, percentages and ratios may differ. Unless otherwise indicated, all financial information with respect to us has been presented in Indonesian Rupiah in accordance with Indonesian GAAP. This Annual Report contains certain financial information and results of operations, and may also contain certain projections, plans, strategies, and objectives of Indosat, that are not statements of historical fact which would be treated as forward looking statements within the meaning of applicable law. Forward looking statements are subject to risks and uncertainties that may cause actual events and the Company,s future results to be materially different than expected or indicated by such statements. No assurance can be given that the results anticipated by Indosat, or indicated by any such forward looking statements, will be achieved. No information herein should be reproduced without the express written permission of the Company. For updated information, please contact the Investor Relations Group at Jl. Medan Merdeka Barat No.21, Jakarta 10110, Indonesia. Tel. (62-21) 3000 3001, 3869 615, Fax. (62-21) 3000 3757 or E-mail: investor@indosat. com. We are committed to communicating openly with each of our stakeholders. All stakeholders can visit our website at www.indosat.com for more information about Indosat. An online version of this document is also available at www.indosat.com.
Introduction
Business & Services Review
Operational Review
Corporate Governance
Risk Factors
Management Discussion & Analysis
Financial Report
Corporate Data
Indosats transformation continued in 2010 as we laid the foundation groundwork that will enable us to unleash our full potential. As we focused on CUSTOMERS, moved into new GROWTH MARKET segments, instilled a sense of new direction and purpose in OUR PEOPLE, improved returns from OUR ASSETS, and kept pace with the latest TECHNOLOGY, Indosat has became a much stronger secondposition player in the cellular market in Indonesia, and well along the first steps in its journey to always outperform in our endeavors.
INDOSAT 2010 Annual Report
CONTENTS
INTRODUCTION
16 17 18 20 22 24 26 28 30 34 38
Indosat in Brief Vision, Mission, and Values Financial Highlights Operational Highlights Stock and Bond Highlights Awards and Achievements 2010 Event Highlights 2010 Our Products and Brands Report from the Board of Commissioners Board of Commissioners Profile Report from the Board of Directors Board of Directors Profile
01
BUSINESS & SERVICES REVIEW
42
46 50 54
Cellular Services Multimedia, Data Communication & Internet (MIDI) Services Fixed Telecommunication Services
44
58 Human Resources Network and Information Technology
OPERATIONAL REVIEW
62
56
CORPORATE GOVERNANCE
68 Corporate Governance 89 Audit Committee Report 91 Budget Committee Report 92 Risk Management Committee Report
66
2
93 Remuneration Committee Report
Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
RISK FACTORS
96
Risks Relating to Indonesia
101 Risks Relating to Our Business 106 Risks Relating to Cellular Services Business 109 Risks Relating to Fixed Data (MIDI) Services Business 110 Risks Relating to Fixed Telecommunications Services Business
94
MANAGEMENT DISCUSSION & ANALYSIS
114 Management Discussion & Analysis
112
FINANCIAL REPORTS
151 Financial Statement 281 Annual Report on Form 20-F 419 International Financial Reporting Standard (IFRS)
149
CORPORATE DATA
In 2010 Indosat introduced customer loyalty program for cellular subscribers which known as Senyum Setia Indosat program.
545
Bapepam-LK Regulation No.X.K.6 Cross Reference
546 548 550 551
Shareholders Information Organizational Structure Member of Audit Committee Profile Subsidiary Companies
552
FOCUSING ON OUR CUSTOMERS

Focus on customers is key to Indosats long-term sustainable growth strategy. In the transformation into a customer-centric organization, Indosat in 2010 has completed the final stages of a new business model with four Strategic Business Unit (SBU), each concentrating on meeting the needs of a different market segment.
Consumer Wireless SBU

Serving the needs of the retail market segment for cellular services in both prepaid and postpaid service plans.
Consumer Broadband SBU

Serving the needs of the retail market segment for leading edge mobile broadband services.
Corporate Solutions SBU

Serving the needs of corporate customers for integrated solutions in information and communications services such as high-speed international leased circuits, high-speed domestic leased circuits, IP-VPN, Frame Relay and Internet services.
Wholesale & Infrastructure SBU

Serving the needs of wholesale customers for International Direct Dialing (IDD) services, roaming, hubbing, satellite transponder lease, tower lease, and submarine cable capacity lease.
Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
+6.1
+172.5
%
Growth of International High Speed Leased Circuit
Growth of Total IDD Traffic
Growth of Satelite Transponder Lease Service
+20.3
+34.3
Growth of Cellular Subscribers Base
IDENTIFYING OPPORTUNITIES IN NEW GROWTH MARKETS

Our adoption of a balanced-value strategy and our focus on customers through innovative services have enabled us to maintain our market share for cellular services and improve our consolidated revenue stream. We continue to gain insights into customers needs and to identify market segments with high-growth potential, where we can create solutions in communications and information to meet current or anticipated demands.
Consumer Wireless Innovation
The first cellular provider in Indonesia that offers Android-based services in cooperation with several distributors of leading Android handsets in the country Expand BlackBerry services - increase link capacity to Research in Motion servers to 100 Mbps dual-link, the largest in Indonesia to date Providing i-klan as integrated Self Service Mobile Advertising Portal for the benefit of advertising agencies, advertisers and subscribers. Indosat established the Indosat Innovation Lab at the Indosat Building in Jakarta, intended to facilitate local application developers, especially the young innovators, to develop applications for existing cellular systems in the market, with possible commercial use by Indosat.
Consumer Broadband Innovation

Broadband-on-Request for postpaid Matrix subscribers providing options of daily, weekly and monthly quota packages as well as unlimited packages.
Corporate Solutions Innovation

Data Center/Disaster Recovery Center and managed services solutions. BlackBerry Enterprise Solution (BES) On Demand Hosted that can be accessed directly by SMS from the users Matrix, Mentari, IM3 or StarOne cards without requiring expensive servers or software
Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
+12.1
+5.2
Consolidated Total Revenue
Revenue Cellular
+2.0
EBITDA Margin
BRINGING OUT THE BEST IN OUR PEOPLE

The people of Indosat are transforming into high quality professionals with integrity that are capable of managing change to achieve success in business. Our people now have a new sense of purpose and direction as defined in our new vision statement. They know where we are going and how to get there, together.
Indosat Transformation Awareness
An internal programs designed to reinforce employee motivation and readiness in dealing with the various aspects of our ongoing corporate transformation, including a series of Indosat Change Leader workshops to provide senior management and managerial level staff with the necessary leadership qualities to lead the drive for transformation at their respective units.
Operational Excellence
A Program Management Office (PMO) was set up to prepare the foundation and drive continuous operational excellence initiatives that will eventually lead to a cost conscious and high performance culture within the organization. An Operational Excellence Award competition was held in 2010 to invite ideas from employees for improvements in our operational processes and procedures.
Indosat Financial Awareness
The aim of Indosat Financial Awarness (IFA) program is to help develop a performance based culture within the organization, whereby all employees will have a deeper understanding of the Companys financial performance and a sense of direct relation between their daily duties and the Companys overall performance.
Employee Productivity
Indosat Transformation Program has already shown concrete results, including a marked increase in employee productivity level in 2010 compared to the previous year, as measured by dividing total revenues with number of employees.
Code of Ethics
A formal document of Company Code of Ethics Guidelines was issued, and each individual employee, including the Board of Directors, has signed his or her own personal copy as a pledge to abide by the Code of Ethics.
8
Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
Growth of EBITDA supported by Operational Excellence
+9.7
+11.96
Increase of Employee Productivity
Indosat Financial Awareness Training for All Employees
1 Day
OPTIMIZING RETURNS FROM OUR DIVERSE ASSETS

As a fully integrated telecommunications network and service provider in Indonesia, Indosat possesses considerable resources in the form of its telecommunications tower and fiber optics backbone networks as well as satellite system assets. Optimizing returns on these assets is a sound strategy to improve profitability.
Revenue from Shared Towers Rp 252 billion

Indosat has set up a dedicated unit in 2010 to run its tower business, which as at year-end 2010 has booked a number of tower sharing contracts to third-party operators as well as our subsidiaries, involving 3,019 towers and generated revenues of Rp 252 billion. The initiative was taken in compliance with recent regulations by the Government in regards telecommunications tower sharing by telecommunication service providers. Indosat is currently formulating company policies in regards tower network expansion.
10
Introduction
Business & Report Services Review
Operational Review
Risk Factors
Financial Report
Corporate Data
Rp 252
Billions Tower Sharing Revenue
3,019
Total Tower Shared
11
PIONEERING THE USE OF LEADING-EDGE TECHNOLOGY

Since back in the mid-1970s, when Indosat operated the countrys first international communications satellite system, technology has been part of the existence of Indosat. In keeping pace with the rapid advances in technology, Indosat intends to secure an edge over the competition into the future.
42 Mbps Downlink 5.8 Mbps Uplink

In 2010, Indosat become the first operator in Asia, and the second in the world, to launch a commercial mobile broadband access service using Dual-Carrier High Speed Packet Access (HSPA)+ technology.
Zinc-Air Battery
Indosat has completed the final preparations for the deployment of high-capacity, rechargeable air-breathing zinc batteries in some of its Base Transceiver Station (BTS), with the advantages of being more energy-efficient and environmentally friendly compared with conventional lead-acid batteries.
Network Modernization
Indosat is gradually phasing-out its legacy base station network with the latest in Software Defined Radio (SDR)/Single RAN (radio access network) product that offers savings in power consumption, transmission expense, footprint and maintenance costs when compared with conventional BTS solutions.
Indosat Innovation Lab

Indosat Innovation Lab was created to promote creativity and innovations in wireless technology among the nations young application developers. As a place for experiments and discussions in developing practical applications for a variety of wireless operating platforms currently in the market, the Indosat Innovation Lab is located at Indosat Building in Jakarta, with plans to establish similar facities in Bandung and Yogyakarta.
12
Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
42 Mbps
DC HSPA+
Network Modernization in Jabodetabek, Sumatera and Kalimantan
Launching of Indosat Innovation Lab
Pioneers In Deploying Zinc Air Battery
13
CORPORATE SOCIAL RESPONSIBILITY
Realizing Our Commitment

Indosat takes seriously its commitments as a sustainable responsible business. We are committed to uphold the highest standards in corporate governance practices. We are committed to abide by the 10 Principles of the UN Global Compact. And we are committed to contribute positively to communities and the environment.
Indosat continues to actively contribute to the betterment of communities and the environment in Indonesia. Under the umbrella program of Satukan Cinta Negeri, Indosat engaged in a variety of initiatives that focus on areas of education, healthcare, environment preservation, and philanthropy. Ongoing initiatives such as Mobile Clinic, Indosat Wireless Innovation Contest (IWIC) or the Bio-Fuel BTS project are integrated within our business
14
Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
and operational activities and designed to bring tangible benefits and long-term value creation in their respective area of interest. In 2010, Indosat spent a total of Rp 13 billion on these and other programs. Community involvement and environment programs, however, are only part of Indosats corporate social responsibility (CSR) approach to sustainability. In line with its CSR goals of to grow
in compliance with laws and regulations and to care for the community, Indosat intends to ensure responsible company activities that encourage positive impact on all its stakeholders, including shareholders, customers, employees, business partners, communities and the environment. Our comprehensive activities in this regards is presented separately in our 2010 Sustainability Report, Realizing Our Commitment.
15
INDOSAT IN BRIEF
Indosat was founded as a Foreign Capital Company in Indonesia, the first to provide international telecommunications services via international satellite. Indosat has grown and became the first international telecommunications company to be acquired and wholy owned by the Government of Indonesia. Became a public company with share listing on the Indonesia Stock Exchange and the New York Stock Exchange. The Government of Indonesia and public have 65% and 35% shareownership, respectively. Acquired majority shareholding in Satelindo, a cellular and IDD operator in Indonesia. Established PT Indosat MultiMedia Mobile (IM3), a pioneer of GPRS and multimedia services in Indonesia. The Government of Indonesia sold a portion of its shareholding equating to 8.10% of total shares in Indosat to the public and 41.94% of total shares to Singapore Technologies Telemedia Pte. Ltd (STT). The Government of Indonesia has 15.00% shares, STT 41.94% and the remaining 43.06% held by the public. Merged with its three subsidiary companies, Satelindo, IM3 and Bimagraha, becoming a major cellular operator in Indonesia. Acquired a 3G license and introduced 3.5G services in Jakarta and Surabaya. Indosat shares were indirectly owned by Qatar Telecom (Qtel) Q.S.C. (Qtel) through Indonesia Communications Limited (ICLM ) and Indonesia Communications Pte. Ltd (ICLS) in the amount of 40.81%. The Government of Indonesia and the public respectively owned the remaining 14.29% and 44.90%. Qtel acquired 24.19% series B shares from the public, becoming the majority shareholder of Indosat with 65%.Therefore, Indosat was owned by Qatar Telecom (Qtel) Q.S.C. (Qtel) through Qatar Telecom (Qtel Asia) Pte.Ltd (65%), the Government of Indonesia (14.29%) and the public (20.71%). Indosat was granted a second license for 3G frequency by the Ministry of Communication and Information Technology, and its subsidiary, IM2, also won the government WiMAX license tender.
1967 1980 1994 2001 2002 2003 2006 2008
2010
In 2010, Indosat completed the groundworks for a fundamental transformation into a customer-centric, highperformance organization, which included an organization restructuring, cellular network modernization and expansion, and initiatives in operational excellence.
2009
16
Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
VISION, MISSION, AND VALUES
Vision
To be the customers preferred choice for all information and communication needs
Mission
To provide and develop innovative and high quality products, services and solutions which offer the best value to our customers. To continuously enhance shareholders value. To provide a better quality of life for our stakeholders.
Values
INTEGRITY TEAMWORK EXCELLENCE PARTNERSHIP CUSTOMER FOCUS
17
FINANCIAL HIGHLIGHTS
(in billion Rupiah) 2010

INCOME STATEMENT Operating Revenues Operating Expenses Operating Income Other Income (Expenses) Net Equity in Net Income (Loss) of Associated Companies Income before Income Tax Income Tax Expenses Net Income before Minority Interest in Net Income of Subsidiaries Minority Interest in Net Income of Subsidiaries Net Income Shares Outstanding (in million of shares) Basic Earnings per Share (in Rp full amount) EBITDA BALANCE SHEET Total Assets Property and Equipment Net Working Capital Total Liabilities Minority Interest Total Stockholders Equity OPERATING RATIOS (%) Operating Income to Operating Revenues Operating Income to Stockholders Equity Operating Income to Total Assets EBITDA Margin Net Profit Margin Return on Equity Return on Assets FINANCIAL RATIOS (%) Current Ratio Debt to Equity Ratio Total Liabilities to Total Assets DIVIDEND PER SHARE (Rp) Final Payment Date 137.86 02/08/2010 172.85 22/7/2009 187.90 15/7/2008 129.75 13/7/2007 149.32 8/8/2006 51.55 133.79 65.47 54.62 141.14 66.77 90.79 124.69 65.76 92.86 99.84 62.83 83.28 74.74 55.00 17.55 19.46 6.58 48.62 3.27 3.63 1.23 17.07 17.89 5.84 46.61 7.96 8.34 2.72 24.64 27.19 9.16 48.35 9.78 10.79 3.63 26.78 27.32 9.98 51.46 12.10 12.34 4.51 27.20 22.36 9.93 56.43 11.28 9.28 4.12 52,818.2 43,571.0 (5,788.0) 34,581.7 385.8 17,850.7 55,041.5 44,428.8 (5,931.6) 36,753.2 330.6 17,957.7 51,693.3 38,394.1 (983.5) 33,994.8 288.9 17,409.6 45,305.1 30,572.8 (832.5) 28,463.0 297.4 16,544.7 34,228.7 24,918.6 (1,137.8) 18,826.3 200.6 15,201.8 19,796.5 16,322.6 3,473.9 (2,392.1) 0.0 1,081.8 (357.8) 724.0 (76.8) 647.2 5,433.9 119.1 9,625.9 18,824.2 15,611.2 3,213.0 (981.0) 0.0 2,232.0 (677.3) 1,554.7 (56.5) 1,498.2 5,433.9 275.7 8,774.4 19,211.5 14,478.2 4,733.3 (2,408.2) 0.0 2,325.1 (419.8) 1,905.3 (26.8) 1,878.5 5,433.9 345.7 9,289.2 16,873.8 12,354.2 4,519.6 (1,590.0) 0.0 2,929.6 (859.5) 2,070.1 (28.1) 2,042.0 5,433.9 375.8 8,682.8 12,496.3 9,097.6 3,398.7 (1,375.8) (0.2) 2,022.7 (576.1) 1,446.6 (36.5) 1,410.1 5,404.7 260.9 7,027.2
2009
2008
2007
2006
18
Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
Operating Revenue (Rp billion)

19,211.5 16,873.8 18,824.2
Operating Expenses
19,796.5
(Rp billion)
16,322.6
15,611.2 14,478.2 12,354.2
12,496.3 9,097.6
06 Operating Income (Rp billion)
07
08
09
10
06
07
08
09
10
Income before Income Tax (Rp billion)

4,733.3 4,519.6 2,929.6
3,473.9
3,398.7 3,213.0 2,022.7
2,325.1 2,232.0
1,081.8
06
07
08
09
10 06 07
08
09
10
Net Income (Rp billion)
Basic Earnings per Shares (Rp full amount)

375.8 345.7 2,042.0 1,878.5 275.7 1,498.2 1,410.1 260.9
647.2
119.1
06
07
08
09
10 06 07 08
09
10
19
OPERATIONAL HIGHLIGHTS
Unit
CELLULAR Prepaid Subscribers Postpaid Subscribers Total Subscribers ARPU Prepaid ARPU Postpaid ARPU Blended FIXED WIRELESS Prepaid Subscribers Postpaid Subscribers Total Subscribers ARPU Prepaid ARPU Postpaid ARPU Blended IDD Outgoing Traffic Incoming Traffic Total Traffic Incoming/Outgoing Ratio MIDI Wholesale International High Speed Leased Circuit Domestic High Speed Leased Circuit Transponder Frame Relay Internet IPVPN Lintasarta High Speed Leased Line SDL Frame Relay VSAT IPVPN IM2 Internet Dial Up Internet Dedicated IPVPN Employees (permanent and non-permanent incl. subsidiaries employees) Galeri Indosat Griya Indosat Kios Layanan & Penjualan Indosat (KILAT) e-Galeri user link link person service centre service centre service centre service centre 64Kbps 64Kbps 64Kbps 64Kbps Mbps Mbps Mhz Mbps Mbps Mbps minutes minutes minutes subscriber subscriber subscriber Rp Rp Rp subscriber subscriber subscriber Rp Rp Rp
2010
43,170,139 1,102,178 44,272,317 31,493 234,037 34,712
2009
31,163,859 1,803,342 32,967,201 33,448 175,327 37,664
% Change
38.5% -38.9% 34.3% -5.8% 33.5% -7.8%
489,007 61,123 550,130 14,719 45,613 17,730
525,391 68,742 594,133 23,207 69,160 28,402
-6.9% -11.1% -7.4% -36.6% -34.0% -37.6%
463,037,201 1,723,855,406 2,186,892,608 3.7
502,031,713 1,558,463,354 2,060,495,067 3.0
-7.8% 10.6% 6.1% 24.1%
13,614 15,678 707 10 3,383 1,396 60,517 18,012 15,634 47,523 8,068 758 396 6,694 169 60 13 3
5,054 11,712 738 22 5,754 1,030 64,087 25,173 6,602 31,558 9,291 884 447 7,126 171 61 -
169.4% 33.9% -4.2% -54.5% -41.2% 35.5% -5.6% -28.4% 136.8% 50.6% -13.2% -14.3% -11.4% -6.1% -1.2% -1.6% N/A N/A
20
Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
Total Cellular Subscribers (million)

44.3
Cellular Subscribers Composition (million)

44.3
43.2
Blended ARPU Cellular (Rp thousand)

234.0 Prepaid Postpaid
36.5 33.0 31.2 24.5
33.0
175.3
Total
16.7
1.8
1.1
33.4
37.7 31.5
34.7
06
07
08
09
10
2009
2010 2009
2010
Total Fixed Wireless Subscribers

761,589
Fixed Wireless Subscribers Composition

594,133
525,391 489,007
Blended ARPU Fixed Wireless (Rp thousand)

Prepaid Postpaid Total 45.6
550,130
69.2
627,934
594,133
550,130
378,727 23.2
28.4 17.7
14.7 61,123 68,742
06
07
08
09
10
2009
2010
2009
2010
Incoming/Outgoing Ratio (million)

3.7
IDD Traffic (million Minutes)

2,186.9 2,060.5
3.0
1,723.9 1,558.5
502
463.0 Incoming Traffic Outgoing Traffic Total Traffic
09
10
2009
2010
21
STOCK AND BOND HIGHLIGHTS

STOCK HIGHLIGHTS
Stock Performance New York Stock Exchange (US$/ADR) 2010 Highest Lowest Year End Basic Earnings per ADR/Share Dividend per Share/ADR Dividend Payout Ratio (%) (%) Dividend Yield Dividend per ADR/Share Year-End ADR/Share Price P/E Ratio Year-End per ADR/Share Price Earnings per ADR/Share Quarterly Stock Price on the NYSE (US$/ADR) Period First Quarter Second Quarter Third Quarter Fourth Quarter Quarterly Stock Price on the IDX (Rp/ADR) Period First Quarter Second Quarter Third Quarter Fourth Quarter Bond Highlights Description
Second Indosat Bonds Third Indosat Bonds Fourth Indosat Bonds Fifth Indosat Bonds Sixth Indosat Bonds Seventh Indosat Bonds Indosat Syariah Ijarah Bonds Indosat Sukuk Ijarah II Indosat Sukuk Ijarah III Indosat Sukuk Ijarah IV Guaranteed Notes due 2010
Indonesia Stock Exchange (Rp/Share) 2010 6,300 4,400 5,400 119.10 2009 5,950 4,200 4,725 275.72 137.86 50
2009 30.37 16.74 25.11 1.47 0.73 50
35.58 24.22 29.12 0.66
2.91
2.91
44.12x
17.08x
45.34x
17.13x
2010 Highest 33.96 34.19 30.46 35.58 Lowest 25.38 25.97 24.22 28.01 Highest 26.25 26.65 28.35 30.37
2009 Lowest 16.74 20.99 24.29 24.28
Volume 2010 (ADS) Highest 95,984 117,276 214,629 80,143 Lowest 1,200 400 400 407
2010 Highest 6,200 6,150 5,500 6,300 Lowest 4,700 4,775 4,400 5,100 Highest 5,900 5,950 5,700 5,700
2009 Lowest 4,200 4,850 5,050 4,600
Volume 2010 (LOT) Highest 52,529 13,851 44,367 19,341 Lowest 283 598 643 886
Release Date
06-Nov-02 22-Oct-03 21-Jun-05 29-May-07 09-Apr-08 08-Dec-09 21-Jun-05 29-May-07 09-Apr-08 08-Dec-09 05-Nov-03
Stock Exchange
Surabaya Stock Exchange* Surabaya Stock Exchange* Surabaya Stock Exchange* Surabaya Stock Exchange*
Total
Interest Rate
Maturity
06-Nov-32 Fully Repaid 22-Oct-10 21-Jun-11 29-May-14 29-May-17 09-Apr-13 09-Apr-15 08-Dec-14 08-Dec-16 21-Jun-11 29-May-14 09-Apr-13 08-Dec-14 08-Dec-16 Fully Repaid 10-Aug-10
Guaranteed Notes due 2012 Guaranteed Notes due 2020
22-Jun-05 29-Jul-10
Series B : Rp200.0 billion 16.00% per annum Series B : Rp640.0 billion 12.88% per annum Rp815.0 billion 12.00% per annum Series A : Rp1,230.0 billion 10.20% per annum Series B : Rp1,370.0 billion 10.65% per annum Indonesia Stock Echange Series A : Rp760.0 billion 10.25% per annum Series B : Rp320.0 billion 10.80% per annum Indonesia Stock Echange Series A : Rp700.0 billion 11.25% per annum Series B : Rp600.0 billion 11.75% per annum Surabaya Stock Exchange* Rp285.0 billion Rp34.2 billion per annum Surabaya Stock Exchange* Rp400.0 billion Rp40.8 billion per annum Indonesia Stock Echange Rp570.0 billion Rp58.4 billion per annum Indonesia Stock Echange Series A : Rp28.0 billion Ijarah Return Rp3.2 billion per annum Series B : Rp172.0 billion Ijarah Return Rp20.2 billion per annum Luxembourg Stock Exchange and US$234.7 million 7.75% per annum Singapore Exchange Securities Trading Limited Singapore Exchange Securities US$109.4 million 7.13% per annum Trading Limited Singapore Exchange Securities US$650.0 million 7.38% per annum Trading Limited
Fully Repaid 2-Sep-10 29-Jul-20
*on November 30, 2007, the Surabaya Stock Exchange and the Jakarta Stock Exchange merged to become Indonesia Stock Exchange.
22
Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
STOCK PERFORMANCE
Indonesia Stock Exchange (ISAT) Period: 1 January 31 December 2010
10,000 20,000
8,000
15,000
6,000
Volume Price
10,000 4,000 5,000
2,000
January
February
March
April
Mei
June
July
August
September
October
November
December
New York Stock Exchange (IIT) Period: 1 January 31 December 2010

35.00 30.00 25.00 20.00
Price
35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

Volume
15.00 10.00 5.00 0
January
February
March
April
Mei
June
July
August
September
October
November
December
Shareholders Composition (as of 31 December 2010)

QATAR TELECOM (QTEL ASIA) PTE. LTD.
65.00%
REPUBLIC OF INDONESIA
14.29%
PUBLIC/FREE FLOAT
15.60%
SKAGEN AS 5.11%
23
AWARDS AND ACHIEVEMENTS 2010
The many accolades that we received serve as a testimony of our strong showing in 2010 in regards the quality of our services, our organization and our business practices. CUSTOMER SERVICE
Call Center Award for Service Excellence for Telecommunication Industry Excellence The Best Contact Center Indonesia 2010 Excellence Achievement The Best Team Work Contact Center The Best HR Retention Above 100 Seat The Best Video Contact Center The Best Technology Innovation The Best Business Contribution The Best Back Office Operation The Best Agent Inbound The Best Supervisor Above 100 seat The Best Agent Outbound The Best Agent Quality Assurance The Best Team Leader The Best Back Office Support
HUMAN RESOURCES DEVELOPMENT

Indonesian Marketing Dream Team Champion Recognition of Championship in Marketing Strategy for IM3 Marketing Team Indonesia Most Recommended Consumer Community 2010 i-Cyclist (Indosat Cyclist)
Indosat Wireless Innovation Contest Best CSR Program Operator of The Year : IWIC
ICCA The Best Team Work Contact Center
24
Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
PRODUCT EXCELLENCE CORPORATE PERFORMANCE

The Asias 200 Most Admired Companies Indonesias Top 10 Most Admired Companies Pefindo Award Silver Award Best Bond Type Issuer Syariah Bonds IICD GCG Award 2009 Best Non-Financial Publicly-Listed Company Finance Asia Award Best High Yield Bond 2010 Award TOP Brand Award 2010 SimCard GSM Postpaid (Matrix) SimCard GSM Prepaid (IM3) Internet Service Provider (mobile) The Net Promoter Customer Loyalty Award 2010 The Net Promoter Leader 2010 in GSM for IM3 2nd Indonesia Word of Mouth Marketing Award 2010 The Most Recommended BlackBerry Internet Service Digital Marketing Awards The Best Digital Product category Simcard (IM3) The Best Website category telecommunication Indonesia Most Popular Brand in Social Media 2010 Simcard GSM: IM3 Indonesia Cellular Award 2010 Best Bundling Phone with Sony XPeria X10
CORPORATE SOCIAL RESPONSIBILITY

Indonesia Cellular Award 2010 Corporate Social Responsibilities (CSR) MetroTV MDGs Award 2010 Goal 5: Improving Maternal Health
Cellular Award 2010 Best Customer Care Indosat
Indonesia Cellular Award 2010 The Best Bundling Phone
Metro TV MDGs Award 2010
25
EVENT HIGHLIGHTS 2010
January
February
March
April
Meraih Mimpi Bersama IM3

Jakarta, January 18, 2010 Entering the new year with a new spirit for innovations, Indosat launched Meraih Mimpi Bersama IM3 (Get Your Dream with IM3) marketing campaign that provides IM3 and also Mentari subscribers with fast broadband access at only Rp0.3 per kilobyte. The service enables existing IM3 and Mentari SIM card users to enjoy high speed data access of up to 2 Mbps from their handsets at a very affordable rates without having to change to a new SIM card. New subscribers to this service meanwhile can also enjoy a bonus of 100 free SMS daily to all operators, subject to certain conditions.
Indosat Presents BlackBerry StarOne

Jakarta, February 20, 2010 Indosat introduced Indosat StarOne BlackBerry services, allowing StarOne subscribers to enjoy a variety of convenient and attractive BlackBerry service features.
Mentari Makes Closer Ties With Family Members

Jakarta, March 11, 2010 Indosat launched the Mentari 50 package, offering special benefits for all family members of Mentari subscribers throughout Indonesia.
Indosat Launched BlackBerry On Demand (Enterprise) Hosted

Jakarta, April 1, 2010 Indosat presented another innovation with the launch of BlackBerry On Demand (Enterprise) Hosted services, that enable corporate users to activate and access Indosats hosted BlackBerry Enterprise Services directly through SMS.
Indosat Launched The First Android-Based Service in Indonesia

Jakarta, February 22, 2010 - In collaboration with 6 leading Android handset distributors, Indosat launched the first Android-based services in Indonesia, including a variety of Android-based applications that can be purchased through the Android Application Store.
Indosat Launched Mentari Taiwan

Jakarta, March 22, 2010 Indosat launched the Mentari Taiwan prepaid SIM card in collaboration with Taiwan-based Far EasTone Telecommunications (FET).
Kartu Indosat, One Card for Many Benefits Indosat launched Kartu Indosat (Indosat Card), with a tagline of Semuanya Bisa Semaunya, is the first such product in Indonesia providing the utmost convenience for subscribers to choose the desired call number and service package with the purchase of a single SIM card starter pack.
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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
Indosat Innovation Lab, in Appreciation of 43 Years of Indosat The Indosat Innovation Lab is a facility where young application developers and innovators can experiment and get together for creative discussions on the development of practical applications for hand-held systems and equipment in the market. The first Indosat Innovation Lab was established at Indosats Head Quarter in Jakarta, and two more such facilities are planned to be established in Bandung and Yogyakarta.
May
July
October
November
Indosat Introduced e-Galeri

Jakarta, May 5, 2010 Indosat launched the e-Galeri, self-service vending machines located in strategic public places. This innovative service enable customers to purchase topup vouchers or starter packs, pay their post-paid bills, obtain info on the latest promo programs as well as locations of the nearest Indosat Galeri or Indosat Griya outlets, without having to call our Contact Center or visit our outlets.
i-klan Store, the Worlds First SelfService Mobile Advertising Portal

Jakarta, July 14, 2010 Indosat collaborated with its subsidiary, IM2, to launch the i-klan Store, the worlds first mobile advertising portal that enables commercial advertisers as well as Indosat subscribers to conduct on-line advertising transactions by accessing www.indosat.com/i-klan or www. iklanstore.net via their cellular handsets.
Indosats Aid for Merapi Victims

Yogyakarta, October 28, 2010 Through the Indosat Peduli program, Indosat helped victims of Merapi eruptions by the provision of medical services through its Mobile Clinic units, donations of essential items, and free telecommunication services for disaster victims and also for various volunteer groups involved in victim evacuation process.
Indosat Support Telecommunication Facilities During State Visit of President Barrack Obama
Jakarta, November 11, 2010 The successful state visit of US President Barrack Obama to Indonesia in 9-10 November 2010 also marked the success of Indosat that has been entrusted by the US Embassy in Indonesia to provide all telecommunications support facilities and services during the highly publicized visit.
Grand Final of 5th IWIC, in INDOSAT AWARDS, an Appreciation for Music Industry in Indonesia Indosat inaugurated the INDOSAT AWARDS, an annual event organized to appreciate and promote Indonesias musical artists and talents, and to support the domestic music industry to become an asset of the nation. Appreciation of 43 Years of Indosat Indosat held the grand final of the 5th Indosat Wireless Innovation Contest (IWIC), an annual competition for creative ideas and innovations in wireless technology.
27
OUR PRODUCTS AND BRANDS

CELLULAR SERVICES
Description
Affordable mobile prepaid communication services targeted at the youth segment.
Customer Benefit
Ability to talk longer and send more text messages.
Mobile prepaid communication services for general users.
Simple and economical flat rates.
Premium GSM mobile postpaid communication services.
High mobility and quality, widest international coverage, premium services.
A variant of the Matrix product which offers flexible post-paid cellular service with additional prepaid reload capability.
Provides flexibility in controlling costs. Combines the benefits of postpaid and prepaid cellular services.
Global push mail service and postpaid/ prepaid cellular service.
Attractive bundling package for mobile email messaging and telephone services.
Mobile wireless internet/data service on a 3.5G Broadband technology (GPRS/EDGE/UMTS/HSDPA/HSPA +).
High speed connection up to 42 Mbps.
Value Added Services for cellular users.
Choice of features, content and games for entertainment.
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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
FIXED TELECOMMUNICATION SERVICES

Description
Domestic and international Voice Over Internet Protocol (VoIP) service.
Customer Benefit
Affordable flat international tariff, VoIP calling cards to facilitate long distance calls, control over cost of calls.
International Direct Dialing.
Clear quality IDD calls, budget IDD, worldwide calling coverage.
Fixed Wireless Acess (FWA) with limited mobility within city/area code.
Affordable daily usage communication services for voice and SMS and also cheap Internet access.
MIDI SERVICES (MULTIMEDIA, DATA COMMUNICATION AND INTERNET)

Description
IPLC (International Private Leased Circuit) DPLC (Domestic Private Leased Circuit)
Customer Benefit
Point-to-point private circuit connections.
Frame Relay & ATM (Asynchronous Transfer Mode)
Flexibility for variable traffic. Data Communication Services:
INP (Internet Network Provider)
IDIA (Indosat Dedicated Internet Access) INIX (Indosat National Internet Exchange) MPLS (Multi-Protocol Label Switching) Satellite Services
The products and services that we offer in this business segment include highspeed point-to-point international and domestic digital leased line broadband and narrowband services, a highperformance packet-switching service and satellite transponder leasing and broadcasting services.
Access to global Internet.
Ability to create private network through data package.
Solutions for national and international broadcast services.
DRC (Disaster Recovery Center)
Secure data service.
29
REPORT FROM THE BOARD OF COMMISSIONERS
Our focus on a balanced value strategy with a customer centric approach that focuses on technological innovation and product offering will enable to us to become the full service provider of choice in Indonesia in the long term.
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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
Growth, Innovation and Resilience

It gives me great pleasure to open this review of Indosats 2010 performance. Throughout 2010, the Company has continued to demonstrate the enormous potential that a combined strategy of focussing on customer value and technological innovation can achieve. We embarked upon a program in 2009 to transform the Company and to focus on value. We have made clear and confident progress towards successfully implementing this strategy. Our cellular market share has grown significantly and we have laid the technological foundations in order to develop and build on this progress in the years to come. This has been achieved against a backdrop of slower overall growth in the market and heightened competition for revenue market share and we are justifiably proud of the progress we have achieved. In 2010, the active removal of lower value, calling card style customers from our network and our concentration on expanding the customer experience and quality towards higher value subscribers has seen four consecutive quarters of cellular market share growth. This is particularly impressive given the increased competitive price dynamics towards the latter end of the year.
This turnaround was not just apparent in the evolution and growth of our customer base. Through sharing knowledge, expertise and resources across the Qtel Group we have also focussed heavily on expanding customer choice through the development of our product range. These have focussed on the development of enterprise led solutions across the Android, Blackberry and Apple product lines, some of which were global firsts in technological innovation and further demonstrating our products and services leadership role in Indonesia. In order to support the requirements of higher value customers and to ensure that they and our future customers are offered the optimum service possible, we have also continued to prioritise our network quality. The network is now DC HSPA+ ready and capable of offering speeds of up to 42Mbps, this is a key differentiator in the market and we are proud to be the first network to offer these speeds in Asia.
Translating Value into Performance

Our value approach to developing market share and customer experience has translated strongly in terms of financial results and despite a program of continued capital investment in the business; we have recorded strong
31
REPORT FROM THE BOARD OF COMMISSIONERS
EBITDA growth of 9.7% to Rp9,625.9 billion in 2010. This growth has not been at the expense of EBITDA margin which we have successfully increased to 48.62%, this has been underpinned by various cost efficiency programs which are in line with the ongoing strategic realignment of the business. Company revenues have also substantially increased with growth of 5.2% to Rp19,796.5 billion in 2010. This is principally as a result of the rate of growth in our cellular businesses and our balanced value strategy which saw cellular revenue grow by 12.1% to Rp16,027.1 billion.
Last year, we announced the strategic realignment of the business into four distinct business units. I am pleased to announce that the implementation of this has entered its final phase. This will streamline management focus and ensure the optimisation of our output across the business. This is underpinned by our initiatives to help develop and motivate our people. We strongly recognise the integral value our employees represent and have put in place a series of programs to ensure that they have the skills, empowerment and prospects to move the business forward.
Committed to our responsibilities

The turnaround of our business was validated by the international capital markets in July 2010, where we successfully raised US$ 650 million at 7.375%. This enabled us to refinance a number of existing facilities and reduce the Companys overall debt position by 5.5% by the end of the year; we will look to continue to minimalise our financing costs throughout 2011. Our financial performance is a tribute to the strength and depth of our senior leadership team who have in a short period of time, implemented a strategy that will maximise the potential to obtain a market leadership position whilst continuing to deliver value to our shareholders. The team have demonstrated their ability to instil a revised focus and purpose to the Companys activities and we have every confidence in the roadmap they have devised for the next five years to further transform the business. We are also continually aware of the role that Indosat plays in the community. The Indonesian people have been affected by a number of natural disasters in 2010 and have been cut off from vital services and supplies. Indosat has worked hard to support those affected through disaster aid programs during the Mount Merapi eruptions and our ongoing Mobile Health Clinic program. In 2011 we will In 2010, we have continued to further develop the implementation of Corporate Governance practices across the organisation. We issued a formal Company Code of Ethics Guidelines that applies to all employees and we have a new labour agreement between the Indosat employee union and management. Alongside our commitment to our staff is our steadfast, continued focus on corporate social responsibility an intrinsic part of our strategic goal of sustainability.
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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
further develop programs that underpin our commitment to improving standards of health, education and social wellbeing in Indonesia.
strategy. My colleagues and I are also grateful to the many partners, stakeholders and organisations that have worked closely with us throughout 2010 to support and roll-out the change programme we have put in place.
Ongoing support is key to our success

On behalf of my colleagues on both the Board of Commissioners and Board of Directors, I would like to extend sincere thanks to you, Indosats shareholders, for the steadfast support you have given to our transformation agenda over the course of the past year. This support has bolstered our efforts and enhanced the pace of change we have been able to achieve. My deep appreciation also goes out to all Indosat employees, whose enthusiasm, dedication and ability have been essential in helping us deliver on our turnaround
Moving forward
My Board colleagues and I are extremely proud of the genuine progress our organization has made over the course of the last year. Indosat remains a Company with outstanding potential for development in a market which is growing rapidly, both in terms of population but also sophistication. Our focus on a balanced value strategy with a customer centric approach that focuses on technological innovation and product offering will, I am confident, with your continued support enable to us to become the full service provider of choice in Indonesia in the long term.
Sheikh Abdulla Mohammed S.A Al Thani President Commissioner
33
BOARD OF COMMISSIONERS PROFILE
1.
Sheikh Abdulla Mohammed S.A. Al Thani

has been the President Commissioner since August 2008. Sheikh Abdulla is currently the Chairman of the Board of Directors for Qtel. In his capacity as Chairman, he has helped enhance Qtels corporate governance system to ensure Qtel is directed and controlled in line with international practices, thereby reinforcing both corporate accountability and the sustained creation of shareholder wealth. Sheikh Abdulla has also overseen the restructuring and regional expansion of Qtel. After Qtels acquisition of Kuwait-based Wataniya, in what was considered at
that time to be the largest telecommunications deal in the Arab World, Sheikh Abdulla was appointed Chairman of Wataniya. Sheikh Abdulla previously held several high profile positions in Qatar including Chief of the Royal Court (Amiri Diwan) from 2000 to 2005. He also served as a Member of the Qatari Planning Council from 2001 to 2004. A certified pilot instructor by way of the British Royal Air Force, Sheikh Abdulla has an extensive background in both the military and in aviation, he completed his studies at the Senior Army War College, Carlisle Barracks in the United States of America.
3
3. Alexander Rusli
Independent Commissioner
4
5. Soeprapto S.I.P
1. Sheikh Abdulla Mohammed S.A Al Thani

President Commissioner
4. Parikesit Suprapto
Commissioner
2. George Thia Peng Heok

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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
2.
George Thia Peng Heok

has been an Independent Commissioner and Chairman of the Audit Committee since June 2008. Mr. Thia currently serves as Director/Consultant in Asiainc Private Limited. In the past he has held several positions including as Consultant/Director, Strategic Advisory Private Limited from 2003 to 2006, Executive Chairman, MediaStream Limited from 1999 to 2003, Director/Consultant, Phoenix Capital Private Limited from 1995 to 1998, Executive Chairman, AsiaMatrix Limited from 1993 to 1995, Managing Director, Lum
Chang Securities Private Limited from 1991 to 1993, Managing Director, Sun Hung Kai Securities Private Limited from 1989 to 1991, Managing Director, Merrill Lynch International Bank Limited from 1987 to 1989, Executive Director/Partner, Kay Hian Private Limited from 1985-1987 and Managing Director, Morgan Grenfell (Asia) Limited from 1975 to 1985. Mr. Thia is a Certified Public Accountant and a Fellow Member of both the Chartered Association of Certified Accountants (U.K.) and the Singapore Institute of Directors
6
6. Chris Kanter
8
8. Rachmat Gobel
Commissioner
10
10. Richard Farnsworth Seney
Commissioner
7. Rionald Silaban
Commissioner
9. Dr. Nasser Mohammed Marafih

Commissioner
35
BOARD OF COMMISSIONERS PROFILE
3.
Alexander Rusli
has been an Independent Commissioner since January 2010 and currently serves as member of our Remuneration Committee. Mr. Rusli currently is a commissioner of PT Krakatau Steel (Persero), the 100% state-owned company that produces carbonsteel products. He was formerly Expert Advisor to the Minister for State-Owned Enterprises, with oversight of 140 State-owned enterprises and more than 500 subsidiaries. Prior to such time, he was an Expert Advisor to the Minister of Communications and Information Technology, where he was involved in the formulation of policy and regulation and in overseeing the national state ICT infrastructure projects, a position he held under two cabinet ministers. Mr. Rusli has also acted as a Principal Consultant for Pricewaterhouse Coopers. He holds a Doctor of Philosophy, Information Systems, Curtin University of Technology, Australia.
5.
Soeprapto S.I.P
has been an Independent Commissioner and a member of the Audit Committee since June 2005. In the past, Mr. Soeprapto has held several positions including as Assistant Personnel to the Army Chief of Staff of the Republic of Indonesia from 2000 to 2001, and currently serves as Commissioner of PT Sawit Kaltim Lestari from 2010 to now. He earned a degree in Political Science from the Terbuka University, Jakarta and Participant Reguler Course (KRA 29) in 1996 at the Indonesian National Resiliance Institute (Lemhanas).
6.

Chris Kanter
has been Independent Commissioner since January 2010. Mr. Kanter currently serves as Chairman and Founder of Sigma Sembada Group, a major turn key contractor with transportation and logistics arms. He had been Vice President for Investment, Telecommunication, Information-Technology, Transportation and Tourism of the Indonesian Chamber of Commerce and Industry (KADIN Indonesia) since 1994 until 2010. He has recently been reappointed for a further five year term to 2015 as Vice Chairman Board of Advisor. He is also recently appointed as Vice Chairman of APINDO (Indonesia Employer Association). He also Chairman of Board of Founders of the Swiss German University. Mr. Kanter has also held a number of roles in the Indonesian Government and has been closely involved with The Policy Package for Improving Investment Climate in Indonesia and also served as member of the Consultative Congress (MPR) of the Republic of Indonesia from 1998 to 2002 and recently appointed by the President as member of National Economic Council (KEN) reporting directly to the President Indonesia.
4.
Parikesit Suprapto
has been a Commissioner since February 2011. He currently serves as Deputy Minister of State-Owned Enterprises for Services but has previously held various positions, Deputy Minister of State-Owned Enterprises for Banking and Financial Industry from 2008 to 2010, Expert Advisor on Small Enterprises for the Minister for State-Owned Enterprises for from 2006 to 2008, Assistant to the Deputy Minister of State Owned Enterprises in Restructuring & Privatization of Financial and Construction Industry from 2002 to 2005 and Director of the Restructuring and Privatization of the Directorate General State-Owned Enterprise of the Ministry of Finance from 2001 to 2002. Mr. Suprapto received a Bachelor degree in Corporate Economy from Sekolah Tinggi Manajemen Industri, Jakarta in 1980, a Master Degree in Economic Development from Indiana University in the United States, in 1990 and a Doctoral Degree in Economic Development from the University of Notre Dame in the United States, in 1995.
7.

Rionald Silaban
has been a Commissioner since June 2008 and was appointed as a member of the Risk Management Committee in the same year. He currently serves as Director of Center for Policy Analysis and Harmonization of the Ministry of Finance in Indonesia. In the past he held several positions including Director of Fiscal Risk Management of the Ministry of Finance
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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
from 2006 to 2008, Senior Advisor at the World Bank in Washington D.C., U.S. from 2004 to 2006, Division Head in Secretariat General of the Ministry of Finance from 2002 to 2004, Head of Assets Monitoring Division of the Indonesian Banking Restructuring Agency from 2000 to 2002, Division Head for Financial Service of the Legal Bureau of the Ministry of Finance from 1998 to 2000, Deputy Director for Privatization of Directorate General State-Owned Enterprise of the Ministry of Finance from 1997 to 1998, Head of Section of the Legal Bureau of the Ministry of Finance from 1994 to 1997 and Head of Secretariat for Privatization Committee of Ministry of Finance from 1994 to 1997. Mr. Silaban earned a Law Degree from the University of Indonesia in 1989 and a LL.M. degree from the Georgetown University Law Center, Washington D.C., U.S. in 1993.
9.
Dr. Nasser Mohammed Marafih

has been a Commissioner at Indosat since August 2008 and is the Chairman of the Remuneration and Budget Committee. He began his career at Qatar Telecom (Qtel) in 1992 as an expert advisor from the University of Qatar and was subsequently appointed in 1994 to Director of Strategic Planning and Development and finally to his current role of Chief Executive Officer in 2002. In this capacity Dr. Marafih has participated in a number of highlevel government committees and is a member of the Board of Directors of a number of Qtel subsidiaries. He also sits on the Board of Directors of the GSM Association. Dr. Marafih helped guide Qtel through its transformation into a global company and he played a key role in Qtels major acquisitions. Previously, Dr Marafih served as a lecturer and assistant professor in the Electrical Engineering Department of the University of Qatar. Dr. Marafih holds a Bachelor of Science in Electrical Engineering, a Master of Science and a Ph.D. in Communication Engineering, all from George Washington University in the United States.
8.

Rachmat Gobel
has been a Commissioner since August 2008. He currently is the Chairman of the Gobel Group of companies that has operations in manufacturing, trading, services, integrated logistics management, and food and hospitality including industrial catering. Mr. Gobel is the Indonesian joint venture partner of Matsushita Electric Industrial Co., Ltd., a world global leader in electronics and electrical goods under the brand name of Panasonic. He also serves as the Vice Chairman of the Board of Advisors in the Indonesian Chamber of Commerce and Industry (KADIN), the Vice Chairman of the Employers Association of Indonesia (APINDO), the Chairman of the Federation of Electronic & Telematics Associations (F.GABEL) and was appointed as a member of the National Innovation Committee by President Indonesia. Mr. Gobel graduated with a Bachelor of Science degree in International Trade from Chuo University, Tokyo in 1987 and was awarded an Honorary Doctorate Degree from Takushoku University, Tokyo, Japan in 2002. In 2009, he received the prestigious Distinguished Engineering Award in Manufacturing Technology from the Agency for the Assessment and Application of Technology (BPPT). Mr. Gobel is also actively involved in numerous social activities, including the Indonesian Olympic Committee and the Indonesian Red Cross.
10. Richard Farnsworth Seney

has been a Commissioner since June 2009. Mr. Seney has served as Chief Operating Officer of Qtel International (QI) from 2007 to the present, President and Chief Executive Officer of MCT Corp. (including predecessors) from 1992 to 2007, Executive Vice President and General Manager of MCT Investors, L.P. from 1987 to 2002, and Executive Vice President and Chief Financial Officer of Charisma Communications Corporation from 1985 to 1987. Mr. Seney received a bachelors degree in Commerce from the University of Virginia McIntire School of Commerce.
37
THE BOARD OF DIRECTORS REPORT

The year 2010 was a turnaround year for Indosat as we gained new momentum to expand revenue market share in our cellular business, modernized our telecommunications networks, and completed the basic framework for the continuing transformation in our business, organization and people.
Strengthening Our Position
Indonesias telecommunications market and operating landscape entering 2010 were little different than the previous years, with slower overall growth in the industry accompanied by heightened competition especially among the major industry players to retain and expand revenue market share including through aggressive pricing strategies. Within the market and operating environment as described above, we believe that Indosat has succeeded in strengthening its second-place position in the cellular market, which represented our primary business line contributing some 81% of our total revenues in 2010. While we continue to pursue a balanced-value strategy, we focused more on resources allocation to target high-potential segments or services, and succeeded in considerably expanding our cellular subscriber base. As at December 31, 2010, we have 44.3 million cellular subscribers, a 34.3% increase y-o-y. We believe that these subscribers have chosen us for our product innovation and quality, network reliability, and excellent service.
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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
Our market leadership in products and services was in full evidence in 2010. In March 2010, Indosat became the first cellular provider in Indonesia that offers Android-based services in cooperation with several distributors of leading Android handsets in the country, along with the i-Store, a virtual Android Apps Store and the Indosat Wiigo, the first Android-on-demand solution in Indonesia. Next, in April 2010, Indosat became the first telco operator in Asia and the second in the world to launch a commercial service of broadband Internet access with Dual Carrier (DC) HSPA+ technology giving downlink speeds up to 42 Mbps and uplink speeds of up to 5.8 Mbps, taking advantage of the second carrier license recently issued to Indosat in 2009. As of year-end 2010, the high-speed DC HSPA+ service has been available in Jakarta, Surabaya and Medan. Another pioneering service was the i-klan Store, the worlds first self-service, mobile Internet advertising portal. Launched in July 2010, the i-klan Store advertisers to conduct highly segmented advertising campaign direct to a subscribers handset. Indosat has also strengthened its position in BlackBerrys services through the launch of StarOne BlackBerry on the CDMA 2000-1x platform, as well as innovations such as BlackBerry On Demand (Enterprise) Hosted that enable businesses to access the full suite of BlackBerry enterprise solutions, including Mobile Data Services, from their Matrix, Mentari, IM3 and StarOne SIM cards without the need of specialized servers or software. We also spent considerable resources in cellular network expansion and modernization throughout 2010. We began implementing single RAN SDR (Software Define Radio) technology in our Base Transceiver Station (BTS) network, while preparing to migrate into an all-IP network. These are investments that will enable us to capture more market revenue share, while also resulting in more cost-efficient network operating costs in the short and medium term going forward.
increased pressures from our competitors especially during the fourth quarter of the year. Our EBITDA grew by a healthy 9.7% to Rp9,626 billion in 2010, while EBITDA margin was improved by 2 percentage points over the level in 2009 to 48.6%. The increase in EBITDA margin demonstrates the progress we continue to make with our cost efficiency programs, which in 2010 include a realignment of the commission structure to wholesalers and retailers towards more efficient marketing and selling costs. During the year, we introduced a new vendor management strategy that will eventually lead to better prices on equipment purchases. We have also implemented a more stringent approach to CAPEX investments, requiring that individual CAPEX investment proposal be assessed in terms of expected commercial returns. Without compromising on our network quality and expansion programs, we have managed therefore to considerably reduce the ratio of CAPEX-to-sales, with cash-out CAPEX of Rp6,535 billion in 2010 compared to Rp10,670 billion in 2009. While the greater bulk of savings from these initiatives will only be realized in 2011 and later years, Indosat in 2010 has already moved into a positive operating cash flows position, reversing the trend in the previous couple of years. Indosat concluded a successful refinancing exercise in July 2010, raising US$ 650 million at 7.375% over 10 years in the international bond market. We used the proceeds to repay our USD bonds due in 2010, early repaid our USD Bonds due in 2012 and early repaid four of our IDR loans due in 2012, 2013 and 2014. With total debt successfully reduced by 5.5% at year-end 2010, we can expect a reduction in our financing costs in 2011, to the benefit of our bottom line. We were greatly encouraged that we have been able to achieve these results alongside ongoing initiatives in the broader transformation of our business towards becoming a customer centric organization.
2010 Results and Performance

Indosat recorded Rp19,796 billion in consolidated operating revenues for the full year of 2010, a turn-around growth of 5.2% over revenues in 2009. While revenues from our noncellular business were below target, this was more than compensated for by the robust performance of our cellular business, which posted a 12.1% revenue growth over last years level to Rp16,027 billion in 2010, despite greatly
Transforming to Unleash Our Potential

Indosat continued to transform towards its vision to be the customers preferred provider for all communications and information needs. We established the Indosat Transformation Roadmap 2010-2015 that will take us over the next five years into a position to out-perform the
39
REPORT FROM THE BOARD OF DIRECTORS
competition. We aim to get there by focusing more on our customer, expanding into new high-growth markets, improving the competencies of our people, delivering the highest returns on our assets, and securing a technological leadership to give us an edge over the competition. All of these will be delivered with emphasis on Excellence in Execution based on cost efficiency and effectiveness while striving for speed and accuracy in execution. By the end of 2010, our organization restructuring, which forms an important element in our business transformation, was nearly completed with all the major building blocks already in place. The implementation of our new business model with the creation of four Strategic Business Unit (SBUs) each concentrating on a different market segment had entered its final phase. We have also transformed the organization of a number of support functions to be centralized at the Head Office instead of operating from our Regional Offices as previously. We embarked on a program called Operational Excellence Award, in which we encourage employees to submit ideas for improvements in our operational process and procedures. We rolled-out the Indosat Financial Awareness (IFA) program, an initiative designed to provide an adequate level of financial skill and awareness appropriate for employees at different levels and competencies in the organization. A similar undertaking was the Indosat Transformation Awareness (ITA) program intended to reinforce employee motivation and readiness in dealing with the various aspects of our ongoing corporate transformation. Indosat also held a number of Indosat Change Leader workshops for senior management and staff at the managerial level, providing them with the necessary leadership qualities to lead the drive for transformation at their respective units.
executive committees to strengthen our overall governance framework, amended our Articles of Association to comply with prevailing laws and regulations as well as to accommodate recent changes in our organization structure, and issued a guide to the implementation of Companys Code of Ethics that applies to all employees including the Board of Directors. We have a new Collective Labor Agreement (CLA) document signed by the Management and the Indosat employee union in December 31, 2010, and we continue to improve the quality of our customer service, including in complaint handling. Meanwhile, the highlights of our Corporate Social Responsibility (CSR) activities throughout 2010 in areas of community involvement and environment include among others our Mobile Health Clinic program, disaster aid programs during the Mount Merapi eruptions, the fifth annual Indosat Wireless Innovation Contest (IWIC) to promote innovations and creativity in wireless technology among the general public, and efforts to reduce the carbon footprint in our Base Transceiver Station (BTS) operations. These and many other activities as well, are described in more detail in a separate Indosat Sustainability Report 2010, which is the third such document the we have published in line with global best practice.
Recognition for Excellence

Our striving for Excellence in Execution has not gone unnoticed and we received many accolades recognizing a variety of achievements and accomplishments. The quality of our call center and customer service was notably recognized by the Call Center Award for Service Excellence 2010 from Carre-Center for Customer Satisfaction & Loyalty (Carre-CCSL) and Marketing magazine, an award in Best Contact Center Indonesia 2010 from Indonesia Contact Center Association (ICCA), and the accolade as Best Customer Care Operator in the Selular Award 2010 by Selular magazine. Indosat was also recognized in the sixth position as Most Admired Companies in Indonesia 2010 in the polling by Asia Wall Street Journal. In addition, we received many awards recognizing the quality and innovativeness of our products and services. Without detracting from such recognitions, we also admit that there are still lots of room for improvement in many aspects of our business and operations. Ever mindful that we are now playing not only against competitors in the telecommunications industry but also in a league of major national and multi-national companies, we have striven
A Responsible Corporate Citizen

Indosat continues to honor the commitment to serve the communities and to responsibly implement our goals of sustainability. We have defined five areas in which we aim to differentiate ourselves as a responsible corporate citizen, namely in organizational governance, labor practices, consumer issues, environment, and community involvement. The year 2010 saw major progress in regards the implementation of Good Corporate Governance (GCG) practices in our organization. We established a number of
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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
to instill a mindset of continuous improvement within our entire organization. This, we believe, is a crucial aspect that will enable us to secure and maintain a leading position as a full-service and fully integrated telecommunications operator and responsible corporate citizen unlike any other in Indonesia.
additional network transmission capacity, and continuing with our network modernization program as well as our plan for the launch of Palapa-E satellite. Meanwhile, Indosat will also continue with key initiatives to improve work effectiveness and achieve operational excellence within the overall framework of our sustainable transformation program of our organization and people. These initiatives, along with our business strategies, will solidify not only our market position, but also enhance the value we provide to customers and stakeholders alike as a full-service and fully integrated telecommunications operator unlike any other in Indonesia.
Changes to the Board of Directors

Pursuant to the resolutions of the Extraordinary General Meeting of Shareholders on February 8, 2011, Hans C. Moritz has taken over the position of Stephen Edward Hobbs in the Board of Directors, effective as of May 1, 2011.
Business Prospects and Strategy 2011

For Indosat, the year 2011 will be a year of hope and challenges. While we recognize that many challenges still lie ahead, we can expect to begin to see some concrete results out of the various initiatives that we have taken in 2010 in building a solid foundation for our ongoing transformation. On that note, we have established our work programs and priorities for 2011. Our main priority is in maintaining and further strengthening our position as regards revenue market share. We aim to achieve this by, among other things, strengthening our position in broadband and BlackBerry services including in the corporate and SME market segments, developing our mobile-commerce services as well as tower business, and implementing a networkcluster strategy in potential areas. Indosat will also focus on building and improving service capacity and quality through the development of HSPA+ services, cost-efficient BTS,
Acknowledgments
It has indeed been a challenging journey for Indosat in the last couple of years, as we completed the first steps in our transformational growth path to unleash our potential and ultimately to outperform in what we do. On behalf of the Board of Directors, I would like to extend the highest of appreciation to the entire management and staff of Indosat for their dedicated efforts that have made for a satisfying 2010. Our thanks also go to the shareholders for their guidance and continuing vote of confidence in us. Equally important for our many successes in 2010 is of course the contributions of our strategic partners and especially of our loyal customers, for which we are sincerely grateful. We look forward to the continuing support from all our stakeholders. Encouraged by the positive results and progress that we have made in 2010, we are excited about our potential to achieve even greater successes in 2011 and beyond.
Harry Sasongko Tirtotjondro President Director and Chief Executive Officer
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BOARD OF DIRECTORS PROFILE
1. Harry Sasongko Tirtotjondro

President Director & Chief Executive Officer
2. Hans Christiaan Moritz*

Director & Chief Technology Officer
3. Fadzri Sentosa
Director & Chief Wholesale and Infrastructure Officer
*Stephen Edward Hobbs

Pursuant to the Extraordinary General Meeting of shareholders convened on February 8, 2011 the shareholders have honorably discharged Stephen Edward Hobbs as member of the Board of Directors from April 30, 2011 and appoint Hans Christiaan Moritz as his replacement for the period commencing from May 1, 2011.
4. Laszlo Imre Barta

Director & Chief Commercial Officer
5. Peter Wladyslaw Kuncewicz

Director & Chief Financial Officer
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1.
Harry Sasongko Tirtotjondro

has been the President Director and Chief Executive Officer since August 2009. Mr. Sasongko has previously held the positions of President Director and Chief Executive Officer of GE Consumer Finance from 2005 to 2009, where he was recognized as one of Indonesias top 10 best CEOs in 2008 by the SWA Magazine & Synovate awards. From 1998 to 2005, he was a member of the Lippo Group, where he served as Managing Director of the Matahari Retail & Lippo Bank. He was formerly the Managing Director of the Consumer Banking of PT Bank Tiara Asia from 1995 to 1998, and was Director of PT Citicorp Finance and Citibank, N.A. in 1998. Mr. Sasongko earned a Bachelor in Civil Engineering degree from Bandung Institute of Technology Indonesia, a Master of Science degree from the Ohio State University in the United States, and is a Chartered Financial Consultant (ChFC), obtained from the Singapore College of Insurance / American College in the United States.
Sales from 2003 to 2004, member of the Board of Directors of Satelindo in 2003 and a member of the Board of Director of IM3 from 2002 to 2003. Mr. Sentosa received a Master degree in International Business Management from the University of Technology, Sydney in 2001 and a Bachelor degree in Telecommunications Engineering from the Bandung Institute of Technology in 1986.
4.
Laszlo Imre Barta

has been a Director and Chief Commercial Officer since May 1, 2010. He was formerly the Deputy Chief Marketing Officer of Grameenphone in Bangladesh. He spent more than four years at Grameenphone in Bangladesh, during which time he developed and led the rollout of the business market strategy, established and led the SME department, and served as Sales Director. Prior to being seconded to Grameenphone by the Telenor Group, Mr. Barta was at Pannon GSM in Hungary, where he headed the Corporate Clients department. Before Pannon, Mr. Barta was with Ericsson Hungary where he led the sale of handsets and accessories to local Hungarian mobile operators. He joined Ericsson from Philip Morris, where he started his career in Sales. Mr. Barta has degrees in Accounting and Landscape Architecture & Engineering from Hungarian universities.
2.
Hans Christiaan Moritz

was appointed as Director and Chief Technology Officer in February 2011 and assume his duties as of May 1, 2011. Mr. Moritz has 22 years experience in the mobile telecom industry and has previously held various positions, including Head Corporate Project Officer at Vodafone India from 2009 to 2011, Group Operations Director Africa/Chief Technology Officer at Zain from 2006 to 2009, Chief Technology Officer at Zain Uganda from 2004 to 2006, Chief Operating Officer at KPN Internet, from 2003 to 2004, General Manager of the Business Unit Broadband Network at KPN Telecom from 2001 to 2003, Chief Operating Officer at BASE and from 1998 to 2000, Operations Director Asia (based in Indonesia) at KPN Asia from 1994 to 1997. Mr. Moritz received a Master degree in Mathematics in 1986 and various Bachelor degrees, i.e Electronics in 1978, Feedback and Control Systems in 1984 and Water Management in 1984.
5.
Peter Wladyslaw Kuncewicz

has been a Director and Chief Financial Officer since September 2009. Mr. Kuncewicz has 30 years experience in finance across multiple international markets, 10 of them in the telecommunications sector. From 2006 to 2009, Mr. Kuncewicz was the Chief Financial Officer of Telenor Pakistan, the No. 2 player in an active market of five players in Pakistan. From 1998 to 2006, he was the Chief Financial Officer of Star Foods SA, an FMCG Company, and from 1996 to 1997, he was the Finance Director at United Biscuits Poland. He also worked in finance procurement and IT roles at Batelco, Bahrain from 1996 to 1998. He received a Bachelor degree in Biology from the University of Sussex, England, and a Master of Science degree in Business Planning and Finance from University of Salford, England. He is also a member of the Chartered Institute of Management Accountants of the United Kingdom.
3.

Fadzri Sentosa
has been a Director since June 2007 and a Director and Chief Wholesale and Infrastructure Officer since June 2009. Currently, Mr. Sentosa is a member of the Board of Commissioners of PT Aplikanusa Lintasarta. Mr. Sentosa has previously held various positions with us, including as member of the Board of Commissioners of PT Indosat Mega Media from 2005 to 2009, Group Head of National Card and Channel Management from 2006 to 2007, Senior Vice President of Commerce, Jabotabek Region from 2005 to 2006 and Senior Vice President of Cellular
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BUSINESS & SERVICES REVIEW
45
CELLULAR SERVICES
The Mentari and IM3 brands won the Top Brand Award for three consecutive years in 2008, 2009 and 2010, while the Matrix brand won the Top Brand Award for 2010.
Cellular Services
The market for cellular telecommunications services in Indonesia has seen significant growth in the past decade. While growth rate has tended to decline slightly in the last couple of years as the market become more saturated, it is still a prospective market nevertheless. Growth potential exists as the domestic cellular penetration rate is still relatively low compared to peer countries in the region, and also as Indonesia continues to modernize and its economy to grow. In this market, Indosat has cemented its position as the second largest cellular telecommunications provider as measured by the number of cellular subscribers, with 44.3 million subscribers (including wireless broadband subscribers) as of December 31, 2010. Revenues from cellular services accounted for 81.0% of our total consolidated operating revenues in 2010.
offering competitively-priced voice services, while the IM3 brand is promoted more to cater to the needs of the younger generation for attractively-packaged voice, SMS and data services. The Matrix brand meanwhile is directed more for users in corporate environment as well as retail premium subscribers. Our cellular products offers subscribers a variety of valueadded services and features, such as SMS, MMS and Voice, GPRS capability for mobile Internet, data transfer and push e-mail (BlackBerry services), as well as free of charge standard functions such as caller identification, call holding, call waiting and call forwarding. Our cellular subscribers can also make and receive calls, send and receive SMS text massages, and use data connection (GPRS/3G) services while travelling overseas. As of December 31, 2010, our postpaid cellular subscribers could roam internationally on 468 networks, owned by 336 operators in 153 countries, and our prepaid cellular subscribers could roam internationally on 21 networks, owned by 21 operators in 17 countries. In recent years, SMS usage fees has represented a substantial portion of our operating revenues from valueadded cellular services and features. In December 2010,
Services
Indosat offers a comprehensive product suite in mobile voice and data services, including wireless broadband services. These services are delivered through Indosats cellular product brands comprising prepaid Mentari and IM3 as well as post-paid Matrix plans, all of whom enjoy a high degree of brand recognition within their respective, highly differentiated consumer segments. Our Mentari brand is mainly marketed towards the more mature market,
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for instance, we recorded a daily average of approximately 516.0 million text messages (excluding value-added service SMS, such as SMS related to promotions by content providers and advertisers).
Tariff
The Ministry of Communication and Information Technology (MOCIT) establishes a tariff formula that determines the amounts that operators may charge for prepaid and postpaid cellular services, although allows cellular service providers to offer promotional programs that offer lower prices than the ceiling tariffs. We currently price our prepaid cellular services under a variety of ongoing promotional programs pursuant to which we offer a variety of incentives to attract new subscribers, stimulate demand and improve our competitive position.
Leading the Market

Our market leadership in products and services was in full evidence in 2010. In March 2010, Indosat became the first
cellular provider in Indonesia that offers Android-based services in cooperation with several distributors of leading Android handsets in the country, along with the i-Store, a virtual Android Apps Store and the Indosat Wiigo, the first Android-on-demand solution in Indonesia. Indosat also launched the Mentari Taiwan, an innovative co-brand prepaid product with the Taiwan-based telco operator Far EasTone Telecommunication, offering lower international direct dial rates for users in Taiwan, which include substantial numbers of Indonesian migrant workers, in making calls to Indosat Mentari, IM3, Matrix and StarOne numbers in Indonesia. Another pioneering service was the i-klan Store, the worlds first self-service, mobile Internet advertising portal. Launched in July 2010, the i-klan Store allows advertisers to conduct highly segmented advertising campaign direct to a subscribers handset. Service features available in the i-klan Store portal include a wide choice of advertising delivery channels, market segment targetting, and payment facility using credit card, PayPal, account debit, or Indosats own iPay and Dompetku services.
MU24H itu IM3, a promotion program with many benefits for IM3 customers. INDOSAT 2010 Annual Report
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CELLULAR SERVICE
With more than 500,000 subscribers as at year-end 2010, Indosat has carved up a strong position in the market for BlackBerry services in Indonesia, which is recognized as the second largest market in the world for BlackBerry services. Back in 2004, Indosat was the first operator to offer BlackBerry Enterprise Solutions (BES) in Indonesia, initially for its post-paid Matrix subscribers, and also the first to offer such service for pre-paid Mentari and IM3 subscribers as well in 2009. In a bid to strengthen its market position for BlackBerry services, Indosat has arranged in October 2010 to increase its link capacity to Research in Motion servers to 100 Mbps dual-link, the largest in Indonesia to date. The increased capacity allows for faster speed to the benefit of our BlackBerry service subscribers. In 2010, Indosat launched the BES on Demand (Enterprise) Hosted, the first of its kind in Indonesia. Whereas the previous BES On Demand services require the use of specific servers and software on the part of corporate subscribers, services in the BES On Demand (Enterprise) Hosted is specifically developed for the Small and Medium-scale Enterprise (SME) segment, and can be accessed directly by SMS from the users Matrix, Mentari, and IM3. With the potential that resides in the SME subscriber market segment, the BES on Demand Hosted is expected to contribute significantly in further strengthening Indosats leading position for BlackBerry services in Indonesia.
Marketing Activities
Indosat markets its cellular products and services through integrated sales and customer service walk-in centers called Indosat Gallery, which is owned by Indosat, and Indosat Griya, which is owned by exclusive distributors. As at year-end 2010, there were 169 Indosat Gallery as well as 60 Indosat Griya. These walk-in centers are available for subscribers in most of Indonesias cities in all provinces from North Sumatera to Papua. In addition, customers also have access to Indosats cellular products and services through KILAT (Indosat Sales & Service Kiosk) outlets owned and managed by individual partners of Indosat, with 13 outlets total in 2010. Also in 2010, Indosat introduced the e-Galeri, self-service vending machine and billing payment terminals located in public places where customers can top up their prepaid cards, purchase starter packs, pay their post-paid bills, and obtain the latest information about Indosats products and promotional offers. The first of its kind in Indonesia, the e-Galeri provides increased convenience for customers in avoiding the need to locate an Indosat Gallery or Indosat Griya as well as long queue at the walk-in centers. While our direct marketing channels are instrumental in maintaining our visibility in the market, the bulk of our sales revenues from cellular services is contributed by our independent dealers. Indosat maintains a network of some 52 independent dealers, which operates their own regional and multi-regional distribution networks throughout Indonesia providing sales, customer service, billing payment and information services to individual users of Indosats products and services. In 2010, Indosat improved its dealership management strategy through a realignment of the commission structure. In the new system, payment percentage for wholesalers and retailers is set on a scale determined by how long the new subscriber actually remains with the network as well as the usage volume. The new commission system has already proved its worth in encouraging more quality sales as well as in optimizing marketing and selling cost. As at year-end 2010, Indosats cellular subscriber base numbered some 44.3 million subscribers (including wireless broadband subscribers), up from some 33.0 million a year earlier. While we had been successful in eliminating most
Wireless Broadband
Wireless broadband services have become increasingly popular in Indonesia. Indosat offers wireless broadband services for handheld devices that can be accessed through Matrix, Mentari and IM3 cards. A Broadband-on-Request program for Mentari and IM3 subscribers was launched in 2009, and became available in 2010 for postpaid Matrix subscribers as well providing options of daily, weekly and monthly quota packages as well as unlimited packages. Next, in April 2010, Indosat became the first telco operator in Asia and the second in the world to launch a commercial service of broadband Internet access with Dual Carrier (DC) HSPA+ technology giving downlink speeds up to 42 Mbps and uplink speeds of up to 5.8 Mbps, taking advantage of the second carrier license recently issued to Indosat in 2009. As of year-end 2010, the high-speed DC HSPA+ service has been available in Jakarta, Surabaya and Medan.
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of the low-value, calling card type prepaid subscribers in 2009, our continuing emphasis on balanced-value strategy in which we concentrated in offering higher value to customers for the price they pay has succeeded in attracting new subscribers in 2010. Among our value offerings in 2010 were the Meraih Mimpi Bersama IM3, MU24H itu IM3 and the Mentari 50 programs. While the strategy on product pricing has been instrumental in boosting the number of Indosats subscriber base in 2010, Indosat also recognizes that in the long run,
keeping a customer is just as important as acquiring a new one. In 2010, Indosat launched a customer loyalty program called Senyum Setia Indosat, offering loyal customers free SMS or talk time bonus based on length of subscription as well as usage volume. Available to prepaid and post-paid subscribers of Mentari, IM3, Matrix and StarOne brands, Senyum Setia Indosat complements other initiatives by Indosat in maintaining a high degree of service quality and continuing innovations in product features and service applications to keep customers satisfied and ultimately choose to stay with Indosat.
Galeri Indosat at head office, one of the 169 gallery as customer service center. INDOSAT 2010 Annual Report
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MULTIMEDIA, DATA COMMUNICATION, INTERNET (MIDI) SERVICES
The growing emphasis on reliable data transmission and interconnectivity by corporations and businesses presents an excellent opportunity for Indosat in the provision of MIDI services, which in 2010 contributed 12% to our total consolidated operating revenues.
Services
Our MIDI services offerings currently comprise of data connectivity solutions including traditional packetswitched Asynchronous Transfer Mode (ATM) and frame relay services as well as modern IP-VPN (Internet Protocol Virtual Private Network) and MPLS (Multi Protocol Label Switching)-based services, Internet service, satellite transponder leasing for telecommunication providers and broadcaster segments, and value added services such as Disaster Recovery Center and Data Services. Connectivity Solutions. Indosat offers various data connectivity services to corporate customers, tailored to fit their specific information and telecommunications requirements, pricing parameters, speed requirements, and security concerns. These include high-speed dedicated data connectivity services such as the Indosat World Link, a point-to-point international leased line via submarine and terrestrial cables; the Indosat National Link, a point-to-point domestic private leased line service; and the Direct Link, a leased line service through satellite/VSAT connections providing point-to-multipoint data communications.
Indosat also provides international and domestic multipoint data communications services through its robust Internet Protocol (IP) network cloud, comprising of IP-VPN services as well as MPLS-based services. Domestic IP-VPN services are currently available in 74 cities throughout Indonesia, while international IP-VPN services are available for the Southeast Asia region with coverage extensions to North Asia, Japan, Europe and the United States in cooperation with global service providers. Meanwhile, MPLS-based services such as Indosat Premium Ethernet and Metro Ethernet are available for domestic and international communications networks for voice, data, video and Internet applications. In addition, Indosat continues to provide both international and domestic packet-switched Asynchronous Transfer Mode (ATM) and frame relay services to customers for multilateral connectivity, reliable LAN interconnections and the power to support complex distributed computing applications.
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Internet Services. Indosat provides Internet Network Provider Services for wholesale customers such as Internet Service Provider (ISP) as well as dedicated Internet access services for end users. For the year ended December 31, 2010, we operated three ISPs that contributed revenues of Rp519.5 billion (US$57.8 million). Through its subsidiaries IM2, Indosat also offers dedicated and dial-up Internet connection serices for corporate and commercial (smallto-medium-size enterprise) customers as well as to retail subscribers. In 2010, revenues from Internet services accounted for 21.0% of our consolidated MIDI services operating revenues. Satellite Transponder Lease. Indosat operates the Palapa-D satellite, which was launched in August 2009 to replace the Palapa-C2 satellite that was launched in 1996. By 2010, the Palapa-D was fully operational, while the Palapa-C2 , which was moved to an inclined orbit at
VSAT Net/IP and VSAT Link. Provided through our subsidary Lintasarta, VSAT Net/IP and VSAT Link services are satellite-based data networking systems. VSAT Net/IP connects and controls data traffic among remote locations, allowing for quick development of data for network customers with low-to-medium traffic in such sectors as financial services, transportation, trading and distribution. VSAT Link provides point-to-point digital transmission for remote locations by businesses with medium-to-heavy traffic such as those in the manufacturing, mining and financial services industries. Disaster Recovery Center (DRC) and Data Center. Indosat also provides DRC and Data Center services in server co-location, rack, cage, power, and other supporting facilities as value added services to corporate customers. We also provide backbone or domestic leased line services from our DRC or Data Center locations to customer
Palapa-D Satellite Control Room at Jatiluhur, West Java.
150.5E, continues to operate mainly to carry Indosats cellular backhaul traffic until 2014. The Palapa-D satellite has a 11 Extended C-Band transponders, 24 Standard C-Band transponders and five Ku-Band transponders, all owned by Indosat. Transponder capacity in the Palapa-D is leased to broadcasters and telecommunications operators. Other supplementary satellite services include occasional use for TV services, Indosat TV link, private network services, Internet access and multimedia and video conferencing.
headquarters, as part of our total telecommunications solutions.
New Product and Service Features

Indosat continues to take the lead in developing the socalled Convergence Solutions that combines the capabilities and features of different information and communications technology products into value-added service solutions that can help customers with cost-efficient data, voice and video communications.
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MULTIMEDIA, DATA COMMUNICATION, INTERNET (MIDI) SERVICES
The year 2010 saw a number of successful product launch by Indosat for its corporate customers, including the Indosat Enterprise Resource Planning (I-ERP). The I-ERP allows better management of real-time data communications using wireless mobile technology that can be accessed from GPRS or HSDPA networks, and is developed to facilitate the business processes of companies in the manufacturing and Food & Beverage (F&B) sectors as well as wholesaler and distributor companies with integrated applications such as sales canvassing, sales order, logistics and warehouse management, and others. The I-ERP was the newest additions to the growing array of services of Convergence Solutions that was fast gaining popularity among corporate customers. The more popular services in Convergence Solutions currently include Corporate VPN, Wireless EDC and Wireless ATM, and SME Solution. The SME Solution is a packaged mobile and fixed communications services for small and medium sized businesses. The package includes broadband Internet access, voice and SMS communications facilities, a facility called Toko On Line that provides comprehensive web hosting services including an online payment system (the i-payment), as well as a range of optional applications and services to suit the different needs of businesses in the Small Medium Enterprise sector. An advertorial campaign in national and local print media was launched in the third quarter of 2010 to promote SME Solution services. Other initiatives in product innovation include the development of device-based and service-based remote healthcare application package for healthcare institutions using Indosats wireless EDC solution, and a Restoration Service feature for corporate customers who use Indosats submarine cable backbone systems for their international data communications.
Marketing Activities
Our customers for MIDI services are primarily corporate clients and businesses in the Small and Medium Enterprise (SME) sector, although we also have wholesale and retail customers for certain services, such as our Internet services. In June 2010, Indosat launched a microsite for Indosat Corporate Solutions (ICS), accessible from Indosat web portal at www.indosat.com. The ICS microsite was designed to facilitate access to information on the full range of Indosat products available to corporate customers, as well as to improve brand awareness among customers. Following the launch of the microsite, a web survey was carried out in October-November 2010 to assess the level of satisfaction of ICS product and service users and to invite input on desired improvements. Sales and marketing activities to promote Indosat Corporate Solutions products and services include group presentations, direct mail, partner promotions, customer retention programs, public media advertisements, and also sales promotion programs. Among sales promotion programs held in 2010 were the progressive incentive program for high-usage subscribers of Indosat Phone service in the Greater Jakarta (Jabodetabek) area, special discount for Internet service providers (ISPs) who leased additional backbone capacity in Indosat Internet Network Provider services, and a special promo program for Ethernet LAN ACASIA subscribers. A Focus Group Discussion (FGD) session with a theme of Idea Sharing on Data Center, Disaster Recovery Center Outsourcing, and Virtualization Technology was held in June 2010 in cooperation with Cisco and the Indonesian Mining Association. Attended by IT and technical personnel from companies in the mining industry, the FGD session was intended to promote product and service offerings from Indosat Corporate Solutions.
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Meanwhile, as part of activities in celebrating the annual Islamic holy fasting month of Ramadhan, Indosat conducted the Ramadhan Package on Appreciation Program in August-September 2010. The program was a show of appreciation for Indosats loyal corporate customers, and took the form of a 3-week training session given to representatives of these customers on a variety of subjects ranging from managerial, financial and IT competencies to effective negotiation skills and personal development.
In July 2010, Indosat hosted a Global Partnership Gathering for its global partners with the theme Indosat Group: Synergy for Information, Services & Support. The event was part of continuing efforts to maintain good relations with global telecommunications partners that represent an important element in the provision of Indosats international telecommunications services. Just a month earlier in June 2010, Indosat was recognized as Best Partner in the Maintain and Achieve Operational Excellence category during the Global Partner Gathering held in Singapore by Cable & Wireless, the UK-based global telecommunications company and one of Indosats global partners.
Global Partner Gathering with global telecomunications partners INDOSAT 2010 Annual Report
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FIXED TELECOMMUNICATION SERVICES
Income from fixed telecommunications services accounted for some 7% of our total consolidated operating revenues in 2010, derived mainly from the provision of International Direct Dial (IDD) services and fixed wireless services.
Services
International Direct Dial (IDD). Indosat is a leading provider of international direct dial voice telecommunications services in Indonesia, offering the Indosat 001 and Indosat 008 international long distance as well as the Indosat FlatCall 01016 international long distance services. The 001 and 008 are international directdial services, with the IDD-001 positioned as a premium service while the IDD-008 is marketed as an economical service offering lower rates. Meanwhile, the FlatCall 01016 was first introduced in 2005, at that time using the access code 016, aimed to satisfy the needs of the most pricesensitive market segment by offering very competitive rates for certain popular destination countries while using regular VoIP (Voice over Internet Protocol) rates for other countries. Fixed Line Services. Indosat offers local and domestic long distance telephone services under the fixed line Indosat Phone brand. We currently have local and domestic longdistance coverage of 82 major cities in Indonesia. Fixed Wireless Services. Indosat provides fixed wireless access services under the StarOne brand to complement its cellular products as a cost-effective solution to subscribers with limited mobility requirements. Using CDMA 2000 x1
technology with a license for nationwide fixed wireless access in the 800 MHz frequency, Indosat offers StarOne services in 82 cities as at December 2010, mostly in the island of Java. In 2010, Indosat introduced the StarOne CDMA BlackBerry services to its post-paid and prepaid StarOne subscribers. Indosat thus became the first fixed wireless access operator in Indonesia to offer BlackBerry services for telephone, SMS, wireless Internet, email and instant messaging. As at end of December 2010, StarOne have a subscriber base of 61,123 postpaid and 489,007 prepaid subscribers.
Marketing
Indosat employs a specialized sales force to market its IDD services, which focuses on our 500 largest customers, including hotels, large corporate customers, government offices and embassies. Initiatives to drive IDD usage in 2010 include brand-building exercises through a variety of communication media including advertisement, volume commitment agreements with overseas counterparts or partners to channel incoming international traffic through Indosat, and partnership arrangements with third-party sales channels to market Indosat IDD services to corporate clients. We have also implemented a customer loyalty program, which provides incentives to regular users.
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Indosat continues to promote its FlatCall 01016 service amidst the growing popularity of VoIP as a cost-efficient mode of telecommunications among consumers, with the attendant rising competition from dedicated VoIP providers. In 2010, Indosat held a special promo program for FlatCall 01016 accessible from all of Indosats networks nation wide offering attractive special rates as well as bonus call minutes for calls made to 21 primary destinations countries. In addition to this nation-wide program, Indosat also
developed a number of local promo programs for FlatCall 01016 tailored to the specific user characteristics in the respective region or areas. In 2010, Indosat recorded an increase of 10.6% in incoming international calls to 1,723.9 million paidminutes, and a decline of 7.8% in outgoing international calls to 463.0 million paid-minutes. Meanwhile, revenues from fixed wireless access services in 2010 totaled Rp174.1 billion.
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OPERATIONAL REVIEW
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HUMAN RESOURCES
Indosat employs around 6,700 people as at year-end 2010, and these were right at the heart of the transformation process throughout the year.
Unleashing the potential of human capital was part of Indosats growth strategy and its on-going transformation. The transformation process involves sweeping changes in Indosats business strategy, its organization structure, and also in its people. As Indosat shifted its strategy to focus more on the market segments that it serve rather than the products that it deliver, Indosat also revamped its organization into a leaner, customer-centric structure that is more capable of dealing with market dynamics and the competition. By the end of 2010, the new business strategy has already showed encouraging results, and the new organization structure has also taken shape. In the meantime, Indosat spent considerable resources in terms of time, efforts and money in completing the ground works in the transformation of the people of Indosat.
daily workload needs, while a flexible dress code allows them to wear formal or casual clothing as determined by their respective role, function or assignment. In some work locations, Indosat provides libraries, medical clinics, canteens, and nursing rooms, for the benefit of employees. Balancing work and social activities, Indosat also provides facilities that enable employees to pursue their hobbies or talents in sports and the arts.
Operational Excellence Implementation

Employees are motivated to be creative in generating practical ideas that can contribute to a better, faster or more cost-effective work processes. In 2010, as part of the drive towards operational excellence, Indosat held the Operational Excellence Award contest. The event drew enthusiastic response from employees who submitted some 130 ideas and initiatives intended to improve various aspects of Indosats operations and work processes. Some of these initiatives were quick-wins that have been implemented and already resulted in significant savings in costs.
Employer of Choice
Indosat has always strived to become the best place to work for employees by providing a positive work environment and by ensuring the welfare of employees and their family members. Aside from monthly wages, employees also receive benefits such as telephone benefit, medical benefit, annual bonus as incentive, a variety of facilities and rewards. As far as possible, working conditions are designed such that employees enjoy being at work. For example, the work time structure enables employees to set their own clock-in and clock-out schedule to suit their
Performance-Based Work Culture

An important part of the transformation at Indosat was the development of an Employee Performance Management system based on a balanced scorecard methodology. The scorecard metrics are defined into quantitative key
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performance indicators (KPI) at the Corporate level, and are then cascaded down to the level of group, division and individual employee. This ensures effective execution of corporate strategies according to the defined goals and objectives, while also facilitating alignment between Indosat corporate strategies and the overall objectives of Qtel Group. Ultimately, the Employee Performance Management system is expected to lead to the creation of a performance-based culture among Indosat employees, as it put more emphasis on the performance level of specific individuals rather than on group achievements. The KPI targets of each individual employee are set at the beginning of the year, reviewed and revised as needed in mid-year, and the achievement rate is assessed at the start of the following year on a scale of 1 to 5. This performance rating becomes the basis to determine the rewards for the respective employee in the form of annual bonus, pay scale adjustments, and special incentives.
As part of efforts in building a performance-based culture among employees, Indosat introduced the Indosat Financial Awareness (IFA) initiative in 2010 for all employees. The IFA are a series of study materials concerning various financial information such as the sources of income and their respective amounts, the variety and amount of costs incurred to generate such income, and other financial information related to the business activities of Indosat. The materials are structured and presented differently for employees at different levels in the organization. Through IFA, employees will have a better understanding of what is actually going on with the company in terms of its financial performance, and have a sense of direct relation between what they are doing in their daily jobs and the overall performance of the company. Ultimately, this should lead to greater work motivation in line with what the employee expect to get from the company.
Indosat introduced an initiative of Indosat Financial Awareness (IFA) in 2010. INDOSAT 2010 Annual Report
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HUMAN RESOURCES
Code of Ethics Guidelines launching

In a related development, our Code of Ethics have been made into a formal company policy through the issuance of a Company Code of Ethics Guidelines document. Each individual employees of Indosat has signed his or her own personal copy of the Code of Ethics in a series of top-down socialization sessions at every level of the organization.
Management and Employee Communication

Indosat strives to maintain effective communications with all its employees, whether in regards of the future direction of the company, progress that has been made, and particularly of company regulations and policies that affected directly on employees. Effective communications to employees became especially vital related to the ongoing transformation process at Indosat. In this regards, Indosat undertook a variety of initiatives designed to disseminate information, build awareness and generate support among employees for the transformation. Direct, two-way communications between top management and employees are conducted through regular town hall meetings, visits by the Board of Directors to branches and work locations, social gatherings with the CEO, and routine communications with representatives of the employee union (SPI). In addition, Indosat uses indirect communications channels such as company intranet and group e-mail as well as visual reminders or posters in the work place. By maintaining effective two-
HR Information System
Indosat has developed an ESS (Employee Self Service)based HR Information System with automated, electronic processes, the intention being to increase efficiency while reducing costs and errors. Each employee can use the intranet application Myinfo to access and update relevant information and personal data of the respective individual. The application can also be used by employees to directly initiate certain routine processes, including performance appraisal, reimbursement for medical or business travel expenses, leave taking, as well as to apply for specific training or employee reward such as scholarship and other benefits.
Two way communication between management and employee trough regular meetings.
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way communications, Indosat is ensuring the full support of all employees towards the achievement of companys objectives.
Industrial Relationship
On December 31, 2010 we signed the Collective Labor Agreement (CLA) document for the period 2011-2012, which was subsequently renewed and re-negotiated every two years between the Management and the Indosat Employee Union (SPI). The existence of a CLA at Indosat aims at creating an industrial relationship that can support business success for the company while also taking care of the rights of employees. As such, the CLA covers issues of general terms of employment, including working hours, payroll, employee development and competency, occupational safety and health, employees welfare, social allowances, employees code of ethics and mechanisms for handling labor disputes. Regular scheduled meetings of management and representatives of the union serve as a means to maintain a harmonious industrial relationship within Indosat.
Employee Training & Development

Other than specific activities related to Indosat transformation process, it was business as usual for the Human Resources Group in terms of employee training and development programs in 2010. Overall, Indosat conducted 592 training programs in 2010 attended by 9,645 employees in total. As part of its long term strategy in employee competence development and to focus more quality service to customers, training programs in 2010 comprised mainly of in-depth training modules in more specialized competencies. Meanwhile, total expenses for employee training in 2010 amounted Rp 12.5 billion (excluding training expenses borne by subsidiaries).
Number of Permanent Employees by Education Education Post Graduate & Doctoral Graduate Diploma High School Vocational High School Total 2010 327 2,165 665 523 163 3,843 2009 339 2,149 708 532 160 3,888
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NETWORK AND INFORMATION TECHNOLOGY
Indosat recognizes that continual expansion and modernization of its network assets is key to sustain growth into the future.
Indosat maintains an extensive telecommunications infrastructure and networks comprising cellular networks as well as fixed telecommunications networks that include international gateways, submarine cable systems, satellite circuits and microwave transmission stations. As part of its growth strategy, Indosat engaged in an aggressive drive of network expansion and modernization in 2010, and especially of its cellular network. During the year, Indosat rolled out some 1,755 new BTS (Base Transceiver Station), including 924 Node-B Stations or 3G BTS. Indosats cellular footprint has correspondingly grown to include more outlying areas outside Java, notably in Kalimantan as well as Papua.
Indosats network modernization program is expected to run for some three years, starting from 2010, before it is completed. A related development within this program is vendor selection, with the decision to reduce the number of radio equipment vendors in the interest of gaining better advantage in purchasing power. By mid-2010, Indosat has finalized the short-listed vendors to four, and the process of actual network modernization can begin. Kalimantan, in which Indosat already has a strong presence in terms of BTSs that were also incidentally some of the oldest in its inventory and therefore impossible to upgrade, became a primary target for this network modernization. Thus, Kalimantan region now possesses some of the most modern BTS radio equipment in the country. In the Greater Jakarta area and especially the area known in Indosat as the Golden Square, was also targeted for modernization. All of these new equipment are based on Single RAN (Radio Access Network) technology with SDR (Software Defined Radio) system, which allows flexibility in handling different cellular radio standards from 2G to 3G and Wimax and on to the latest LTE (Long-Term Evolution) technology.
Leveraging on Technology
Network modernization runs parallel with network expansion, whereby Indosat has opted for a strategy of replacing its old legacy equipment with completely new equipment. The strategy calls for the installation of new equipment to replace existing legacy equipment in heavy traffic areas, while the old equipment is then re-deployed in previously unserved outlying areas in the fringes of the existing network.
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Friend of the Environment

Aside from operational capability, the primary benefit of the new radio equipment is that they use up to 50% less power, mainly because they generate far less heat and thus do not need air conditioning. While this by itself already represents considerable savings in operational costs, Indosat decides to go further. While the electricity grid of state utility company PLN is the most economical source of power for cellular BTS tower and associated installations, power blackouts are unfortunately very frequent, in some areas in Indonesia more so than the others. In fact, PLN power blackouts represent the single dominant cause of BTS service interruptions compared to any other causes. Thus, the need for most BTS installation to equipped with two diesel-generating sets for backup. In 2010, Indosat experimented with replacing one of the diesel generator set with a battery installation, and regulating the operation of the generator set-battery
combination with a CDC (Charge-Discharge Controller) switch. This optimizes the use of the batteries as alternative power source in the case of a PLN blackout, considerably reducing the need to run the diesel generator. The result is savings in diesel fuel as well as reduction in carbon footprint, for the benefit of the environment. Encouraging results have been experienced so far in operating some 110 BTS towers with CDC solution in Medan and North Sumatera. Another exciting development in this direction in 2010 was the use of zinc-air batteries in place of the traditional lead-acid batteries. This was the first commercial use in the world of zinc-air batteries by a telecommunications operator. Indosat is moreover proud that most of the components of these batteries are manufactured locally here in Indonesia. Using zinc-air batteries greatly reduces the hazard of lead poisoning in the environment due to improper disposal of lead-acid batteries.
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NETWORK AND INFORMATION TECHNOLOGY
Maintenance and Operational Efficiency

As the existing legacy cellular network become more and more expensive to maintain and to operate, the strategic decision to completely replace them with new equipment, including those with CDC solution and zincair batteries, will certainly result in significant operational cost savings for Indosat in future years. Indosat also pursued cost efficiencies through a variety of other initiatives in 2010. Existing contracts with vendors or other telecommunications operators related to cellular network maintenance and operations have been reviewed for possible efficiencies through renegotiated work terms. Copper grounding wires in tower installations were replaced with cheaper aluminum wires. Reduced BTS power requirements have allowed capacity re-rating of diesel generator sets. Overall, the regrouping of network planning, network operations and maintenance and network quality functions into a single organization has resulted in more effective and more efficient work processes.
Submarine Cable System

The year 2010 also saw developments concerning Indosats domestic submarine cable networks. In December 2010, Indosat has placed purchase orders for capacity upgrade of the Java-Kalimantan-Sulawesi (JAKASUSI) submarine cable system and for the construction of the Java-Bali (JAVALI) submarine cable system. The capacity of the JAKASUSI system will be upgraded to 90 Gbps and 60 Gbps for the Java-Kalimantan and Kalimantan-Sulawesi links, respectively. Meanwhile, the new JAVALI system linking East Java and the island of Bali will have an initial capacity of 50 Gbps and upgradeable to 160 Gbps. Both systems are expected to become operational in mid-2011.
Delivering Quality Services

In regards network quality, the establishment of the Single Network Operation Center (SNOC) in 2010 was a significant investment by Indosat in ensuring improved network availability and performance. The new SNOC facility in Serpong, Banten, replaced the former facility
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located in Indosat Building in Jakarta and represented an improvement in that it will eventually integrate all the command control functions of Indosats transmission and cellular networks, including satellite and submarine cable systems. Throughout 2010, Indosat was able to maintain a satisfactory level of network availability, with a significant reduction in average monthly network outages compared to 2009. This was evident, among other things, by the performance of Indosats networks during the Lebaran and Christmas/New Year seasons, which traditionally represent a real test for telecommunications operators in handling the vastly increased service demand and load in the respective season each year.
In anticipation of the upsurge in telecommunications traffic during the Lebaran peak season in 2010, Indosat made plans for increased network capacity by 200% for SMS (Short Message Service) and 120% for voice capacity. This transaled to the capability of handling 900 million SMS and 700 million minutes of SMS and voice traffic, respectively, per day. For data traffic, capacity was increased to 250% or equivalent to 100 Terabyte/day. In addition, Indosat upgraded its link capacity to RIM servers to 1 Gbps in order to maintain the quality of Indosat BlackBerry services during the Moslem holy month of Ramadhan in 2010.
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Indosat believes that the practice of Good Corporate Governance (GCG) is key, both to promote growth as well as to ensure sustainability, of its business.
Corporate governance is key to any sustainable business. We strive to keep apace with best practices developed by other global companies. Additionally, as a dual-listed public company on the Indonesia Stock Exchange (IDX) and the New York Stock Exchange (NYSE), we are bound to adhere to relevant capital market regulations in both Indonesia and the United States, including compliance with Section 404 of the U.S. Sarbanes-Oxley Act regarding internal controls over financial reporting.
defined and aligned with the Companys vision, mission, values and strategy.
Responsibility
In line with our commitment to corporate responsibility, we take every care to ensure compliance with prevailing laws and to practice principles of prudence.
Independence
In keeping with the spirit of independence, we make every effort to encourage each of our workforce units to be independent and not to be overtly influenced by any particular interest. Some of our efforts include minimalizing any conflicts of interest in management and operational activities, by ensuring that multiple appointments undertaken by members of the Board of Commissioners and Board of Directors do not affect their abilities to carry out their responsibilities in the Company.
Corporate Governance Framework

Indosats corporate governance rests on five key pillars, namely transparency, accountability, responsibility, independence and fairness.
Transparency
We strive to provide timely, relevant, accurate and accessible information to all stakeholders as part of our effort to adhere to the principle of transparency, and to maintain objectivity in our business operations.
Fairness
In keeping with the principle of fairness, we make every attempt to treat all stakeholders fairly. We ensure that all shareholders have equal access to Company information. To avoid selective disclosure, every single piece of information that has been disclosed to the general public is uploaded onto our website at http:// www.indosat.com.
Accountability
We have clearly mapped out a framework for accountability, within which the roles and responsibilities of the Board of Commissioners, Board of Directors, employees and other committees have been clearly
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1. GENERAL MEETING OF SHAREHOLDERS

The General Meeting of Shareholders (GMS) is the organ of the Company holding all the authority that have not been delegated to the Board of Commissioners or the Board of Directors to the extent as permitted by law and/or the Articles of Association of the Company. The GMS forum consists of the Annual General Meeting of Shareholders (AGMS) and the Extraordinary General Meeting of Shareholders (EGMS). In 2010, the Company convened an EGMS on January 28, 2010 and an AGMS on June 22, 2010.
1.2. Annual General Meeting of Shareholders

The AGMS of the Company was held on June 22, 2010 in the Companys headquarters in Jakarta. The AGMS was chaired by Sheikh Abdulla Mohammed S.A Al Thani, President Commissioner of Indosat and attended by shareholders and their proxies representing 93.25% of the paid-in shares. Announcement May 21, 2010 In two daily Indonesian language newspapers and one daily english-language newspaper Invitation June 7, 2010 in two daily Indonesian language newspapers and one daily English language newspaper AGMS June 22, 2010
1.1. Extraordinary General Meeting of Shareholders

The EGMS of the Company was held on January 28, 2010 in the Companys headquarters in Jakarta. The EGMS was chaired by Sheikh Abdulla Mohammed S.A Al Thani, President Commissioner of Indosat and attended by shareholders and their proxies representing 92.36% of the paid-in shares. Announcement December 29, 2009 in two daily Indonesian language newspapers and one daily english-language newspaper Invitation January 13, 2010 in two daily Indonesian language newspapers and one daily englishlanguage newspaper EGMS January 28, 2010
Agenda EGMS January 28, 2010 1. To approve changes to the composition of the Board of Commissioners and/or Board of Directors of the Company. 2. To approve the amendments to the Companys Articles of Association.
Agenda AGMS June 22, 2010 1. To approve the annual report and to ratify the financial statement of the Company for the financial year ended December 31, 2009 and thereby releases and discharge of the members of the Board of Commissioners from their supervisory responsibilities and of the members of the Board of Directors from their managerial responsibilities for financial year ended December 31, 2009 to the extent that their actions are reflected in the financial statements of the Company for the financial year ended December 31, 2009 on the basis that such actions do not conflict with or violate prevailing laws and regulations. 2. To approve the allocations of net profit for reserve funds, dividends and other purposes and to approve the determination of the amount, time and manner of payment of dividends for the financial year ended December 31, 2009. 3. To determine the remuneration for the Board of Commissioners of the Company for 2010. 4. To approve the appointment of the Companys Independent Auditor for the financial year ended December 31, 2010. 5. To approve the composition of the Board of Directors for terms of service 2010-2015 period.
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2. BOARD OF COMMISSIONERS
As stipulated in the Articles of Association, the Board of Commissioners supervises and monitors the management of the Company. Areas of oversight include; the Companys business expansion plan, implementation of the annual budget and work plan, provisions set out in the Companys Articles of Association and decisions resulting from the GMS, the Directors implementation of their roles and responsibilities in accordance with the Companys Articles of Association, decisions from the GMS, and laws and regulations. In carrying out its role and supervision of the aforementioned, the Board of Commissioners represents the Companys best interests and reports to Shareholders at General Meetings. Composition of the BOC As per February 8, 2011, the composition of the Board of Commissioners is as follows: Sheikh Abdulla Mohammed S.A Al Thani, President Commissioner Dr. Nasser Mohd. A. Marafih, Commissioner Mr. Richard Farnsworth Seney, Commissioner Mr. Rachmat Gobel, Commissioner Mr. Rionald Silaban, Commissioner Mr. Parikesit Suprapto, Commissioner Mr. Alexander Rusli, Independent Commissioner Mr. Soeprapto S.I.P, Independent Commissioner Mr. George Thia Peng Heok, Independent Commissioner Mr. Chris Kanter, Independent Commissioner Mr. Parikesit Suprapto has replaced Mr. Jarman as per February 8, 2011 Meetings of the BOC In discharging its duties and responsibilities, the Board of Commissioners held 5 (five) meetings with the Board of Directors throughout 2010, in order to be updated with ongoing developments of the Company and to decide on issues that come under its responsibilities. The attendance record of individual Commissioner at those meetings is presented in the following table:
BOCs attendance list during 2010 below: Attendance/ Number of Meetings 5/5 5/5 5/5 5/5 5/5 5/5 5/5 4/5 5/5 5/5
No 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Name Sheikh Abdulla Mohammed S.A Al Thani Dr. Nasser Mohd. A. Marafih Richard Farnsworth Seney Rachmat Gobel Jarman Rionald Silaban Alexander Rusli Soeprapto S.I.P Chris Kanter George Thia Peng Heok
BOC Activity Report 2010 In implementing its supervisory and advisory duties in accordance with the prevailing laws and regulations, the Articles of Association of the Company and resolutions of the General Meeting of Shareholders, the Board of Commissioners have undertaken the following main activities during the financial year of 2010: 1. Reviewed and approved the Companys Annual Work Plan and Budget for 2010 proposed by the Board of Directors; 2. Monitored and gave advice on the performance of Board of Directors in implementing the approved Annual Work Plan and Budget for 2010; 3. Reviewed and approved the Companys Annual Work Plan and Budget for 2011 proposed by the Board of Directors; 4. Reviewed and approved the debt financing plan of the Company; 5. Reviewed and approved the remuneration of Board of Directors for 2010 based on recommendations by the Remuneration Committee; 6. Provided recommendations to the General Meeting of Shareholder on the appointment of public accountant to examine the Companys financial condition for reporting purposes to shareholders of the Company; and
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7. Reviewed and approved the financial statement, annual report and 20-F of the Company for submission to the relevant capital market authorities and stock exchanges based on recommendation from the Audit Committee. Training for the BOC For year 2010 there were no training for BOC. Remuneration of the BOC Amount of Remuneration Paid in 2010 Detail of the net amount of remuneration paid to our board of commissioners in 2010 are presented in the following table:
of the business, title or the Companys fixed or other assets of the Company (including any interest therein); d. cease to collect and write off account receivables from the books as well as supplies of goods; e. bind the Company as guarantor (borg or avalist) or in any other way in which the Company becomes liable to another partys debt obligation, whether by an agreement to take over another partys debt, an agreement to grant financing to another party to purchase goods or services, or by the purchase of shares, capital participation, advance payment or loan to pay in full another partys debt;
2010 (in IDR) 1 HY 2010

st
2nd HY 2010 2,898,265,020 1,364,250,000 1,420,341,000 5,682,856,020
Total 5,808,402,060 3,580,603,040 3,059,117,000 1,104,100,008 13,552,222,108
Honorarium Allowance/Committee Fee Long Term Incentive/RSUP 2009 End of Service Total
2,910,137,040 2,216,353,040 1,638,776,000 1,104,100,008 7,869,366,088
3. BOARD OF DIRECTORS
Our Board of Directors is responsible for the Companys overall management and day-to-day operations under the supervision of the Board of Commissioners. Pursuant to the Companys Articles of Association, the Board of Directors shall consist of at least three members, including one President Director. The members of the Board of Directors are elected and dismissed by shareholders resolutions at a GMS, provided that one member of the Board of Directors shall be nominated by the holder of the series A share. As part of ensuring good corporate governance, The Board of Directors must first obtain a written approval from the Board of Commissioners to: a. purchase and/or sell the shares of other companies in the capital market; b. enter into, commit enter into, amend and/or terminate a license agreement or cooperation, joint venture, management and similar agreements with other enterprises or parties; c. purchase, dispose, sell, pledge or encumber all or part
f. accept or grant or commit to grant medium/long term loans and accept or grant non-operational short term loans (except for granting loans to subsidiaries and/or employees of the Company which have been approved pursuant to the applicable internal procedures); g. conduct the expenditure of capital goods in 1 (one) transaction or an inter-related transaction with a nominal value higher than the permitted value determined by the Board of Commissioners from time to time; h. issue bonds or other securities that can be converted into shares; i. propose the issuance of new shares of the Company; j. provide an indemnity to or otherwise guarantee the obligation of any person; k. determine and/or change the Companys management structure; l. make a new business plan or change the business plan; m. change the accounting, financial, or tax practice and system of the Company or its subsidiary; n. change the Companys name;
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o. approve the financial statement provided to the shareholders in the GMS; p. determine the annual budget of the Company and the annual budget of its subsidiary; q. carry out capital participation or dispose the capital participation of the Company in other enterprises that is not carried out through the capital market; r. establish a subsidiary or approve the relinquishment or the reduction of its interest, whether directly or indirectly in each of the subsidiary or take over the shares in any company or relinquish any shares in any company; s. take any corporate actions or investments related to any subsidiary of the Company; t. use any right of the shareholders in the Companys subsidiary, or any other company in which the Company has share participation; u. approve the payment of any bonus or similar payment to the Companys employees or change the remuneration structures of employees; v. undertake a merger, consolidation, acquisition or separation, each as defined under the Law No 40 of 2007 on Limited Liability Company (as amended from time to time); w. establish or change the Companys asset liability management policy; x. establish or change standing delegations among members of the Board of Directors relating to signing authority limits for expenditures, asset purchases and sales, loans and other commitments; y. engage in any other material transactions or matters as may be determined by the Board of Commissioners from time to time having a value of the lower of 5% (five percent) or more of total revenue, or 2,5% (two and a half percent) or more of non current assets of the Company on a consolidated basis as set out in its audited consolidated financial statements.
The Board of Commissioners shall be obligated to determine thresholds in respect of the actions referred to in paragraph 4 point a through 4 point h, 4 point j and 4 point u of this Article and shall be entitled to change the thresholds from time to time. In the event actions are taken within the applicable thresholds, then the approval from the Board of Commissioners shall not be required. Composition of the Board of Directors As at April 20, 2011, membership composition of the Board of Directors is as follows: Harry Sasongko Tirtotjondro, President Director & CEO Peter Wladyslaw Kuncewicz, Director & CFO Fadzri Sentosa, Director & CWIO Hans Christiaan Moritz, Director & CTO Laszlo Imre Barta, Director & CCO Pursuant to the Extraordinary General Meeting of Shareholders convened on February 8, 2011, the Shareholders have discharged Stephen Edward Hobbs as of April 30, 2011 and appointed Hans Christiaan Moritz as Director beginning on May 1, 2011. Meetings and Attendance Total BOD Meeting in 2010 is 43 meetings. BODs attendance list during 2010 below: Before May 1, 2010 Name Harry Sasongko Tirtotjondro Kaizad B. Heerjee Peter Wladyslaw Kuncewicz Fadzri Sentosa Stephen Edward Hobbs Position President Director & CEO Director & CCO Director & CFO Director & CWIO Director & CTO Attendance/ Number of Meetings 15/16 14/16 15/16 14/16 11/16
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After May 1, 2010 Name Harry Sasongko Tirtotjondro Peter Wladyslaw Kuncewicz Fadzri Sentosa Laszlo Imre Barta Stephen Edward Hobbs Position President Director & CEO Director & CFO Director & CWIO Director & CCO Director & CTO Attendance/ Number of Meetings 24/27 20/27 21/27 25/27 21/27
4. COMMITTEES UNDER THE BOC

To assist in the effective discharge of its duties and responsibilities, the BOC have established a number of committees reporting direct to the BOC. These are the Audit Committee, the Remuneration Committee, the Risk Management Committee and the Budget Committee. Reports of each respective Committee are presented at the end of this section.
5. COMMITTEES UNDER THE BOD 5.1. Commercial & Pricing Committee

Responsibilities The main responsibility of the committee to ensure the overall commercial performance of Indosat is aligned with the companys stated strategic and financial objectives. Activity in 2010 Conducted 30 times meetings.
Training for the BOD All of our members of BOD and our Chief Officers had together attended Cross Culture Training and Good Corporate Governance Training. Cross Culture Training conducted in 1 day on 7 October 2010 in the Companys headquarters in Jakarta by Lembaga pelaksana Srikandi Mukti Indonesia (trainer Sri M. Hagen) GCG Training conducted on 25 October 2010 in the Companys headquarters in Jakarta by Wahyuni Bahar/ Dewie Pelitawati from Bahar & Partner and Matthew Sheridan from Sidley Austin LLP. Remuneration for the BOD Amount of Remuneration Paid in 2010. Detail of the net amount of remuneration paid to our Board of Directors in 2010 are presented in the following table:
5.2. Investment Committee

Responsibilities To review in detail the business case of planned Operational and Capital Expenditures requiring BOD approval according to the current Indosat Financial Level of Authority. Activity in 2010 Conducted 11 times meetings.
2010 (in IDR) 1st HY 2010 Basic Salary Fixed Allowance Initial Service End of Service Short Term Incentive/Tantieme 2009 Long Term Incentive/RSUP 2009 Total 6,780,000,000 3,239,666,675 2,297,333,334 2,457,298,700 450,000,000 15,224,298,709 2nd HY 2010 6,780,000,000 3,163,000,008 815,048,000 10,758,048,008 Total 13,560,000,000 6,402,666,683 2,297,333,334 2,457,298,700 1,265,048,000 25,982,346,717
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5.3. Human Capital Committee

Responsibilities To create an working environment in Indosat which attracts and develops high quality employees and which contributes to the companies. Activity in 2010 Conducted 6 times meetings.
5.4. Disclosure Committee

Responsibilities To be responsible for considering the materiality of information and determining corporate disclosure obligations on a timely basis and to make sure that all material corporate disclosure is accurate and assembled, processed, and reported within a timely period. Activity in 2010 Conducted 5 times meetings. List of materials that had been reviewed as follows:
No
Material Information
Announcement Dates June 1, 2010 June 1, 2010 June 1, 2010 June 1, 2010
Annual Report
1 2 3 4 Annual Report Glossy 2009 Form 20-F, Annual Report 2009 International Financial Reporting Standards, Consolidated Financial Statement as of and for the years ended December 31, 2008 and 2009 Sustainability Report 2009
Financial Statements
5 6 7 Consolidated Financial Statements with Independent Auditors Report Years Ended December 31, 2008 and 2009 Consolidated Financial Statements with Independent Accountants Review Report Six Months Ended June 30, 2010 Consolidated Financial Statements Nine Months Ended September 30, 2009 and 2010 (unaudited) March 24, 2010 August 24, 2010 October 29, 2010
Press Release
8 9 10 11 12 13 14 15 16 17 18 PT Indosat TBK Key Highlights for the year ended December 31, 2009 Press Release Full Year 2009 in English and Bahasa The Companys Investor Memo Full Year 2009 Result Key Highlights for the three months ended March 31, 2010 Consolidated Financial Statements Q1-2010 The Consolidated Financial Statement and Independent Accountants Review Report Three Months ended March 31, 2010 and 2009 Indosat Postpones Release of Its Q1-2011 Investor Information Memorandum Indosat Finance Company B.V. Announces Further Extension of the Consent Expiration Date for the Consent Solicitation Indosat Finance Company B.V. Announces Further Extension of the Consent Expiration Date for the Consent Solicitation Indosat Issues Adjustment to Subscriber Numbers Indosat Finance Company B.V. Announces Postponement of the Acceptance Date for the Consent Solicitation March 8, 2010 March 24, 2010 March 26, 2010 April 22, 2010 May 10, 2010 May 10, 2010 May 27, 2010 June 8, 2010 June 30, 2010 July 22, 2010 July 26, 2010
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No 19 20 21 22 23 24 25 26 27 28
Material Information Indosat Successfully Price US$650 Million, 10 Year Bond Issue in Largest Offering by an Indonesian Corporate This Year Indosat Finance Company B.V. Announces Final Results of the Consent Solicitation Indosat Reports Key Highlights for the Six Months Ended June 30, 2010 PT Indosat Tbk and Indosat Finance Company B.V. Announces full Redemption of Its 7.75% Guarantee Notes Due 2010 Indosat Release Limited Reviewed Results for the Period Ended June 30, 2010 The Companys Investor Memo Q1 & H1 -2010 PT Indosat Tbk Key Highlights Nine Months Ended December 30, 2010 Indosat Fully Repaid the Principal and Interest of Indosat Bond III Series B of Year 2003 Indosat Submitted Unaudited Financial Results for he Nine Months Ended September 30, 2010 The Companys Investor Memo Nine Months 2009 Results
Announcement Dates July 2010 July 31, 2010 August 16, 2010 August 20, 2010 August 24, 2010 August 25, 2010 October 21, 2010 October 25, 2010 October 29, 2010 November 1, 2010
Announcement
29 30 31 Announcement of Tender Offer Draft Ads in Newspaper on Moodys Rating Invitation of Indosat AGMS dated June 22, 2010 May 12, 2010 March 11, 2010 June 7, 2010
Others
32 33 Performance Report on Palapa C2 and D Satellite Performance Report on Operational 2009 January 15, 2010 May 11, 2010
6. INTERNAL CONTROL 6.1. Enterprise Risk Management Group

The responsibility of the Enterprise Risk Management (ERM) Group is to assess, analyze, and map out the risks posed by our corporate activities, based on the Companys risk management policy. The guidelines and the risk map are intended to direct risk-prone units in implementing risk management in their operations. The ERM Group supports the Board of Directors to communicate to all business units to ensure a consistent understanding of risk management throughout the Company. The Group consists of 3 (three) divisions handling risks in finance and development, technical and operation and commercial. The Company produces the entity risk profile and conducts a regular assessment. Board of Directors report its assessment on risk in quarterly to Risk Management
Committee. As of the end of 2010, the Company identifies material risks related to strategy, operation and external factors. The risk profile is used as guidelines for the Internal Audit Group to plan and implement internal audit programs.
6.2. Internal Audit Group

The Internal Audit (IA) Group is established to become professional advisor for Board of Directors and Audit Committee as well as catalyst for all working units and the Company as a whole. IA is responsible to present independent audit advisory and assurance of the adequacy and effectiveness of the Companys risk management, internal controls and good corporate governance processes in order to provide value added to and improve the Companys operations. In performing the audits, IA Group refers to the Standards for the Professional Practice of Internal Auditing of the
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Institute of Internal Auditors (IIA) and IA Charter, as well as Indonesian Capital Market (Bapepam) and Securities and Exchange Commission (SEC) Regulations. IA Charter consists of IAs Vision & Mission, Requirements for IAs Members, IAs Scope of Work, Requirement of Independency & Reporting, IAs Authority and Responsibility, Professional Standard, Working Relationship with Audit Committee and External Auditor, IAs Mechanism, IAs Code of Ethics, and the arrangement of the appointment, replacement or dismissal of the Head of IA. The IA Charter is regularly reviewed and accordingly updated. The most updated IA Charter was signed off by President Director & CEO on 8 September 2010 after having been approved by Audit Committee, Board of Directors and Board of Commissioners. Group Head of IA reports audit results to President Director & CEO and Board of Commissioners through Audit Committe with copies to related Director and Group Head (if necessary). The IA Group also coordinates with Enterprise Risk Management (ERM) and SOX (Sarbanes-oxley) Groups to facilitate the identification of risks and controls; provide assurance that risks are properly evaluated and controls are properly in place to minimize the risks; evaluate the reporting of key risks and controls implementation. As Information & Technology (IT) is the core support of the Companys operation, IA has expanded its divisions by adding IT Audit Division starting from the 4th Quarter of 2010 that the tasks previously carried out by Business Division. As of 31 December 2010, the structure of IA Group consisted of 7 (seven) divisions, as follows: 1. Finance & Support Audit Division 2. Business Audit Division 3. IT Audit Division 4. Technical Operation Audit Division 5. Region & Support Audit Division 6. Fraud Investigation Audit Division 7. Quality Assurance Division During 2010, the IA Group conducted a total of 48 audits consisted of regular and monitoring audits, using Riskbased Audit Methodology. IA Group with the support of the President Director & CEO, Audit Committee and Senior Management has been continuously enhancing its performance. The latest
significant effort was the enhancement of IAs Standard Operating Procedures and Strategic Plan (3-year Roadmap) completed in the 4th Quarter of 2010. Head of IA Groups Profile Hanna Sitorus has been the Head of IA Group since January 2010. Ms. Sitorus has more than 11-year experiences in audit function, including external and internal audits. Ms. Sitorus was previously engaged by worldwide leading Accounting Firm, PricewaterhouseCoopers, located in Indonesia and United States of America (in the States of Colorado and California). Previously, she also contributed in Internal Audit function of Indonesia Stock Exchange (IDX) for almost 2 years. Ms. Sitorus earned a Bachelor in Accounting degree from University of Indonesia and holds an Indonesian Certified Public Accounting (CPA) degree. Currently, she is a member of Institute of Internal Auditors (IIA) Indonesian Chapter.
6.3. SOX Group

As Indosats shares are also listed in New York Stock Exchange (NYSE), Indosat is required to comply with the Sarbanes-oxley Act (SOA) especially Article 404 and 302. Under the Act, the management is obliged to assess, test, document and report on the effectiveness of the Companys Internal Control over Financial Reporting (ICFR). Further, Indosat Management should report on any material weaknesses. The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are obliged to certify the internal control report. The SOX Group is responsible in assisting the CEO and CFO in managing the Companys compliance to SOX. It develops and documents the identification of the Risk of Misstatement of Financial Reports, measurement and control assessment. It coordinates with business units, the Enterprise Risk Management ( Group ERM ) and Internal Audit Groups in related exercises. In addition, SOX Group performs the Test of Effectiveness (TOE ) on identified key controls which mitigating the key of the Risk of Mistatement of Financial Reports. SOX Group coordinates with the business units in remediation of identified deficiencies. The SOX compliance process and documentation have been done for the position as of December 31, 2010. There is no material weakness in the ICFR that should be reported.
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Compliance with Section 404 of the Sarbanes-oxley Act We have successfully implemented the requirements of Section 404 of the U.S. Sarbanes-oxley Act of 2002 (SOX) regarding Internal Control over Financial Reporting. We are pleased to report that Indosat is in full compliance with Section 404 of SOX as required for the Fiscal Year ended December 31, 2010 and we are among the first Indonesian Companies to comply with SOX. Our Independent Auditor, Purwantono, Suherman & Surja, a member of Ernst & Young Global, conducted an attestation and produced a final report on Indosats SOX compliance, which was included in our 2010 Annual Report on Form 20-F in page F-3: In our opinion, PT Indosat Tbk and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on COSO criteria.
of Purwantono, Suherman & Surja (a member of Ernst & Young Global) as Indosats Independent Auditor for 2010. Shareholders subsequently authorized the Board of Commissioners to stipulate the terms and the conditions of the appointment. To safeguard the independence of the appointed External Auditor, Indosats hiring policy prohibits the employment by Indosat of the External Auditors employees, former employees or close relatives of the employees. The provision of non-audit services by the Independent Auditor to Indosat is also regulated. In addition, the hiring policy for former employees of the independent audit firm stipulates a cooling off period or window period before they are eligible to work for Indosat, particularly for certain positions. This policy is intended to comply with BapepamLK regulation No. VIII A.2 and Article 206 of the SarbanesOxley Act. The following table contains a summary of the fees paid to Purwantono, Sarwoko & Sandjaja, the Indonesian member firm of Ernst & Young Global, our independent external auditors for the years ended December 31, 2008 and 2009 and the fees paid to Purwantono, Suherman & Surja, the Indonesian member firm of Ernst & Young Global, our independent external auditors for the years ended December 31, 2010:
6.4. Independent Auditors

The Independent Auditor is appointed by Shareholders at the Annual General Meeting of Shareholders (AGMS), based on recommendations from the Board of Commissioners and the Audit Committee. At the AGMS June 22, 2010, Shareholders approved the appointment
2008 Audit Fees Audit-related Fees Tax Fees All Other Fees Total Fees 1,963,307 953,962 2,917,269
2009 (in US$) 2,330,298 1,279,708 3,610,006
2010 2,287,934 1,543,584 3,831,518
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6.5. Public Accounting Firm

Board of Commissioners was further given authority at the Annual General Meeting of Shareholders to appoint a Public Accountant Firm, as well as an alternate choice should the Public Accountant originally appointed not be able to carry out its duties for any reason, subject to prevailing rules and regulations; and to stipulate the terms and conditions of the appointments.
us. We and Primkopparseni appealed to the Supreme Court to ask for compensation for the costs of legal fees and injury to our brand name, but the Supreme Court declined our appeal on August 13, 2008 through its decision No. 229/K/PDT/2008. Since we did not take any further legal action with respect to the Supreme Courts decision, this case is now final and binding. Based on Qtels Schedule TO dated as of January 20, 2009 and filed with the SEC on January 20, 2009, on November 19, 2007, the KPPU, decided that Temasek Holdings, Pte. Ltd., a company incorporated under the laws of Singapore (Temasek), jointly with Singapore Technologies Telemedia Pte. Ltd. (ST Telemedia), STT, Asia Mobile Holding Company Pte. Ltd. (AMHC), AMH, ICLM, ICLS, Singapore Telecommunications Ltd., a company incorporated under the laws of Singapore (SingTel), and Singapore Telecom Mobile Pte. Ltd., a company incorporated under the laws of Singapore (SingTel Mobile), were in violation of the Indonesian competition laws and ordered Temasek, jointly with the STT, AMHC, AMH, ICLM, ICLS and SingTel (the Temasek Affiliated Entities), to divest their share ownership in either Telkomsel or Indosat within two years, effective from the date the judgment became legally enforceable. Indonesian competition laws state that business agents are prohibited from owning majority shares in a number of similar companies which conduct business in the same market if such ownership results in one or a group of business agents controlling over 50.0% of the market share of one kind of good or service. Temasek and other relevant parties filed an appeal against the KPPUs judgment in the Central Jakarta District Court. In a Decision and Order dated May 9, 2008, the Central Jakarta District Court upheld and corrected the ruling by the KPPU, and ordered Temasek and the Temasek Affiliated Entities to divest their holdings in either Telkomsel or Indosat within twelve months after the Central Jakarta District Court judgment became legally enforceable. The decision of the Central Jakarta District Court was appealed to the Supreme Court. On September 10, 2008, the Supreme Court rejected the appeal and corrected the Central Jakarta District Courts decision as follows, among others: (1) declaring that Temasek, jointly with the Temasek Affiliated Entities was in violation of Article 27 point (a) of Law No. 5 of 1999; (2) ordering Temasek, jointly with the Temasek Affiliated Entities, to terminate their cross-ownership of shares in Telkomsel and Indosat by transferring its shares
7. LEGAL PROCEEDINGS
From time to time, we are involved in legal proceedings concerning matters arising in connection with the conduct of our business. We are not currently involved in, and have not recently been involved in, any legal or arbitration proceedings that we believe would be likely to have a material effect on our financial condition or results of operations other than as disclosed in this annual report. On May 5, 2004, we received the Supreme Courts verdict No. 1610K/PDT/2003 in favor of Primer Koperasi Pegawai Kantor Menteri Negara Kebudayaan dan Pariwisata (known as Primkopparseni), regarding a disputed foreign currency exchange transaction. The courts judgment required us to pay Rp13.7 billion plus 6.0% interest per annum from February 16, 1998 until the final settlement date and on December 22, 2004, we satisfied the judgment through payment of Rp19.3 billion to the Central Jakarta District Court. Furthermore, in January 2005, we filed a motion for reconsideration against the Supreme Courts verdict. As of April 20, 2011, the Supreme Court has not issued a verdict for the reconsideration. In order to recover the amount we paid to Primkopparseni, we initiated a new action in the Central Jakarta District Court asserting that the Primkopparseni members meeting at which the members decided to proceed with the dispute against us was invalid. On January 19, 2005, the Central Jakarta District Court held that such members meeting was unlawful, but did not require Primkopparseni to compensate us, prompting us and Primkopparseni to file an appeal of that decision with the Jakarta High Court on February 1, 2005. The Jakarta High Court through its decision No. 483 / PDT / 2005 / PT.DKI decided in our favor by ruling that such meeting was unlawful, but, on the other hand, did not require Primkopparseni to compensate
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in either Telkomsel or Indosat, within twelve months from the date the decree became legally enforceable; or reduce 50.0% of its share ownerships in each of Telkomsel and Indosat by no later than twelve months from the date the courts decision is legally enforceable; and (3) ordering Temasek, jointly with the Temasek Affiliated Entities, to determine the company that they will relinquish their shares from and to relinquish the voting rights and the rights to appoint the directors and commissioners in either Telkomsel or Indosat until the relinquishment of all of their shares or the reduction of 50.0% of their shares in each of Telkomsel and Indosat as stipulated in point (2) above. On June 22, 2008, Qtel acquired all of the Temasek Affiliated Entities 40.81% share ownership in Indosat. Temasek and the STT, AMHC, AMH, SingTei and ICLM as well as ICLS filed a motion for reconsideration, but based on the Supreme Courts official website, the motion for the reconsideration wa rejected under the decision No. Reg. 128 PK/PDT. SUS/2009 dated May 5, 2010. Therefore, Temasek and the STT, AMHC, AMH, SingTei and ICLM as well as ICLS are obliged to pay the fine in amount of Rp15 billion to KPPU. A series of class action lawsuits were also filed against us and Telkomsel in the District Court of Bekasi, the Central Jakarta District Court and the Tangerang District Court relating to Temasek Holdings prior cross ownership of shares in Indosat and Telkomsel, which is alleged to have caused high price fixing of telecommunications services that harmed to the public. On October 31, 2007, a group of consumers of cellular telephones in Indonesia filed suit in the District Court of Bekasi demanding, among other remedies, Rp1,231.7 billion in compensation for losses allegedly suffered. We are also a defendant in a similar class action suit filed in the Tangerang District Court on December 19, 2007 (the Tangerang Class Action). The plaintiffs represent our customers and the customers of Telkomsel and XL throughout Indonesia who used the Simpati, Mentari, Kartu As, IM3, Kartu Halo, Matrix, Jempol, Xplor, and Bebas services and are demanding compensation amounting to Rp30,808.7 billion, among other remedies. On April 22, 2008, we received notification that we, Temasek Holdings, ST Telemedia, STT, AMH, ICLM, ICLS, SingTel, SingTel Mobile, Telkomsel, Telkom and the Ministry of State-Owned Enterprises, were defendants in another class action filed in the Central Jakarta District Court (the Central Jakarta Class Action). The plaintiffs
represent customers of Telkomsel, Indosat and XL and have asserted allegations similar to that of the Tangerang Class Action. The plaintiffs are demanding compensation amounting to Rp30,808.7 billion, among other remedies. In July 2008, we were notified that the class action in the Bekasi District Court was revoked by the plaintiffs and the class action in the Central Jakarta District Court was merged with the Tangerang Class Action. The class action suit in the Tangerang District Court was postponed by the judges pending resolution of an appeal to the Supreme Court by the plaintiffs from the class action filed in Central Jakarta District Court. On March 27, 2009, we were informed that the Supreme Court issued a decision on January 21, 2009 revoking the Central Jakarta District Court decision and ordering the Central Jakarta District Court to continue with the class action. On December 22, 2009, Indosat submitted a proposal in the mediation process asserting that no evidence of customers loss has been presented during STTs ownership. At the same time, Indosat is preparing a claim of inadequacy of representation as well as a response to the lawsuit. On January 5, 2010 the defendants were given the right to provide arguments regarding the legal standing of the class representation under the Class Action Lawsuit Procedure. On January 27, 2010, the Judges ruled that that the Central Jakarta Class Action lawsuit was unacceptable and ordered the plaintiffs and defendants to stop the case because (i) the plaintiffs refused to prove their legal standing and (ii) two members of the plaintiffs class did not qualify to stand as class representatives. The period for appeal having lapsed on March 18, 2010, the decision of the Central Jakarta District Court dated January 27, 2010 is now final and binding. On March 22, 2010, the trial of the Tangerang Class Action continued, but the plaintiffs failed to appear. On May 3, 2010, the Company submitted a demurrer and on May 24, 2010, the judges ruled that the class action filed with the Tangerang District Court was unacceptable because the plaintiffs were not serious in filing the lawsuit and the plaintiffs failed to prove their legal standing for qualification as class representatives. Since the time limit to file an appeal lapsed on July 21, 2010, the decision of the Tangerang District Court dated May 24, 2010 is final and binding.
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In addition to the above, we have received a letter from the KPPU, No. 398 / AK / KTPP / XI / 2007, dated November 15, 2007 relating to the possible breach of Article 5 of Law No. 5 / 1999 through price-fixing of SMS by telecommunications operators (case number 26 / KPPU-L / 2007). On June 18, 2008, the KPPU determined that only Telkom, Telkomsel, XL, Bakrie Telecom, Mobile-8 and Smart Telecom have jointly breached Article 5 of Law No. 5 / 1999. Telkomsel appealed this ruling to the South Jakarta District Court while Mobile-8 appealed this ruling to the Central Jakarta District Court where XL, Telkomsel, Indosat, Telkom, Hutchison, Bakrie Telecom, Smart Telecom, PT Natrindo Telepon Seluler were summoned to appear as co-defendants. During tax audits and assessments of our tax payments for 2004 and 2005 by the Tax Office for State-Owned Enterprises (the Tax Office), on December 4, 2006 and March 27, 2007, respectively, we were notified that our withholding tax for interest paid on intercompany loans for Indosat Finance Company B.V. and Indosat International Finance Company B.V. relating to our US$300.0 million principal amount Guaranteed Notes 2010 and US$250.0 million principal amount Guaranteed Notes 2012, respectively, should be 20.0%, rather than 10.0%. Based on advice from our tax advisors and our understanding of Indonesian law, we believe that our original calculations of withholding tax are accurate and submitted objection letters to the Tax Office regarding these assessments. On February 18, 2008 and June 4, 2008, we received Decision Letters from the Directorate General of Taxation rejecting our objections to our assessed tax payments for 2004 and 2005 in the amount of Rp60,493 million and Rp82,126 million, respectively. On May 14, 2008, the Company submitted an appeal letter to the Tax Court concerning the Companys objection to the correction of the income tax article 26 for fiscal year 2004. On May 25, 2010, the Company received the Decision Letter from the Tax Court which declined the Companys objection to the correction of the 2004 income tax article 26. The Company charged the tax correction to current operations, which was presented as part of Other Income (Expenses)Others Net. We are also currently disputing an assessment of tax overpayment for fiscal year 2005 with the Tax Office. On March 27, 2007, we received an assessment letter for tax
overpayment, indicating that the Directorate General of Taxation approved the refund of an overpayment of 2005 corporate income tax amounting to Rp135,766 million, which amount is lower than the amount of Rp176,645 million that we recognize. We filed an objection with the Tax Office on June 22, 2007 and claimed for the difference amounting to Rp40,879 million. On May 27, 2008, we received a Decision Letter from the Directorate General of Taxation which partially accepted our objection, but only for the amount of Rp2,725 million. On August 21, 2008, the Company submitted an appeal letter to the Tax Court concerning the Companys remaining objection on the 2005 corporate income tax. On October 29, 2010, the Company received the Decision Letter from the Tax Court which accepted the Companys objection to the correction of the 2005 corporate income tax amounting to Rp38,155 million, which was offset against the underpayment of the Companys 2008 and 2009 income tax article 26 based on Tax Collection Letters (STPs) received by the Company on September 17, 2010. On December 24, 2008, we received the Decision Letter from the Directorate General of Taxation which increased the overpayment amount by Rp84,650 million in the assessment letter on tax overpayment for fiscal year 2004, which amount was lower than the amount stated in an earlier Decision Letter received on July 4, 2008. On January 21, 2009, we filed suit objecting to the discrepancy in the amount of tax overpayment during fiscal year 2004. With respect thereto, on November 17, 2009 the Tax Court revoked the Directorate General of Taxations assessment letter No. KEP-539/WPJ.19/BD.05/2008, dated December 24, 2008. On March 17, 2010, the Directorate General of Taxation issued a decision favorable to the Company, informing it that the tax overpayment for fiscal year 2004 should be Rp126,403 million instead of Rp84,650 million, which would entitle the Company to get a refund of the difference, amounting to Rp41,753 million. The Company then subsequently received the payment of such tax refund amounting to Rp41,753 million from Directorate General of Taxation on April 13, 2010. On June 8, 2009, the Company received the assessment letter on tax underpayment (SKPKB) from the DGT for Satelindos corporate income tax for fiscal year 2002 amounting to Rp105,809 million (including penalties and interest) . The Company accepted a part of the correction
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of the 2002 corporate income tax amounting to Rp2,646 million which was charged to current operations in 2009. Under Indonesian Tax Law, a taxpayer is required to pay the tax underpayment amount as stated in the SKPKB within one month from the date of the SKPKB. The taxpayer can reclaim the tax paid through an objection or appeal process. On August 28, 2009, the Company submitted an objection letter to the Tax Office regarding the remaining correction on Satelindos 2002 corporate income tax. On July 15, 2010, the Company received the Decision Letter No.KEP-357/WPJ.19/BD.05/2010 from the DGT declining the Companys objection to the correction on Satelindos corporate income tax for fiscal year 2002. On October 14, 2010, the Company submitted an appeal letter to the Tax Court concerning the Companys objection to the correction on Satelindos corporate income tax for fiscal year 2002. As of April 20, 2011, the Company has not received any decision from the Tax Court on such appeal. On June 8, 2009, the Company also received SKPKBs from the DGT for Satelindos 2002 and 2003 income tax article 26 amounting to Rp51,546 million and Rp40,307 million (including penalties and interests), respectively. On August 27, 2009, the Company submitted an objection letter to the Tax Office for the correction of the Satelindos 2002 and 2003 income tax article 26. On July 16, 2010, the Company received the Decision Letters No.KEP-367/ WPJ.19/BD.05/2010 and KEP-368/WPJ.19/BD.05/2010 from the DGT declining the Companys objection to the correction of the Satelindos 2002 and 2003 income tax article 26. On October 12, 2010, the Company submitted appeal letters to the Tax Court concerning the Companys objection to the correction of Satelindos 2002 and 2003 income tax article 26. As of April 20, 2011, the Company has not received any decision from the Tax Court on such appeal. On June 8, 2009, the Company received SKPKBs from the DGT for Satelindos 2002 and 2003 income tax articles 21, 23 and 4(2), and VAT totaling Rp28,960 million (including penalties and interest), which were charged to current operations in 2009 as part of Other Income (Expenses) Others - Net. On June 8, 2009, the Company received SKPKB from the DGT for Satelindos 2003 corporate income tax amounting to Rp30,870 million (including interests), which was
charged to current operations in 2009 as part of Other Income (Expenses) - Others - Net. On July 7, 2009, the Company paid all tax underpayments that resulted from the tax audit of Satelindos corporate income tax, income tax articles 4(2), 21, 23 and 26, and VAT for fiscal years 2002 and 2003 totaling Rp257,492 million. On September 7, 2009, the Company received the Decision Letter No.KEP-335/WPJ.19/BD.05/2009 from the DGT which declined the Companys objection to the remaining corrections of the 2006 corporate income tax. On December 2, 2009, the Company submitted an appeal letter to the Tax Court regarding the remaining corrections of the Companys 2006 corporate income tax. As of April 20, 2011, the Company has not received any decision from the Tax Court on such appeal. On September 17, 2010, the Company received STPs from the DGT for the underpayment of the Companys 2008 and 2009 income tax article 26 totalling Rp80,018 million (including interest). On October 13, 2010, the Company submitted cancellation letters to the Tax Office regarding such STPs. Subsequently, on November 16, 2010, the Company was required to pay a certain portion of these STPs by using the approved tax refund claim for on the Companys corporate Income Tax for fiscal year 2005 amounting to Rp38,155 million. On January 7, 2011, the Company paid the remaining amount of Rp41,863 million. We are not involved in any other material cases, including civil, criminal, bankruptcy, state administration cases or arbitration cases in the Indonesian National Board of Arbitration or labor cases in Industrial Relation Court which may materially affect our performance.
8. CODE OF ETHICS
Indosat released a Code of Ethics as a guide for all employees and management including Directors. The Code of Ethics summarizes the principles of responsible conduct to which all staff is expected to adhere. Under our Code of Ethics, all business activities must be carried out with integrity and in accordance with all prevailing laws and regulations. Further, the Code strictly
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prohibits conflicts of interests, lawful and unethical conduct, insider trading and other actions at the Company and shareholders expense. Each employee must sign annual letter stating that they have read and understood the code. Directors and employees of Indosat are expected to understand and comply with the policies outlined in the Code of Ethics. Any Director or employee found to have violated the Code will be disciplined accordingly, up to and including termination of employment We have issued a Guide to the Implementation of PT Indosat Tbks Code of Ethics on November 20, 2010 as socialization and refreshment of Decree of Board of Directors on Code of Ethics No 002/DIREKSI/2007. This Code of Ethics applies to all employees, including our Board of Directors. We have posted this Code of Ethics on our website at www.indosat.com, where it is publicly available.
SPI for a period of 2 (two) years. On December 31, 2010, the SPI signed an agreement with Indosat management, the terms of which covered general provisions governing working hours, salary, employee development, Health Safety Security and Environment (HSSE), employee welfare, social benefit, disciplinary procedures and dispute settlement mechanisms. Some of our employees are entitled to a regulated pension scheme whereby they will receive monthly payments and benefits through PT Asuransi Jiwasraya (Persero).
9. CORPORATE SECRETARY
Corporate Secretary aims to provide accurate, relevant information in a transparent and timely manner to public in compliance with regulatory authorities guidelines and with our own established disclosure procedures. Group Head Corporate Secretary reports to Chief of Corporate Services Officer under the Office of President Director and Chief Executive Officer, plays a key role in communicating material information to comply with regulation and keeping the Company transparent. Since March 2004, the position of Group Head Corporate Secretary has been assumed by Strasfiatri Auliana. Strasfiatri Auliana started her career at Indosat in 1987. A graduate in Electronic Engineering from the Bandung Institute of Technology, she has been appointed to the position of Group Head Corporate Secretary Indosat since 2004. In her professional career spanning over two decades, she has held various senior positions at Indosat and now she also being responsible as acting of Group Head Enterprice Risk Management (ERM). She also previously served as special assistant to the Chairman of the Indonesian Bank Restructuring Agency (IBRA).
8.1. Whistleblower Policy

Our Whistleblower Policy protects external or internal parties who wish to raise concerns or complaints to the Audit Committee related to any impropriety or inaccuracy of the Companys financial statements, press releases, publically disclosed information, Code of Ethics, accounting, internal controls, audits or other material areas. The detailed procedure for filing complaints is available at our website, www.indosat.com, or through email at auditcom@indosat.com or infoGCG@indosat.com.
8.2. Collective Labor Agreement

The Indosat Labor Union (Serikat Pekerja Indosat/ SPI) was established on August 25, 1999. Historically, a Collective Labor Agreement (CLA) document was negotiated, agreed upon and signed by the Management of Indosat and the
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Access of Information For more information the Company, please contact us at: Group Corporate Secretary PT Indosat Tbk Tel.: 62-21 386 9614 Fax.: 62-21 3000 3754 E-mail: publicrelations@indosat.com Or visit our website at www.indosat.com
9.1. Correspondence with Bapepam-LK

No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Material Information Report on Utilization of Proceeds from the Issuance of Indosat Bonds VII Year 2009 and Sukuk Ijarah Indosat IV Year 2009 Submission of Advertisement of EGMS Invitation Report on the Appointment of Group Head Internal Audit Press Release Indosat EGMS Approved Changes in the Composition of Commissioners and Directors and Amendmend to Articles of Association Indosat Reported a Subscriber Base of 33.1 Million at Year-end 2009 Submission of Advertisement of EGMS Resolutions Press Release PT Indosat Tbk: Performance Highlights for the Period Ended 31 December 2009 Notification of New Rating from Moodys Investor Service Submission of Advertisement of PT Indosat Tbk Rating Press Release Indosat Submitted Financial Statements for the Period Ending 31 December 2009 Submission of Consolidated Financial Statements and Independent Auditor Report for the Years Ended 31 December 2009 and 2008 Submission of Advertisement of Consolidated Financial Statements for the Years Ended 31 Desember 2009 dan 2008 (Audited) Investor Memo on 2009 Performance Plans for the Preparations of Annual Report of PT Indosat Tbk for Fiscal 2009 Report on Utilization of Proceeds from the Issuance of Indosat Bonds VII Year 2009 and Sukuk Ijarah Indosat IV Year 2009 Press Release PT Indosat Tbk: Performance Highlights for the Period Ended 31 March 2010 Submission of Consolidated Report and Independent Auditor Review Report for the Three Month Period Ended 31 March 2010 and 2009 Press Release Indosat Submitted Achievement Report with Limited Review for the Period Ended 31 March 2010 Announcement Dates 11 January 2010 13 January 2010 13 January 2010 29 January 2010 1 February 2010 8 March 2010 11 March 2010 12 March 2010 24 March 2010 24 March 2010 25 March 2010 29 March 2010 4 April 2010 8 April 2010 22 April 2010 10 May 2010 10 May 2010
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No 18
Material Information Press Release PT Indosat Tbk, Indosat Finance Company B.V. and Indosat International Finance Company B.V. Announced the Commencement of Tender in Cash and Request for Approval Press Release Indosat Palapa Company B.V. Commenced with Tender 144A/ REG S Annual General Meeting of Shareholders Disclosure of Information Release Indosat Postponed the Submission of Investor Memo for the Period of First Quarter 2010 Submission of Annual Report Submission of Advertisement of AGMS Invitation Disclosure of Information Submission of AGMS Resolutions and Advertisement of AGMS Resolutions Disclosure of Information Report on Utilization of Proceeds from the Issuance of Indosat Bonds VII Year 2009 and Sukuk Ijarah Indosat IV Year 2009 Disclosure of Information Disclosure of Information Disclosure of Information in Compliance with (i) Bapepam-LK Regulation No. IX.E.2, Attachment Decree of Bapepam-LK Chairman No. Kep-413/ BL/2009 dated 25 November 2009, on Material Transactions and Changes in Core Business (Regulation IX.E.2); (ii) Bapepam-LK Regulation No. IX.E.1, Attachment Decree of Bapepam-LK Chairman No. Kep-412/BL/2009 dated 25 November 2009, on Transactions with Affiliates and Transactions with Conflict of Interest (Regulation IX.E.1); and (iii) Bapepam Regulation No. X.K.1 on Disclosure of Information for Immediate Disclosure to the Public, Attachment Decree of Chairman of Bapepam No. Kep-86/PM/1996 dated 24 January 1996 (Regulation X.K.1) Disclosure of Information Press Release Indosat Reported Performance Highlights for the Six Months Period Ended 30 June 2010 Press Release PT Indosat Tbk and Indosat Finance Company B.V. Announced the Settlement of All Guaranteed Notes 7.75% Due 2010 Submission of Consolidated Financial Statements and Independent Auditor Review Report for the Six Months Ended 30 June 2010 (Reviewed) with Comparative 2009 Figures (Audited), and Press Release : Indosat Submitted Limited Review of Results for the Period Ended 30 June 2010 Submission of Advertisement of Consolidated Balance Sheets, Report of Consolidated Changes in Equity and Consolidated Income Statements of PT Indosat Tbk and Subsidiaries for the Six Month Period Ended 30 June 2010, with Comparative Figures for 2009
Announcement Dates 12 May 2010
19 20 21 22 23 24 25 26 27 28 29 30
12 May 2010 14 May 2010 25 May 2010 27 May 2010 1 June 2010 7 June 2010 8 June 2010 24 June 2010 30 June 2010 7 July 2010 26 July 2010 31 July 2010
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2 August 2010
32 33 34
3 August 2010 16 August 2010 20 August 2010
35
24 August 2010
36
25 August 2010
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No 37 38 39 40 41 42 43 44 45 46
Material Information Investor Memo for Performance in First Quarter and First Half 2010 Press Release PT Indosat Tbk and Indosat International Finance Company B.V. Announced the Settlement of All Guaranteed Notes 7.125% Due 2012 Report on Utilization of Proceeds from the Issuance of Indosat Bonds VII Year 2009 and Sukuk Ijarah Indosat IV Year 2009 Submission of Advertisement of PT Indosat Rating and Press Release Pefindo Confirmed Indosat Rating of AA+ Stable Press Release PT Indosat Tbk : Performance Highlights for the Period Ended 30 September 2010 Submission of Advertisement of Announcement of the Settlement of Indosat Bonds III Series B Year 2003 Press Release Indosat Settled Principal Amount and Coupon on Indosat Bonds III Series B Year 2003 Submission of Consolidated Financial Statements for the Nine Month Period Ended 30 September 2010 and 2009 (Un-audited) Press Release Indosat Submitted Un-audited Financial Statements for the Nine Month Period Ended 30 September 2010 Investor Memo on Performance in Nine Month Period 2010
Announcement Dates 25 August 2010 6 September 2010 6 October 2010 7 October 2010 21 October 2010 25 October 2010 25 October 2010 29 October 2010 29 October 2010 1 November 2010
10. Disclosure of Relevant Information

The following present various relevant information that may be required by, or of interest to, the stakeholders of the Company, including regulators and government authorities
10.2. Restriction of Insider Trading

To avoid any insider trading, the Company applies a trading window policy every quarter. The policy is based on the concept that the period following a companys quarterly earnings disclosure is a safe time for insiders to sell (or buy) company stock. The trading window period commences two business days after the Company discloses its quarterly financial report and closes 10 business days after that. The purpose of the two-day interval is to allow the market time to react to the earnings release, and to digest such information.
10.1. Fair Disclosure to Shareholders

We treat all shareholders equally, providing all with equal access to timely updates of material information or disclosures. To avoid selective disclosure, every single piece of information that has been disclosed to the general public is uploaded onto our website at http://www.indosat.com. To ensure that all shareholders receive the same information, we have, since 2007, been including in our Annual Report the Form 20-F submitted to the US SEC. Both reports are simultaneously reported to the Indonesia and US capital market authorities.
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10.3. Regulatory Compliance

As a telecommunications company, we comply with Telecommunication Laws and other related Laws those which have been established by the MCIT. All reporting as required by law of a telecommunications provider such as RFR (Regulatory Financial Report), QoS (Quality of Service), TKDN (Local content from local industry) and LKO (Operational Performance Report) has been done in accordance with the designated parameters and timeframe. The same applies to the Radio License registration for the entire radio system used by Indosat, which was done to support Indosats operational network of 18,108 BTS up to 31 December 2010.
The principle amendments to the Articles of Association of the Company were related to purpose, objectives and business activities, general meeting of shareholders, quorum, tasks and authority of the Board of Directors, conflict of interest transactions, merger, consolidation, aquisition and demerger, amendment to articles of association, dissolution, bankruptcy and liquidation. In January 28, 2010 the Company has obtained to amend Articles of Association, among others: purpose, objectives and business activities, quorum, resolutions and voting rights at the general meeting of shareholders and conflict of interests.
10.6. Multiple Appointments

In the interests of maintaining independence and preventing conflicts of interests, members of Indosats Board of Commissioners and Board of Directors are expected to inform the Company of ongoing major leadership roles and appointments in other companies or organisations. However, it is expected that such multiple appointments as the Commissioners and Directors chose to undertake outside of PT Indosat Tbk will not hinder or encumber them in carrying out their duties towards the Company.
10.4. Covenant Compliance

Based on credit agreements, loan agreements and/or trustee agreements, the Company is required to fulfill certain covenants as set forth in these aforementioned agreements. We agreed to certain covenants in connection with the issuance of Indosat Rupiah Bonds, including, but not being limited to, agreeing to maintain equity capital of at least Rp5,000 billion; a ratio of total debt to EBITDA of less than 3.5:1, as reported in each annual consolidated financial report; a debt to equity ratio of 2.5:1, as reported in each quarterly consolidated financial report; and a ratio of EBITDA to interest expense, as reported in each annual consolidated financial report of at least 3.0:1.
10.7. Insider Share Ownership

Members of Indosats Board of Commissioners and Board of Directors are required to disclose and confirm share ownership in Indosat. This includes share ownership in Indosat by immediate family members. This disclosure is recorded and filed away by the Corporate Secretary. Details of Indosat share ownership in 2010 based on confirmation provided by members of the Board of Directors is Mr. Fadzri Sentosa with 10,000 shares
10.5. Amendments to the Articles of Association

In accordance with Bapepam-LK Rule No. IX.J.1 on guidelines of articles of association of a company who conduct public offering on equity securities and public company, which require public companies to adjust its Articles of Association, we have obtained shareholders approval to amend the Companys Article of Association on June 11, 2009.
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11. COMMUNICATIONS OUTREACH

Indosat actively reached out in 2010 through various media to our stakeholders. To ensure that investors, stakeholders and the public stayed well informed of the Companys performance and activity, information was communicated to various channels including our website www.indosat. com, fact sheets, quarterly investor bulletins, corporate releases, mailings, direct calls, interactive meetings and press conferences. Our Investor Relations Group, who reports to the Director & Chief Financial Officer, continued to proactively reach out to the financial community, in keeping with our reputation for transparency and disclosure. Following the submission of regular quarterly financial reports to Bapepam-LK and the US-SEC, we held conference calls with analysts, investors and others to discuss the Companys performance and the industry more generally, with extensive Q&A sessions. These calls were further recorded and made available on the Company website so as to enable easy access for shareholders and investors who could not yet be present.
We continue to solicit feedback and criticism on how we can improve. Tangible efforts that we have made to realise our goals of transparency include improving this Annual Report and constant communication with all Indosat departments to ensure that all material information is channelled to the relevant parties.
11.1. Public Expos

Indosats 2010 Annual Public Expos was held on June 22, 2010 accordance with the conditions stated in IDX Regulation No. 1-E regarding Obligations to Communicating Information at Indosat office, Floor 4, Jl. Merdeka Barat 21, Jakarta 10110, along with the 2010 Annual General Meeting of Shareholders. This Annual Public Expos went well and was attended by 44 participants for the most part consisting of the general public and representatives from securities companies.
11.2. Internal Communications

We strive to implement an open management approach within Indosat. The Company is structured in the following order: from Divisions to Groups and finally to Directorates (largest). Each Group conducts a weekly meeting to discuss operational activities. On a larger scale, a directorate meeting chaired by the respective directors is held and attended by directorate senior staff. In addition, a management meeting involving all Group and Division heads is held at least once every three months. A workshop is conducted once a year for all Group and Division Heads to discuss the Companys annual work plan. The Company also arranges for quarterly forums for Directors and employees to discuss various significant developments. Such forums are actively attended by all employees, including those in regional offices who participate via video conference. The directors also take turns to visit Indosat operations in the various regions, to motivate staff and communicate to them the Companys goals and targets, material developments and other relevant matters. All these initiatives allow for dialogue between the management and employees, and also provide opportunities for employees to convey constructive feedback to the Company.
In 2010, the company held 3 Quarterly results conference calls for analysts and investors, presented to investors on a global non-deal roadshow, and attended meetings and investor conferences in several financial centres such as Singapore, Hong Kong, New York, Dubai and Frankfurt. We also monitored and communicated our credit and corporate rating to investors and public in a timely manner by publicizing it in newspapers and on our website. Please refer to the Share Capital Matters section of this Annual Report to see our ratings as of December 31, 2010.
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All Company information, policies and activities can be accessed online through the MyIndosat portal. Some of the portal menus and applications available to employees include I-Policy an electronic data bank for all Company policies, as well as Telecommunications Regulations, Product Knowledge, and MyValues, a feature that helps employees refresh their knowledge of the Companys values. News related to Indosat and other telecommunications providers are also available on this portal. Employee also can access e-learning facility in MyIndosat to increase their competency. Ice Cube is the new sub content, that provide an opportunity for the employee to share their innovative ideas. We have also established MyInfo, an application that allows each employee to upload personal information such as their curriculum vitae and annual leave requests, and to access the electronic appraisal system, among other functions. To that objective, we are committed to complying with the highest standard of good corporate governance principles.
Every month, The company created CEO Message which distibute to all employee. This communication channel consist of any information about corporate initiatives updates, direction and target achievement. The company also has several routine internal communication event such as Town Hall, Celebrating Independence Day, Break Fasting during Ramadhan month, Aid Mubarak, Blood Donor and celebrating anniversary. The company sometimes held informal lucheon or coffee break to appreciate potential staff and to get the constructive input from them as well. The company also maximizing any other internal communication channel such as push PC wallpaper on every employee PC that contain any corporate campaign and other printed material like posters and banner up to cascade any needed information.
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Introduction
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Risk Factors
Financial Report
Corporate Data
AUDIT COMMITTEE REPORT
Backgrounds
The Audit Committee (the Committee) of PT Indosat Tbk (the Company) operates under a written charter approved by the Board of Commissioners on May 31, 2003 which were reviewed periodically and subsequently amended several times. The last amendment was on October 20, 2009. The Charter has been established based on regulations issued by the Indonesian Capital Market and Financial Institutions Supervisory Board (Bapepam-LK), the US Securities Exchange Commission (US SEC), Indonesian Stock Exchange (IDX) and New York Stock Exchange (NYSE). In accordance with its Charter, the Committee is established by the BOC and therefore reports to the BOC. Its primary function is to assist the BOC in fulfilling its oversight responsibilities to ensure that the Company is in compliance with Capital Market regulations both locally and in the US. In particular the Committee is responsible to oversight the fair presentation of Companys financial statements, the control over the process of financial reporting, the auditing process conducted by both Internal Auditors (IA) and External Auditors (EA) and compliance to the prevailing law and regulations. In performing its duties the Committee communicated closely with the Companys Management including Board of Directors (BOD), the Risk Management Group, particularly the Sarbanes-oxley implementation group (SOX Group), the IA and EA. The members of the Committee comprise of: Name George Thia Peng Heok Soeprapto S.I.P Chris Kanter Kanaka Puradiredja USM Tampubolon Position An Independent Commissioner and Chairman An Independent Commissioner and Member An Independent Commissioner and Member An Independent expert member An Independent expert member
For the purpose of Bapepam-LK and NYSE requirements, George Thia Peng Heok and Kanaka Puradiredja are acting as the financial experts. During the year, the Committee held 6 meetings. The attendance of the respective member is, as follows: Attendance/ Number of Meetings 6/6 5/6 3/5 4/6 6/6 1/1
Name George Thia Peng Heok Soeprapto S.I.P Chris Kanter Kanaka Puradiredja USM Tampubolon Michael F. Latimer
Furthermore as defined in its Charter, to support its activities the Committee has formed an Audit Committee Working Group (ACWG) to attend to numerous issues relating to the duties of the Committee. The ACWG consists of 2 (two) independent members of the Committee and 2 (two) independent advisors. During 2010, it held 25 meetings. After conducting its activities and receiving and reviewing representation letters from the Management and EA, the Committee summarizes the following report.
Financial Statements
1. The 2010 consolidated financial statements, as included in the 2010 Annual Report, were audited by Purwantono Suherman & Surja (PSS), a member of Ernst & Young Global whose report dated February 10, 2011 expresses that the Companys 2010 consolidated financial statements have been fairly stated in accordance with the Indonesian Generally Accepted Accounting Principles (Ina GAAP). To meet the reporting requirements of US SEC, starting from 2009, the Company also prepared a set of financial statements based on International Financial Reporting Standards (IFRS), in lieu of the disclosure in the form of a reconciliation to the United States Generally Accepted Accounting Principles (US GAAP). The Committee has reviewed the 2010 audited consolidated financial statements with the
Chris Kanter was appointed as the Committee member on January 29, 2010 substituting Michael F. Latimer upon his resignation.
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Management and PSS including matters pertaining to Sarbanes-Oxley Act 2002 section 204 namely the critical accounting policies, significant estimates and judgment, alternatives accounting treatment, risk in financial reporting and significant audit adjustments. The Committee is not aware of any material misstatement in the above mentioned consolidated financial statements and has satisfied itself that all material audit adjustments proposed by PSS have been included in the 2010 consolidated financial statements.
PSS was not engaged in any assignments which are prohibited services as defined by Bapepam & LK and US SEC.
Internal Auditors
5. With respect to the Internal Auditors, the Committee notes the continuing efforts by Management to improve its activities and necessary guidance have been provided by the Committee so as to improve their performance. The latest significant effort was a completion of IA transformation plan under assistance of a consultant namely PT PricewaterhouseCoopers Indonesia Advisory (a member of PricewaterhouseCoopers Global) to be implemented in 2011.
Internal Control
2. Based on information in whistle blower system established by the Committee and enquiries to the Companys Management, the Committee is not aware of any frauds which may affect the fair presentation of 2010 consolidated financial statements. 3. The process of assessing the control over financial reporting conducted by Management as facilitated by the SOX team in connection with the SOX 404 requirements has been closely monitored by the Committee and the Committee concludes that the Company, in all material respects, have maintained effective internal control over financial reports. However, it is noted that certain deficiencies were identified by PSS and the Committee has asked the Management to follow up for remediation.
Compliance with the Prevailing Laws and Regulations

6. The Committee has enquired both the Companys management and PSS with respect to the Companys compliance with the prevailing laws and regulations. Both have stated that they are not aware of any non compliance and as such, the Committee states, that to the best of its knowledge, is not aware of any non compliance to the prevailing laws and regulations.
Remuneration Package
7. Part of the Committee responsibilities is to review the remuneration package of BOD and BOC. Based on its review conducted by PSS, under the instruction of the Committee, it is concluded that 2010 remuneration package of BOD and BOC has been implemented in line with that as determined in Annual General Meeting of Shareholders of June 22, 2010 as reported in this Annual Report.
Note
External Auditors
4. The Committee has reviewed the independence of PSS, the Companys external auditors, and concludes that PSS is independent to conduct the audit on Companys consolidated financial statements for the year ended December 31, 2010.
Curriculum Vitae of Audit Committee Members are available on Board of Commissioners Profile section and Corporate Data section.
George Thia Peng Heok Chairman of Audit Committee
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BUDGET COMMITTEE REPORT
The Budget Committee assists the Board of Commissioners in performing the Boards supervisory and advisory duties by reviewing and giving its recommendations to the Board in relation to the Companys strategic plans, the Annual Work Plan and Budget (which includes the Capital Expenditure plan). From January 28, 2010, the Budget Committee comprised of Dr. Nasser Mohammed Marafih (Chairman), George Thia Peng Heok, Jarman and Richard F. Seney. The Extraordinary General Meeting held on February 8, 2011 approved the changes in composition of the Board of Commissioners and therefore the Budget Committee is now made up of Dr. Nasser Mohammed Marafih as Chairman, George Thia Peng Heok and Richard F. Seney as member. The Budget Committee held five meetings in 2010. A table of the Commissioners participation and attendance at the Budget Committee meetings held during the year is set out below: Numbers of Meetings Attended 5 5 5 5
Activities
The Budget Committee conducted its duties and responsibilities in accordance with its terms of reference. The main activities undertaken by the Budget Committee were as follows: 1. Review and recommend to the Board of Commissioners the 2010 Workplan and Budget proposed by the Board of Directors; and 2. Supervise the Companys approved 2010 Work plan and Budget. Some strategic plans discussed include 3G Second Carrier, BWA WiMax, Tower Business, Satellite Business, Cost Efficiency Program and CDMA Strategy.
Commissioners Dr. Nasser Mohammed Marafih George Thia Peng Heok Jarman Richard F. Seney
Dr. Nasser Mohammed Marafih Chairman of Budget Committee
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RISK MANAGEMENT COMMITTEE REPORT
The Risk Management Committee assist the Board of Commissioners in establishing an appropriate policy concerning risk assessment and risk management as well as in reviewing the adequacy, completeness and implementation effectiveness of the Companys risk management process, and recommend to the Board of Commissioners improvements where deemed necessary. Members of the Risk Management Committee are appointed by the Board of Commissioners from amongst its members and comprise of four members. Up until 7 February 2011, the Risk Management Committee comprised Mr. Rachmat Gobel as Chairman, Mr. Jarman as member, Mr. Rionald Silaban as member and Mr. George Thia Peng Heok as member. Since 8 February 2011, after the Extraordinary General Shareholder Meetings which approved the changes in the composition of the Board of Commissioners, The Risk Management Committee comprises of Mr. Rachmat Gobel as Chairman, Mr. Rionald Silaban as member and Mr. George Thia Peng Heok as member. The Committee has held three meetings during 2010. A matrix of the Commissioners participation and attendance at the Committee meetings held during the year is set out below: Numbers of Meetings Attended 2 2 3 3
Activities
The Risk Management Committee conducted its duties and responsibilities in accordance with its terms of reference. The main activities undertaken by the Committee were as follows: 1. Review the Roadmap and Work-Plan of Enterprise Risk management; and 2. Review and monitor Key Risk Profile of the 2010 Company and the mitigation action of each key risk items conducted by Management.
Commissioners Rachmat Gobel Jarman Rionald Silaban George Thia Peng Heok
Rachmat Gobel Chairman of Risk Management Committee
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Corporate Data
REMUNERATION COMMITTEE REPORT
The Remuneration Committee has the responsibility of providing advice to the Board of Commissioners on the remuneration, bonuses and benefits of the Commissioners, Directors and other employees of the Company as well as the structure, terms and implementation of long-term incentives for the Board of Directors. Members of the Remuneration Committee are appointed by the Board of Commissioners from amongst its members and comprise not fewer than three members. The Membership of Remuneration Committee up to the Extraordinary General Shareholder Meeting in 28 January 2010 (EGM) comprised of Dr. Nasser Mohammed Marafih as Chairman, Michael Latimer and Soeprapto S.I.P as Members. Following Michael Latimer resignation at the EGM, Alexander Rusli was appointed as a member on January 29, 2010. The Remuneration Committee has access to expert professional advice from appropriate external advisors to provide additional perspectives on talent management and remuneration practices as and when it deems necessary. The Remuneration Committee held five meetings during 2010. A table of the Commissioners participation and attendance at the Remuneration Committee meetings held during the year is set out below: Numbers of Meetings Attended 5 4 5
Activities
The Remuneration Committee conducted its duties and responsibilities in accordance with its terms of reference. The main activities undertaken by the Committee in 2010 were as follows: 1. Reviewed and recommended to the Board of Commissioners, the remuneration structure and package of the Board of Commissioners for 2010; 2. Reviewed and recommended to the Board of Commissioners, the remuneration structure and package (including review of salaries, bonuses and long-term incentives) for the Board of Directors for 2010; 3. Reviewed and recommended to the Board of Commissioners, the Performance Bonus for Board of Directors for 2009; 4. Reviewed and Approved the Remuneration Policy for Employees; and 5. Based on delegation from Board of Commissioners, reviewed and approved Amendments to the organization structure.
Commissioners Dr. Nasser Mohammed Marafih Soeprapto S.I.P Alexander Rusli
Dr. Nasser Mohammed Marafih Chairman Of Remuneration Committee
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RISK FACTORS
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Risks Relating to Indonesia

We are incorporated in Indonesia and substantially all of our operations, assets and customers are located in Indonesia. As a result, future political, economic, legal and social conditions in Indonesia, as well as certain actions and policies which the Government may, or may not, take or adopt may have a material adverse effect on our business, financial condition, results of operations and prospects. Domestic, regional or global economic changes may adversely affect our business The economic crisis which affected Southeast Asia, including Indonesia, from mid-1997 was characterized in Indonesia by, among other things, currency depreciation, negative economic growth, high interest rates, social unrest and extraordinary political events. These conditions had a material adverse effect on Indonesian businesses, including a material adverse effect on the quality and growth of our subscriber base and service offerings, which depend on the health of the overall Indonesian economy. In addition, the economic crisis resulted in the failure of many Indonesian companies to meet their debt obligations. Many Indonesian companies have not fully recovered from the economic crisis, and many such companies are still in the process of restructuring their debt obligations or are engaged in disputes arising from defaults under their debt obligations. More recently, the global financial crisis which was triggered in part by the subprime mortgage crisis in the United States, caused failures of large U.S. financial institutions and rapidly evolved into a global credit crisis. U.S. bank failures were followed by failures in a number of European banks and declines in various stock indexes, as well as large reductions in the market value of equities and commodities worldwide, including in Indonesia. The world economic downturn has adversely affected the economic performance of Indonesia, resulting in declining economic growth, slowing household consumption and weakening investment due to loss of external demand and increased uncertainty in the world economy. These conditions have had a negative impact on Indonesian businesses and consumers, which may result in reduced demand for telecommunication services. Volatility in oil prices and potential food shortages may also cause an economic slowdown in many countries, including Indonesia. An economic downturn in Indonesia could also lead to additional defaults by Indonesian borrowers
and could have a material adverse effect on our business, financial condition and results of operations and prospects. The Government continues to have a large fiscal deficit and a high level of sovereign debt. Its foreign currency reserves are modest and the banking sector is weak and suffers from relatively high levels of non-performing loans. The current high inflation rate in Indonesia may also result in less disposable income available to consumers to spend or cause consumer purchasing power to decrease, which may reduce consumer demand for telecommunication services, including our services. A loss of investor confidence in the financial systems of emerging and other markets, or other factors, including the deterioration of the global economic situation, may cause increased volatility in the Indonesian financial markets and a slowdown in economic growth or negative economic growth in Indonesia. Any such increased volatility or slowdown or negative growth could have a material adverse effect on our business, financial condition and results of operations and prospects. Political and social instability may adversely affect us Since 1998, Indonesia has experienced a process of democratic change, resulting in political and social events that have highlighted the unpredictable nature of Indonesias changing political landscape. These events have resulted in political instability as well as general social and civil unrest on certain occasions in the past few years. As a relatively new democratic country, Indonesia continues to face various socio-political issues and has, from time to time, experienced political instability and social and civil unrest. Since 2000, thousands of Indonesians have participated in demonstrations in Jakarta and other Indonesian cities both for and against former President Wahid, former President Megawati, and current President Yudhoyono, as well as in response to specific issues, including fuel subsidy reductions, privatization of state assets, anticorruption measures, the bailout of PT Bank Century in 2008, decentralization and provincial autonomy and the American-led military campaigns in Afghanistan and Iraq. In June 2001, demonstrations and strikes affected at least 19 cities after the Government mandated a 30.0% increase in fuel prices. Similar demonstrations occurred in January
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2003, when the Government again tried to increase fuel prices, as well as electricity rates and telephone charges. In both instances, the Government was forced to drop or substantially reduce the proposed increases. In March 2005, the Government implemented an approximately 29.0% increase in fuel prices. In October 2005, the Government terminated fuel subsidies on premium and regular gasoline and decreased fuel subsidies on diesel, which resulted in increases in fuel prices. In response, several non-violent mass protests were organized in opposition to the increases in domestic fuel prices, and political tensions have resulted from the Governments decision. In May 2008, the Government further decreased fuel subsidies to the public, which led to public demonstrations. Although these demonstrations were generally peaceful, some turned violent. We cannot assure you that this situation will not lead to further political and social instability. Regional political instability and clashes between religious and ethnic groups remain problematic. Separatist movements and clashes between religious and ethnic groups have resulted in social and civil unrest in parts of Indonesia. In the provinces of Aceh and Papua (formerly Irian Jaya), there have been clashes between supporters of those separatist movements and the Indonesian military, although there has been little conflict in Aceh since a memorandum of understanding was signed in August 2005. In April 2006, hundreds of people were involved in a violent protest directed at Freeports gold mining operations in the province of Papua. In recent years, political instability in Maluku and Poso, a district in the province of Central Sulawesi, has intensified and clashes between religious groups in these regions have resulted in thousands of casualties and displaced persons in Central Kalimantan and Central Sulawesi over the past several years. In recent years, the Government has made limited progress in negotiations with these troubled regions, except in the Province of Aceh where peaceful local elections were recently held which resulted in former separatists winning the election and becoming the governors of the Province. In 2004, Indonesians directly elected the President, VicePresident and representatives in the Indonesian parliament for the first time through proportional voting with an open list of candidates. At the lower governmental level, Indonesians have started directly electing their respective heads of local governments. In 2009, another set of
elections were held in Indonesia to elect the President, VicePresident and representatives in the Parliament. Increased political activity can be expected in Indonesia. Although the 2004 and 2009 elections were conducted peacefully, political campaigns in Indonesia may bring a degree of political and social uncertainty to Indonesia. Political and related social developments in Indonesia have been unpredictable in the past, and we cannot assure you that social and civil disturbances will not occur in the future and on a wider scale, or that any such disturbances will not, directly or indirectly, have a material adverse effect on our business, financial condition, results of operations and prospects. Indonesia is located in an earthquake zone and is subject to significant geological risks which could lead to social unrest and economic loss Many parts of Indonesia are vulnerable to natural disasters such as earthquakes, tsunamis, floods, volcanic eruptions as well as droughts, power outages or other events beyond our control. In recent years, several natural disasters have occurred in Indonesia (in addition to the Asian tsunami in 2004), including an explosive eruption of Mount Merapi and Mount Bromo, a tsunami in Mentawai in West Sumatera, both in 2010, a tsunami in Pangandaran in West Java in 2006, an earthquake in Jogyakarta in Central Java in 2006, a hot mud eruption and subsequent flooding in East Java in 2006 and separate earthquakes in Papua, West Java, Sulawesi and Sumatra in 2009. Indonesia also experienced significant flooding in Jakarta in February 2007 and in Solo in Central Java in January 2008. In March 2009, torrential rain caused a dam to burst outside Jakarta, flooding homes in a densely populated neighborhood, resulting in the death of approximately 100 people. The flood submerged hundreds of homes and resulted in a number of people being reported missing. Recently, in October 2010, at least 145 people died in a flash flood in Wasior district, West Papua. Also in October 2010, an earthquake off the coast of Western Sumatra released a tsunami on the Mentawai Islands in which more than 500 people died. From October 24, 2010 to November 5, 2010, Mount Merapi, a volcano in Southern Java near Yogyakarta, erupted a number of times and is believed to have killed more than 380 people.
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As a result of these natural disasters, the Government has had to spend significant amounts on emergency aid and resettlement efforts. Most of these costs have been underwritten by foreign governments and international aid agencies. We cannot assure you that such aid will continue to be forthcoming, or that it will be delivered to recipients on a timely basis. If the Government is unable to timely deliver foreign aid to affected communities, political and social unrest could result. Additionally, recovery and relief efforts are likely to continue to impose a strain on the Governments finances, and may affect its ability to meet its obligations on its sovereign debt. Any such failure on the part of the Government, or declaration by it of a moratorium on its sovereign debt, could trigger an event of default under numerous private-sector borrowings including those of our Company, thereby materially and adversely affecting our business. We cannot assure you that our insurance coverage will be sufficient to protect us from potential losses resulting from such natural disasters and other events beyond our control. In addition, we cannot assure you that the premium payable for these insurance policies upon renewal will not increase substantially, which may materially and adversely affect our financial condition and results of operations. We also cannot assure you that future geological or meteorological occurrences will not have more of an impact on the Indonesian economy. A significant earthquake, other geological disturbance or weather-related natural disaster in any of Indonesias more populated cities and financial centers could severely disrupt the Indonesian economy and undermine investor confidence, thereby materially and adversely affecting our business, financial condition, results of operations and prospects. Terrorist activities in Indonesia could destabilize the country, thereby adversely affecting our business, financial condition, results of operations and prospects Several bombing incidents have taken place in Indonesia, most significantly in October 2002 in Bali, a region of Indonesia previously considered safe from the unrest affecting other parts of the country. Other bombing incidents, although on a lesser scale, have also been committed in Indonesia on a number of occasions over the past few years, including at shopping centers and places of worship. In April 2003, a bomb exploded outside the
main United Nations building in Jakarta and in front of the domestic terminal at Soekarno Hatta International Airport. In August 2003, a bomb exploded at the JW Marriott Hotel in Jakarta, and in September 2004, a bomb exploded in front of the Australian embassy in Jakarta. In May 2005, bomb blasts in Central Sulawesi killed at least 21 people and injured at least 60 people. In October 2005, bomb blasts in Bali killed at least 23 people and injured at least 101 others. Indonesian, Australian and U.S. government officials have indicated that these bombings may be linked to an international terrorist organization. Demonstrations have taken place in Indonesia in response to plans for and subsequent to U.S., British and Australian military action in Iraq. In January 2007, sectarian terrorists conducted bombings in Poso. In July 2009, bomb blasts in the JW Marriott and Ritz Carlton hotels in Jakarta killed six people and injured at least 50 people. Further terrorist acts may occur in the future and may be directed at foreigners in Indonesia. Violent acts arising from, and leading to, instability and unrest could destabilize Indonesia and the Government and have had, and may continue to have, a material adverse effect on investment and confidence in, and the performance of, the Indonesian economy, and may have a material adverse effect on our business, financial condition, results of operations and prospects. Our operations may be adversely affected by an outbreak of Severe Acute Respiratory Syndrome (SARS), avian influenza, Influenza A (H1N1) virus or other epidemics In 2003, certain countries in Asia including, Indonesia, the China, Vietnam, Thailand and Cambodia, experienced an outbreak of SARS, a highly contagious form of atypical pneumonia, which seriously interrupted the economic activities in, and the demand for goods plummeted in, the affected regions. During the last four years, large parts of Asia experienced unprecedented outbreaks of avian influenza. As of June 2, 2009, the World Health Organization (WHO) had confirmed a total of 262 fatalities in a total number of 433 cases reported to the WHO, which only reports laboratory confirmed cases of avian influenza. Of these, the Indonesian Ministry of Health reported to the WHO 115 fatalities in a total number of 141 cases of avian influenza in Indonesia. In addition, the WHO announced in June 2006 that human-to-human transmission of avian influenza
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had been confirmed in Sumatra, Indonesia. According to the United Nations Food and Agricultural Organization, avian influenza virus is entrenched in 31 of Indonesias 33 provinces and efforts to contain avian influenza are failing in Indonesia, increasing the possibility that the virus may mutate into a deadlier form. No fully effective avian influenza vaccines have been developed and an effective vaccine may not be discovered in time to protect against a potential avian influenza pandemic. In April 2009, there was an outbreak of the Influenza A (H1N1) virus, which originated in Mexico but has since spread globally, including confirmed reports in Hong Kong, Indonesia, Japan, Malaysia, Singapore and elsewhere in Asia. The Influenza A (H1N1) virus is believed to be highly contagious and may not be easily contained. An outbreak of SARS, avian influenza, Influenza A (H1N1) virus or a similar epidemic, or the measures taken by the governments of affected countries, including Indonesia, against such an outbreak, could severely disrupt the Indonesian and other economies and undermine investor confidence, thereby materially and adversely affecting our financial condition or results of operations. Labor activism and unrest may adversely affect our business The liberalization of regulations permitting the formation of labor unions, combined with weak economic conditions, has resulted, and will likely continue to result, in labor unrest and activism in Indonesia. In 2000, the Government issued a labor regulation allowing employees to form unions without employer intervention. In March 2003, the Government enacted a manpower law, Law No. 13/2003 (the Labor Law), which, among other things, increased the amount of required severance, service and compensation payments to terminated employees, and required employers with 50 or more employees to establish bipartite forums with the participation of employers and employees. To negotiate a collective labor agreement with such a company, a labor unions membership must consist of more than 50.0% of the companys employees. In response to a challenge to its validity, the Indonesian Constitutional Court declared the Labor Law to be mostly valid, except for certain provisions. The Government proposed to amend the Labor Law in a manner which, in the view of labor activists, would result in reduced pension
benefits, the increased use of outsourced employees and prohibitions on unions to conduct strikes. The proposal has been suspended and the new Government regulation addressing lay-offs of workers has not yet become effective. Labor unrest and activism could disrupt our operations and could adversely affect the financial condition of Indonesian companies in general and the value of the Indonesian rupiah relative to other currencies, which could have a material adverse effect on our business, financial condition, results of operations and prospects. Depreciation in the value of the Indonesian rupiah may adversely affect our business, financial condition, results of operations and prospects One of the most important immediate causes of the economic crisis which began in Indonesia in mid-1997 was the depreciation and volatility of the value of the Indonesian rupiah, as measured against other currencies, such as the U.S. dollar. Although the Indonesian rupiah has appreciated considerably from its low point of approximately Rp17,000 per U.S. dollar in 1998, it may experience volatility again in the future. During the period between January 1, 2008 through December 31, 2010, the Indonesian rupiah/U.S. dollar exchange rate ranged from a low of Rp12,400 per U.S. dollar to a high of Rp8,888 per U.S. dollar. As a result, we recorded a loss on foreign exchange-net of Rp885.7 billion in 2008, a gain of Rp1,656.4 billion in 2009 and a gain of Rp492.4 in 2010. We cannot assure you that further depreciation of the Indonesian rupiah against other currencies, including the U.S. dollar, will not occur. To the extent the Indonesian rupiah depreciates further from the exchange rates at December 31, 2010, our obligations under our accounts payable, procurements payable and our foreign currencydenominated loans payable and bonds payable would increase in Indonesian rupiah terms. Such depreciation of the Indonesia rupiah would result in additional losses on foreign exchange translation and significantly impact our other income and net income. In addition, while the Indonesian rupiah has generally been freely convertible and transferable (except that Indonesian banks may not transfer Indonesian rupiah to persons outside of Indonesia who lack a bona fide trade or investment purpose), from time to time, Bank Indonesia has intervened in the currency exchange markets
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in furtherance of its policies, either by selling Indonesian rupiah or by using its foreign currency reserves to purchase Indonesian rupiah. We cannot assure you that the current floating exchange rate policy of Bank Indonesia will not be modified or that the Government will take additional action to stabilize, maintain or increase the value of the Indonesian rupiah, or that any of these actions, if taken, will be successful. Modification of the current floating exchange rate policy could result in significantly higher domestic interest rates, liquidity shortages, capital or exchange controls or the withholding of additional financial assistance by multinational lenders. This could result in a reduction of economic activity, an economic recession, loan defaults or declining usage of our subscribers, and as a result, we may also face difficulties in funding our capital expenditures and in implementing our business strategy. Any of the foregoing consequences could have a material adverse effect on our business, financial condition, results of operations and prospects. Downgrades of credit ratings of the Government or Indonesian companies could adversely affect our business Beginning in 1997, certain recognized statistical rating organizations, including Moodys, Standard & Poors, and Fitch, downgraded Indonesias sovereign rating and the credit ratings of various credit instruments of the Government and a large number of Indonesian banks and other companies. As of April 20, 2011, Indonesias sovereign foreign currency long-term debt is rated Ba1 by Moodys, BB by Standard & Poors and BBB- by Fitch. These ratings reflect an assessment of the Governments overall financial capacity to pay its obligations and its ability or willingness to meet its financial commitments as they become due. We cannot assure you that Moodys, Standard & Poors, Fitch or any other statistical rating organization will not downgrade the credit ratings of Indonesia or Indonesian companies, including us. Any such downgrade could have an adverse impact on liquidity in the Indonesian financial markets, the ability of the Government and Indonesian companies, including us, to raise additional financing and the interest rates and other commercial terms at which such additional financing is available. Interest rates on our floating rate Indonesian rupiah-denominated debt would also likely increase. Such events could have material adverse
effects on our business, financial condition, results of operations and prospects. We are subject to corporate disclosure and reporting requirements that differ from those in other countries As we are a public company listed in the Indonesia Stock Exchange and New York Stock Exchange, we are subject to corporate governance and reporting requirements in Indonesia and the United States that differ, in significant respects, from those applicable to companies in certain other countries. The amount of information made publicly available by issuers in Indonesia may be less than that made publicly available by comparable companies in certain more developed countries, and certain statistical and financial information of a type typically published by companies in certain more developed countries may not be available. As a result, investors may not have access to the same level and type of disclosure as that available in other countries, and comparisons with other companies in other countries may not be possible in all respects. We are incorporated in Indonesia, and it may not be possible for investors to effect service of process, or enforce judgments, on us within the United States, or to enforce judgments of a foreign court against us in Indonesia We are a limited liability company incorporated in Indonesia, operating within the framework of Indonesian laws relating to foreign capital invested companies, and all of our significant assets are located in Indonesia. In addition, several of our Commissioners and substantially all of our Directors reside in Indonesia and a substantial portion of the assets of such persons is located outside the United States. As a result, it may be difficult for investors to effect service of process, or enforce judgments, on us or such persons within the United States, or to enforce against us or such persons in the United States, judgments obtained in U.S. courts. We have been advised by our Indonesian legal advisor that judgments of U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws or the securities laws of any state within the United States, are not enforceable in Indonesian courts, although such judgments could be admissible as non-conclusive evidence in a proceeding on the underlying claim in an Indonesian court. There is doubt as to whether
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Indonesian courts will enter judgments in original actions brought in Indonesian courts predicated solely upon the civil liability provisions of the U.S. federal securities laws or the securities laws of any state within the United States. As a result, the claimant would be required to pursue claims against us or such persons in Indonesian courts.
offer lower pricing terms to their customers. In addition, the tariffs in our RIOs have been decreasing in the past few years, and we expect this downward trend to continue. Any decrease in the amount of interconnection costs might reduce our revenue and also our costs for inter-operator traffic. On January 25, 2010, the MOCIT passed a new regulation pursuant to which an existing telecommunications network operator that already has an allocated frequency and access code for the provision of a certain network is exempted from following the selection process when seeking to obtain a new network license with another access code. This is expected to allow certain telecommunications network operators to expand their businesses more easily. On December 13, 2010, the Government issued Government Regulation No. 76/2010 on the Amendment of PP No.7/2009 on the types and tariffs of non-tax state income applicable to MOCIT. This regulation affects the calculation method and payment of the spectrum fee due on the spectrum allocated to the Company (800 Mhz, 900 Mhz and 1,800 MHz frequency bands). On December 31, 2010, Badan Regulasi Telekomunikasi Indonesia (BRTI or Indonesian Telecommunications Regulatory Bureau) issued letter No.227/BRTI/XII/2010 regarding the implementation of new interconnection tariffs which will take into effect on January 1, 2011 and will be used by all telecommunications operators. In the future, the Government may announce or implement other regulatory changes, such as changes in interconnection or tariff policies, which may adversely affect our business or our existing licenses. We cannot assure you that we will be able to compete successfully with other domestic and foreign telecommunications operators or that regulatory changes, amendments or interpretations of current or future laws and regulations promulgated by the Government will not have a material adverse effect on our business, financial condition, results of operations and prospects. We may be unable to fund the capital expenditures needed for us to remain competitive in the telecommunications
Risks Relating to Our Business

We operate in a legal and regulatory environment that is undergoing significant reforms. These reforms may result in increased competition, which may result in reduced margins and operating revenues, among other things, all of which may have a material adverse effect on us The regulatory reform of the Indonesian telecommunications sector, which was initiated by the Government in 1999, has to a certain extent resulted in the liberalization of the telecommunications industry, including facilitation of new market entrants and changes to the competitive structure of the telecommunications industry. However, in recent years, the volume and complexity of regulatory changes has created an environment of considerable regulatory uncertainty. In addition, as the reform of the Indonesian telecommunications sector continues, competitors, potentially with greater resources than us, may enter the Indonesian telecommunications sector and compete with us in providing telecommunications services. For example, since January 2007, the Government, through the Ministry of Communication and Information Technology (MOCIT), has been responsible for setting tariffs for interconnection services. We depend on interconnection agreements relating to the use of our competitors cellular and fixed-line telephone networks. The MOCIT sets interconnection tariffs for dominant service providers on a cost basis, based on RIOs submitted by the dominant service providers, which include us. In contrast, telecommunications operators which are not designated as dominant operators may simply notify the MOCIT regarding their tariffs and may implement such tariffs for its customers without MOCIT approval. The disparity in the treatment of dominant and non-dominant telecommunications operators may create opportunities for new entrants in the telecommunications industry, providing them with increased flexibility to establish lower tariffs and
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industry in Indonesia The delivery of telecommunications services is capital intensive. In order to be competitive, we must continually expand, modernize and update our telecommunications infrastructure technology, which involves substantial capital investment. For the years ended December 31, 2008, 2009 and 2010, our actual consolidated capital expenditures totaled Rp12,341.9 billion, Rp11,584.5 billion, and Rp5,515.0 billion (US$613.4 million), respectively. During 2011, we intend to allocate US$794.5 million for new capital expenditures, which, taken together with estimated actual capital expenditures expended for 2011 for capital expenditure commitments in prior periods, will result in approximately US$1,053.8 million total actual capital expenditures for 2011. Our ability to fund capital expenditures in the future will depend on our future operating performance, which is subject to prevailing economic conditions, levels of interest rates and financial, business and other factors, many of which are beyond our control, and upon our ability to obtain additional external financing. We cannot assure you that additional financing will be available to us on commercially acceptable terms, or at all. In addition, we can only incur additional financing in compliance with the terms of our debt agreements. Accordingly, we cannot assure you that we will have sufficient capital resources to improve or expand our telecommunications infrastructure technology or update our other technology to the extent necessary to remain competitive in the Indonesian telecommunications market. Our failure to do so could have a material adverse effect on our business, financial condition, results of operations and prospects. We depend on interconnection agreements relating to the use of our competitors cellular and fixed-line telephone networks We are dependent on interconnection agreements relating to the use of our competitors cellular and fixed-line telephone networks and associated infrastructure for the successful operation of our business. If any disputes involving such interconnection arrangements arise, whether due to a failure by a counterparty to perform its contractual obligations or for any other reason, the delivery of one or more of our services may be delayed, interrupted or stopped, the quality of our services may be lowered, our subscriber churn rates may increase or our interconnection
rates may increase. Any disputes involving our current interconnection agreements, as well as our failure to enter into or renew interconnection agreements, could have a material adverse effect on our business, financial condition, results of operations and prospects. We may become subject to limitations on foreign ownership in the telecommunication services business Presidential Regulation No. 36 of 2010 (the Presidential Regulation) sets out the industries and business fields in which foreign investment is prohibited, restricted or subject to the fulfillment of certain conditions as stipulated by the applicable Governmental authorities (the Negative List). The telecommunication industry is one of the industries set out in the Negative List, and foreign investment in the Indonesian telecommunication industry is accordingly subject to applicable restrictions and conditions. The Negative List is implemented by the Capital Investment Coordinating Board (BKPM). Restrictions applicable to the telecommunication industry are dependent upon the type of telecommunication business undertaken. Different limitation thresholds are applicable depending upon whether the business pertains to telecommunication networks or services. The limitation on foreign holdings in companies engaging in the telecommunication network business ranges from 49.0%65.0%, and the limitation on foreign shareholdings in Indonesian companies engaged in the provision of multimedia services (including data communication such as broadband wireless services), from 49.0%95.0%. Pursuant to Article 8 of the Presidential Regulation, the restrictions set forth therein shall not apply to investments that have been approved prior to the effectiveness of the Presidential Regulation pursuant to investment approval issued by BKPM unless such restrictions are more favorable to the investments. The Presidential Regulation does not change the limitation of foreign shareholding in our business. On June 22, 2008, Qatar Telecom (Qtel) Q.S.C. (Qtel), through its subsidiary, Qatar South East Asia Holding S.P.C. purchased all of the issued and outstanding shares of capital stock of each of Indonesia Communications Limited (ICLM), and Indonesia Communications Pte. Ltd. (ICLS) from Asia Mobile Holdings Pte. Ltd. (AMH), a company incorporated in Singapore. Following this acquisition, a change of control occurred in the Company, requiring
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Qtel to conduct a mandatory tender offer. In connection with the tender offer, on December 23, 2008, the Capital Market and Financial Institution Supervisory Agency of the Ministry of Finance of the Republic of Indonesia (Bapepam-LK) issued a letter (i) noting that it had received a letter from BKPM dated December 19, 2008, pursuant to which BKPM confirmed that the maximum amount of foreign capital ownership in the Company shall be 65.0%, and that the Company may still conduct its cellular network operation and local fixed network business and (ii) permitting Qtel to conduct the tender offer. Following the issuance of such letter, Qtel conducted a mandatory tender offer to acquire up to 1,314,466,775 Series B Shares, representing approximately 24.19% of our total issued and outstanding Series B Shares (including Series B Shares represented by ADSs). As we are a publicly listed company, we believe that the Negative List restrictions do not apply to us. If the relevant regulatory authorities were to apply the Negative List to us, notwithstanding our status as a publicly listed company, our controlling and/or other foreign shareholders may be required to reduce their shareholding in us, which could create downward pressure on the trading price for our shares. This could have a material adverse effect on our business, financial condition, results of operations and prospects. We may also be required to separate our business entity into two sectors, mobile or cellular network and fixed network, in order to comply with the relevant regulation. Separating our business into two sectors may involve divesting either our fixed network or mobile or cellular network operation businesses to a subsidiary or a third party, which could materially alter our operations and result in a reduction of our total operating revenue. In addition, if the relevant regulatory authorities determine that our foreign ownership still exceeds the Negative List restriction, the regulatory authorities may prohibit us from participating in bidding for or obtaining further licenses or additional spectrum. If this occurs, our business, prospects, financial condition and results of operations would be adversely affected.
A failure in the continuing operations of our network, certain key systems, gateways to our network or the networks of other network operators could adversely affect our business, financial condition, results of operations and prospects We depend to a significant degree on the uninterrupted operation of our network to provide our services. For example, we depend on access to the PSTN for termination and origination of cellular telephone calls to and from fixed-line telephones, and a significant portion of our cellular and international long-distance call traffic is routed through the PSTN. The limited interconnection facilities of the PSTN available to us have adversely affected our business in the past and may adversely affect our business in the future. Because of interconnection capacity constraints, our cellular subscribers have at times experienced blocked calls. We cannot assure you that these interconnection facilities can be increased or maintained at current levels. We also depend on certain technologically sophisticated management information systems and other systems, such as our customer billing system, to enable us to conduct our operations. In addition, we rely to a certain extent on interconnection to the networks of other telecommunications operators to carry calls from our subscribers to the subscribers of fixed-line operators and other cellular operators, both within Indonesia and overseas. Our network, including our information systems, information technology and infrastructure and the networks of other operators with whom our subscribers interconnect, are vulnerable to damage or interruptions in operation from a variety of sources including earthquake, fire, flood, power loss, equipment failure, network software flaws, transmission cable disruption or similar events. For example, our telecommunications control and information technology back-up facilities are highly concentrated within our headquarters and our principal operating and tape back-up storage facilities are located at two sites in Jakarta. Any failure that results in an interruption of our operations or of the provision of any service, whether from operational disruption, natural disaster or otherwise, could damage our ability to attract and retain subscribers, cause significant subscriber dissatisfaction and adversely affect our business, financial condition, results of operations and prospects.
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Our failure to react to rapid technological changes could adversely affect our business The telecommunications industry is characterized by rapid and significant changes in technology. We may face increasing competition due to technologies currently under development or which may be developed in the future. Future development or application of new or alternative technologies, services or standards could require significant changes to our business model, the development of new products, the provision of additional services and substantial new investments by us. For example, the development of fixed-mobile convergence technology, which allows a call that originates on a cellular handset to bypass a cellular network and instead be carried over a fixed-line telephone network, could adversely affect our business. New products and services may be expensive to develop and may result in the introduction of additional competitors into the marketplace. We cannot accurately predict how emerging and future technological changes will affect our operations or the competitiveness of our services. We cannot assure you that our technologies will not become obsolete, or be subjected to competition from new technologies in the future, or that we will be able to acquire new technologies necessary to compete in changed circumstances on commercially acceptable terms. Our failure to react to rapid technological changes could adversely affect our business, financial condition, results of operations and prospects. The Government is the majority shareholder of our major competitors, Telkom and Telkomsel. The Government may give priority to Telkoms or Telkomsels businesses over ours As of December 31, 2010, the Government had a 14.29% equity stake in us, including the Series A share, which has special voting rights and veto rights over certain strategic matters under our Articles of Association, including decisions on dissolution, liquidation and bankruptcy, and also permits the Government to nominate one Director to our Board of Directors and one Commissioner to our Board of Commissioners. As of December 31, 2010, the Government also had a 52.47% equity stake in Telkom, which is our foremost competitor in fixed IDD telecommunications services. As of the same date, Telkom owns a 65.0% interest in Telkomsel,
one of our two main competitors in the provision of cellular services. The percentage of the Governments ownership interest in Telkom is significantly greater than its ownership interest in us. We cannot assure you that significant Government policies and plans will support our business or that the Government will treat us equally with Telkom and Telkomsel when implementing future decisions, or when exercising regulatory power over the Indonesian telecommunications industry. If the Government were to give priority to Telkoms or Telkomsels business over ours, our business, financial condition, and results of operations and prospects could be materially and adversely affected. Our controlling shareholders interests may differ from those of our other shareholders As of December 31, 2010, Qatar Telecom (Qtel Asia) Pte. Ltd. (Qtel Asia), owned approximately 65.0% of our issued and outstanding share capital. Qtel Asia is currently wholly owned and controlled by Qtel, which is majorityowned by the State of Qatar and its affiliated entities. Qtel Asia and its controlling shareholder have the ability to exercise a controlling influence over our business and may cause us to take actions that are not in, or may conflict with, our or our other shareholders best interests, including matters relating to our management and policies. Although nominees of Qtel Asia hold positions on our Board of Commissioners and Board of Directors, we cannot assure you that our controlling shareholder will elect directors and commissioners or be able to influence our business in a way that benefits our other shareholders. We rely on key management personnel, and our business may be adversely affected by any inability to recruit, train, retain and motivate our key employees We believe that our current management team contributes significant experience and expertise to the management of our business. The continued success of our business and our ability to execute our business strategies in the future will depend in large part on the efforts of our key personnel. There is a shortage of skilled personnel in the telecommunications industry in Indonesia and this shortage is likely to continue. As a result, competition for certain specialist personnel is intense. In addition, as new market entrants begin or expand operations in Indonesia, certain of our key employees may leave their current positions. Our
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inability to recruit, train, retain and motivate key employees could have a material adverse effect on our business, financial condition, results of operations and prospects. The implementation of our organizational restructuring may disrupt our business and may not successfully achieve improved longer-term operating results In January 2011, the Company introduced an organizational restructuring which forms part of our transformation program that began in 2009 to increase the Companys productivity and improve our longerterm operating results. The Company is offering special compensation packages to employees who meet certain criteria as determined by the Company and who opt to end their employment relationship with the Company as part of such organizational restructuring under the Voluntary Separation Scheme (VSS) Program. We anticipate having significant workforce reduction that may result in the Company incurring certain costs, which may include the costs in connection with the aforementioned special compensation packages. We cannot assure you that the consequences of the organizational restructuring program may not harm our business and our future results of operations. If we are found liable for price fixing by the Indonesian Anti-Monopoly Committee and for class action allegations, we may be subject to substantial liability which could lead to a decrease in our revenue and affect our business, reputation and profitability On November 1, 2007, the Indonesian Supervising Committee for Business Competition (the KPPU) issued a decision regarding a preliminary investigation involving us and eight other telecommunication companies based on allegations of price-fixing for SMS services and breach of Article 5 of the Anti-monopoly Law (Law No. 5 / 1999). On June 18, 2008, the KPPU determined that Telkom, Telkomsel, XL Axiata Tbk. (XL), PT Bakrie Telecom Tbk (Bakrie Telecom), PT Mobile-8 Telecom Tbk (Mobile-8) which we understand has changed its Company name to PT Smartfren Telecom Tbk, effective March, 2011 and PT Smart Telecom (Smart Telecom) had jointly breached Article 5 of Law No. 5 / 1999. Mobile-8 appealed this ruling to the Central Jakarta District Court, where Telkomsel, XL, Telkom, Indosat, PT Hutchison CP Telecommunication (Hutchison), Bakrie Telecom, Smart Telecom, PT Natrindo
Telepon Selular (Natrindo) were summoned to appear as co-defendants in the hearing, while Telkomsel appealed this ruling to the South Jakarta District Court. Although the KPPU decided in our favor with respect to the allegations of price-fixing of SMS, we cannot assure you that the District Court will affirm the KPPU decision. The District Court will consider objections against the KPPU decision based on a re-examination of the KPPU decision and case files submitted by KPPU. If the District Court issues a verdict against us, we could be subjected to the payment of a fine, the amount of which will be subject to the discretion of the District Court, which could have an adverse effect on our business, reputation and profitability. In addition, a series of class action lawsuits were filed against us and Telkomsel during 2007 and 2008 in the District Court of Bekasi, the Central Jakarta District Court and the Tangerang District Court, relating to Temasek Holdings prior cross ownership of shares in us and Telkomsel, which is alleged to have caused price fixing of telecommunications services that harmed the public. The plaintiffs have since revoked the lawsuit filed with the District Court of Bekasi. On January 27, 2010, the judges ruled that the class action filed with the Central Jakarta District Court was unacceptable because the plaintiffs refused to prove their legal standing and two members of the plaintiff class did not qualify to stand as class representatives. Since the time limit to file an appeal lapse on March 18, 2010, the decision of the Central Jakarta District Court dated January 27, 2010 is final and binding. The Tangerang class action continued on May 3, 2010, whereby the defendants submitted a demurrer, and on May 24, 2010, the judges ruled that the class action filed with the Tangerang District Court was unacceptable because the plaintiffs were not serious in filing the lawsuit and the plaintiffs failed to prove legal standing as class representatives. Since the time limit to file an appeal lapsed on July 21, 2010, the decision of the Tangerang District Court dated May 24, 2010 is final and binding. Although the class action allegation was not accepted by neither the Central Jakarta District Court nor the Tangerang District Court and the lawsuit filed with the District Court of Bekasi was revoked, we cannot assure you that other subscribers will not file similar cases in the future. If any new class action suit or the District Court issues a verdict in favor of such plaintiffs, it could have an adverse effect on our business, reputation and profitability.
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We are exposed to interest rate risk Our debt includes bank borrowings to finance our operations. Where appropriate, we seek to minimize our interest rate risk exposure by entering into interest rate swap contracts to swap floating interest rates for fixed interest rates over the duration of certain of our borrowings. However, our hedging policy may not adequately cover our exposure to interest rate fluctuations and this may result in a large interest expense and an adverse effect on our business, financial condition and results of operations. We are exposed to counter-party risk We may enter into various transactions from time to time which will expose us to the credit of our counter-parties and their ability to satisfy the terms of contracts with us. For example, we may enter into swap arrangements, which expose us to the risk that counter-parties may default on their obligations to perform under the relevant contract. In the event a counter-party, including a financial institution, is declared bankrupt or becomes insolvent, this may result in delays in obtaining funds or us having to liquidate our position, potentially leading to losses. We may not be able to successfully manage our foreign currency exchange risk Changes in exchange rates have affected and may continue to affect our financial condition and results of operations. Most of our debt obligations are denominated in Indonesian rupiah and a majority of our capital expenditures are denominated in U.S. dollars. A substantial portion of our revenues are denominated in Indonesian rupiah, but a portion of our operating revenues are U.S. dollar-denominated or U.S. dollar-linked. We may also incur additional long-term indebtedness in currencies other than the Indonesian rupiah, including the U.S. dollar, to finance further capital expenditures. We currently hedge a portion of our foreign currency exposure principally because our annual U.S. dollardenominated operating revenues are less than the sum of our U.S. dollar-denominated operating obligations, such as our U.S. dollar-denominated expenses and our U.S. dollar-denominated principal and interest payments. In 2005, in an effort to manage our foreign currency exposure and lower our overall funding costs, we entered into
several foreign currency swap contracts with three separate international financial institutions. From 2006 to 2009, we also entered into several foreign currency swap contracts with seven international financial institutions in an effort to reduce our foreign currency risk exposure. For these contracts, we pay either an upfront or fixed rate premium. We cannot assure you that we will be able to manage our exchange rate risk successfully in the future or that our business, financial condition or results of operations will not be adversely affected by our exposure to exchange rate risk.
Risks Relating to our Cellular Services Business

Competition from industry incumbents and new market entrants may adversely affect our cellular services business The Indonesian cellular services business is highly competitive. Competition among cellular service providers in Indonesia is based on various factors, including pricing, network quality and coverage, the range of services, features offered and customer service. Our cellular services business competes primarily against Telkomsel and XL. Several other smaller GSM and CDMA operators also provide cellular services in Indonesia, including Hutchison, Natrindo and Smart Telecom. In addition to current cellular service providers, the MOCIT may license additional cellular service providers in the future, and such new entrants may compete with us. We expect competition in the cellular services business to further intensify. New and existing cellular service providers may offer more attractive product and service packages or new technologies or the convergence of various telecommunication services, resulting in higher churn rates, lower ARPU or a reduction of, or slower growth in, our cellular subscriber base. In 2010, the continuing competition from industry incumbents and new market entrants in the cellular services market led to aggressive pricing campaigns by cellular service providers. The decrease in prices for cellular usage also led to an increase in the number of subscribers and in network traffic, resulting in increased network congestion among operators, which has required us to incur additional capital expenditures to continue to expand our network. On the other hand, mobile penetration is quite high and we expect growth to be slower.
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The competitive landscape in the cellular services business may also be affected by industry consolidation. In March 2010, Smart Telecom and Mobile-8 announced that they entered into a cooperation agreement to use the same logo and brand under the name smartfren. Competition from providers of new technology, together with new entrants, incumbents, almost saturated market and consolidated providers could adversely affect our competitive position, cellular services business, financial condition, results of operations and prospects. Cellular network congestion and limited spectrum availability could limit our cellular subscriber growth and cause reductions in our cellular service quality We expect to continue to offer promotional plans to attract subscribers and increase usage of our network by our cellular subscribers. We also expect to continue to promote our data services, including our BlackBerry and wireless broadband services. As a result, we may experience increased network congestion, which may affect our network performance and damage our reputation with our subscribers. In addition, higher cellular usage in dense urban areas may require us to use radio frequency engineering techniques, including a combination of macro, micro and indoor cellular designs, to maintain cellular network quality despite radio frequency interference and tighter radio frequency re-use patterns. However, if our cellular subscriber base or usage of our voice and data services should grow significantly in high-density areas, we cannot assure you that these efforts will be sufficient to maintain and improve service quality. To support such additional demands on our network, we may be required to make significant capital expenditures to improve our network coverage. Such additional capital expenditures, together with the possible degradation of our cellular services, could adversely affect our competitive position, business, financial condition, results of operations and prospects. Despite expending significant financial resources to increase our cellular subscriber base, the number of our cellular subscribers may increase without a corresponding increase in our operating revenues We have expended significant financial resources to develop and expand our cellular network and add to our cellular subscriber base. However, the uncertain economic situation in Indonesia and increasing prices of primary
goods may decrease our cellular subscribers purchasing power. Moreover, a continued decline in effective tariffs for voice usage resulting from free-talk campaigns and recent tariff discount promotions, increasing SMS usage, and greater cellular penetration in the lower-income segment of the market has led to a decrease in ARPU in 2010. Our number of cellular subscribers (including wireless broadband subscribers) increased from approximately 36.5 million as of December 31, 2008 to approximately 33.0 million as of December 31, 2009, to approximately 44.3 million as of December 31, 2010. For the years ended December 31, 2008, 2009 and 2010, our ARPU was Rp38,639, Rp37,664 and Rp34,712, respectively. While we intend to continue to expend significant financial resources to expand our cellular subscriber base and expand our cellular network to support the requirements of such an expanded cellular subscriber base, we cannot assure you that such expenditures will be accompanied by a corresponding increase in our ARPU or operating revenues. Accordingly, our subscriber acquisition costs and the capital expenditures required to expand our network capacity could increase without a corresponding increase in our revenue or profitability, which would materially and adversely affect our business, financial condition, results of operations and prospects. We experience a high churn rate We experience a high churn rate, as is common for Indonesian telecommunication operators providing prepaid cellular services. We believe that our high churn rate is due to the fact that many of our prepaid subscribers own multiple SIM cards from various cellular providers, allowing them to choose the cheapest package available. We believe that our high churn rate was exacerbated by our efforts, during the first nine months of 2009, to clean up our subscriber base by discouraging calling card behavior and focusing instead on subscriber loyalty. We believe that such subscribers were short-term subscribers and were not likely to recharge their SIM cards. Our high churn rates may result in loss of revenue, which could have a material adverse effect on our business, financial condition, results of operations and prospects. At the end of the third quarter of 2010, we launched a retention and loyalty program called Senyum Setia Indosat which gives benefits to our customers who extend their subscription. We believe that this program contributed to the decrease of our churn rate to 13.3% in 2010, compared to 15.1% in 2009.
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We depend on the availability of telecommunications towers We are highly dependent on our and others telecommunications tower infrastructure to provide GSM, FWA and 3G network and mobile cellular telecommunications services, as we typically install transmitter and transceiver antennas and other BTS supporting facilities on such towers. The availability and installation of such telecommunication towers require licenses from the relevant central and regional authorities. Recently, a number of regional authorities have implemented regulations which limit the number and location of telecommunication towers and established requirements for operators to share in the utilization of telecommunications towers. In addition, on March 17, 2008, the MOCIT issued a regulation on the sharing of telecommunications towers. Under the regulation, the construction of telecommunications towers requires permits from the relevant governmental institution, while the local government determines the placement and location at which telecommunications towers can be constructed. Moreover, a joint regulation promulgated on March 30, 2009 by the Minister of Home Affairs, the Minister of Public Works, the MOCIT and the Head of the Indonesia Investment Coordinating Board requires a tower construction permit for every tower built and used for telecommunications services, which would demonstrate compliance with certain technical specifications. If a tower owner fails to obtain such a permit, the appropriate regional authorities will be entitled to impose penalties on the tower owner. Moreover, a telecommunications provider which owns telecommunication towers or tower owner is obligated to allow other telecommunication operators to utilize its telecommunication towers (other than the towers used for its main network), without any discrimination. Such regulatory requirements may require us to adjust our telecommunications tower construction and leasing plans, relocate our existing telecommunications towers, allow other operators access to our telecommunications towers and perform other measures which may result in the increase of telecommunications tower construction costs, delays in the construction process and potential service disruption for our subscribers. If we cannot fulfill the regulatory requirements for telecommunications towers or meet our own network capacity needs for
telecommunications towers, we may face difficulties in developing and providing cellular GSM, FWA and 3G telecommunications services. Our dependency on our own or others telecommunications tower infrastructure, combined with the burden of sharing our telecommunications towers in certain instances, may also adversely affect our competitive advantage relative to other operators. Any of these events could result in a material adverse effect on our network capacity, the performance and quality of our networks and services, our reputation, business, results of operations and prospects. Our ability to maintain and expand our cellular network or conduct our business may be affected by disruptions of supplies and services from our principal suppliers We rely upon a few principal vendors to supply a substantial portion of the equipment we require to maintain and expand our cellular network, including our microwave backbone, and upon other vendors in relation to other supplies necessary to conduct our business. We depend on equipment and other supplies and services from such vendors to maintain and replace key components of our cellular network and to operate our business. If we are unable to obtain adequate supplies or services in a timely manner or on commercially acceptable terms, or if there are significant increases in the cost of such supplies or services, our ability to maintain and to expand our cellular network and our business, financial condition, results of operations and prospects may be adversely affected. We depend on our licenses to provide cellular services, and our licenses could be cancelled if we fail to comply with their terms and conditions We rely on licenses issued by the MOCIT for the provision of our cellular services as well as for the utilization of our allocated spectrum frequencies. The MOCIT, with due regard to prevailing laws and regulations, may amend the terms of our licenses at its discretion. Any breach of the terms and conditions of our licenses or failure to comply with applicable regulations could result in our licenses being cancelled. Any revocation or unfavorable amendment of the terms of our licenses, or any failure to renew them on comparable terms, could have a material adverse effect on our business, financial condition, results of operations and prospects.
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Our subscriber-related operating data may not be comparable between periods We define an active cellular subscriber as a cellular subscriber who, in the case of a prepaid cellular subscriber, recharges their SIM card within a 33-day grace period immediately following the SIM cards expiry date by adding a minimum amount to the SIM card. We have from time to time decreased the grace period applicable to our calculation of prepaid cellular subscribers in order to more accurately reflect those subscribers whom were most likely to recharge their SIM cards. Increasing or decreasing the grace period affects the calculation of our number of subscribers, Minutes of Usage per subscriber and ARPU. As a result of the foregoing, our number of subscribers, Minutes of Usage per subscriber and ARPU may not reflect the actual number of subscribers and are not comparable between periods. Accordingly, you should not place undue reliance on the accuracy of this data or comparison of this data from period to period. A significant increase in frequency fees could adversely affect our business, financial condition and results of operations Previously, we were required to pay frequency fees for 800 MHz, 900 MHz and 1800 Mhz bands based on the number of radio stations. Starting on December 15, 2010, the government changed the basis of computing frequency fees to a new formula based on the width of allocated spectrum occupied by operators. As the largest holder of spectrum in Indonesia, Indosat is expected to pay a large amount of frequency fees going forward. The increase of the frequency fees will mainly be based on the consumer price index and the population of Indonesia. Allegations of health risks from the electromagnetic fields generated by BTSs and cellular handsets, and the lawsuits and publicity relating to them, regardless of merit, could adversely affect our operations There has been public speculation about possible health risks to individuals from exposure to electromagnetic fields from BTSs and from the use of cellular handsets. We cannot assure you that future studies of these health risks will not suggest a link between electromagnetic fields and
adverse health effects which may subject us to legal action from individuals alleging personal injuries or otherwise adversely affect our business.
Risks Relating to Our Fixed Data (MIDI) Services Business

Our MIDI services are facing increasing competition, and we may experience declining margins from such services as such competition intensifies Our MIDI services are facing increased competition from new and established operators, which may have wider customer bases and greater financial resources than us, such as Telkom, with its regional international reach and developed domestic infrastructure. In addition, operators such as XL, First Media and Icon+, some of which have alliances with foreign telecommunications operators, compete with us in this business segment. In 2009, our World Link leased line services faced increased competition following the launch of an international Matrix cable operated by PT NAP Info Lintas Nusa in August 2008. Our satellite business also faces increasing competition as new and more powerful satellites are launched by our competitors and as companies acquire exclusive licenses to provide broadcast services in Indonesia. Our Palapa-C2 and Palapa-D satellite transponder capacity agreements generally involve terms of between two to five years, and we estimate the remaining useful life of such satellites to be approximately three and 9.7 years, respectively. As additional satellites become operational and our transponder leases expire or are terminated and price competition intensifies, our transponder lessees may utilize other satellites, thereby adversely affecting our operating margins and operating revenues from such services. Our satellites have limited operational life and may be damaged or destroyed during in-orbit operation. The loss or reduced performance of our satellites, whether caused by equipment failure or its license being revoked, may adversely affect our financial condition, results of operations and ability to provide certain services Our Palapa-C2 and Palapa-D satellites have a limited operational life, currently estimated to end in 2014 and 2020, respectively. A number of factors affect the operational lives of satellites, including the quality of their
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RISK FACTORS
construction, the durability of their systems, subsystems and component parts, on-board fuel reserves, accuracy of their launch into orbit, exposure to micrometeorite storms, or other natural events in space, collision with orbital debris, or the manner in which the satellite is monitored and operated. We currently use satellite transponder capacity on our satellites in connection with many aspects of our business, including direct leasing of such capacity and routing for our international long-distance and cellular services. We note, that based on the factors identified above, our Palapa-C2 satellite could fail prior to 2014 and our Palapa-D satellite could fail prior to 2020, and in-orbit repairs would not be feasible with the exception of repairs that may be addressed through ground-based software or operational fixes. Moreover, International Telecommunication Union (ITU) regulations specify that a designated satellite slot has been allocated for Indonesia, and the Government has the right to determine which party is licensed to use such slot. While we currently hold a license to use the designated satellite slot, in the event our Palapa-D satellite experiences technical problems or failure, the Government may determine that we have failed to optimize the existing slot under our license, which may result in the Government withdrawing our license and granting it to one of our competitors. We cannot assure you that we will be able to maintain use of the designated satellite slot in a manner deemed satisfactory by the Government. We maintain in-orbit insurance on our Palapa-C2 and Palapa-D satellites on terms and conditions consistent with industry practice. As of December 31, 2010, we had an insurance policy with a total coverage limit of US$153 million for total and partial loss of our PalapaC2 and Palapa D satellites. If damage or failure renders our satellites unfit for use, we may elect to cease our satellite operations or lease transponder capacity from a third-party provider rather than acquiring a new satellite. The termination of our satellite business could increase operating expenses associated with our provision of other telecommunications services and could adversely affect our business, financial condition and results of operations.
Risks Relating to Our Fixed Telecommunications Services Business

The entry of additional Indonesian telecommunications operators as providers of international longdistance services could adversely affect our fixed telecommunications services operating margins, market share and results of operations Telkom, a well-established Indonesian telecommunications incumbent with significant political and financial resources, obtained a license to provide international long-distance services and launched its commercial service in 2004. As a result of Telkoms entry into the international long-distance market, we lost market share and experienced other adverse effects relating to our fixed telecommunications services business. By the end of 2006, Telkom had acquired significant market share for IDD services. In addition, in 2009, the Government issued Bakrie Telecom an international long-distance license in an effort to encourage greater competition in the international long-distance services market. The operations of incumbents and the entrance of new operators into the international longdistance market, including the VoIP services provided by such operators, continue to pose a significant competitive threat to us. We cannot assure you that such adverse effects will not continue or that such increased competition will not continue to erode our market share or adversely affect our fixed telecommunications services operating margins and results of operations. We face risks related to the opening of new long distance access codes In an attempt to liberalize DLD services, the Government has issued regulations requiring each provider of DLD services to implement a three-digit access code to be dialed by customers making DLD calls. In 2005, the MOCIT announced that three-digit access codes for DLD calls will be implemented gradually within five years and that it would assign us the 011 DLD access code for five major cities, including Jakarta, and allow us to progressively extend it to all other area codes within five years. Telkom
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was assigned 017 as its DLD access code. In December 2007, the Government issued new regulations opening DLD access codes in the first city in Balikpapan in April 2008. Following the implementation, Balikpapan residents will be able to choose from options 0, 011 or 017 in connecting their long distance calls. In April 2008, we and Telkom agreed to open DLD access from our respective subscribers in Balikpapan. Whether the opening of the DLD access code will be implemented in other cities will be based on a study by the Indonesian Telecommunication Regulatory Board. The implementation
of any new DLD access codes can potentially increase competition by offering our subscribers more options for DLD services. In addition, the opening of new DLD access codes is expected to result in increased competition and less cooperation among industry incumbents, which may result in reduced margins and operating revenue, among other things, all of which may have a material adverse effect on us. We cannot assure you that our access codes will remain intact or be successful in increasing our revenues from DLD services.
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The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes thereto as of December 31, 2009 and 2010. Our audited consolidated financial statements as of and for the years ended December 31, 2009, and 2010 have been audited by Purwantono, Suherman and Surja (the Indonesian member firm of Ernst & Young Global Limited), independent auditors, in accordance with auditing standards established by the IICPA, as stated in their report appearing in this Annual Report.
A. OPERATING RESULTS
We are a fully integrated Indonesian telecommunications network and service provider and provide a full complement of national and international telecommunications services in Indonesia. As of December 31, 2010, we were the second-largest cellular operator in Indonesia in terms of number of cellular subscribers. We provide MIDI services to Indonesian and regional corporate and retail customers as well as international long-distance services in Indonesia. interconnection expenses and depreciation and amortization expenses. In order to meet increasing demand for our services, we may be required to expand our cellular network coverage and capacity, which requires additional capital expenditures. Increases in our capital expenditures affect our cash flows, interest expense and depreciation expense. We are the second-largest cellular provider in Indonesia, as measured by the number of cellular subscribers, with 44.3 million subscribers (including wireless broadband subscribers) as of December 31, 2010. In 2009, we implemented a strategy to minimize lowervalue calling card type subscribers, whom we believed were short-term subscribers and were not likely to recharge their SIM cards. Pursuant to this strategy, we identified the prepaid subscribers who did not reload their starter packs after we significantly reduced the benefits (such as activation bonuses and on-net preloads) available to such subscribers. We believe this strategy contributed significantly to the decline in our subscriber base during
Factors Affecting our Results of Operations and Financial Condition

Our results of operations and financial condition have been affected and will continue to be affected by a number of factors, including the following: Cellular Subscriber Base and Usage Patterns Our number of cellular subscribers and their usage of our cellular services directly affect our cellular operating revenues as well as our operating expenses, including
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2009. Due to such strategy, during the first nine months of 2009, we removed 6.8 million such subscribers. Our total subscribers declined by approximately 9.7% from December 31, 2008, but our cellular operating revenues declined by only 1.1% for the year ended December 31, 2009 compared to the same period in 2008. Starting in the third quarter of 2009, we began seeing signs of stabilization in our subscriber base and we added 4.4 million subscribers, net of subscriber disconnections, in the fourth quarter of 2009. Our total subscribers increased by approximately 34.3%, from 33.0 million in 2009 to 44.3 million in 2010. Competition We face intense competition in all of our business segments. Among other things, such competition affects the tariffs we are able to charge for our services, demand for and usage of our services and our operating margins and results of operations. The cellular services business in Indonesia has become increasingly competitive, as demonstrated by the aggressive subscriber acquisition programs of Indonesian cellular operators in recent years. Competition in the cellular communications industry has historically been based on network coverage, technical quality, price, the availability of data services and special features, and the quality and responsiveness of customer service. Commencing in 2007, competition became more focused on pricing as many operators, including ourselves, began to offer significant promotional discounts to attract subscribers, which we believe to have resulted in high customer churn rates. The high Indonesian customer churn rate can be attributed to the high price sensitivity of subscribers, especially prepaid users and the low switching costs for postpaid subscribers, due to limited contractual lock-ins. Beginning in late 2009, we believe that the market focus on pricing as the key determinant in customers product selection has declined and that subscribers are again focused on the historical drivers of network coverage, technical quality, price, the availability of data services and special features.
Based on our internal estimates, the three major providers of wireless services in Indonesia, Telkomsel, us and XL, accounted for almost 77% of the wireless subscriber base in Indonesia in 2010. We compete with Telkomsel and XL primarily on the basis of network coverage, quality or service and price. We believe that the size of our subscriber base provides us with a significant competitive advantage over the smaller cellular providers, since we have a larger base of on net subscribers and we are able to provide more attractive pricing for on net calls, since we do not pay any interconnection charges to third parties. Competition in our MIDI services has also continued to increase. During the last few years, competition among data communications service providers has intensified principally due to the issuance of new licenses after the deregulation of the Indonesian telecommunications industry. In addition, our satellite operations, which primarily consist of leasing transponders to broadcasters and telecommunications operators of VSAT, cellular and IDD services and ISPs, face competition from foreign and domestic service providers serving the same customer base. We are no longer the only authorized provider of traditional IDD (i.e., non-VoIP) call services in Indonesia. The Government may issue more licenses for IDD services to other telecommunications operators, which will increase competition in our fixed telecommunications operations. We expect competition in our three business segments to continue to be intense. Competition has had, and is expected to have, an impact on our results of operations and financial condition. Tariff and Pricing Levels Under existing regulations, the MOCIT establishes a tariff formula that determines the amounts that operators may charge for cellular and fixed telecommunications services. However, the MOCIT allows cellular and fixed telecommunications operators, including us, to offer
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promotional packages that offer prices lower than the ceiling tariff determined in accordance with the tariff formula. We currently price our cellular services under a variety of ongoing promotional programs intended to attract new subscribers, stimulate demand and improve our competitive position. Any changes in our pricing structure, either as a result of Government tariff policies or in response to competition, could affect our revenues, operating results and financial condition. The Indonesian Economy We believe that the growth in the Indonesian telecommunications industry has been driven in part by recent growth of the Indonesian economy, and that demand for such services should continue, as the Indonesian economy continues to develop and modernize. Our performance and the quality and growth of our customer base and service offerings are necessarily dependent on the health of the overall Indonesian economy. Capital Expenditures The delivery of telecommunications services is capital intensive. In order to be competitive, we must continually expand, modernize and update our technology, which involves substantial capital investment. In order to address the demand associated with the substantial increase in subscribers and in network usage during 2008 through 2010, we had to substantially increase our capital expenditures, in particular to expand the capacity of our network. For the years ended December 31, 2008, 2009 and 2010, our actual consolidated capital expenditures totaled Rp12,341.9 billion, Rp11,584.5 billion and Rp5,515.0 billion (US$613.4 million), respectively. During 2011, we intend to allocate US$794.5 million for new capital expenditures, which, taken together with estimated actual capital expenditures expended for 2011 for capital expenditure commitments in prior periods, will result in approximately US$1,053.8 million total actual capital expenditures for 2011, which we intend to use for the
development of fixed assets in our cellular, fixed data and fixed telecommunications business lines. See Capital Expenditures. Historically, we have funded our capital expenditures through internal resources and cash flow from operations, as well as debt financings through bank loans and the capital markets. We expect to continue to finance our capital expenditures through such sources. We face liquidity risk if certain events occur, including but not limited to, slower than expected growth in the Indonesian economy, downgrading of our debt ratings or deterioration of our financial performance or financial ratios. If we cannot raise the amounts needed to support our planned capital expenditures for 2011, we may be unable to improve or expand our cellular telecommunications infrastructure or update our other technology to the extent necessary to remain competitive in the Indonesian telecommunications market, which would affect our financial condition, results of operations and prospects. In addition, unexpected changes in technology, demand for increased network capacity from our subscribers and responses to the operations and product innovation of our competitors may require us to increase our capital expenditures, which could affect our revenues, operating results and financial condition. Foreign Exchange Volatility The Indonesian rupiah has appreciated considerably over the last decade from its low point of approximately Rp17,000 per U.S. dollar during the Asian financial crisis. During the period between January 1, 2008 through December 31, 2010, the Indonesian rupiah/U.S. dollar exchange rate ranged from a low of Rp12,400 per U.S. dollar to a high of Rp8,888 per U.S. dollar, and, during the year 2010, the Indonesian rupiah/U.S. dollar exchange rate ranged from a low of Rp9,413 per U.S. dollar to a high of Rp8,888 per U.S. dollar. The prevailing Bank Indonesia exchange rate was Rp8,991per U.S. dollar on December
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31, 2010. While a substantial portion of our operating revenues is denominated in Indonesian rupiah, a portion of our operating revenues is U.S. dollar denominated. In addition, a substantial portion of our borrowings, capital expenditures and operating expenses, including interest payments on our Guaranteed Notes due 2020 and ING/ DBS Syndicated Loan Facility, are denominated in currencies other than Indonesian rupiah, principally the U.S. dollar. As of December 31, 2010, 43.4% of our borrowings were denominated in Indonesian rupiah, with the balance in U.S. dollars. A depreciation in the value of the Indonesian rupiah against the U.S. dollar affects our financial condition and results of operations because, among other things, the Indonesia rupiah value of expenses payable in U.S. dollars will increase by the same factor, thereby requiring us to convert more Indonesian rupiah to pay our U.S. dollar obligations. Conversely, an appreciation in the value of the Indonesian rupiah against the U.S. dollar affects our financial condition and results of operations because, among other things, it causes a decrease in revenue from foreign carriers for inbound international calls, roaming by foreign carriers subscribers in Indonesia and operating revenues from our MIDI services and satellite operations. For the year ended December 31, 2008, we recorded a loss on foreign exchange-net of Rp885.7 billion; for the year ended December 31, 2009, we recorded a gain on foreign exchange-net of Rp1,656.4 billion; and for the year ended December 31, 2010, we recorded a gain on foreign exchange-net of Rp492.4 billion. In addition, certain of our monetary assets and liabilities are subject to foreign currency exposure. These monetary assets primarily consist of cash, cash equivalents and accounts receivable from foreign telecommunications carriers, as well as our foreign currency-denominated accounts receivable. Our monetary liabilities subject to foreign currency exposure
consist of procurements payable, loans payable and bonds payable which were incurred for capital expenditure-related liabilities. The level of our net monetary assets is influenced by the extent to which incoming calls exceed outgoing calls in our IDD business and our foreign currency denominated source of revenues. In an effort to manage our foreign currency exposure and lower our overall funding costs, we entered into several foreign currency swap contracts. We cannot assure you that we will be able to manage our exchange rate risk successfully in the future or that we will not continue to be adversely affected by our exposure to exchange rate risk. Our exposure to foreign exchange fluctuations, particularly as against the U.S. dollar, may increase if we incur additional U.S. dollar-denominated debt to finance our capital expenditure plans. In February and March 2009, we obtained consents to amendments to certain of our debt instruments and agreements in order to provide additional flexibility in our debt to equity, debt to EBITDA and EBITDA to interest payment ratio maintenance covenants. While we believe that such amendments will provide us with sufficient cushion in the event of volatility in the Indonesian rupiah / U.S. dollar exchange rates, we cannot assure you that further and more intense volatility than that experienced in the past 12 months will not occur, which could cause us to breach our financial covenants. See Principal Indebtedness.
Overview of Operations
Operating Revenues We generate operating revenues primarily by providing cellular, MIDI and fixed telecommunications (principally international long-distance) services. The following table sets forth the breakdown of our total operating revenues and the percentage contribution of each of our services to our total operating revenues for each of the periods indicated:
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For the years ended December 31, 2008 Rp Cellular services MIDI services Fixed telecommunications Total operating revenues 14,454.3 2,735.5 2,021.7 19,211.5 % 75.3 14.2 10.5 100.0 Rp 14,300.2 2,721.0 1,803.0 18,824.2 2009 % 76.0 14.4 9.6 100.0 Rp 16,027.1 2,476.2 1,293.2 19,796.5 (Rp in billion, except percentages) 81.0 12.5 6.5 100.0 2010 %
The principal drivers of our operating revenues for all of our services are our subscriber base, usage levels and the rates for services. Usage levels for our services are affected by several factors, including continued growth in demand for telecommunications services in Indonesia, the continued development of the Indonesian economy, and competition. Cellular Services. We derive our cellular services operating revenues from charges for cellular usage, value added features, monthly subscriptions, sales of wireless broadband modems and cellular handsets, and connection fees, as well
as interconnection charges from other telecommunications providers and tower leasing fees. In the fourth quarter of 2008, we began recording sales of wireless broadband modems and usage of wireless broadband data communications as cellular services operating revenues. Such revenue was previously recorded under MIDI services operating revenues. The following table sets forth the components of our cellular services operating revenues for the periods indicated:
For the years ended December 31, 2008 Rp Usage charges Value-added services Interconnection revenues Tower leasing Monthly subscription charges Sale of Blackberry handsets and modems Others Up front discount and customer loyalty program Total cellular services operating revenues 8,492.8 5,052.6 1,833.8 66.3 82.5 129.7 (1,203.4) 14,454.3 % 58.7 35.0 12.6 0.5 0.6 0.9 -8.3 100.0 Rp 7,085.7 5,999.0 1,709.2 62.4 184.2 206.5 140.3 (1,087.1) 14,300.2 2009 % 49.6 42.0 12.0 0.4 1.3 1.4 1.0 -7.7 100.0 Rp 7,944.0 7,039.2 1,252.7 252.0 200.5 35.0 172.1 (868.4) 16,027.1 2010 US$ 883.6 782.9 139.3 28.0 22.3 3.9 19.2 -96.6 1,782.6 % 49.6 43.9 7.8 1.6 1.3 0.2 1.1 -5.5 100.0
(Rp in billion, US$ in million, except percentages)
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A substantial proportion of our cellular subscribers, approximately 97.5% as of December 31, 2010, are prepaid subscribers. We offer a variety of value-added services to our prepaid subscribers, which have increased cellular services operating revenues from value-added services, particularly SMS and value-added SMS, which allows subscribers to access a variety of information, such as politics, sports and business news. Revenues from valueadded services (including SMS) represented 35.0%, 42.0% and 43.9% of our cellular services operating revenues for the years ended December 31, 2008, 2009 and 2010, respectively. We expect the revenues derived from SMS and other value-added services to continue to increase, which we believe will be primarily driven by our wireless broadband services, the popularity of social networking sites and the development of other popular online content. We recognize cellular revenues as follows: cellular revenues arising from airtime and roaming calls are recognized based on the duration of successful calls made through our cellular network; for post-paid subscribers, monthly service fees are recognized as the service is rendered; for prepaid subscribers, the activation component of starter package sales is deferred and recognized as revenue over the expected average period of the customer relationship. Sales of initial/reload vouchers are recorded as deferred revenue and 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 the duration 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 service providers;
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. MIDI Services. Our MIDI services operating revenues consist primarily of revenues from (i) Internet services provided by us, Indosat Mega Media (IM2) and PT Aplikanusa Lintasarta (Lintasarta), (ii) IP VPN services, high-speed leased lines and frame relay services provided by us and Lintasarta, (iii) digital data network services provided by Lintasarta, (iv) satellite services, and (v) World link and Direct link. We deferred installation service revenues for Internet services, frame net, World link and Direct line services, upon the completion of the installation or connection of equipment, and recognized as revenue over the expected customer relationship. We recognize revenues from monthly service fees and other MIDI services as the services are rendered. Revenues from usage charges for Internet services 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. We record satellite revenues on a straight-line basis over the lease period for the transponder. Monthly rent for satellite transponder capacity is based primarily on leased capacity. A substantial portion of our MIDI services operating revenues is denominated in U.S. dollars and is thus affected by fluctuations in the Indonesian rupiah/U.S. dollar exchange rate. Our MIDI services operating revenues have also been affected recently by a number of other factors, including competition from domestic and international providers, declining tariffs and a migration from legacy services to IP-based services. We expect such trends to continue but believe that the effects on our operating revenues will be offset by increased volume of services leased by our corporate customers and increased demand for our customized services, as well as the operation of our new Palapa-D satellite.
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Fixed Telecommunications Services. Fixed telecommunications services include international longdistance, fixed wireless access services, and fixed line services. International long-distance services, which are comprised of our 001 and 008 IDD services, Flatcall 01016 as well as operator-assisted and value-added services, represented 76.8% of our operating revenues from fixed telecommunications services for the year ended December 31, 2010, and fixed wireless access and fixed line services represented the balance. International Long-distance Services. Our international long-distance services operating revenues have two primary sources, incoming call revenues and outgoing call revenues. We have negotiated volume commitments and accounting rates with foreign telecommunications operators or have implemented a market termination rate based pricing system, and receive net settlement payments from such carriers. Net settlement payments and accounting rates are generally denominated and paid in currencies other than the Indonesian rupiah, principally the U.S. dollar; accordingly, incoming call revenues are affected by fluctuations in exchange rates between the Indonesian rupiah and other currencies. Fixed Wireless Access Services. As of December 31, 2010, we had 550,130 fixed wireless access subscribers in 82 cities in Indonesia. By the end of 2010, we expanded our fixed wireless access services to several additional cities in order to create capacity for approximately four million fixed wireless access subscribers. As a result, we expect fixed wireless services to become a more important source of fixed telecommunications services operating revenues in future periods. Fixed wireless access revenues arising from usage charges are recognized based on the duration of successful calls made through our fixed network. For postpaid subscribers, monthly service fees are recognized as the service is provided. For prepaid subscribers, the activation component
of starter package sales is deferred and recognized as revenue over the estimated life of the customer relationship Sale of initial or reload vouchers is recorded as unearned income and recognized as income upon usage of the airtime or upon expiration of the airtime. Fixed Line Services. We currently have local and domestic long-distance coverage of 82 major cities in Indonesia. Revenues from fixed line installations are recognized as revenue over the estimated life of customer relationship. Revenues from usage charges are recognized based on the duration of successful calls made through our fixed network. Operating Expenses Our principal operating expenses include cost of services, depreciation and amortization, personnel expenses, marketing expenses, and general and administration expenses. Certain of our expenses are denominated in U.S. dollars or currencies other than the Indonesian rupiah. Such expenses may include those for international interconnection settlements, certain maintenance agreements and consultancy fees. Costs of Services. Costs of services expenses include interconnection expenses, radio frequency fee, maintenance, utilities, rent, leased circuits, the cost of SIM cards and pulse reload vouchers, USO, Blackberry access fee, installation and concession fee. Depreciation and Amortization. We use the straightline depreciation method for our property, facilities and equipment over their estimated useful lives. A significant portion of our depreciation expenses relate to our cellular services assets. As we continue to expand and enhance the coverage, capacity and quality of our networks, we expect expenses for depreciation to increase.
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Marketing. Marketing expenses primarily include exhibition, promotion and advertisement expenses associated with our marketing programs. Personnel. Personnel expenses primarily include salaries, incentives and other employee benefits, bonuses, employee income tax, post-retirement healthcare benefits, medical expense and outsourcing. General and Administration. General and administration expenses primarily include rent, professional fees, utilities, provision for impairment of receivables, transportation and office. Other Income (Expense) The major components of our other income (expense) are interest income, gain (loss) on foreign exchange net, financing cost, gain (loss) on change in the fair value of derivativesnet. Foreign exchange gain or loss has typically been affected by the amount of non-Indonesian rupiahdenominated debt outstanding, accounts receivable from overseas international carriers and non-Indonesian rupiahdenominated cash and cash equivalents. We currently hedge a portion of our ING/DBS Syndicated Loan Facility. Income Tax Expense-Net 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 realization of such benefits is probable. 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. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period 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. Changes in the carrying amount of deferred tax assets and liabilities due to a change in tax rates are credited or charged to current period operations, except to the extent that they relate to items previously charged or credited to stockholders equity. 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. Net Income Our net income for the years ended December 31, 2008, 2009 and 2010 is not necessarily commensurate to our operating revenues and operating income during such periods, in part due to large fluctuations in several nonoperating items, which have impacted our net income over such periods. Such non-operating items include, among others, fluctuations in income tax deferred, gain or loss on foreign exchange net, and gain or loss on change in the fair value of derivatives net. Results of Operations The following table sets forth selected comprehensive income data expressed as a percentage of total operating revenues for the periods indicated:
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For the years ended December 31, 2008 % Operating revenues: Cellular MIDI Fixed telecommunications Total operating revenues Operating expenses: Cost of services Depreciation and amortization Personnel Marketing General and administration Total operating expenses Net Income: Operating income Other income (expense)-net Income before income tax Income tax expense-net Minority interest in net income of subsidiaries Net Income 24.6 (12.5) 12.1 (2.2) (0.1) 9.8 17.1 (5.2) 11.9 (3.6) (0.3) 8.0 17.5 (12.1) 5.5 (1.8) (0.4) 3.3 34.5 23.8 8.5 4.8 3.8 75.4 37.7 29.5 7.7 4.3 3.7 82.9 35.9 31.1 7.2 5.0 3.3 82.5 75.3 14.2 10.5 100.0 76.0 14.4 9.6 100.0 81.0 12.5 6.5 100.0 2009 % 2010 %
The following table sets forth our operating revenues from our various business segments for the periods indicated:
For the years ended December 31, 2009 2010 % Rp % Rp US$ (Rp in billion, US$ in million, except percentages) 58.7 35.0 12.6 0.5 0.6 0.9 -8.3 7,085.7 5,999.0 1,709.2 62.4 184.2 206.5 140.3 (1,087.1) 49.6 42.0 12.0 0.4 1.3 1.4 1.0 -7.7 7,944.0 7,039.2 1,252.7 252.0 200.5 35.0 172.1 (868.4) 883.6 782.9 139.3 28.0 22.3 3.9 19.2 -96.6
2008 Rp Cellular Services Usage charges Value-added services Interconnection revenues Tower leasing Monthly subscription charges Sale of Blackberry handsets and modems Others Up front discount and customer loyalty program
8,492.8 5,052.6 1,833.8 66.3 82.5 129.7 (1,203.4)
49.6 43.9 7.8 1.6 1.3 0.2 1.1 -5.5
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2008 Rp Subtotal MIDI IP VPN Internet World link and direct link Frame net Leased line Application services Satellite lease Digital data network MPLS Others Subtotal Fixed Telecommunications International Calls Fixed Wireless Fixed Line Others Subtotal Total 14,454.3 585.6 703.9 456.7 315.8 231.6 118.9 96.3 124.9 25.1 76.6 2,735.4
For the years ended December 31, 2009 2010 % Rp % Rp US$ (Rp in billion, US$ in million, except percentages) 100.0 14,300.2 100.0 16,027.1 1,782.6 21.4 25.7 16.7 11.5 8.5 4.3 3.5 4.6 0.9 2.9 100.0 566.1 677.4 394.2 276.5 211.1 146.1 113.1 144.6 67.1 124.8 2,721.0 20.8 24.9 14.5 10.2 7.8 5.4 4.2 5.3 2.5 4.4 100.0 605.7 519.5 278.8 227.1 189.0 168.2 136.0 94.7 66.6 190.6 2,476.2 67.4 57.8 31.0 25.3 21.0 18.7 15.1 10.5 7.4 21.2 275.4
% 100.0 24.5 21.0 11.3 9.2 7.6 6.8 5.5 3.8 2.7 7.6 100.0
1,650.1 244.3 126.7 0.7 2,021.8 19,211.5
81.6 12.1 6.3 0.0 100.0
1,422.2 249.9 129.9 1.0 1,803.0 18,824.2
78.9 13.9 7.2 0.0 100.0
993.2 174.1 125.4 0.5 1,293.2 19,796.5
110.5 19.4 13.9 0.0 143.8 2,201.8
76.8 13.5 9.7 0.0 100.0
Operating Revenues Year ended December 31, 2009 to Year Ended December 31, 2010 Total operating revenues increased from Rp18,824.2 billion in 2009 to Rp19,796.5 billion (US$2,201.8 million), or 5.2%, primarily as a result of an increase in our cellular services revenue. During 2010, operating revenues from cellular services increased by Rp1,726.9 billion, or 12.1%, from Rp14,300.2 billion in 2009. Operating revenues from MIDI services decreased by Rp244.8 billion, or 9.0%, from Rp2,721.0 billion in 2009. Operating revenues from fixed telecommunications services in 2010 decreased by Rp509.8 billion, or 28.3 %, from Rp1,803.0 billion in 2009.
Cellular Services. In 2010, we recorded cellular services operating revenues of Rp16,027.1 billion (US$1,782.6 million), an increase of 12.1% from Rp14,300.2 billion in 2009. We believe that the increase was primarily a result of an increase in the number of subscribers. Operating revenues from cellular services represented 81.0 % of our total operating revenues for 2010, which is higher than the percentage for 2009. Usage charges increased by Rp858.3 billion, or 12.1%, from 2009, and represented 49.6% of our total cellular services operating revenues. This increase in usage was primarily due to an increase in the minutes of usage by our subscribers.
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In 2010, cellular services operating revenues generated by value-added services increased by Rp1,040.2 billion, or 17.3%, compared to 2009. The contribution of valueadded services to cellular services operating revenues increased by 1.9% from 42.0% in 2009 to 43.9% in 2010. The increase in operating revenues from value-added services, as well as the increase in the contribution of revenues from value-added services to our overall cellular operating revenues, was driven by an increase in usage of SMS and wireless broadband. MIDI Services. In 2010, operating revenues from MIDI services decreased by Rp244.8 billion from Rp2,721.0 billion in 2009 to Rp2,476.2 billion (US$275.4 million) in 2010. IP VPN operating revenues represent the largest component of MIDI services operating revenue. IP VPN operating revenues increased by Rp39.6 billion from Rp566.1 billion in 2009 to Rp605.7 billion in 2010. The reduction in MIDI services operating revenues, including those from Internet services, as well as international and domestic leased line services, was primarily due to increased competition and a decline in prices of our services. Fixed Telecommunications Services. There was a decrease in fixed telecommunications services operating revenues from Rp1,803.0 billion in 2009 to Rp1,293.2 billion (US$143.8 million) in 2010. Operating revenues from international calls and fixed wireless access services represented 76.8% and 13.5%, respectively, of fixed telecommunications services operating revenues in 2010. The remaining 9.7% of fixed telecommunications services operating revenues in 2010 was generated by fixed line and other services. Revenues from international calls decreased from Rp1,422.2 billion in 2009 to Rp993.2 billion (US$110.5 million) in 2010 due to a decrease in outgoing IDD traffic from Indosat and non-Indosat subscribers. The total volume of international calls from our 001 and 008 gateways increased by 6.1 % from 2,060.5 million minutes in 2009 to 2,186.9 million minutes in 2010. Total incoming traffic increased by 10.6% from 1,558.5 million minutes in
2009 to 1,723.9 million minutes in 2010, primarily due to volume commitments from foreign telecommunications operators. Outgoing traffic decreased by 7.8% from 502.0 million minutes in 2009 to 463.0 million minutes in 2010 due to the decrease in volume commitments from foreign telecommunications operations. Operating Expenses Operating expenses increased by Rp711.4 billion, or 4.6%, from Rp15,611.2 billion in 2009 to Rp16,322.6 billion (US$ 1,815.4 million) in 2010, primarily due to increases in depreciation and amortization expenses, marketing expense and cost of services expenses. This increase was offset in part by decreases in personnel expenses and general and administration expenses in the year. Cost of services expenses increased by Rp25.5 billion, or 0.4%, from Rp7,087.9 billion in 2009 to Rp7,113.4 billion (US$791.2 million) in 2010, primarily as a result of increased Government levies on frequency fees, USO and concession fees. The increase can also be attributed to rental payments for additional BTSs, increases in interconnection cost and increase in maintenance relating to increase in our fixed assets. Depreciation and amortization expenses increased by 10.6% from Rp5,561.4 billion in 2009 to Rp6,151.9 billion (US$684.2 million), primarily as a result of the continued growth of our fixed asset base, including our new Palapa-D satellite. The total cost of our property and equipment increased from Rp74,818.5 billion in 2009 to Rp78,101.2 billion (US$8,686.6 million) in 2010. Personnel expenses decreased by Rp40.4 billion, or 2.8%, from Rp1,451.6 billion in 2009 to Rp1,411.2 billion (US$157.0 million) in 2010, primarily due to a decrease in the post-employment benefits, particularly the salary continuation before retirement (MPP) benefit and offsetted with increase in salaries and bonuses.
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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
Marketing expenses increased by Rp169.1 billion, or 20.7%, from Rp816.9 billion in 2009 to Rp986.0 billion (US$109.7 million) in 2010, primarily due to the additional cost that we spent for the new dealer incentive strategy that we applied in 2010. We believe the new dealer incentive strategy will assist us in maintaining our loyal subscribers, as well as gaining new loyal subscribers. General and administration expenses decreased by Rp33.4 billion, or 4.8%, from Rp693.4 billion in 2009 to Rp660.0 billion (US$73.4 million) in 2010, primarily due to a decrease in provision for impairment of receivables, rental cost and professional fee and office supplies expenses, as we continued to implement our efficiency program, designed to minimize non operational costs. Operating Income As a result of the above factors, operating income increased by Rp260.9 billion, or 8.1%, from Rp3,213.0 billion in 2009 to Rp3,473.9 billion (US$386.4 million) in 2010. Other Expenses-Net Other expenses-net increased by Rp1,411.1 billion, from Rp981.0 billion in 2009 to Rp2,392.1 billion (US$266.1 million) in 2010, primarily due to a lower gain on foreign exchange, driven by the smaller appreciation of the Indonesian rupiah against the U.S. dollar compared to the previous year. Gain on foreign exchange-net of Rp1,656.4 billion in 2009 decreased to Rp492.4 billion (US$54.8 million) in 2010. The exchange rate decreased from Rp9,400 : US$1 as of December 31, 2009 to Rp8,991 : US$1 as of December 31, 2010, compared to the decrease from Rp10,950 : US$1 as of December 31, 2008 to Rp9,400 : US$1 as of December 31, 2009. Loss on change in fair value of derivatives-net decreased by Rp99.6 billion from Rp517.7 billion in 2009 to Rp418.1 billion (US$46.5 million) in 2010 due to the appreciation of the Indonesian rupiah against the U.S. dollar.
We recorded an increase in interest income to Rp143.4 billion (US$15.9 million) in 2010, which represented an increase of Rp4.4 billion, or 3.2%, over 2009, due to our higher average cash balance. Others-net decreased by Rp38.5 billion, from Rp150.3 billion in 2009 to Rp111.8 billion (US$12.4 million) in 2010 primarily due to an increase in submarine cable restoration revenue and gain on sale of property and equipment. Income Tax Expense-Net We recorded income tax expense of Rp357.8 billion (US$39.8 million) in 2010 compared to Rp677.3 billion in 2009. The decrease in income tax expense-net was primarily due to the lower in income before tax related to lower gain on foreign exchange and higher financing cost. Net Income Our net income decreased by Rp851.0 billion, or 56.8%, from Rp1,498.2 billion in 2009 to Rp647.2 billion (US$72.0 million) due to the foregoing factors.
Year ended December 31, 2009 to Year Ended December 31, 2008
Total operating revenues decreased marginally from Rp19,211.5 billion in 2008 to Rp18,824.2 billion in 2009, or 2.0%, primarily as a result of a decrease in our cellular services revenue. During 2009, operating revenues from cellular services decreased by Rp154.1 billion, or 1.1%, from Rp14,454.3 billion in 2008 to Rp14,300.2 billion in 2009. Operating revenues from MIDI services decreased by Rp14.5 billion, or 0.5%, from Rp2,735.5 billion in 2008 to Rp2,721.0 billion in 2009. Operating revenues from fixed telecommunications services in 2009 decreased marginally by Rp218.7 billion, or 10.8%, from Rp2,021.7 billion in 2008 to Rp1,803.0 billion in 2009. Cellular Services. In 2009, we recorded cellular services operating revenues of Rp14,300.2 billion, a decrease of 1.1% from Rp14,454.3 billion in 2008. We believe that the decrease was primarily a result of our value strategy, which
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started in 2009, to minimize lower-value calling card type subscribers. Removing calling-card type subscribers resulted in a decline of less than 1.6% in cellular operating revenues. In addition, we believe that the reduction of our cellular services operating revenues also resulted from the decline of our ARPU from Rp38,639 in 2008 to Rp37,664 in 2009. Operating revenues from cellular services represented 76.0% of our total operating revenues for 2009, which is slightly the same percentage 75.3% for 2008. Usage charges decreased by Rp1,407.1 billion, or 16.6%, from 2008, and represented 49.6% of our total cellular services operating revenues. This decrease in usage was primarily due to the decrease in our subscriber base, which was partially offset by an increase in our revenues from value-added features. In 2009, cellular services operating revenues generated by value-added services increased by Rp946.4 billion, or 18.7%, compared to 2008. The contribution of valueadded services to cellular services operating revenues increased by 7.0% from 35.0% in 2008 to 42.0% in 2009. The increase in operating revenues from value-added services, as well as the increase in the contribution of revenues from value-added services to our overall cellular operating revenues, was driven by an increase in usage of our wireless broadband services. MIDI Services. In 2009, operating revenues from MIDI services remained relatively constant, with Rp2,735.5 billion in 2008 and Rp2,721.0 billion in 2009. Internet operating revenues continued to represent the largest component of MIDI services operating revenue, although there was a decrease in Internet operating revenues of Rp26.5 billion in 2009. The reduction in operating revenues from Internet services, as well as international and domestic leased line services, was primarily due to increased competition and a decline in prices of our services. Fixed Telecommunications Services. There was a decrease in fixed telecommunications services operating revenues from Rp2,021.8 billion in 2008 to Rp1,803.0 billion in
2009. Operating revenues from international calls and fixed wireless access services represented 76.8% and 13.5%, respectively, of fixed telecommunications services operating revenues in 2009. The remaining 9.7 % of fixed telecommunications services operating revenues in 2009 was generated by fixed line and other services. Revenues from international calls decreased from Rp1,650.1 billion in 2008 to Rp1,422.2 billion in 2009 due to a decrease in outgoing IDD traffic from non-Indosat subscribers. The total volume of international calls from our 001 and 008 gateways increased by 0.2% from 2,056.4 million minutes in 2008 to 2,060.5 million minutes in 2009. Total incoming traffic decreased by 1.5%, with 1,582.4 million minutes in 2008 and 1,558.5 million minutes in 2009, primarily due to a decrease in volume commitments from foreign telecommunications operators. Outgoing traffic increased by 5.9% from 474.0 million minutes in 2008 to 502.0 million minutes in 2009 primarily due to increased user traffic from our subscribers, such as those using the Flatcall 01016 service. Operating Expenses Operating expenses increased by Rp1,133.0 billion, or 7.8%, from Rp14,478.2 billion in 2008 to Rp15,611.2 billion in 2009, primarily due to increases in depreciation and amortization expenses and cost of services expenses, which are our two biggest operating expenses. This increase was offset in part by decreases in personnel expenses, marketing expenses and general and administration expenses in the year. Cost of services expenses increased by Rp460.1 billion, or 6.9%, from Rp6,627.8 billion in 2008 to Rp7,087.9 billion in 2009, primarily as a result of increased Government levies on frequency fees, our annual 3G license fee payment, including the fees for added spectrum in 2009, USOs and concession fees. The increase can also be attributed to rental payments for additional BTSs, increases in the cost of modems and handsets driven by higher Blackberry sales, and increases in expenses relating to our leased line, Internet and transponder leasing operations.
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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
Depreciation and amortization expenses increased by 22.1% from Rp4,555.9 billion in 2008 to Rp5,561.4 billion in 2009, primarily as a result of the continued growth of our fixed asset base, including our new Palapa-D satellite, as well as the accelerated depreciation of unutilized elements of our cellular network. Our property and equipment acquisition cost increased from Rp63,478.4 billion in 2008 to Rp74,818.5 billion in 2009. Personnel costs decreased by Rp187.4 billion, or 11.4%, from Rp1,639.0 billion in 2008 to Rp1,451.6 billion in 2009, primarily due to a decrease in the effective personnel income tax rate, as well as decreases in bonuses, incentives and other employee benefits, outsourcing expenses and post-retirement healthcare benefits. Marketing expenses decreased by Rp101.2 billion, or 11.0%, from Rp918.1 billion in 2008 to Rp816.9 billion in 2009, primarily due to a decrease in advertising, promotion and exhibition expenses, in line with the targeted marketing strategy and efficiency program we have adopted. General and administration expenses decreased by Rp44.0 billion, or 6.0%, from Rp737.4 billion in 2008 to Rp693.4 billion in 2009 primarily due to decreases in transportation costs, training, education and research costs, professional fees, office services expenses and catering costs, as we continued to implement our efficiency program, designed to minimize non-operational costs. Operating Income As a result of the above factors, operating income decreased by Rp1,520.3 billion, or 32.1%, from Rp4,733.3 billion in 2008 to Rp3,213.0 billion in 2009. Other Expenses-Net Other expenses-net decreased by Rp1,427.2 billion, from Rp2,408.2 billion in 2008 to Rp981.0 billion in 2009, primarily due to gains on foreign exchange, driven by the appreciation of the Indonesian rupiah against the U.S. dollar. From a loss on foreign exchange-net Rp885.7 billion
in 2008, we recorded a gain on foreign exchange-net of Rp1,656.4 billion in 2009. We recorded a gain on change in fair value of derivativenet of Rp136.6 billion in 2008 and a loss on change in fair value of derivatives-net of Rp517.7 billion in 2009 due to the appreciation of the Indonesian rupiah against the U.S. dollar. We recorded a decrease in interest income to Rp139.0 billion in 2009, which represented a decrease of Rp321.1 billion, or 69.8%, over 2008, due to the lower average cash balance we maintained. Others-net increased by Rp116.8 billion, from Rp33.5 billion in 2008 to Rp150.3 billion in 2009 primarily due to an increase in damage losses caused by more natural calamities, such as earthquakes, that occurred in Indonesia in 2009 compared to 2008 in which the insurance company decreased the claimable amount for the insured damaged assets as more restrictions were imposed on the amended agreements we filed, several assessment letters on tax under payment (SKPKB) from Directorate General Tax on June 8, 2009 for Satelindos corporate income tax and income tax article 4(2), 21 and 23 for fiscal years 2002 and 2003 and Satelindos tax audit for VAT fiscal years 2002 and 2003. Income Tax Expense-Net We recorded income tax expensenet of Rp419.8 billion in 2008 compared to Rp677.3 billion in 2009. The increase in income tax expense-net was primarily due to the adjustment of the income tax benefit deferred due to changes in the income tax rate in 2008. Net Income Our net income decreased by Rp380.3 billion, or 20.2%, from Rp1,878.5 billion in 2008 to Rp1,498.2 billion in 2009 due to the foregoing factors.
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B. LIQUIDITY AND CAPITAL RESOURCES

Our liquidity requirements have historically arisen from the need to finance investments and capital expenditures related to the expansion of our telecommunications business. Our telecommunications business requires substantial capital to construct and expand mobile and data network infrastructure and to fund operations, particularly during the network development stage. Although we have substantial existing network infrastructure, we expect to incur additional capital expenditures in order to focus cellular network development in areas that we anticipate to be high-growth areas, as well as to enhance the quality and coverage of our existing network.
We believe our current cash and cash equivalents, cash flow from operations and available sources of financing will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and planned capital expenditures, for the foreseeable future. Nonetheless, if global or Indonesian economic conditions worsen, competition or product substitution accelerates beyond current expectations or the value of the Indonesian rupiah depreciates significantly against the U.S. dollar, our net cash flow from operating activities may decrease and the amount of required capital expenditures in Indonesian rupiah terms may increase, any of which may negatively impact our liquidity.
Cash Flows
The following table sets forth certain information regarding our historical cash flows:
For the years ended December 31, 2008 Rp Net cash flows: Provided by operating activities Used in investing activities Provided by (used in) financing activities 6,513.3 (10,286.9) 1,458.5 4,051.2 (10,670.7) 3,724.7 6,839.0 (5,970.7) (1,629.7) 760.6 (664.1) (181.2) 2009 Rp Rp 2010 US$
(Rp in billion, US$ in million)
Net Cash Provided by Operating Activities Net cash provided by operating activities amounted to Rp6,513.3 billion, Rp4,051.2 billion and Rp6,839.0 billion (US$760.6 million) for 2008, 2009 and 2010, respectively. In 2010, net cash provided by operating activities increased primarily due to receipt from customers. Net Cash Used in Investing Activities Net cash used in investing activities amounted to Rp10,286.9 billion, Rp10,670.7 billion and Rp5,970.7 billion (US$664.1 million) for 2008, 2009 and 2010, respectively. Net cash used in investing activities for 2008, 2009 and 2010 has been driven primarily by acquisitions of property and equipment, totaling Rp10,307.9 billion, Rp10,684.7 billion and Rp6,495.1 billion (US$722.4
million), respectively, as we expanded our network coverage and capacity during those years. The property and equipment purchased consisted primarily of exchange and network assets, subscribers apparatus and other equipment and buildings and building and leasehold improvements. Net Cash Provided by (Used In) Financing Activities Net cash provided by (used in) financing activities amounted to Rp1,458.5 billion, Rp3,724.7 billion and Rp1,629.7 billion (US$181.2 million) in 2008, 2009 and 2010, respectively. Net cash used in financing activities in 2010 related primarily to repayment of long-term debts and bonds payable which was partially offset by proceeds from bonds payable.
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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
Principal Indebtedness The following table shows our outstanding borrowings as of December 31, 2008, 2009 and 2010:
As of December 31, 2008 Rp 2009 Rp 12,721.3 Rp 7,666.8 2010 US$ 852.7
(Rp in billion, US$ in million)
Loans payable (net of unamortized issuance costs and unamortized consent fees, and current maturities) Bonds payable (net of unamortized issuance costs, unamortized discount, unamortized consent fees, and current maturities) Current maturities of loans payable Current maturities of bonds payable The decrease in loans payable (net of unamortized issuance cost, unamortized consent fee and current maturities) to Rp7,666.8 billion (US$852.7 million) as of December 31, 2010, from Rp12,721.3 billion as of December 31, 2009 was primarily due to the early repayment of our facilities with BCA Bank, Mandiri and Bank DBS Indonesia. The increase in bonds payable (net of unamortized issuance cost, unamortized discount, unamortized consent fees and current maturities) from Rp8,472.2 billion as of December 31, 2009 to Rp12,114.1 billion (US$1,347.4 million) as of December 31, 2010 was primarily due to the issuance of our Guaranteed Notes due 2020. Certain of our debt instruments (other than the Guaranteed Notes due 2020) obligate us to maintain a specified maximum ratio of debt (or loans) to equity, or the debt to equity ratio, which, prior to February 2009, was 1.75 to 1.0, or 175%. As a result of amendments we requested to such instruments and agreements, and agreed with our lenders and the trustee for bondholders in February and March 2009, the debt to equity ratio is now 2.50 to 1.0, or 250%. We also requested and were granted consents to amendments to certain defined terms in the debt to equity ratios so that the definition is uniform across all such instruments and agreements. The Guaranteed Notes due 2020 do not contain a debt to equity ratio requirement.
10,812.2
10,315.6 572.5 56.4
8,472.2 1,440.2 2,840.7
12,114.1 3,184.2 1,098.1
1,347.4 354.1 122.1
Our debt increased 30.5% from Rp16,692.2 billion as of December 31, 2007 to Rp21,756.7 billion as of December 31, 2008 primarily due to (i) an increase in the issuance of new debt in 2008 to support the increase in capital expenditures in 2008 compared to 2007 and (ii) the accounting impact of the depreciation of the Indonesian rupiah against the U.S. dollar. The U.S. dollar to Indonesian rupiah exchange rate fell from US$1.00 to Rp10,950 as of December 31, 2008 to US$1.00 to Rp9,400 as of December 31, 2009. Because a portion of our liabilities are U.S. dollar-denominated, we were exposed to fluctuations in the Indonesian rupiah. Depreciation in the Indonesian rupiah and an increase in foreign exchange volatility exposed us to short-term accounting adjustments which impacted our financial ratios. To help address the impact of such currency fluctuations going forward, in 2009, we amended the debt to equity ratio covenants in all of our applicable debt instruments and agreements to increase the ratio from 1.75 to 2.50, in order to provide us with additional cushion in the event of adverse foreign exchange movements. We also amended the debt to equity ratio covenants in order to better reflect the effect of our hedging policies on this ratio, and amended the definitions of Debt and Equity in such debt instruments and agreements in order to provide additional headroom under these line items. The Guaranteed Notes due 2020 do not contain a debt to equity requirement.
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As part of the amendments approved in 2009, we obtained consents to the following amendments to defined terms in certain of our applicable debt instruments and agreements: (i) excluding non-cash items, including foreign exchange gains or losses, from the definition of EBITDA; (ii) excluding interest-bearing procurement payables from the definition of Debt unless their maturities are in excess of six months from the invoice date; and (iii) including in Equity (a) minority interests, for entities the debt of which is 100% consolidated by us, and (b) subordinated shareholder loans. While we believe that the foregoing amendments will provide us with sufficient cushion in the event of volatility
in the U.S. dollarIndonesian rupiah exchange rates, we cannot assure you that further and more intense volatility than that experienced in the past 12 months will not occur, which could cause us to breach our financial covenants. Set forth below are calculations of our historical financial ratios that are contained in our financial covenants under Indonesian GAAP as required by our debt agreements. The historical financial ratios as of December 31, 2008 are calculated based on the amended definitions of Debt (also defined as Loan in certain translations of our debt instruments and agreements), Equity and EBITDA in our various debt instruments and agreements as if such defined terms applied as of such dates.
Ratio Required Financial Position and Comprehensive Income Data: Current maturities from: Loans payable Bonds payable Loans payablenet of current maturities: Related party Third parties Bonds payablenet of current maturities Unamortized issuance cost, consent solicitation fees and discounts Total Debt(1) Total Assets Total Liabilities Total Equity(2) Operating Income Depreciation and Amortization EBITDA(3) Interest Expense(4) Financial Ratios: Debt to Equity ratio(5) Debt to EBITDA ratio(6) EBITDA to Interest Expense ratio(7)
As of and for the years ended December 31, 2008 2009 2010 Rp Rp Rp US$ (Rp in billion, US$ in million, except percentages)
572.5 56.4 1,596.2 9,216.0 10,315.6 312.3 22,069.0 51,693.3 33,994.8 17,698.5 4,733.3 4,555.9 9,289.2 1,776.5
1,440.2 2,840.7 2,192.5 10,528.8 8,472.2 338.5 25,812.9 55,041.5 36,753.2 18,288.3 3,213.0 5,561.4 8,774.4 1,808.6
3,184.2 1,098.1 997.0 6,669.8 12,114.1 336.1 24,399.3 52,818.2 34,581.7 18,236.5 3,473.9 6,151.9 9,625.8 2,080.3
354.1 122.1 110.9 741.8 1,347.4 37.4 2,713.7 5,874.6 3,846.3 2,028.3 386.4 684.2 1,070.6 231.3
<2.50x <3.50x >3.00x
1.25x 2.38x 5.23x
1.41x 2.94x 4.85x
1.34x 2.53x 4.63x
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Introduction
Operational Review
Risk Factors
Financial Report
Corporate Data
(1) We define total debt as total loans payable and bonds payable (current and non-current maturities), unamortized issuance cost (loans, bonds and notes), unamortized consent solicitation fees (loans and bonds) and unamortized discounts (loans and notes). According to the amended definition, Debt means, with respect to any person on any date of determination (without duplication): (a) the principal of and premium (if any) in respect of debt of such person for money borrowed and debt evidenced by notes, debentures, bonds or other similar instruments for the payment of which such person is responsible or liable which in any such case, bears interest or on which interest accrues; and (b) all obligations of such person in relation to procurement payables constituting accounts payable to such persons suppliers which bear interest or on which interest accrues and payment for such accounts payable is due more than six (6) months after the relevant invoice date, but, in relation to any member of the Company or its subsidiaries (together the Group), or the Group, deducting all indebtedness advanced by any (direct or indirect) shareholder of the Company to such member of the Group which is subordinated to any indebtedness falling under paragraph (a) or (b) above. (2) We define equity as total stockholders equity and minority interest. According to the amended definition, Equity means total assets less total liabilities, where total liabilities exclude all indebtedness advanced by any (direct or indirect) shareholder of the Company to any member of the Group which is subordinated to any Debt.
(3) We have defined EBITDA as earnings before interest, amortization of goodwill, non-operating income and expense, income tax expense, depreciation and minority interest in net income of subsidiaries as reported in the consolidated financial statements prepared under Indonesian GAAP. EBITDA is not a standard measure under either Indonesian GAAP or IFRS. As the telecommunications business is capital intensive, capital expenditure requirements and levels of debt and interest expenses may have a significant impact on the net income of companies with similar operating results. Therefore, we believe that EBITDA provides a useful reflection of our operating results and that net income is the most directly comparable financial measure to EBITDA as an indicator of our operating performance. You should not consider our definition of EBITDA in isolation or as an indicator of operating performance, liquidity or any other standard measure under either Indonesian GAAP or IFRS, or other companies definition of EBITDA. Our definition of EBITDA does not account for taxes and other non-operating cash expenses. Funds depicted by this measure may not be available for debt service due to covenant restrictions, capital expenditure requirements and other commitments. According to the amended definition, EBITDA means, for any period, an amount equal to the sum of operating income (calculated before finance costs, taxes, nonoperating income or expenses and extraordinary and exceptional items) plus depreciation and amortization and, in the case of any testing or calculation of the ratio of aggregate Debt of the Group, to EBITDA of the Group after giving pro forma effect to any material acquisition or disposal of assets or businesses as if such acquisition or disposal had occurred on the first day of such period. The following table reconciles our net income under Indonesian GAAP to our definition of EBITDA for the periods indicated:
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2008 Rp EBITDA under Indonesian GAAP Adjustments: Amortization of goodwill Interest income Financing cost (including interest expense) Gain (loss) on change in fair value of derivativesnet Othersnet Gain (loss) on foreign exchangenet Income tax expensenet Depreciation and amortization Minority interest in net income of subsidiaries Net income under Indonesian GAAP
For the years ended December 31, 2009 2010 Rp Rp (Rp in billion, US$ in million) 9,289.2 8,774.4 9,625.8 (235.4) 139.0 (1,873.0) (517.7) (150.3) 1,656.4 (677.3) (5,561.4) (56.5) 1,498.2 (226.4) 143.4 (2,271.6) (418.1) (111.8) 492.4 (357.8) (6,151.9) (76.8) 647.2
US$ 1,070.6 (25.2) 15.9 (252.7) (46.5) (12.4) 54.8 (39.8) (684.2) (8.5) 72.0
(227.3) 460.1 (1,858.3) 136.6 (33.6) (885.7) (419.8) (4,555.9) (26.8) 1,878.5
The following table reconciles our EBITDA under Indonesian GAAP to IFRS for the periods indicated:
For the years ended December 31, 2009 2010 Rp Rp (Rp in billion, US$ in million) 9,289.2 8,774.4 9,625.8 46.9 4.4 22.7 11.8 9,293.6 8,797.1 9,684.5
2008 Rp EBITDA under Indonesian GAAP Dealer commissions Deferred connection fees EBITDA under IFRS
US$ 1,070.6 5.2 1.3 1,077.1
(4) Interest Expense means, for any period, interest expense on Debt. (5) Using IFRS results, Total Debt would be Rp22,069.0 billion, Rp25,807.1 billion and Rp24,399.3 billion as of December 31, 2008, 2009 and 2010, respectively, and Total Equity would be Rp17,779.7 billion, Rp18,574.9 billion and Rp18,702.0 billion as of December 31, 2008, 2009 and 2010, respectively, resulting in a Debt to Equity ratio of 124%, 139% and 130% as of December 31, 2008, 2009, and 2010, respectively. (6) Using IFRS results, Total Debt would be Rp22,069.0 billion, Rp25,807.1 billion and Rp24,399.3 billion as of December 31, 2008, 2009 and 2010, respectively, and EBITDA would be Rp9,293.6 billion, Rp8,797.1 billion
and Rp9,684.5 billion for the year ended December 31, 2008, 2009 and 2010, respectively, resulting in a Debt to EBITDA ratio of 237%, 293% and 252% as of December 31, 2008, 2009 and 2010, respectively. (7) Using IFRS results, EBITDA would be Rp9,293.6 billion, Rp8,797.1 billion and Rp9,684.5 billion for the year ended December 31, 2008, 2009 and 2010, respectively, and Interest Expense would be Rp1,776.5 billion, Rp1,808.6 billion and Rp2,080.3 billion for the year ended December 31, 2008, 2009 and 2010, respectively, resulting in an EBITDA to Interest Expense ratio of 523%, 486% and 466% as of December 31, 2008, 2009, and 2010 respectively.
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From time to time, we may repurchase a portion of our debt securities through open-market transactions based on general market conditions.
The following table summarizes our primary long-term indebtedness and bonds payable as of December 31, 2008, 2009 and 2010.
2008 Rp Bonds Payable: Guaranteed Notes Due 2020net of unamortized discount and unamortized notes issuance cost Fifth Indosat Bondsnet of unamortized bonds issuance cost Guaranteed Notes Due 2010net of unamortized notes issuance cost Seventh Indosat Bondsnet of unamortized bonds issuance cost Sixth Indosat Bondsnet of unamortized bonds issuance cost Guaranteed Notes Due 2012net of unamortized notes discount and unamortized notes issuance cost Fourth Indosat Bondsnet of unamortized bonds issuance cost Third Indosat Bondsnet of unamortized bonds issuance cost Indosat Sukuk Ijarah IIInet of unamortized bonds issuance cost Indosat Sukuk Ijarah IInet of unamortized bonds issuance cost Indosat Syariah Ijarah Bondsnet of unamortized bonds issuance cost Second Indosat Bonds Indosat Sukuk Ijarah IVnet of unamortized bonds issuance cost Limited Bonds II issued by Lintasarta(1) Limited Bonds I issued by Lintasarta(2) Total bonds payable Less current maturities Bonds Payable: Non-current portion Loans Payable: Related Partynet of unamortized debt issuance cost Third partiesnet of unamortized bonds issuance cost Total loans payable Less current maturities Loans payable: Non-current portion
(1)
As of December 31, 2009 2010 Rp Rp (Rp in billion, US$ in million) 2,587.2 2,202.7 1,293.8 1,073.0 1,018.8 811.0 637.9 566.4 398.1 283.6 199.4 199.0 25.0 17.0 11,312.9 2,840.7 8,472.2 5,749.6 2,589.0 1,294.6 1,074.6 813.6 567.4 398.5 284.5 199.3 199.1 25.0 17.0 13,212.2 1,098.1 12,114.1
US$
639.5 288.0 144.0 119.5 90.5 63.1 44.3 31.6 22.2 22.1 2.8 1.9 1,469.5 122.1 1,347.4
2,593.1 2,563.5 1,075.7 1,185.3 810.5 637.3 567.8 399.0 283.4 200.0 31.1 25.3 10,372.0 56.4 10,315.6
1,796.2 9,588.5 11,384.7 572.5 10,812.2
2,592.4 11,569.1 14,161.5 1,440.2 12,721.3
1,297,1 9,553.9 10,851.0 3,184.2 7,666.8
144.2 1,062.6 1,206.8 354.1 852.7
(2)
After elimination of Limited Bonds II amounting to Rp35.0 billion issued to the Company. After elimination of Limited Bonds I amounting to Rp9.6 billion issued to the Company.
Indosat Bonds
The specific terms of each of our Second Indosat Bonds, Third Indosat Bonds, Fourth Indosat Bonds, Fifth Indosat
Bonds, Sixth Indosat Bonds and Seventh Indosat Bonds (the Indosat Bonds), are discussed below. The Indosat Bonds are not secured by any specific assets or guaranteed by other parties and rank pari passu with our other unsecured debt. We agreed to certain covenants in connection with the issuance of the Indosat Bonds, including but not limited to agreeing to maintain:
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equity capital of at least Rp5,000.0 billion; a ratio of total debt to EBITDA of less than 3.5 to 1.00, as reported in each annual consolidated financial report; a debt to equity ratio of 2.5 to 1, as reported in each quarterly consolidated financial report; and a ratio of EBITDA to interest expense, as reported in each annual consolidated financial report of at least 3.0 to 1. On March 24, 2009, we held meetings with holders of our Indonesian rupiah-denominated bonds, including holders of our Indosat Bonds, and obtained consents to amend the definitions of Debt EBITDA, to include new definitions for Equity and Group and to change the ratio of Debt to Equity from 1.75 to 1 to 2.5 to 1 in the trustee agreement governing these bonds, pursuant to the terms of the deed of amendment for the Second, Third, Fourth, Fifth and Sixth Indosat Bonds. Second Indosat Bonds. On November 6, 2002, we issued our Indosat Bonds II (the Second Indosat Bonds), with fixed and/or floating rates, the only outstanding series of which are the Series B bonds. The Series B bonds, with an original face value of Rp200.0 billion, bear interest at a fixed rate of 16.0% per annum and are payable quarterly for 30 years beginning February 6, 2003. We have the right to redeem the Series B bonds, in whole but not in part, on each of the 5th, 10th, 15th, 20th and 25th anniversaries of the issuance of the Series B bonds at a price equal to 101% of the Series B bonds nominal value. Holders of the Series B bonds have a put right that allows such holders to demand early repayment from us at a price equal to 100% of the Series B bonds nominal value at (i) any time, if the rating of such bonds is reduced to id AA- or lower or (ii) upon the occurrence of any of the 15th, 20th and 25th anniversaries of the issuance of the Series B bonds. The Series B bonds mature on November 6, 2032. Third Indosat Bonds. On October 22, 2003, we issued our Indosat Bonds III (the Third Indosat Bonds), the only
outstanding series of which are the Series B bonds. The Series B bonds, which will mature on October 22, 2010 and have a total face value of Rp640.0 billion, bear interest at a fixed rate of 12.875% per annum. Interest on the Third Indosat Bonds is paid on a quarterly basis. We have the right to make early payment for all of the Series B bonds on the fourth and sixth anniversaries of the bonds at a price equal to 100% of the bonds nominal value. After the first anniversary of the issuance of the bonds, we have the right to buy back part or all of the bonds at the market price. On October 22, 2010, we paid in full the series of the Third Indosat Bonds amounting to Rp 640.0 billion. Fourth Indosat Bonds. On June 21, 2005, we issued our Indosat Bonds IV (the Fourth Indosat Bonds). The Fourth Indosat Bonds have a total face value of Rp815.0 billion and will mature in June 21, 2011. The Fourth Indosat Bonds bear interest at a fixed rate of 12.0% per annum, payable on a quarterly basis. We have the right to prepay all of the bonds on the fourth anniversary of the bonds at a price equal to 100% of the bonds nominal value. After the first anniversary of the issuance of the bonds, we have the right to buy back part or all of the bonds at the market price. Fifth Indosat Bonds. On May 29, 2007, we issued our Indosat Bonds V (the Fifth Indosat Bonds), in two series with a total face value of Rp2,600.0 billion. The Series A bonds, which have a face value of Rp1,230.0 billion, will mature on May 29, 2014 and the Series B bonds, which have a face value of Rp1,370.0 billion, will mature on May 29, 2017. The Series A bonds bear interest at a fixed rate of 10.20% per annum and the Series B bonds bear interest at a fixed rate of 10.65% per annum. After the first anniversary of the issuance of the bonds, we have the right to buy back part or all of the bonds at the market price, either temporarily or for the purpose of early settlement. Sixth Indosat Bonds. On April 9, 2008, we issued our Indosat Bonds VI (the Sixth Indosat Bonds), in two series with a total face value of Rp1,080.0 billion. The Series A bonds, which have a face value of Rp760.0 billion, will
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mature on April 9, 2013 and the Series B bonds, which have a face value of Rp320.0 billion will mature on April 9, 2015. The Series A bonds bear interest at a fixed rate of 10.25% per annum and the Series B bonds bear fixed interest rate of 10.80% per annum. After the first anniversary of the issuance of the bonds, we have the right to buy back part or all of the bonds at market price, either temporarily or for the purpose of early settlement. Seventh Indosat Bonds. On December 8, 2009, we issued our Indosat Bonds VII (the Seventh Indosat Bonds), in two series with a total face value of Rp1,300.0 billion. The Series A bonds, which have a face value of Rp700.0 billion, will mature on December 8, 2014 and the Series B bonds, which have a face value of Rp600.0 billion, will mature on December 8, 2016. The Series A bonds bear interest at a fixed rate of 11.25% per annum and the Series B bonds bear interest at a fixed rate of 11.75% per annum. After the first anniversary of the issuance of the bonds, we have the right to buy back part or all of the bonds at market price, either temporarily or for the purpose of early settlement.
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. On May 12, 2010, we, together with Indosat Finance and Indosat International, announced the commencement by Indosat Finance and Indosat International of cash tender offers to purchase for cash any and all of Indosat Finances outstanding Guaranteed Notes due 2010 and Indosat Internationals outstanding Guaranteed Notes due 2012. In addition to its offer to purchase the 2010 Notes, Indosat Finance also solicited, as one proposal, consents to certain proposed amendments to the amended and restated indenture, dated as of January 25, 2006 (the 2010 Indenture), which would shorten the notice period for optional redemption of the Guaranteed Notes due 2010, and to the release of Indosat International as a guarantor under the 2010 Indenture. On August 2, 2010, Indosat Finance paid a total of US$174.7 million for the Guaranteed Notes 2010 purchased pursuant to the cash tender offer, with a total principal amount of US$167.8 million (for notes which were tendered early) and US$0.1 million (for notes tendered after the early tender date) at price equal to 102.1875% (for notes which were tendered early) and 101.9375% (for notes tendered after the early tender date), respectively, of the principal amount purchased, plus the accrued and unpaid interest up to settlement date and other additional expenses. On August 10, 2010, Indosat Finance paid a total of US$69.5 million for the purchase of the remaining portion of the 2010 Notes which were redeemed, with a total principal amount of US$66.9 million at a price equal to 101.9375% of principal amount called, plus the accrued and unpaid interest up to settlement date and other additional expenses. On August 2, 2010, Indosat International paid a total of US$58.6 million for the 2012 Notes purchased pursuant to the cash tender offer with a total principal amount of US$55.8 million (for notes which were tendered early) and US$0.2 million (for notes tendered after the early tender
Guaranteed Notes due 2010 and Guaranteed Notes 2012

In October 2003, our finance subsidiary, Indosat Finance Company B.V. (Indosat Finance), issued the Guaranteed Notes due 2010. The Guaranteed Notes due 2010 have a total face value of US$300.0 million and mature on November 5, 2010. The Guaranteed Notes due 2010 bear interest at a fixed rate of 7.75% per annum payable in semi-annual installments due on May 5 and November 5 of each year, commencing May 5, 2004. On June 22, 2005, our finance subsidiary, Indosat International Finance Company B.V. (Indosat International), issued the Guaranteed Notes due 2012. The Guaranteed Notes due 2012 have a total face value of US$250.0 million which was issued at 99.3% of their principal amount and mature on June 22, 2012. The Guaranteed Notes due 2012 bear interest at a fixed
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date) at a price equal to 103.8125% (for notes which were tendered early) and 103.5625% (for notes tendered after the early tender date), respectively, of the principal amount purchased, plus the accrued and unpaid interest up to settlement date and other additional expenses. On September 2, 2010, Indosat International paid a total of US$56.0 million for the purchase of the remaining portion of the 2010 Notes which were redeemed with a total principal amount of US$53.4 million at a price equal to 103.5625% of principal amount called, plus the accrued and unpaid interest up to settlement date and other additional expenses.
sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all of our assets), holders of the notes have the right to require Indosat Palapa to repurchase all or any part of such holders notes at a purchase price equal to 101% of principal amount thereof, plus accrued and unpaid interest and additional amounts, if any, to the purchase date. The net proceeds, after deducting the underwriting fees and offering expenses, were received on July 29, 2010 and used (i) to fund the offers to purchase the outstanding Guaranteed Notes Due 2010 and Guaranteed Notes due 2012 and any consent solicitation relating to, or redemption of, such notes and (ii) to refinance part of our other existing indebtedness . The notes are unconditionally and irrevocably guaranteed by Indosat. Based on the notes indenture, we are required to comply with certain conditions, such as maintaining certain financial ratios.
Guaranteed Notes Due 2020

On July 29, 2010 we, through Indosat Palapa Company B.V. (Indosat Palapa) issued our guaranteed Notes 2020 with a total face value of US$650.0 million. The notes were issued at 99.478% of their principal amount and mature on July 29, 2020. The notes bear interest at the fixed rate of 7.375% per annum payable in semi-annual installment due on January 29 and July 29 of each year, commencing January 29, 2011. The notes will be redeemable at the option of Indosat Palapa, in while or in part, at any time on or after July 29, 2015 at prices equal to 103.6875%, 102.4583%, 101.2292% and 100% of the principal amount during the 12-month period commencing July 29, 2015, 2016, 2017 and 2018 and thereafter, respectively, plus accrued and unpaid interest and additional amounts, if any. In addition, prior to July 29, 2013, Indosat Palapa 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 us at a price equal to 107.375% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any. The notes are also redeemable at option of Indosat Palapa or us, in whole but not in part, at any time, at a price equal to 100% of principal amount thereof, plus any accrued and unpaid interest to (but not including) the redemption date any additional amounts, in the event of certain changes effecting withholding taxes in Indonesia and the Netherlands. Upon a change in control of Indosat (including
Export Credit Facility

On May 12, 2006, we entered into a term facility agreement with Finnish Export Credit Ltd as the original lender, and The Royal Bank of Scotland, N.V. (formerly known as ABN Amro Bank, N.V.) as the facility agent, for an export credit facility (the Export Credit Facility) in the aggregate principal amount of US$38.0 million. The Export Credit Facility tenor is 60 months from the date of the agreement and payments must be made in ten equal installments distributed evenly over the life of the facility. The Export Credit Facility has an interest rate of 4.15% per annum, which was calculated with reference to the commercial interest reference rate for U.S. dollars. Once amounts under the Export Credit Facility have been drawn down and repaid, such amounts do not become available for borrowing on a revolving basis. The Export Credit Facility contains certain financial covenants. During 2009 and 2010, we paid installments on this facility in the amount of US$7.6 million and US$7.6 million, respectively.
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Syariah Ijarah Bonds (Sukuk Ijarah)

The specific terms of each of our First Syariah Ijarah Bonds, Second Syariah Ijarah Bonds, Third Syariah Ijarah Bonds and Fourth Syariah Ijarah Bonds (the Syariah Ijarah Bonds), are discussed below. The Syariah Ijarah Bonds are not secured by any specific assets or guaranteed by other parties and rank pari passu with our other unsecured debt. In connection with the issuance of the Syariah Ijarah Bonds, we agreed to maintain certain covenants which are similar to the covenants contained in our Indosat Bonds. In addition, we are also prohibited from performing activities which contravene Syariah principles. Aside from these prohibitions, there are no material differences in the covenants between the Syariah Ijarah Bonds and the Indosat Bonds. On March 24, 2009, we held meetings with holders of our Indonesian rupiah-denominated bonds, including holders of our Syariah Ijarah Bonds, and obtained consents to amend to the definitions of Debt and EBITDA, to add new definitions for Equity and Group and to change the ratio of Debt to Equity from 1.75 to 1 to 2.5 to 1 in the trustee agreement governing these bonds. First Syariah Ijarah Bonds. On June 21, 2005, we issued our Sukuk Ijarah Indosat I (the First Syariah Ijarah Bonds), which contain terms customary for Islamic financing facilities, with Bank Rakyat Indonesia acting as trustee. The First Syariah Ijarah Bonds have a total face value of Rp285.0 billion and mature on June 21, 2011. Holders of the First Syariah Ijarah Bonds receive an Ijarah installment fee, payable on a quarterly basis. The total Ijarah installment fee expected to be paid to the holders of the First Syariah Ijarah Bonds is Rp34.2 billion per annum. We have the right to make early payment for all of the First Syariah Ijarah Bonds on the fourth anniversary of the First Syariah Ijarah Bonds at a price equal to 100% of the bonds nominal value. After the first anniversary of the issuance of the First Syariah Ijarah Bonds, we have the right to buy back part or all of the First Syariah Ijarah Bonds at the market price, either temporarily or for the purpose of early settlement.
Second Syariah Ijarah Bonds. On May 29, 2007, we issued our Sukuk Ijarah Indosat II (the Second Syariah Ijarah Bonds), which contain terms customary for Islamic financing facilities, with Bank Rakyat Indonesia acting as trustee. The Second Syariah Ijarah Bonds have a total face value of up to Rp400.0 billion and mature in May 29, 2014. Holders of the Second Syariah Ijarah Bonds receive an Ijarah installment fee, payable on a quarterly basis. The total Ijarah installment fee to be paid to the holders of the Second Syariah Ijarah Bonds is Rp40.8 billion per annum. After the first anniversary of issuance of the Second Syariah Ijarah Bonds, we have the right to buyback part or all of such bonds at the then-prevailing market price. Third Syariah Ijarah Bonds. On April 9, 2008, we issued our Sukuk Ijarah Indosat III (the Third Syariah Ijarah Bonds), which contain terms customary for Islamic financing facilities, with Bank Rakyat Indonesia acting as trustee. The Third Syariah Ijarah Bonds have a total face value of up to Rp570.0 billion and mature in April 9, 2013. Holders of the Third Syariah Ijarah Bonds receive an Ijarah installment fee, payable on a quarterly basis. The total Ijarah installment fee expected to be paid to the holders of the Third Syariah Ijarah Bonds is Rp58.4 billion per annum. After the first anniversary of the issuance of the Third Syariah Ijarah Bonds, we have the right to buyback part or all of such bonds at the then-prevailing market price. Fourth Syariah Ijarah Bonds. On December 8, 2009, we issued our Sukuk Ijarah Indosat IV (the Fourth Syariah Ijarah Bonds), which contain terms customary for Islamic financing facilities, with Bank Rakyat Indonesia acting as trustee. The Fourth Syariah Ijarah Bonds have a total face value of Rp200.0 billion. The Series A Syariah Ijarah Bonds, which have a face value of Rp28.0 billion, will mature on December 8, 2014 and the Series B Syariah Ijarah Bonds, which have a face value of Rp172.0 billion, will mature on December 8, 2016. Holders of the Fourth Syariah Ijarah Bonds receive an Ijarah installment fee, payable on a quarterly basis. The total Ijarah installment fee expected to be paid to the holders of the Fourth Syariah Ijarah Bonds is Rp3.2 billion per annum for the Series A Fourth Syariah
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Ijarah Bonds and Rp20.2 billion per annum for the Series B Fourth Syariah Ijarah Bonds. After the first anniversary of the issuance of the Fourth Syariah Ijarah Bonds, we have the right to buyback part or all of such bonds at the thenprevailing market price.
Bank Central Asia Loan Facilities

On August 28, 2007, we obtained a five-year Rp1,600.0 billion unsecured credit facility from Bank Central Asia (BCA) for the repayment of our Syndicated Loan Facility II and the purchase of telecommunications equipment. The loan bears (i) fixed annual interest rates for the first two years (9.75% on the first year and 10.5% on the second year) and (ii) floating interest rates for the remaining years based on the prevailing annual rate of three-month JIBOR plus 1.5% per annum; all interest is payable quarterly. On September 20, 2007, we obtained an additional credit facility of Rp400.0 billion from BCA. As a result, the aggregate principal amount under our credit facility with BCA is Rp2,000.0 billion. The repayment of the loan drawdowns will be made annually, as follows: (a) 10.0% of the total loan drawdowns in the first and second years after the first drawdown; (b) 15.0% of the total loan drawdowns in the third and fourth years after the first drawdown; and (c) 50.0% of the total loan drawdowns in the fifth year after the first drawdown. On September 27, October 26 and December 27, 2007, we made the first, second and third loan drawdowns totaling Rp2,000.0 billion. Under the loan agreement, we have agreed to certain covenants, including maintenance covenants, which are similar to the covenants contained in the Indosat Bonds. On September 27, 2008 and September 25, 2009, we paid the first and second semi-annual installment amounting to Rp200.0 billion each. On September 27, 2010, we paid the third annual installment amount to Rp 300.0 billion. On September 17, 2008, we entered into a three-year unsecured credit facility agreement with BCA amounting to Rp500.0 billion for the purchase of, and/or the refinancing of debt incurred to purchase, telecommunications equipment. The loan bears interest at 3-month JIBOR plus 2.25% per annum. The repayment of the loan drawdowns will be made annually, as follows: (a) 20% of the total loan drawdowns in the first year, (b) 30% of the total loan drawdowns in the second year, and (c) 50% of the total loan drawdowns in the third year. On March 16, 2009, we made the loan drawdown amounting to Rp500.0 billion.
Goldman Sachs International Loan Facility

On May 30, 2007, we received from Goldman Sachs International (GSI) a loan amounting to Rp434.3 billion, which was received in U.S. dollars amounting to US$50.0 million, for the purchase of telecommunications equipment. The loan will mature on May 30, 2013. The loan bears interest at a fixed annual rate of 8.75%, which is payable quarterly every February 28, May 30, August 30 and November 30, commencing August 30, 2007, up to May 30, 2012. The loan agreement provides an option for GSI to convert the loan into a U.S. dollar loan of US$50.0 million on May 30, 2012 (the Conversion Option). The fair value of the Conversion Option is presented as part of long-term debt. If GSI exercises such option, starting May 30, 2012, the loan will bear interest at the fixed annual rate of 6.45% on the principal amount of US$50.0 million. The principal amount in U.S. dollars and interest thereon will be due on May 30, 2013. We are required to notify GSI regarding of certain events which can result in loan termination, such as (i) certain changes affecting withholding taxes in the United Kingdom or Indonesia, (ii) default under our Guaranteed Notes due 2012, (iii) default under any notes issued or guaranteed by us where the settlement is in U.S. dollars or default under any notes issued or guaranteed by us where the settlement is in Indonesian rupiah, (iv) redemption, purchase or cancellation of the Guaranteed Notes due 2012 and there being no other U.S. dollar indebtedness outstanding upon such redemption, purchaser or cancellation and (v) a change of control. On June 24, 2008, GSI waived its rights to terminate the loan as a result of the change of control triggered by Qtels acquisition of a 40.81% interest in our issued and outstanding share capital in June 2008.
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Voluntary early repayment (in whole or for any part of the loan) is permitted with a penalty of 1% of the prepaid amount. Based on the loan agreement, we are required to comply with certain covenants, such as maintaining certain financial ratios. On March 16, 2010, we paid the first annual installment amounting to Rp100.0 billion. Voluntary early repayment (whole or any part of the loan) is permitted with a penalty of 1% of the prepaid amount. On October 19, 2010, we made an early repayment of this credit facility amounting to Rp400.0 billion. On February 12, 2009, we amended our five-year and three-year BCA credit facility agreements, based on the consent letter received on February 6, 2009, to change the definitions of EBITDA, to insert definitions for Debt, Equity, and Group and to change the ratio of Debt to Equity from 1.75 to 1 to 2.5 to 1 in the loan agreement governing this loan facility. On June 8, 2009, we entered into a five-year unsecured credit facility agreement with BCA amounting to Rp1,000.0 billion for the procurement of, and/or the refinancing of debt incurred to purchase, telecommunications equipment. The loan bears interest at 3-month JIBOR plus 4.00% per annum. The repayment of the loan drawdowns will be made annually, as follows: (a) 10% of the total loan drawdowns in the first and second years, (b) 15% of the total loan drawdowns in the third and fourth years, and (c) 50% of the total loan drawdowns in the fifth year. On June 25, 2009, we made the loan drawdown amounting to Rp1,000.0 billion. On June 25, 2010, we paid the first annual installment amounting to Rp100.0 billion. Voluntary early repayment (in whole or for any part of the loan) is permitted, subject to a 1% penalty of the prepaid amount, except for prepayment to refinance this credit facility. Based on the loan agreement, we are required to comply with certain covenants, such as maintaining certain financial ratios. On April 28, 2010, we received a letter from BCA regarding the change of interest rate from 3-month JIBOR plus 4.00% per annum to 3-month JIBOR plus 2.25% per annum, effective on June 25, 2010. On October 19, 2010, we made an early repayment of this credit facility amounting to Rp900.0 billion.
On February 10, 2011, the Company entered into a Time Loan Revolving facility agreement with BCA covering a maximum amount of Rp1,000.0 billion to fund the Companys capital expenditure and/or for general corporate purposes. This facility will be available from February 10, 2011 to February 10, 2014 and drawdowns bear interest at 1-month JIBOR plus 1.4% per annum. We have not drawn on this facility as of April 20, 2011.
Bank Mandiri Loan Facilities

On September 18, 2007, we obtained a five-year unsecured credit facility from Bank Mandiri amounting to Rp2,000.0 billion for the purchase of telecommunications equipment. The loan bears interest at (i) fixed annual rates for the first two years (9.75% on the first year and 10.5% on the second year), and (ii) floating rates for the remaining years based on the prevailing annual rate of three-month JIBOR plus 1.5% per annum; all interest is payable quarterly. The repayment of the loan drawdowns will be made annually, as follows: (a) 10.0% of the total loan drawdowns in the first and second years after the first drawdown; (b) 15.0% of the total loan drawdowns in the third and fourth years after the first drawdown; and (c) 50.0% of the total loan drawdowns in the fifth year after the signing date of the agreement. On September 27 and December 27, 2007, we made the first and second loan drawdowns totaling Rp2,000.0 billion. Based on the loan agreement, we have agreed to certain covenants, including maintaining certain financial ratios. On September 27, 2008 and September 25, 2009, we paid the first and second semi-annual installment amounting to Rp200.0 billion each. On March 23, 2009, we entered into an agreement with Bank Mandiri to amend the definitions of EBITDA, to insert new definitions for Debt, Equity, and Group and to change the ratio of Debt to Equity in the loan agreement governing this loan facility. On September 27, 2010, we paid the third annual installment amounting to Rp300.0 billion under this facility. On July 28, 2009, we entered into a five-year unsecured credit facility agreement with Mandiri amounting to Rp1,000.0 billion for general corporate purposes. The loan bears interest at an average rate of 3-month JIBOR plus 4.00% per annum. On July 31, 2009, the Company
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drew down Rp1,000.0 billion from this credit facility. The repayment of the loan drawdowns will be made annually, as follows: (a) 10% of the total loan drawdowns in the first and second years from the first drawdown, (b) 15% of the total loan drawdowns in the third and fourth years from the first drawdown, and (c) 50% of the total loan drawdowns in the fifth year after the signing of the agreement. Voluntary early repayment (in whole or for any part of the loan) is permitted, subject to a 2% penalty of the prepaid amount. Based on the loan agreement, we are required to comply with certain covenants, such as maintaining certain financial ratios. On May 20, 2010, we received a letter from Mandiri regarding the change of interest rate from average 3-month JIBOR plus 4.00% per annum to average 3-month JIBOR plus 2.25% per annum, effective on May 31, 2010. On July 30, 2010, we paid the first annual installment amounting to Rp100.0 billion. On November 15, 2010, we made an early repayment of this credit facility amounting to Rp900.0 billion.
2009, we paid the first annual installment amounting to Rp50.0 billion, On March 25, 2009, the Company amended the credit facility agreement based on the consent letter received on February 27, 2009. The amendment included changes in the definition of certain terms and the financial ratios required to be maintained. On February 1, 2010, we paid the second annual installment amounting to Rp50.0 billion. On October 30, 2010, we made an early repayment of this credit facility amounting to Rp400.0 billion.
HSBC
On November 27, 2007, we signed two unsecured facility agreements with HSBC France and one unsecured facility agreement with The Hongkong and Shanghai Banking Corporation Limited, Jakarta Branch (HSBC Jakarta) to finance our new telecommunications satellite. These combined export credit and commercial financing facilities consist of the following: a 12-year term facility agreement amounting to US$157.2 million to finance the payment of 85.0% of the French Content under the Palapa-D satellite contract, plus 100% of the COFACE Premium, as such terms are defined in the facility agreement. The loan bears fixed annual interest at a fixed rate of 5.69% per annum, which is payable semi-annually. On March 29, 2010, September 29, 2010, and March 29, 2011, we paid the first, second and third semi-annual installments amounting to US$7.9 million each; a 12-year term facility agreement amounting to US$44.2 million to finance the payment of 85.0% of the amounts payable under the Launch Service Contract (as defined in the term facility agreement) with respect to our Palapa D Satellite. The loan bears floating interest rate based on U.S. dollars at LIBOR plus 0.35% per annum, which is payable semi-annually. On March 29, 2010, September 29, 2010 and March 29, 2011, we paid the first, second and third semi-annual installments amounting to US$2.2 million each; and a nine-year Commercial Facility Agreement amounting to US$27.0 million to finance the construction and launch of the satellite and the payment of the premium associated with the medium-long term buyer credit
Bank DBS Indonesia Loan Facility

On November 1, 2007, we obtained a five-year credit facility from Bank DBS Indonesia for Rp500.0 billion for the purchase of telecommunications equipment. The loan bears interest at (i) fixed annual rates for the first two years (9.7% on the first year and 10.4% on the second year), and (ii) floating rates for the remaining years based on the prevailing annual interest rate of three-month certificates of Bank Indonesia plus 1.5% per annum; all interest is payable quarterly. The repayment of the loan drawdowns will be made annually, as follows: (a) 10.0% of the total loan drawdowns in the first and second years after the first drawdown; (b) 15.0% of the total loan drawdowns in the third and fourth years after the first drawdown; and (c) 50.0% of the total loan drawdowns in the fifth year after the first drawdown. Based on the loan agreement, we have agreed to certain covenants, including maintaining certain financial ratios. On January 31, 2008, we drew down Rp500.0 billion from the facility. On March 25, 2009, we entered into an agreement with Bank DBS Indonesia to insert new definitions for Debt, EBITDA, Equity, and Group and to change the ratio of Debt to Equity in the loan agreement governing this loan facility. On January 30,
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insurance policy issued in connection with the Sinosure Facility. The loan bears floating interest rate based on U.S. dollars at LIBOR plus 1.45% per annum, which is payable semi-annually. On November 27, 2009 we paid the first semi-annual installment amounting to US$1.4 million. On May 27 and November 29, 2010, we paid the second and third semi-annual installments, respectively, amounting to US$1.4 million each. The facilities contain certain financial covenants. On March 18, 2009, we entered into agreements with HSBC France and HSBC Jakarta to amend the definitions of Debt, EBITDA, and Equity and the ratio of Debt to Equity in our COFACE Term Facility Agreement, Sinosure Term Facility Agreement and Commercial Facility Agreement, as applicable. According to the agreement, we are required to maintain: (i) equity capital in excess of Rp5,000.0 billion, (ii) a debt to equity ratio not to exceed 2.5:1, (iii) an EBITDA to interest ratio not to be less than 2.5:1, and (iv) a Debt to EBITDA ratio not to exceed 3.5:1. In addition, on December 4, 2009, we entered into a Corporate Facility Agreement with HSBC to finance short term working capital needs. The facility consists of a combined limit in the amount of US$30.0 million and a revolving loan in the amount of US$30.0 million. We have not drawn on this facility as of April 20, 2011.
ING/DBS Syndicated Loan Facility agreement, as amended by the deed of amendment, we have agreed to certain covenants, including but not limited to the following maintenance covenants: a ratio of total debt to EBITDA of less than 3.5 to 1; a total debt to equity ratio of 2.5 to 1; and a ratio of EBITDA to interest expense, as reported as at the end of each financial year and as at the end of each of first three quarters of our financial year, of at least 2.5 to 1. The repayment of the loan drawdowns will be made semiannually, as follows: (a)25% of the total loan drawdowns in the third year after the signing date of the agreement (first repayment date), (b) 24% of the total loan drawdowns on the sixth month after the first repayment date, (c) 8% each of the total loan drawdowns on the 12th and 18th months after the first repayment date, and (d) 35% of the total loan drawdowns on the 24th month after the first repayment date. On September 26 and October 30, 2008, the Company received the first and second drawdowns from this credit facility totaling US$450.0 million. As of December 31, 2010, the outstanding balance owed on this facility totaled US$450.0 million.
ING/DBS Syndicated Loan Facility

On June 12, 2008, we entered into a US$450.0 million syndicated loan facility with 13 banks and financial institutions, with ING Bank N.V., Singapore Branch and DBS Bank Ltd. serving as arrangers. The amount of interest to be paid on the outstanding amount of the loan will be the aggregate of (i) the applicable margin of 1.85% per annum for non-Indonesian lenders or 1.90% per annum for lenders resident in Indonesia and (ii) LIBOR. The repayment of the loan drawdowns will be made in semi-annual installments commencing June 12, 2011. On February 24, 2009, we entered into an agreement with the majority lenders to amend the definitions of Debt, EBITDA, and Equity and the ratio of Debt to Equity in our ING/ DBS Syndicated Loan Facility. Pursuant to the terms of the
AB Svensk Exportkredit (SEK) Loan Facility Guaranteed by Export Kredit Namnden (EKN)
On August 18, 2009, we obtained credit facilities from SEK, guaranteed by EKN, an export credit agency of the Kingdom of Sweden, for the maximum total amount of US$315,000,000 to be used for the purchase of Ericsson telecommunication equipment, with The Hongkong and Shanghai Banking Corporation Limited (HSBC), Hong Kong and The Royal Bank of Scotland N.V. (formerly known as ABN AMRO Bank N.V.), Hong Kong Branch as the original lenders and arrangers, while HSBC Bank PLC, London, United Kingdom acted as the facility agent and EKN agent. On September 2, 2009, the original lenders transferred such rights and obligations to SEK, pursuant to the terms of the agreement.
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The credit facilities consist of facilities A, B and C with maximum amounts of US$100.0 million, US$155.0 million and US$60.0 million, respectively. Facility A bears interest at LIBOR plus 0.25% per annum, together with SEK funding costs and an EKN premium margin. Facility B and Facility C bear interest at 0.05% per annum plus 2.60% per annum plus the EKN Premium Margin. The repayment of each of facilities A, B and C shall be made in fourteen installments starting six months after May 31, 2009, February 28, 2010 and November 30, 2010, respectively. Based on the agreement, we are required to comply with certain covenants, such as maintaining certain financial ratios, which are substantially the same as the covenants under the ING/DBS Syndicated Loan Facility. In addition, we are required to maintain a minimum consolidated equity of at least Rp5,000.0 billion. As of March 31, 2011, we have already drawn US$100.0 million, US$155.0 million and US$60.0 million from facilities A, B and C, respectively. On November 30, 2009, May 27, 2010 and November 30, 2010, the Company paid the first, second and third semiannual installments, respectively, for Facility A amounting to US$7.1 million each. On August 28, 2010 and February 28, 2011, the Company paid the first and second semi-annual installment for Facility B amounting to US$11.1 million each.
per annum. We commenced quarterly repayment of the principal on October 10, 2008 in the amount of Rp5.0 billion. Such repayments are payable each quarter until January 10, 2011. Investment Credit Facility VI. On February 24, 2009, Lintasarta obtained a credit facility from CIMB Niaga amounting to Rp75.0 billion for the purchase of telecommunications equipment, computers and other supporting facilities. The loan bears interest at the annual rate of 14.5%, subject to change by CIMB Niaga based on the market condition. We commenced quarterly repayments of the principal on May 24, 2010 in the amount of Rp7.5 billion. Such repayments are payable each quarter until August 24, 2012. As of December 31, 2010, Lintasarta has fully drawn this credit facility. Limited Bonds I. On June 2, 2003, Lintasarta agreed with its stockholders to issue limited bonds to stockholders totaling Rp40.0 billion, including our portion of Rp9.6 billion. Such limited bonds are unsecured and had an initial maturity date of June 2, 2006. The bonds bear interest at the fixed rate of 16.0% per annum for the first year and floating interest rates for the following years based on the average three-month time deposit rates of PT Bank Mandiri (Persero) Tbk, PT Bank Negara Indonesia (Persero) Tbk, PT Bank Rakyat Indonesia (Persero) Tbk and PT Bank Tabungan Negara (Persero) plus a 3.0% margin, with a maximum rate of 19.0% per annum and a minimum rate of 11.0% per annum. Interest is payable quarterly from September 2, 2003. On June 14, 2006, Lintasarta agreed with the holders to extend the maturity date from June 2, 2006 to June 2, 2009 and the nominal value of the limited bonds became Rp34.9 billion, including our portion of Rp9.6 billion. On June 2, 2009, Lintasarta repaid a portion of the limited bonds amounting to Rp8,303 million. On August 25, 2009, the agreement governing the Limited Bonds I was amended to amend the face value of the bonds to become Rp26.6 billion, extend the maturity date to June 2, 2012 and to amend the floating interest rate to be based on JIBOR + 4%, not to exceed 19%, with a minimum floating interest rate of 12.75%.
Lintasarta
Lintasartas long-term debt comprises of certain investment credit facilities from CIMB Niaga Tbk, formerly PT Bank Niaga Tbk and unsecured limited bonds. As of December 31, 2010, the investment credit facility from CIMB Niaga totaled Rp94.9 billion, and the outstanding bonds totaled Rp42.0 billion. Investment Credit Facility V. On July 10, 2007, Lintasarta obtained a credit facility from CIMB Niaga amounting to Rp50.0 billion for the purchase of telecommunications equipment, computers and other supporting facilities. The loan bears interest at the prevailing annual rate for one-month certificates of Bank Indonesia plus 2.25%
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Limited Bonds II. On June 14, 2006, Lintasarta entered into an agreement with its stockholders for the former to issue Limited Bonds II amounting to Rp66.2 billion. The limited bonds represent unsecured bonds which were originally set to mature on June 14, 2009 and bore interest at the floating rates determined using the average 3 month rupiah time deposit rates with PT Bank Mandiri (Persero) Tbk, PT Bank Negara Indonesia (Persero) Tbk, PT Bank Rakyat Indonesia (Persero) Tbk and PT Bank Tabungan Negara (Persero) plus a fixed premium of 3.0%. The maximum limit of the floating rates was 19.0% per annum and the minimum limit was 11.0% per annum. The interest is payable on a quarterly basis starting September 14, 2006. The proceeds o f the limited bonds were used for capital expenditure to expand Lintasartas telecommunications peripherals. On July 17, 2006, Lintasarta obtained approval from CIMB Niaga on the issuance of the limited bonds . On June 14, 2009, Lintasarta paid a portion of the Limited Bonds amounting to Rp6.2 billion. Based on the Minutes of the Joint Meeting of Lintasartas Boards of Commissioners and Directors held on May 20, 2009, the representatives of Lintasartas stockholders agreed to extend the maturity date of the remaining Limited Bonds II of Rp60.0 billion to June 14, 2012 and to increase the minimum limit of the floating interest rates 12.75%. On August 25, 2009, the Limited Bonds II agreement, after being amended to accommodate the changes in maturity date and minimum limit of floating interest rates, was finalized.
Capital Resources
We believe that our cash flow from operations and drawings from our existing credit facilities will provide sufficient financing for our anticipated capital expenditures, anticipated debt repayment and interest obligations and other operating needs under our current business plan. However, we face liquidity risks if certain events occur, including but not limited to, slower than expected growth in the Indonesian economy, downgrading of our debt ratings or deterioration of our financial performance or financial ratios. In the event we cannot finance our planned capital expenditures with internally generated cash flows, we may seek other external sources of funding. Our ability to raise additional debt financing will be subject to certain covenants in our existing indebtedness. We cannot assure you that we will be able to obtain suitable financing arrangements (including vendor or other third-party financing) for our planned capital expenditures. In the event that we are unable to find such additional external funding sources, we may elect to reduce our planned capital expenditures. Such reduction in capital expenditures may have an adverse effect on our operating performance and our financial condition.
Capital Expenditures
Historical Capital Expenditures From January 1, 2008 through December 31, 2010, we had capital expenditures totaling Rp29,441.4 billion (US$2,972.9 million). With these funds, we primarily purchased equipment and services from foreign suppliers in connection with the development of our cellular network. We had capital expenditures of Rp5,515.0 billion (US$613.4 million) during the year ended December 31, 2010, with such investment predominantly focused on expansion of our cellular coverage through the addition of 1,755 base transceiver stations. Capital Expenditures for 2011 Under our capital expenditure program for our various businesses, our planned capital expenditures are less than the amounts spent in each of 2008 and 2009 but
Dividend Practice
Our shareholders determine dividend payouts in the Annual General Meeting of Shareholders pursuant to recommendations from our Board of Directors. At our 2008, 2009 and 2010 Annual General Meetings of Shareholders, our shareholders declared final cash dividends amounting to 50.0% of our net income for each of the years ended December 31, 2007, 2008 and 2009, respectively. We intend to continue paying dividends in such amount to allow us to meet sound financial governance and investor expectations.
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slightly more than 2010, as instead focus on optimizing and enhancing the capacity and quality of our existing cellular, fixed and MIDI network and telecommunications infrastructure. For the years ended December 31, 2008, 2009 and 2010, our actual consolidated capital expenditures totaled Rp12,341.9 billion, Rp11,584.5 billion and Rp5,515.0 billion (US$613.4 million), respectively. During 2011, we intend to allocate US$794.5 million for new capital expenditures, which, taken together with estimated actual capital expenditures expended for 2011 for capital expenditure commitments in prior periods, will result in approximately US$1,053.8 million total actual capital expenditures for 2011. We intend to allocate our capital expenditures for 2011 as follows: Cellular network investment: We plan to apply a large majority of our capital expenditures to finance the continued enhancement and expansion of the capacity and coverage of our cellular network. Other investment: We plan to invest the remainder of our capital expenditures budget in non-cellular network areas, including the fixed-access network, as we increase network access for our corporate customers and continue to provide them with voice, long-distance and MIDI services and make improvements to our backbone. The foregoing amounts represent our budgeted investment plans; actual expenditures on a cash basis will vary depending on several factors, including the method of financing and timing of completion of delivery of equipment and services purchased. Historically, expenditure on a cash basis trails budgeted expense by approximately at least 20.0% of our budget. The foregoing capital expenditure plan is based on our understanding of current market and regulatory conditions and we may amend our plans in response to changes in such conditions. In particular, depending on the regulatory framework for other wireless services, we may decide to increase our investment in fixed wireless access networks and services, either through increased capital expenditures, reallocation of our existing planned expenditures,
through revenue-sharing schemes or a combination of the foregoing. Revenue-sharing schemes would include partnerships with private investors under which such investors would finance construction of a project in exchange for revenues from the project, similar to a buildoperate-transfer structure.
Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with Indonesian General Accepted Accounting Standards (Indonesian GAAP). References to Indonesian GAAP including the application of Statement Of Financial Accounting Standard (Standar Akuntansi Keuangan or SAK) issued by the Indonesian Institute of Accountant (IAI). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the 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. Management bases its estimates and assumptions on historical experience and other factors that are believed to be reasonable under the circumstances. We continually evaluate such estimates and assumptions. Actual results could differ from those estimates under different assumptions or actual conditions. We believe that, of our significant accounting policies, the following may involve a higher degree of judgment or complexity. Goodwill and Other Intangible Assets The consolidated financial statements and results of operations reflect acquired businesses after the completion of the respective acquisition. We account for the acquired businesses using the purchase method of accounting which requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair market values of the acquirees identifiable assets and liabilities at the acquisition date. Any excess in the purchase price over the estimated fair market values of the net assets acquired is recorded as goodwill in the consolidated balance sheet.
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These business acquisitions have resulted in goodwill and intangible assets, which are subject to periodic impairment test and amortization, respectively. Thus, the numerous judgments made in estimating the fair market value to be assigned to the acquirees assets and liabilities can materially affect our financial performance. Estimated Useful Lives and Impairment of Property and Equipment We estimate the useful lives of our property and equipment and intangible assets based on expected asset utilization as anchored on business plans and strategies that also consider expected future technological developments and market behavior. The estimation of the useful lives of property and equipment is based on our collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives are reviewed at least each financial year-end and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limitations on the use of the assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in the factors mentioned above. The amounts and timing of recorded expenses for any period will be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the our property and equipment will increase the recorded operating expenses and decrease non-current assets. Estimation of Pension Cost and Other Employee Benefits The determination of our obligation and cost for pension and other employee benefits is dependent on the selection of certain assumptions used by actuary in calculating such amounts. Those assumptions include, among other things, discount rates, expected returns on plan assets and rates of compensation increases. Actual results that differ from our assumptions are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceed 10%
of the higher of the defined benefit obligation and the fair value of plan assets at that date. While we believe that their assumptions are reasonable and appropriate, significant differences in our actual experience or significant changes in their assumptions may materially affect the costs and obligations of pension and other employee benefits. Realizability of Deferred Income Tax Assets We review the carrying amounts of deferred income tax assets at the end of each reporting period and reduce these to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. Our assessment on the recognition of deferred income tax assets on deductible temporary differences is based on the level and timing of forecasted taxable income of the subsequent reporting periods. This forecast is based on our past results and future expectations on revenues and expenses as well as future tax planning strategies. Estimating Allowance for Impairment Losses on Receivables We estimate the allowance for impairment losses related to their trade receivables that are specifically identified as doubtful for collection. The level of allowance is evaluated by management on the basis of factors that affect the collectability of the accounts. In these cases, we use judgment based on the best available facts and circumstances, including but not limited to, the length of our relationship with the customers and the customers credit status based on third-party credit reports and known market factors, to record specific reserves for customers against amounts due in order to reduce our receivables to amounts that they expect to collect. These specific reserves are re-evaluated and adjusted as additional information received affect the amounts estimated. In addition to specific allowance against individually significant receivables, we also assess a collective impairment allowance against credit exposure of their customers which are grouped based on common credit
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characteristic, which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when the receivables were originally granted to customers. This collective allowance is based on historical loss experience using various factors such as historical performance of the customers within the collective group, deterioration in the markets in which the customers operate, and identified structural weaknesses or deterioration in the cash flows of customers. Determination of Fair Values of Financial Assets and Financial Liabilities We carry certain financial assets and liabilities at fair values, which require extensive use of accounting estimates and judgments for the fair values of financial assets and liabilities. While significant components of fair value measurement are determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates and volatility rates), the amount of changes in fair value will differ if we utilize a different valuation methodology. Any change in fair value of these financial assets will directly affect our consolidated balance sheet, income statement and or consolidated statements of changes in equity. New Accounting Standards and Interpretations to Existing Standards Effective Subsequent to December 31, 2010 Please see Note 36 Recent Development Affecting Accounting Standards to the accompanying consolidated financial statements for a discussion of new accounting standards that will become effective subsequent to December 31, 2010.
D. TREND INFORMATION
Please refer to the introductory discussion to Operating and Financial Review and ProspectsOperating Results above for a detailed discussion of significant trends impacting our operating results and financial condition. In January 2011, the Company introduced an organizational restructuring which forms part of our transformation program that began in 2009 to increase the Companys productivity and improve our longerterm operating results. The Company is offering special compensation packages to employees who meet certain criteria as determined by the Company and who opt to end their employment relationship with the Company as part of such organizational restructuring under the VSS program. IAS 37 on the Provisions, Contingent Liabilities and Contingent Assets requires us to disclose the total number of employees who participate in the program and the compensation paid; however, we have not disclosed this information in this annual report as it could lead to a precipitate presumption on the outcome of the program since the Company is still currently offering the program to its employees.
E. OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2010, we had no off-balance sheet arrangements that were reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

For the three years ended December 31, 2008, 2009 and 2010, we did not conduct significant research and development activities.
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

As of December 31, 2010, we had contractual obligations in the amount of US$1,635.3 million in US$ denominated contracts and Rp12,212.4 billion in Indonesian rupiahdenominated contracts. The US$ denominated contractual
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obligations require payments totaling US$373.6 million in 2011, US$365.5 million from 2012 to 2013 and US$121.2 million from 2014 to 2015 and US$775 million from 2016 and thereafter. The Indonesian rupiah-denominated
contractual obligations require payments totaling Rp2,304.1 billion in 2011, Rp3,996.5 billion from 2012 to 2013, Rp2,678.0 billion from 2014 to 2015 and Rp3,233.8 billion from 2016 and thereafter.
Payments due by the period December 31
Total Rp Contractual obligations: Loans payable(1) Bonds payable(1) Purchase obligations Other non-current liabilities and other noncurrent financial liabilities Total contractual cash obligations
(1)
2011 US$ Rp US$
2012-2013 Rp US$
2014-2015 Rp US$
2016 and thereafter Rp US$
(Rp billion, US$ million) 3,091.7 7,492.0 569.2 1,059.5 12,212.4 886.6 650.0 90.0 8.7 1,635.3 634.9 1,100.0 569.2 _ 2,304.1 283.6 _ 90.0 _ 373.6 2,456.8 1,372.0 _ 167.7 3,996.5 356.8 _ _ 8.7 365.5 _ 2,678.0 _ _ 2,678.0 121.2 _ _ _ 121.2 _ 2,342.0 _ 891.8 3,233.8 125.0 650.0 _ _ 775.0
These amounts exclude the related contractual interest obligations and have been calculated under the assumption that the options related to any loans and bonds payable are not exercised.
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FINANCIAL REPORTS
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FINANCIAL STATEMENTS
PT Indosat Tbk and subsidiaries
Consolidated financial statements with independent auditors report years ended December 31, 2009 and 2010
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These consolidated financial statements are originally issued in Indonesian language.
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS REPORT YEARS ENDED DECEMBER 31, 2009 AND 2010
Table of Contents Page
Independent Auditors Report Consolidated Balance Sheets ... Consolidated Statements of Income Consolidated Statements of Changes in Stockholders Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements . 1-4 5-6 7 8-9 10 - 119
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PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2009 and 2010 (Expressed in millions of rupiah, except share data)
Notes ASSETS CURRENT ASSETS Cash and cash equivalents Short-term investments - net of allowance for impairment of Rp25,395 in 2009 and 2010 Accounts receivable Trade Related parties - net of allowance for impairment of Rp57,538 in 2009 and Rp47,640 in 2010 Third parties - net of allowance for impairment of Rp404,272 in 2009 and Rp448,470 in 2010 Others - net of allowance for impairment of Rp16,544 in 2009 and Rp15,281 in 2010 Inventories - net of allowance for obsolescence of Rp10,769 in 2009 and Rp13,961 in 2010 Derivative assets Advances Prepaid taxes Prepaid expenses Other current financial assets Other current assets Total Current Assets 2c,2q,2v, 3,17,26,34 2d,2q,17 2e,2q,17,34 4
2009
2010
2,835,999 -
2,075,270 -
2v,26
125,912
222,506
37
1,259,213
1,325,920
37 2f 2q,17,28,34 29e 2s,5,13 2g,2k,2p,2v, 25,26,28l 2c,2q,2v,17, 26,34,37 2v,26,37
564,859 112,260 224,743 35,173 818,326 1,125,091 35,173 2,878 7,139,627
10,031 105,885 69,334 67,273 701,560 1,527,254 53,119 702 6,158,854
The accompanying notes form an integral part of these consolidated financial statements.
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) December 31, 2009 and 2010 (Expressed in millions of rupiah, except share data)
Notes NON-CURRENT ASSETS Due from related parties - net of allowance for impairment of Rp1,182 in 2009 and Rp646 in 2010 Deferred tax assets - net Investments in associated companies - net of allowance for impairment of Rp56,586 in 2009 and Rp56,300 in 2010 Other long-term investments - net of allowance for impairment of Rp99,977 in 2009 and 2010 Property and equipment Cost Accumulated depreciation Impairment in value Net Goodwill and other intangible assets - net Long-term prepaid rentals net of current portion Long-term prepaid licenses net of current portion Long-term advances Long-term prepaid pension - net of current portion Long-term receivables Other non-current financial assets Other non-current assets Total Non-current Assets TOTAL ASSETS
2009
2010
2e,2q,2v, 17,26,34 2s,13
7,215 85,812
8,421 95,018
2h,6 2h,2q,7,17, 34 2i,2j,2o,8, 15,29b
422
2,730 74,818,452 (30,291,034) (98,611) 44,428,807
2,730 78,101,166 (34,431,545) (98,611) 43,571,010 1,374,060 750,472 397,708 216,643 111,344 45,911 77,675 8,341 46,659,333 52,818,187
2l,9 2g,2v,10,26,37 2g,2k 2v,11,26,29e 2p,2v,25,26 37 2c,2q,2v,17,26, 29e,29f,34,37 2v,26,37
1,580,080 735,185 463,549 294,391 147,380 50,767 100,004 5,518 47,901,860 55,041,487
Notes LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES Accounts payable - trade Related parties Third parties Procurement payable Taxes payable Accrued expenses Unearned income Deposits from customers Derivative liabilities Current maturities of: Loans payable Bonds payable Other current financial liabilities Other current liabilities Total Current Liabilities NON-CURRENT LIABILITIES Due to related parties Deferred tax liabilities - net Loans payable - net of current maturities Related party Third parties Bonds payable - net of current maturities Employee benefit obligations net of current portion Other non-current liabilities Total Non-current Liabilities TOTAL LIABILITIES MINORITY INTEREST 2b 2q,17,34 2v,26 2q,2v,12,17,26,34 2s,13 2q,2v,14,17, 25,26,34,37 2n,29d,29e 2q,17,34 2q,17,28,34 2m,2q,2v, 15,17,26,34 2m,2q,16,17,34 2q,17,34,37 2v,26,34,37
2009
2010
38,670 498,806 5,289,782 161,820 1,525,561 941,223 22,463 200,202 1,440,259 2,840,662 43,721 68,065 13,071,234
22,260 623,245 3,644,467 169,445 1,710,885 1,143,852 50,279 215,403 3,184,147 1,098,131 23,127 61,612 11,946,853
2q,2v,17,26,34 2s,13 2m,2q,15,17,34 2v,26 2m,2q,16,17,34 2p,18,25,37 2v,26,29e,34,37
13,764 1,535,202 2,192,489 10,528,819 8,472,175 825,714 113,807 23,681,970 36,753,204 330,593
22,099 1,772,337 997,045 6,669,759 12,114,104 872,407 187,097 22,634,848 34,581,701 385,840
Notes 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 5,433,933,499 B shares Premium on capital stock Difference in transactions of equity changes in associated companies/subsidiaries Difference in foreign currency translation Retained earnings Appropriated Unappropriated STOCKHOLDERS EQUITY - NET TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
2009
2010
19
543,393 1,546,587 404,104 2,369 119,464 15,341,773 17,957,690 55,041,487
543,393 1,546,587 404,104 (2,727) 134,446 15,224,843 17,850,646 52,818,187
2h 2b
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah, except share data)
Notes OPERATING REVENUES Cellular Multimedia, Data Communication, Internet (MIDI) Fixed telecommunications Total Operating Revenues OPERATING EXPENSES Cost of services Depreciation and amortization Personnel Marketing General and administration Total Operating Expenses OPERATING INCOME OTHER INCOME (EXPENSES) Gain on foreign exchange - net Interest income Financing cost Loss on change in fair value of derivatives - net Amortization of goodwill Others - net Other Expenses - Net INCOME BEFORE INCOME TAX INCOME TAX EXPENSE Current Deferred Total Income Tax Expense 2s,13 2n 2q,2r,4 2v,26 2m,2v,15,16,24,26 2q,28 2l,9 7,8,13 2n 2k,2v,21,26, 29j,31,32,37 2i,2l,8,9 2o,2p,2v, 22,25,26 2n 2v,23,26 2n,2v,20,26, 30,31,32,37
2009
2010
14,300,163 2,720,984 1,803,039 18,824,186
16,027,062 2,476,276 1,293,177 19,796,515
7,087,850 5,561,390 1,451,560 816,934 693,437 15,611,171 3,213,015 1,656,407 138,951 (1,872,967) (517,655) (235,420) (150,338) (981,022) 2,231,993 (460,973) (216,292) (677,265)
7,113,410 6,151,911 1,411,244 986,019 659,987 16,322,571 3,473,944 492,401 143,402 (2,271,628) (418,092) (226,380) (111,830) (2,392,127) 1,081,817 (128,171) (229,627) (357,798)
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (continued) Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah, except share data)
Notes INCOME BEFORE MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES NET INCOME BASIC EARNINGS PER SHARE BASIC EARNINGS PER ADS (50 B shares per ADS) 2u 2b
2009
2010
1,554,728 (56,483) 1,498,245 275.72
724,019 (76,845) 647,174 119.10
2u
13,786.01
5,954.93
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah)
Retained Earnings Appropriated 100,678 Unappropriated 14,801,568 Net 17,409,621
Description 543,393 1,546,587 404,104 13,291
Notes
Capital Stock Issued and Fully Paid Premium on Capital Stock
Difference in Transactions of Equity Changes in Associated Companies/Subsidiaries Difference in Foreign Currency Translation
Balance as of January 1, 2009
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 benefit of Rp1,172, Rp1,604 and Rp3,641, respectively 2b 27 543,393 1,546,587 404,104 2,369 (10,922) 18,786 119,464
(939,254) (18,786) 1,498,245 15,341,773
(10,922) (939,254) 1,498,245 17,957,690
Resolution during the Annual Stockholders General Meeting on June 11, 2009 Declaration of cash dividend Appropriation for reserve fund
Net income for the year
Balance as of December 31, 2009
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. and Indosat Palapa B.V. from U.S.dollar to rupiah - net of applicable income tax benefit of Rp798, Rp368, Rp301 and Rp231, respectively 2b 27 543,393 1,546,587 404,104 -
(5,096) (2,727)
14,982 134,446
(749,122 ) (14,982 ) 647,174 15,224,843
(5,096) (749,122) 647,174 17,850,646
Resolution during the Annual Stockholders General Meeting on June 22, 2010 Declaration of cash dividend Appropriation for reserve fund
Net income for the year
Balance as of December 31, 2010
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah) Notes
CASH FLOWS FROM OPERATING ACTIVITIES Cash received from: Customers Interest income Refund of taxes Cash paid to/for: Suppliers and others Financing cost Employees Income taxes Interest rate swap contracts Swap cost from cross currency swap contracts Settlement from derivative contracts Long-term prepaid licenses Net Cash Provided by Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds of Palapa D-Satellite insurance claim Cash dividend received from other long-term investment Proceeds from sale of property and equipment Acquisitions of property and equipment Acquisition of intangible assets Purchase of investment in an associated company Net Cash Used in Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bonds payable Proceeds from long-term loans Settlement from derivative contract Decrease (increase) in restricted cash and cash equivalents Repayment of long-term loans Repayment of bonds payable Cash dividend paid by the Company Swap cost from cross currency swap contract Cash dividend paid by subsidiaries to minority interest Net Cash Provided by (Used in) Financing Activities NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS OF LIQUIDATED SUBSIDIARY* CASH AND CASH EQUIVALENTS OF ACQUIRED SUBSIDIARY CASH AND CASH EQUIVALENTS AT END OF YEAR
* PT Satelindo Multi Media (SMM) was liquidated on June 23, 2009.
2009
2010
18,415,890 146,826 84,650 (10,116,183) (1,730,149) (1,359,817) (878,137) (47,715) (125,748) (338,408) 4,051,209
19,678,609 145,067 41,753 (9,061,007) (2,175,997) (1,310,556) (215,874) (117,231) (121,449) (24,431) 6,838,884
28m-z 28b-k 28b,28g 1a,2k
8 7 8 8 9 6
26,774 2,253 (10,684,690) (15,044) (10,670,707)
537,657 19,281 7,741 (6,495,146) (40,052) (194) (5,970,713)
16 15 28a 15 16 27 28a
1,500,000 3,892,786 (18,206) (632,814) (14,453) (939,254) (54,116) (9,292) 3,724,651 (2,894,847) 5,737,866 (7,020)
5,851,301 1,092,059 59,925 2,846 (4,098,277) (3,720,815) (749,122) (46,136) (21,436) (1,629,655) (761,484) 2,835,999 755 2,075,270
6 3
2,835,999
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah)
Notes
DETAILS OF CASH AND CASH EQUIVALENTS: Time deposits with original maturities of three months or less and deposits on call Cash on hand and in banks Cash and cash equivalents as stated in the consolidated balance sheets SUPPLEMENTAL CASH FLOW INFORMATION: Transactions not affecting cash flows: Acquisitions of property and equipment credited to: Long-term advances Loans payable
2009
2010
3 2,611,529 224,470 2,835,999 1,791,783 283,487 2,075,270
161,702 723,112
77,748 -
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 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 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 by American Cable and Radio Corporation, an International Telephone & Telegraph subsidiary, to the Government of the Republic of Indonesia (the Government) 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) to 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 in its legal status. The Companys Articles of Association has been amended from time to time. The latest amendment was covered by notarial deed No. 123 dated January 28, 2010 of Aulia Taufani, S.H., (as a substitute notary of Sutjipto, S.H.) as approved in the Stockholders Extraordinary General Meeting held on January 28, 2010, in order to comply with the Indonesian Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) Rule No. IX.J.1 dated May 14, 2008 on the Principles of Articles of Association of Limited Liability Companies that Conduct Public Offering of Equity Securities and Public Companies and Rule No. IX.E.1 on Affiliate Transactions and Certain Conflict of Interests Transactions. The latest amendment of the Companys Articles of Association has been approved by and reported to the Ministry of Law and Human Rights of the Republic of Indonesia based on its letters No. AHU-09555.AH.01.02 Year 2010 dated February 22, 2010 and No. AHU-AH.01.10-04964 dated February 25, 2010. The amendments relate to, among others, the changes in the Companys purposes, objectives and business activities, appointment of acting President Director if the incumbent President Director is unavailable and definition of conflict of interests. According to article 3 of its Articles of Association, the Companys purposes and objectives are to provide telecommunications networks, telecommunications services as well as information technology and/or convergence technology services by carrying out the following main business activities: a. To provide telecommunications networks, telecommunications services as well as information technology and/or convergence technology services, including but not limited to providing basic telephony services, multimedia services, internet telephony services for public use, interconnection internet services, internet access services, mobile telecommunications networks and fixed telecommunications networks; and b. To engage in payment transactions and money transfer services through telecommunications networks as well as information technology and/or convergence technology. The Company can provide supporting business activities in order to achieve the purposes and objectives, and to support its main businesses, as follows: a. To plan, to procure, to modify, to build, to provide, to develop, to operate, to lease, to rent, and to maintain infrastructures/facilities including resources to support the Companys business in providing telecommunications networks, telecommunications services as well as information technology and/or convergence technology services;
10
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 1. GENERAL (continued) a. Companys Establishment (continued) b. To conduct business and operating activities (including development, marketing and sales of telecommunications networks, telecommunications services as well as information technology and/or convergence technology services by the Company), including research, customer services, education and courses (both domestic and overseas); and c. To conduct other activities necessary to support and/or related to the provision of telecommunications networks, telecommunications services as well as information technology and/or convergence technology services including but not limited to electronic transactions and provision of hardware, software, content as well as telecommunications-managed services.
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
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 telecommunications networks and services. On August 14, 2000, the Government, through the Ministry of Communications (MOC), 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 MOC. Subsequently, based on Decree No. KP.247 dated November 6, 2001 issued by the MOC, the operating license was transferred to the Companys subsidiary, PT Indosat Multi Media Mobile (see e below). On September 7, 2000, the Government, through the MOC, 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, PT Telekomunikasi Indonesia Tbk (Telkom) was granted an in-principle license for international telecommunications services as compensation for the early termination of Telkoms rights on local and domestic long-distance telecommunications services.
11
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 1. GENERAL (continued) a. Companys Establishment (continued) Based on a letter dated August 1, 2002 from the MOC, the Company was granted an operating license for fixed local telecommunications 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 MOC. 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. The following are operating licenses obtained by the Company and PT Indosat Mega Media, a subsidiary:
License No. KP.69/Thn 2004 Date Issued March 15, 2004 Issuing Body MOC Period of License Evaluated every 5 years Description Operating license for nationwide closed fixed communications network (e.g., VSAT, frame relay, etc.), which was amended by license No.198/KEP/M.KOMINFO/ 05/2010 Operating license for fixed network and basic telephony services which covers the provision of local, national long-distance, and international long-distance telephony services, which was amended by licenses No. 311/KEP/M.KOMINFO/ 8/2010, No. 312/KEP/M.KOMINFO/ 8/2010 and No. 313/KEP/ M.KOMINFO/8/2010 Determination of the winner and operating license for IMT-2000 cellular network provider using 2.1 GHz radio frequency spectrum (a third generation [3G] mobile communications technology) for 1 block (2 x 5 Mhz) of frequency (*) Amended operating license for nationwide GSM cellular mobile network (including its basic telephony services and the rights and obligations of 3G services) Allocation of two nationwide frequency channels, i.e., channels 589 and 630 in the 800 MHz spectrum for Local Fixed Wireless Network Services with Limited Mobility Operating license as internet service provider Operating license for internet interconnection services (Network Access Point/NAP), which replaces the previous license given to PT Satelit Palapa Indonesia (Satelindo) Operating license for telephony internet services which replaces the previous License No. 823/DIRJEN/2002 for Voice over Internet Protocol Service with national coverage that expired in 2007
KP.203/Thn 2004
May 21, 2004
MOC
Evaluated every 5 years
19/KEP/M.KOMINFO/02/2006 and 29/KEP/M.KOMINFO/03/2006
February 14, 2006 and March 27, 2006
Ministry of Communications and Information and Technology (MOCIT) MOCIT
10 years
102/KEP/M.KOMINFO/10/2006
October 11, 2006
Evaluated every year
181/KEP/M.KOMINFO/12/2006
December 12, 2006
MOCIT
01/DIRJEN/2008
January 7, 2008 January 9, 2008
51/DIRJEN/2008
Directorate General of Post and Telecommunications (DGPT) DGPT
Evaluated every 5 years Evaluated every 5 years
52/DIRJEN/2008
January 9, 2008
DGPT
(*)
As one of the winners in the selection of IMT-2000 cellular providers, the Company was obliged to, among others, pay upfront fee of Rp320,000 (Note 2k) and radio frequency fee (Note 29g).
12
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 1. GENERAL (continued) a. Companys Establishment (continued)
License No. 237/KEP/M.KOMINFO/7/2009 Date Issued July 27, 2009 Issuing Body MOCIT Period of License 10 years Description Operating license for Packet Switched local fixed telecommunications network using 2.3 GHz radio frequency spectrum of Broadband Wireless Access (BWA) (**) Operating license for one additional block (2 x 5 Mhz) of 3G frequency (***) Amended operating license for nationwide closed fixed communications network (e.g.,VSAT, frame relay, etc.), which replaces the previous license (No.KP.69/Thn 2004) given to the Company Amended operating license for fixed network and basic telephony service which covers the provision of local, national long-distance, and international long-distance telephony services, which replaces the previous license (No. KP.203/Thn 2004) given to the Company
268/KEP/M.KOMINFO/9/2009 198/KEP/M.KOMINFO/05/2010
September 1, 2009 May 27, 2010
MOCIT MOCIT
10 years Evaluated every 5 years
311/KEP/M.KOMINFO/8/2010 312/KEP/M.KOMINFO/8/2010 and 313/KEP/M.KOMINFO/8/2010
August 24, 2010
MOCIT
(**) (***)
PT Indosat Mega Media was obliged to, among others, pay upfront fee of Rp18,408 (Note 2k) and radio frequency fee (Note 29g). The Company was obliged, among others, to pay upfront fee of Rp320,000 (Note 2k) and radio frequency fee (Note 29g).
On January 9, 2008, based on letter No. 10/14/DASP from Bank Indonesia (Central Bank), the Company obtained approval for Indosat m-wallet prepaid cards as a new means of making payments to certain merchants. The Company was also appointed as a special principal and technical acquirer for such prepaid cards. On November 19, 2009, the Company launched Indosat m-wallet to the public. On March 17, 2008, MOCIT issued Ministerial Decree No. 02/PER/M.KOMINFO/2008 on the Guidelines of Construction and Utilization of Sharing Telecommunication Towers. Based on this Decree, the construction of telecommunications towers requires permits from the relevant governmental institution and the local government determines the placement of the towers and the location in which the towers can be constructed. Furthermore, a telecommunications provider or tower provider which owns telecommunications towers is obliged to allow other telecommunications operators to utilize its telecommunications towers without any discrimination. The Decree also mandated that each of the tower contractor, provider and owner be 100% locally owned companies. On March 30, 2009, the Ministry of Domestic Affairs, Ministry of Public Works, MOCIT and the Head of BKPM jointly issued Decrees No. 18 Year 2009, No. 07/PRT/M/2009, No. 19/PER/M.KOMINFO/03/09 and No. 3/P/2009 on the Detailed Guidelines of Construction and Utilization of Sharing Telecommunication Towers. The Decrees define the requirements and procedures for tower construction. A tower provider can be either a telecommunications operator or a non-telecommunications operator. If a tower provider is a non-telecommunications operator, it is required to be a 100% locally owned company. On September 3, 2010, based on letter No.12/67/DASP/25 from Bank Indonesia (Central Bank), the Company obtained approval to become a money remittance provider to customers in the local and international markets. On December 13, 2010, based in letter No.2619/BSN/D3-d3//12/2010 from the Badan Standardisasi Nasional (National Standardization Bureau), the Company obtained Issuer Identification Number (IIN) on its applications for Indosat m-wallet and money remittance provider. 13
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 1. GENERAL (continued) a. Companys Establishment (continued) On December 13, 2010, the President of the Republic of Indonesia issued Government Regulation or Peraturan Pemerintah (PP) No.76/2010 regarding the amendment of PP No.7/2009 on types and tariffs of non-tax state income applicable at MOCIT. This regulation affects the computation method and payment of the spectrum fee allocated to the Company (800 Mhz, 900 Mhz and 1,800 Mhz frequency bands). 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. Companys Public Offerings All of the Companys B shares have been registered with and traded on the Indonesia Stock Exchange (new entity after the merger of Jakarta Stock Exchange and Surabaya Stock Exchange in November 2007) since 1994. The Companys American Depositary Shares (ADS, each representing 50 B shares), have also been traded on the New York Stock Exchange since 1994. As of December 31, 2010, the Companies outstanding bonds issued to the public are as follows:
Bond (Note 16) 1. Second Indosat Bonds series B in Year 2002 with Fixed Rate 2. Fourth Indosat Bonds in Year 2005 with Fixed Rate 3. Indosat Syariah Ijarah Bonds in Year 2005 4. Fifth Indosat Bonds in Year 2007 with Fixed Rates 5. Indosat Sukuk Ijarah II in Year 2007 6. Sixth Indosat Bonds in Year 2008 with Fixed Rates 7. Indosat Sukuk Ijarah III in Year 2008 8. Seventh Indosat Bonds in Year 2009 with Fixed Rates 9. Indosat Sukuk Ijarah IV in Year 2009 10. Guaranteed Notes Due 2020 Effective Date November 6, 2002 June 21, 2005 June 21, 2005 May 29, 2007 May 29, 2007 April 9, 2008 April 9, 2008 December 8, 2009 December 8, 2009 July 29, 2010 Registered with and Traded on: Indonesia Stock Exchange Indonesia Stock Exchange Indonesia Stock Exchange Indonesia Stock Exchange Indonesia Stock Exchange Indonesia Stock Exchange Indonesia Stock Exchange Indonesia Stock Exchange Indonesia Stock Exchange Singapore Exchange Securities Trading Limited
c. Employees, Directors, Commissioners and Audit Committee Based on a resolution at each of the Stockholders Annual General Meeting held on June 11, 2009 which is notarized under Deed No. 118 of Aulia Taufani, S.H., (as a substitute notary of Sutjipto, S.H.) on the same date and the Stockholders Annual General Meeting held on June 22, 2010 which is notarized under Deed No. 164 of Aulia Taufani, S.H., (as a substitute notary of Sutjipto, S.H.) on the same date, the composition of the Companys Board of Commissioners and Board of Directors as of December 31, 2009 and 2010, respectively, is as follows: Board of Commissioners: President Commissioner Commissioner Commissioner Commissioner Commissioner Commissioner Commissioner Commissioner Commissioner Commissioner
* Independent commissioner
2009 Abdulla Mohammed S.A Al Thani Dr. Nasser Mohd. A. Marafih Rachmad Gobel Richard Farnswoth Seney Jarman Rionald Silaban Setyanto Prawira Santosa* Michael Francis Latimer* Thia Peng Heok George* Soeprapto*
2010 Abdulla Mohammed S.A Al Thani Dr. Nasser Mohd. A. Marafih Rachmad Gobel Richard Farnsworth Seney Jarman Rionald Silaban Alexander Rusli* Chris Kanter* Thia Peng Heok George* Soeprapto*
14
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (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) Board of Directors: 2009 President Director and Chief Executive Officer Director and Chief Financial Officer Director and Chief Commercial Officer Director and Chief Technology Officer Director and Chief Wholesale and Infrastructure Officer Harry Sasongko Tirtotjondro Peter Wladyslaw Kuncewicz Kaizad Bomi Heerjee Stephen Edward Hobbs Fadzri Sentosa 2010 Harry Sasongko Tirtotjondro Peter Wladyslaw Kuncewicz Laszlo Imre Barta Stephen Edward Hobbs Fadzri Sentosa
The composition of the Companys Audit Committee as of December 31, 2009 and 2010 is as follows: 2009 Chairman Member Member Member Member Thia Peng Heok George Michael Francis Latimer Soeprapto Unggul Saut Marupa Tampubolon Kanaka Puradiredja 2010 Thia Peng Heok George Chris Kanter Soeprapto Unggul Saut Marupa Tampubolon Kanaka Puradiredja
The Company and subsidiaries (collectively referred to hereafter as the Companies) have approximately 7,126 and 6,694 employees, including non-permanent employees, as of December 31, 2009 and 2010, respectively. d. Structure of the Companys Subsidiaries As of December 31, 2009 and 2010, the Company has direct and indirect ownership in the following subsidiaries:
Name of Subsidiary Indosat Palapa Company B.V. (IPBV) (1) Indosat Mentari Company B.V. (IMBV) (1) Indosat Finance Company B.V. (IFB) (2) Indosat International Finance Company B.V. (IIFB) (3) Indosat Singapore Pte. Ltd. (ISPL) PT Indosat Mega Media (IMM) PT Starone Mitra Telekomunikasi (SMT) PT Aplikanusa Lintasarta (Lintasarta) PT Lintas Media Danawa (LMD) (Note 6) PT Artajasa Pembayaran Elektronis (APE) (Note 2b) Location Amsterdam Amsterdam Amsterdam Amsterdam Singapore Jakarta Semarang Jakarta Jakarta Jakarta Principal Activity Finance Finance Finance Finance Telecommunications Multimedia Telecommunications Data Communication Information and Communication Services Telecommunications Start of Commercial Operations 2010 2010 2003 2005 2005 2001 2006 1989 2008 2000 Percentage of Ownership (%) 2009 100.00 100.00 100.00 99.85 72.54 72.36 39.80 2010 100.00 100.00 100.00 100.00 100.00 99.85 72.54 72.36 50.65 39.80
15
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 1. GENERAL (continued) d. Structure of the Companys Subsidiaries (continued) Total Assets (Before Eliminations) Name of Subsidiary IPBV (1) IMBV (2) IFB (3) IIFB ISPL IMM SMT Lintasarta LMD (Note 6) APE
(1)
2009 2,261,226 1,044,174 28,779 745,204 139,903 1,419,595 179,681
2010 5,966,764 5,946,885 21,876 9,635 54,353 815,130 155,297 1,739,896 2,671 221,297
(1)
(2) (3)
IPBV and IMBV were incorporated in Amsterdam on April 28, 2010 to engage in treasury activities, to lend and borrow money, whether in the form of securities or otherwise, to finance enterprises and companies, to grant security in respect of its obligation or those of its group companies and third parties. Based on an IFB shareholders resolution dated November 6, 2008, IFB decided to refund capital injection amounting to EUR99,996. The Company received such refund in February 2009. Based on an IIFB shareholders resolution dated November 6, 2008, IIFB decided to refund capital injection amounting to EUR1,124,064. The Company received such refund in February 2009.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies adopted by the Companies conform with generally accepted accounting principles in Indonesia. The significant accounting policies applied consistently in the preparation of the consolidated financial statements for the years ended December 31, 2009 and 2010 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, and financial instruments which are stated at fair 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.
16
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) b. Principles of Consolidation In accordance with SAK 4 (Revised 2009), the Company prepares and presents the consolidated financial statements for a group of entities under its control. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. Control also exists when the parent owns half or less of the voting power of an entity when there is: (a) power over more than half of the voting rights by virtue of an agreement with other investors; (b) power to govern the financial and operating policies of the entity under a statute or an agreement; (c) power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body; or (d) power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body. The consolidated financial statements also include the accounts of APE (Lintasartas subsidiary). The accounts of APE in 2009 and 2010 were consolidated because its financial and operating policies were controlled by Lintasarta. The accounts of IPBV, IMBV, IFB, IIFB and ISPL were translated into rupiah amounts at the middle rates of exchange prevailing at balance sheet date for balance sheet accounts and the average rates during the year for profit and loss accounts. The resulting differences arising from the translations of the financial statements of IPBV, IMBV, IFB, IIFB and ISPL are presented as 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 (including net income) of the subsidiaries which are not wholly owned. All inter-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 and deposits on call are considered as Cash Equivalents. Cash in banks and time deposits which are pledged as collateral for bank guarantees are not classified as part of Cash and Cash Equivalents. These are presented as part of either Other Current Financial Assets or Other Non-current Financial Assets. d. Short-term Investments Time deposits with original maturities of more than three months at the time of placement are recorded at historical value. e. Allowance for Impairment of Receivables Prior to 2010, allowance for impairment was provided based on management's evaluation of the collectibility of the accounts at the end of the year. Effective January 1, 2010, the Companies provide allowance for impairment of accounts receivable in accordance with SAK 55 (Revised 2006) (Note 2q6). f. Inventories Inventories, which mainly consist of SIM cards, broadband modems, starter packs, pulse reload vouchers and cellular handsets are valued at the lower of cost or net realizable value. Cost is determined using the weighted average method. In accordance with SAK 14 (Revised 2008), the Companies apply the guidance on the determination of inventory cost and its subsequent recognition as an expense, including any write-down to net realizable value, as well as guidance on the cost formula used to assign costs to inventories. 17
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) g. Prepaid Expenses Prepaid expenses, which mainly consist of frequency fee, rentals, upfront fee of 3G and BWA licenses and insurance are expensed as the related asset is utilized. The non-current portions of prepaid rentals and upfront fee of 3G and BWA licenses are shown as part of Long-term Prepaid Rentals - Net of Current Portion and Long-term Prepaid Licenses - Net of Current Portion, respectively. h. Investments in Associated Companies Investments in shares of stock wherein the Companies have equity interests 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 their 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. i. Property and Equipment Property and equipment are stated at cost (which includes certain capitalized borrowing costs 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. Property and equipment acquired in exchange for a non-monetary asset or for a combination of monetary and non-monetary assets are measured at fair values unless: (i) the exchange transaction lacks commercial substance, or (ii) the fair value of neither the assets received nor the assets given up can be measured reliably. The acquired assets are measured this way even if the Companies cannot immediately derecognize the assets given up. If the acquired assets cannot be reliably measured at fair value, their value is measured at the carrying amount of the assets given up. In accordance with SAK 16 (Revised 2007), the Companies have chosen the cost model for the measurement of their property and equipment. The Companies perform periodic review and assessment of the economic useful lives of the assets. Below are the estimated useful lives (in years). Years Buildings Information technology equipment Office equipment Building and leasehold improvements Vehicles Cellular technical equipment Transmission and cross-connection equipment 20 3 to 5 3 to 5 3 to 15 5 10 10 to 15
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) i. Property and Equipment (continued) Fixed Wireless Access (FWA) technical equipment Operation and maintenance center and measurement unit Fixed access network equipment Landrights are stated at cost. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments which enhance an assets condition on its initial performance, are capitalized. When properties are retired or otherwise disposed of, their costs and the related accumulated depreciation are derecognized from the accounts, and any resulting gains or losses are recognized in the consolidated statements of income for the year. Properties under construction and installation are stated at cost. All borrowing costs, which include interest, amortization of ancillary costs (Notes 15c and 15f) and foreign exchange differentials (estimated quarterly to the extent that they are regarded as an adjustment to interest costs by capping the exchange differences taken as borrowing costs at the amount of borrowing costs on the functional currency equivalent borrowings) 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. The residual values, useful lives and methods of depreciation of property and equipment are reviewed and adjusted prospectively, 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 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. k. Leases In accordance with SAK 30 (Revised 2007), a lease that transfers substantially all the risks and rewards incidental to ownership is classified as finance lease. At the commencement of the lease term, a lessee recognizes finance lease as asset and liability in its balance sheet at an amount equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. Minimum lease payments are apportioned between the finance charges and the reduction of the outstanding liability. The finance charges are allocated to each period during the lease term. Leased asset held by the lessee under a finance lease is depreciated consistently using the same method used for depreciable assets that are directly 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 are classified as operating leases. Operating lease payments are recognized as an expense on a straight-line basis over the lease term. In 2006, the Company was granted a license to use 2.1 GHz radio frequency spectrum (a 3G mobile communications technology - Note 1a) by the MOCIT. The upfront fee is recorded as Long-term Prepaid Licenses for the non-current portion and Prepaid Expenses for the current portion, and amortized over the 10-year license term using the straight-line method. 19 Years 10 3 to 5 10
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) k. Leases (continued) In 2009, the Company received additional 3G license (Note 1a), and IMM was granted an operating license for Packet Switched local telecommunications network using 2.3 GHz radio frequency spectrum of Broadband Wireless Access (BWA). The Company and IMM were obliged to, among others, pay upfront fee and annual radio frequency fee for 10 years (Note 29h). Management believes, as supported by written confirmation from the DGPT, that the 3G and BWA licenses may be returned at any time without any financial obligation to pay the remaining outstanding annual radio frequency fees (i.e., the license arrangement does not transfer substantially all the risks and rewards incidental to ownership). Accordingly, the Company and IMM recognize the annual radio frequency fee as operating lease expense, amortized using the straight-line method over the term of the rights to operate the 3G and BWA licenses. Management evaluates its plan to continue to use the licenses on an annual basis. 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 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 parent entity extension method. Under this method, the assets and liabilities of the subsidiary are not restated to reflect their fair values at the date of the acquisition. The difference between the purchase price and the minority interests share of the assets and liabilities reflected within the consolidated balance sheets 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 the straight-line method based on the estimated useful lives of the assets as follows: Years Customer base - Prepaid - Post-paid Spectrum license Brand 6 5 5 8
Software that is not an integral part of the related hardware is amortized using the straight-line method over 5 years. The Company reviews 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. Debt and Bonds Issuance Costs and Consent Solicitation Fees Expenses incurred in connection with the issuance of debt and bonds are deducted from the proceeds thereof. The difference between the net proceeds and the nominal value of the debt or bonds is recognized as premium or discount that should be amortized over the term of the debt or bonds. Consent solicitation fees resulting from the amendments of certain terms under the debt facility agreement and trustee agreement, which are not accounted for as an extinguishment, are recognized as adjustment to the carrying amount of the debt or bonds and are amortized over the remaining term of the debt or bonds. 20
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) n. Revenue and Expense Recognition Up to December 31, 2009, the Companies had applied SAK 35, Accounting for Revenues from Telecommunications Services, in recognizing revenue for interconnection telecommunications services and self-conducted telecommunications services. In June 2009, Financial Accounting Standards Revocation Statement (Pernyataan Pencabutan Standar Akuntansi Keuangan) 1, Revocation of SAK 32, Accounting for Forestry Enterprises, SAK 35, Accounting for Revenues from Telecommunication Services, and SAK 37, Accounting for Toll Road Operations was issued, which refers to the determination of other events and transactions that were provided in such SAKs to other relevant SAKs. Starting January 1, 2010, the Companies have referred to SAK 23, Revenue, in recognizing their revenues. Cellular Cellular revenues arising from airtime and roaming calls are recognized based on the duration of successful calls made through the Companys cellular network, which up to December 31, 2009, had been presented on a net basis. To improve the comparability of the consolidated financial statements, the Company made accounts reclassification in the consolidated financial statements for the year ended December 31, 2009 (Note 37). Starting January 1, 2010, roaming calls have been presented on a gross basis. The change in accounting policy resulted from the revocation of SAK 35. For post-paid subscribers, monthly service fees are recognized as the service is provided. Up to December 31, 2009, for prepaid subscribers, the activation component of starter package sales had been recognized upon activation by end-customers. Starting January 1, 2010, the activation component of starter package sales has been deferred and recognized as revenue over the expected average period of the customer relationship. The change in accounting policy resulted from the revocation of SAK 35. 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. 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 the duration 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 service providers. Customer Loyalty Program The Company operates a customer loyalty program called Poin Plus Plus, which allows customers to accumulate points for every reload and payment by the Companys prepaid and post-paid subscribers, respectively. The points can then be redeemed for free telecommunications and nontelecommunications products, subject to a minimum number of points being obtained. Customer loyalty credits are accounted for as a separate component of the sales transaction in which they are granted. The Company records a liability at the time of reload and payment by its prepaid and post-paid subscribers, respectively, based on the fair value expected to be incurred to supply products in the future. The consideration received is allocated between the cellular products sold and the points issued, with the consideration allocated to the points equal to their fair value. Fair value of the points issued is deferred and recognized as revenue when the points are redeemed or when the redemption period expires.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) n. Revenue and Expense Recognition (continued) Dealer Commissions Consideration in the form of sales discount given by the Company to a dealer is recognized as a reduction of revenue. If the Company receives, or will receive, an identifiable benefit in exchange for a consideration given by the Company to a dealer, and the fair value of such benefit can be reasonably estimated, the consideration will be recorded as a marketing expense. Tower Leasing Revenue from tower leasing is recognized on the straight-line basis over the lease term based on the amount stated in the agreement between the Company and the lessee. Based on the Companys assessment on the current tower leasing arrangements, the leasing transactions are classified as operating leases (Note 2k). Multimedia, Data Communication, Internet (MIDI) Internet Up to December 31, 2009, revenues arising from installation service had been recognized at the time the installations were placed in service. Starting January 1, 2010, revenues from installation services have been deferred and recognized over the expected average period of the customer relationship. The change in accounting policy resulted from the revocation of SAK 35. 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. Frame Net, World Link and Direct Link Up to December 31, 2009, revenues arising from installation service had been recognized upon the completion of the installation of equipment used for network connection purposes in the customers premises. Starting January 1, 2010, revenues from installation services have been deferred and recognized over the expected average period of the customer relationship. The change in accounting policy resulted from the revocation of SAK 35. Revenues from monthly 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. Fixed Telecommunications International Calls Revenues from outgoing international call traffic are recognized on the basis of the actual recorded traffic for the year and had been reported on a net basis up to December 31, 2009, after allocations to overseas international carriers. Starting January 1, 2010, revenue from outgoing international call traffic has been reported on a gross basis. The change in accounting policy resulted from the revocation of SAK 35. In addition, starting January 1, 2010, the Company has decided to reclassify the portion of incoming calls revenue that belongs to the Companys cellular segment. The Company believes that this change will bring the Companys revenue presentation to be aligned more closely with the Companys profit and loss performance and to provide reliable and more relevant information to shareholders and users of the accounts. To improve the comparability of the consolidated financial statements, the Company made accounts reclassification in the consolidated financial statements for the year ended December 31, 2009 (Note 37). 22
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) n. Revenue and Expense Recognition (continued) Fixed Telecommunications (continued) Fixed Wireless Fixed wireless revenues arising from usage charges are recognized based on the duration of successful calls made through the Companys fixed network. For post-paid subscribers, monthly service fees are recognized as the service is provided. Up to December 31, 2009, for prepaid subscribers, the activation component of starter package sales had been recognized upon activation by end-customers. Starting January 1, 2010, the activation component of starter package sales has been deferred and recognized as revenue over the expected average period of the customer relationship. The change in accounting policy resulted from the revocation of SAK 35. Sale of initial/reload vouchers is recorded as unearned income and recognized as income upon usage of the airtime or upon expiration of the airtime. Fixed Line Up to December 31, 2009, revenues arising from fixed line installations had been recognized at the time the installations were placed in service. Starting January 1, 2010, revenues from fixed line installations have been deferred and recognized over the expected average period of the customer relationship. The change in accounting policy resulted from the revocation of SAK 35. 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 telecommunications carriers are recognized monthly on the basis of the actual recorded traffic for the month. Expenses Interconnection Expenses Expenses from network interconnection with other domestic and international telecommunications carriers are accounted for as operating expenses in the year these are incurred. Other Expenses Expenses are recognized when incurred. o. 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.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) p. 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 from post-employment benefits 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 the greater of 10% of the present value of the defined benefit obligation or 10% of the fair value of plan assets, at that date. These gains or losses in excess of the 10% corridor are recognized on a straight-line basis over the expected average remaining working lives of the employees. The past service costs from post-employment benefits are recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits have already vested, following the introduction of changes to a pension plan, past service costs are recognized immediately. Actuarial gains or losses and past service costs from other long-term employee benefits are recognized immediately in the current years consolidated statement of income. 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). q. Financial Instruments Effective January 1, 2010, the Companies have applied SAK 50 (Revised 2006), Financial Instruments: Presentation and Disclosures, and SAK 55 (Revised 2006), Financial Instruments: Recognition and Measurement, which superseded SAK 50, Accounting for Certain Investments in Securities and SAK 55 (Revised 1999), Accounting for Derivative Instruments and Hedging Activities. SAK 50 (Revised 2006) contains the requirements for the presentation of financial instruments and identifies the information that should be disclosed. The presentation requirements apply to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of related interest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should be offset. This SAK requires the disclosure of, among others, information about factors that affect the amount, timing and certainty of an entitys future cash flows relating to financial instruments and the accounting policies applied to those instruments. SAK 55 (Revised 2006) establishes the principles for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This SAK provides the definitions and characteristics of derivatives, the categories of financial instruments, recognition and measurement, hedge accounting and determination of hedging relationships, among others. q1. Financial assets Initial recognition Financial assets within the scope of SAK 55 (Revised 2006) are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or availablefor-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Companies determine the classification of their financial assets at initial recognition.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) q. Financial Instruments (continued) q1. Financial assets (continued) Initial recognition (continued) All financial assets are recognized initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Companies commit to purchase or sell the assets. The Companies financial assets include cash and cash equivalents, trade and other accounts receivable, due from related parties, quoted and unquoted financial instruments, derivative financial instruments and other current and non-current financial assets. Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by SAK 55 (Revised 2006). Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit and loss are carried in the consolidated balance sheets at fair value with changes in fair value recognized in the consolidated statements of income. Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in the consolidated statements of income. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. The Companies financial asset classified as fair value through profit or loss consist of Derivative Assets. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in the consolidated statements of income. The losses arising from impairment are recognized in the consolidated statements of income. The Companies cash and cash equivalents (Note 2c), trade and other accounts receivable, due from related parties, other current financial assets, and other non-current financial assets are included in this category. 25
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) q. Financial Instruments (continued) q1. Financial assets (continued) Subsequent measurement (continued) Held-to-maturity (HTM) investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as HTM when the Companies have the positive intention and ability to hold them to maturity. After initial measurement, HTM investments are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in the consolidated statements of income. The losses arising from impairment are recognized in the consolidated statements of income. The Companies did not have any HTM investments during the years ended December 31, 2009 and 2010. Available-for-sale (AFS) financial assets AFS financial assets are non-derivative financial assets that are designated as available-forsale or are not classified in any of the three preceding categories. After initial measurement, AFS financial assets are measured at fair value with unrealized gains or losses recognized in stockholders equity until the investment is derecognized, at which time the cumulative gain or loss is recognized, or determined to be impaired, at which time the cumulative loss is reclassified from equity to profit or loss. The Companies have the following investments classified as AFS: - 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. These 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 AFS. These are recorded at fair value. q2. Financial liabilities Initial recognition Financial liabilities within the scope of SAK 55 (Revised 2006) are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Companies determine the classification of their financial liabilities at initial recognition.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) q. Financial Instruments (continued) q2. Financial liabilities (continued) Initial recognition (continued) All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, inclusive of directly attributable transaction costs. The Companies financial liabilities include trade accounts payable, procurement payable, accrued expenses, deposits from customers, loans and bonds payable, due to related parties, derivative financial instruments and other current financial liabilities. Subsequent measurement The measurement of financial liabilities depends on their classification as follows: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by SAK 55 (Revised 2006). Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in the consolidated statements of income. Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the consolidated statements of income when the liabilities are derecognized as well as through the EIR amortization process. q3. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance sheets if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) q. Financial Instruments (continued) q4. Fair value of financial instruments The fair value of financial instruments that are traded in active market at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long position and ask price for short position), without any deduction for transaction costs. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include using recent arms length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, or other valuation models. Credit risk adjustment The Company adjusts the price in the more advantageous market to reflect any differences in counterparty credit risk between instruments traded in that market and the ones being valued for financial asset positions. In determining the fair value of financial liability positions, the Company's own credit risk associated with the instrument is taken into account. q5. Amortized cost of financial instruments Amortized cost is computed using the effective interest rate method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate. q6. Impairment of financial assets The Companies assess at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Financial assets carried at amortized cost For loans and receivables carried at amortized cost, the Companies first assess whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Companies determine that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, they include the asset in a group of financial assets with similar credit risk characteristics and collectively assess them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. If a loan or receivable has a variable interest rate, the discount rate for measuring impairment loss is the current effective interest rate.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) q. Financial Instruments (continued) q6. Impairment of financial assets (continued) Financial assets carried at amortized cost (continued) The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statements of income. Interest income continues to be accrued on the reduced carrying amount based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Loans and receivables, together with the associated allowance, are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Companies. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is recognized in the consolidated statements of income. AFS financial assets In the case of equity investments classified as an AFS financial asset, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is objective evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statements of income - is reclassified from stockholders equity to profit or loss. Impairment losses on equity investments are not reversed through the consolidated statements of income; increases in their fair value after impairment are recognized in stockholders equity. In the case of debt instruments classified as an AFS financial asset, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of the Interest income account in the consolidated statements of income. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statements of income, the impairment loss is reversed through the consolidated statements of income. q7. Derecognition of financial assets and liabilities Financial assets A financial asset (or where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: (1) the rights to receive cash flows from the asset have expired; or (2) the Companies have transferred their rights to receive cash flows from the asset or have assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Companies have transferred substantially all the risks and rewards of the asset, or (b) the Companies have neither transferred nor retained substantially all the risks and rewards of the asset, but have transferred control of the asset.
29
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) q. Financial Instruments (continued) q7. Derecognition of financial assets and liabilities (continued) Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statements of income. q8. Derivative financial instruments The Company enters into and engages in cross currency swaps, interest rate swaps and other permitted instruments, if considered necessary, for the purpose of managing its foreign exchange and interest rate exposures emanating from the Companys loans and bonds payable in foreign currencies. These derivative financial instruments do not meet the criteria for hedge accounting as provided in SAK 55 (Revised 2006) and are initially recognized at fair value on the date the derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in fair value of derivatives during the year that do not qualify for hedge accounting are taken directly to the consolidated statements of income. Derivative assets and liabilities are presented under current assets and liabilities, respectively. Embedded derivative is presented with the host contract on the consolidated balance sheets which represents an appropriate 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 or income, and settlement of derivative instruments are credited (charged) to Loss on Change in Fair Value of Derivatives - Net, which is presented under Other Income (Expenses) in the consolidated statements of income. r. 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 prevailing exchange rates at such date 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 properties under construction and installation. For December 31, 2009 and 2010, the foreign exchange rates used (in full amounts) were Rp9,400 and Rp8,991, respectively, per US$1 computed by taking the average of the buying and selling rates of bank notes last published by Bank Indonesia for the year.
30
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) s. Income Tax Current tax expense is provided based on the estimated taxable income for the year. 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 realization of such benefits is probable. The tax effects for the year are allocated to current operations, except for the tax effects 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 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. Changes in the carrying amount of deferred tax assets and liabilities due to a change in tax rates are credited or charged to current year operations, except to the extent that they relate to items previously charged or credited to stockholders equity. 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. t. Segment Reporting The Companies follow SAK 5 (Revised 2000), Segment Reporting, in the presentation of segment reporting in their financial statements. SAK 5 (Revised 2000) 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 33. u. Basic Earnings per Share/ADS In accordance with SAK 56, Earnings per Share, the amount of basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during the year. The amount of basic earnings per ADS is computed by multiplying basic earnings per share by 50, which is equal to the number of shares per ADS. v. Transactions with Related Parties The Companies account for transactions with related parties as described in SAK 7, Transactions with Related Parties. The details of the accounts and the significant transactions entered into with related parties are presented in Note 26. w. Use of Estimates The preparation of consolidated 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.
31
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 3. CASH AND CASH EQUIVALENTS This account consists of the following: Cash on hand Rupiah U.S. dollar (US$12) 2009 1,581 1,581 2010 1,682 110 1,792
Cash in banks Related parties (Note 26) Rupiah PT Bank Mandiri (Persero) Tbk (Mandiri) PT Bank Rakyat Indonesia (Persero) Tbk (BRI) PT Bank Pembangunan Daerah NTT (BPD - NTT) PT Bank Negara Indonesia (Persero) Tbk (BNI) PT Bank Pembangunan Daerah Papua (BPD - Papua) PT Bank Tabungan Negara (Persero) Tbk (BTN) PT Bank Syariah Mandiri (Mandiri Syariah) PT Bank Pembangunan Daerah DKI Jakarta (BPD - DKI) Others (each below Rp1,000) U.S. dollar Mandiri (US$4,228 in 2009 and US$4,606 in 2010) BNI (US$137 in 2009 and US$60 in 2010) Others (US$60) Third parties Rupiah PT Bank CIMB Niaga Tbk (CIMB Niaga) PT Bank Bukopin Tbk (Bukopin) PT Bank Central Asia Tbk (BCA) Others (each below Rp5,000) U.S. dollar Fortis Bank N.V., The Netherlands (US$4,497 in 2009 and US$6,960 in 2010) Citibank N.A., Singapore Branch (US$2,343 in 2009 and US$4,945 in 2010) Citibank N.A., Jakarta Branch (Citibank) (US$948 in 2009 and US$677 in 2010) CIMB Niaga (US$838 in 2009 and US$160 in 2010) Deutsche Bank AG, Jakarta Branch (DB) (US$1,121 in 2009 and US$91 in 2010) Others (US$12 in 2009 and US$52 in 2010)
28,750 752 10,877 2,310 4,652 3,408 39,748 1,286 -
45,792 11,345 4,476 4,461 2,473 1,270 1,215 935 1,638 41,412 542 548
10,715 11,966 16,684
21,845 9,308 2,284 16,307
42,272 22,024 8,913 7,875 10,540 117 222,889
62,577 44,464 6,087 1,435 817 464 281,695
32
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 3. CASH AND CASH EQUIVALENTS (continued) 2009 Time deposits and deposits on call Related parties (Note 26) Rupiah Mandiri BNI BTN BRI Mandiri Syariah PT Bank Pembangunan Daerah Jawa Barat (BPD - Jawa Barat) PT Bank BRI Syariah PT Bank Pembangunan Daerah Yogyakarta (BPD - Yogyakarta) PT Bank Pembangunan Daerah Jawa Tengah (BPD - Jawa Tengah) U.S. dollar BRI (US$80,000) Mandiri (US$265 in 2009 and US$1,540 in 2010) BPD - Jawa Barat (US$165) Third parties Rupiah PT Bank Syariah Muamalat Indonesia Tbk (Muamalat) CIMB Niaga Bukopin PT Bank Danamon Indonesia Tbk (Danamon) PT Bank Himpunan Saudara 1906, Tbk (HS 1906) PT Bank Mega Syariah PT Bank International Indonesia (BII) PT Bank Tabungan Pensiunan Nasional Tbk DB PT Bank DBS Indonesia (DBS) Others (each below Rp5,000) U.S. dollar DB (US$17,725 in 2009 and US$5,454 in 2010) Muamalat (US$5,000 in 2009 and 2010) CIMB Niaga (US$2,000) 2010
1,379,950 195,820 117,000 171,500 105,000 1,000 3,500 2,489 -
421,400 141,185 88,500 68,500 31,000 8,350 5,000 1,000 719,280 13,845 1,484
125,500 81,000 18,900 22,800 5,250 2,000 18,500 40,209 100,000 7,500 166,611 47,000 2,611,529
48,500 22,500 21,400 15,900 15,400 13,250 13,000 12,000 5,232 13,080 49,038 44,955 17,984 1,791,783 2,075,270
Total
2,835,999
Time deposits and deposits on call denominated in rupiah earned interest at annual rates ranging from 2.50% to 14.50% in 2009 and from 2.50% to 10.00% in 2010, while those denominated in U.S. dollar earned interest at annual rates ranging from 0.001% to 6.00% in 2009 and from 0.05% to 4.75% in 2010. The interest rates on time deposits and deposits on call in related parties are comparable to those offered by third parties.
33
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 4. ACCOUNTS RECEIVABLE - TRADE This account consists of the following: 2009 Related parties (Note 26) Telkom (including US$75 in 2009 and US$55 in 2010) Others (including US$6,322 in 2009 and US$7,764 in 2010) Sub-total Less allowance for impairment Net Third parties Overseas international carriers (US$98,042 in 2009 and US$93,755 in 2010) Local companies (including US$15,291 in 2009 and US$13,956 in 2010) Post-paid subscribers from: Cellular Fixed telecommunication Sub-total Less allowance for impairment Net Total The aging schedule of the accounts receivable - trade is as follows:
2009 Number of Months Outstanding Related parties 0 - 6 months 7 - 12 months 13 - 24 months Over 24 months Total Third parties 0 - 6 months 7 - 12 months 13 - 24 months Over 24 months Total Amount 121,522 27,207 2,661 32,060 183,450 820,082 287,533 285,407 270,463 1,663,485 Percentage (%) 66.24 14.83 1.45 17.48 100.00 49.30 17.28 17.16 16.26 100.00 Amount 201,256 47,973 6,913 14,004 270,146 787,871 279,806 308,808 397,905 1,774,390 2010 Percentage (%) 74.50 17.76 2.56 5.18 100.00 44.40 15.77 17.40 22.43 100.00
2010 56,108 214,038 270,146 47,640 222,506
31,724 151,726 183,450 57,538 125,912
921,595 463,069 252,008 26,813 1,663,485 404,272 1,259,213 1,385,125
842,954 628,224 255,973 47,239 1,774,390 448,470 1,325,920 1,548,426
34
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 4. ACCOUNTS RECEIVABLE - TRADE (continued) The changes in the allowance for impairment of accounts receivable - trade are as follows: Total December 31, 2009 Balance at beginning of year Provision (Note 23) Write-offs Net effect of foreign exchange adjustment Deduction due to liquidation of SMM* Balance at end of year December 31, 2010 Balance at beginning of year Provision (reversal) - net (Note 23) Write-offs Net effect of foreign exchange adjustment Balance at end of year Individual impairment Collective impairment Total Gross amount of receivables, individually impaired, before deducting any individually assessed impairment allowance
* a subsidiary liquidated on June 23, 2009
Related Parties 69,444 6,635 (9,398) (9,143) 57,538
Third Parties 426,719 91,407 (92,188) (20,417) (1,249 ) 404,272
496,163 98,042 (101,586 ) (29,560) (1,249) 461,810
461,810 67,041 (23,586) (9,155) 496,110 182,175 313,935 496,110
57,538 (9,712) (186) 47,640 37,576 10,064 47,640
404,272 76,753 (23,586) (8,969) 448,470 144,599 303,871 448,470
405,926
118,486
287,440
The net effect of foreign exchange adjustment was due to the strengthening or weakening of the rupiah vis--vis the U.S. dollar in relation to U.S. dollar accounts previously provided with allowance and was credited or charged to Gain or Loss on Foreign Exchange. There are no significant concentrations of credit risk. Management believes the established allowance is sufficient to cover impairment of accounts receivable - trade. 5. PREPAID TAXES This account consists of the following: Claims for tax refund Value Added Tax (VAT) Others Total 2009 580,305 232,773 5,248 818,326 2010 651,657 47,701 2,202 701,560
35
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 5. PREPAID TAXES (continued) Claims for tax refund as of December 31, 2009 and 2010 mainly consist of the Companys corporate income tax for fiscal years 2004, 2005, 2006, 2009 and 2010, the Companys income tax article 26 for fiscal years 2004, 2005, 2008 and 2009, and Satelindos corporate income tax for fiscal year 2002 and income tax article 26 for fiscal years 2002 and 2003. On May 14, 2008, the Company submitted an appeal letter to the Tax Court concerning the Companys objection to the correction of the income tax article 26 for fiscal year 2004 amounting to Rp60,493 (including penalty tax). On May 25, 2010, the Company received the Decision Letter from the Tax Court which declined the Companys objection to the correction of the 2004 income tax article 26. The Company charged the tax correction to current operations, which was presented as part of Other Income (Expenses) - Others - Net. On August 21, 2008, the Company submitted an appeal letter to the Tax Court concerning the Companys remaining objection to the correction of the 2005 corporate income tax. On October 29, 2010, the Company received the Decision Letter from the Tax Court which accepted the Companys objection to the correction of the 2005 corporate income tax amounting to Rp38,155, which was offset against the underpayment of the Companys 2008 and 2009 income tax article 26 based on Tax Collection Letters (STPs) received by the Company on September 17, 2010 (Note 13). On September 2, 2008, the Company submitted an appeal letter to the Tax Court concerning the Companys objection to the correction of the 2005 income tax article 26 amounting to Rp82,126 (including penalties and interest). On May 25, 2010, the Company received the Decision Letter from the Tax Court which declined the Companys objection to the correction of the 2005 income tax article 26. The Company charged the tax correction to current operations, which was presented as part of Other Income (Expenses) - Others - Net. On July 4, 2008, the Company received the Decision Letter No. KEP-00080/WPJ.19/KP.0303/2008 (KEP-00080) from the Tax Court which accepted the Companys objection to the correction of the 2003 corporate income tax amounting to Rp126,403. On December 24, 2008, the Company received the Decision Letter No. KEP-539/WPJ.19/BD.05/2008 from the Directorate General of Taxation (DGT) which increased the overpayment amount by Rp84,650 in the assessment letter on tax overpayment (SKPLB) for fiscal year 2004, which amount is lower than the amount stated in KEP-00080. On January 21, 2009, the Company filed an appeal letter to the Tax Court to increase the SKPLB for fiscal year 2004 as stated in KEP-00080. On February 2, 2009, the Company received the tax refund from the Tax Office amounting to Rp84,650 for the additional tax overpayment of corporate income tax for fiscal year 2004. On December 4, 2009, the Company received from the Tax Court its Decision No. Put.20644/PP/M.II/2009 which granted the request to increase the SKPLB for fiscal year 2004. Furthermore, on December 15, 2009, the DGT issued Decision Letter No. KEP00101/WPJ.19/KP.0303/2009 to implement such Tax Court Decision. On April 13, 2010, the Company received the tax refund from the Tax Office amounting to Rp41,753 for the remaining tax overpayment of corporate income tax for the fiscal year 2004. On June 8, 2009, the Company received the assessment letter on tax underpayment (SKPKB) from the DGT for Satelindos corporate income tax for fiscal year 2002 amounting to Rp105,809 (including penalties and interest) (Note 13). The Company accepted a part of the correction of the 2002 corporate income tax amounting to Rp2,646 which was charged to current operations in 2009. Under Indonesian Tax Law, a taxpayer is required to pay the tax underpayment amount as stated in the SKPKB within one month from the date of the SKPKB. The taxpayer can reclaim the tax paid through an objection or appeal process. On August 28, 2009, the Company submitted an objection letter to the Tax Office regarding the remaining correction on Satelindos 2002 corporate income tax. On July 15, 2010, the Company received the Decision Letter No.KEP-357/WPJ.19/BD.05/2010 from the DGT declining the Companys objection to the correction on Satelindos corporate income tax for fiscal year 2002. On October 14, 2010, the Company submitted an appeal letter to the Tax Court concerning the Companys objection to the correction on Satelindos corporate income tax for fiscal year 2002. As of February 10, 2011, the Company has not yet received any decision from the Tax Court on such appeal. 36
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 5. PREPAID TAXES (continued) On June 8, 2009, the Company also received SKPKBs from the DGT for Satelindos 2002 and 2003 income tax article 26 amounting to Rp51,546 and Rp40,307 (including penalties and interests), respectively (Note 13). On August 27, 2009, the Company submitted an objection letter to the Tax Office for the correction of the Satelindos 2002 and 2003 income tax article 26. On July 16, 2010, the Company received the Decision Letters No.KEP-367/WPJ.19/BD.05/2010 and KEP-368/WPJ.19/BD.05/2010 from the DGT declining the Companys objection to the correction of the Satelindos 2002 and 2003 income tax article 26. On October 12, 2010, the Company submitted appeal letters to the Tax Court concerning the Companys objection to the correction of Satelindos 2002 and 2003 income tax article 26. As of February 10, 2011, the Company has not received any decision from the Tax Court on such appeal. On September 7, 2009, the Company received the Decision Letter No.KEP-335/WPJ.19/BD.05/2009 from the DGT which declined the Companys objection to the remaining corrections of the 2006 corporate income tax. On December 2, 2009, the Company submitted an appeal letter to the Tax Court regarding the remaining corrections of the Companys 2006 corporate income tax. As of February 10, 2011, the Company has not received any decision from the Tax Court on such appeal. 6. INVESTMENTS IN ASSOCIATED COMPANIES As of December 31, 2009 and 2010, this account consists of the following investments which are accounted for under the equity method:
Companys Portion of Accumulated Equity in Undistributed Net Loss of Associated Companies
Location
Principal Activity
Ownership (%)
Cost
Carrying Value
2009 PT Multi Media Asia Indonesia LMD *` PT Swadharma Marga Inforindo** Total Less allowance for impairment Net Indonesia Indonesia Indonesia Satellite-based telecommunication Information and communication services Telecommunication and information services 26.67 35.00 20.00 56,512 700 400 57,612 (212) (278) (114) (604) 56,300 422 286 57,008 56,586 422
LMD is an associated company of Lintasarta. It was established on July 28, 2008 to engage in information and communication services, such as data center services, e-learning and distant learning for public education services, and content services based on Internet Protocol (e.g., IPTV, internet game and internet payment gateway). Lintasarta gradually increased its ownership in LMD from 35% to 55% on November 24, 2010 and from 55% to 70% on December 21, 2010. Effective November 24, 2010, it is no longer an associated company, but a subsidiary of Lintasarta (Note 1d).
** PT Swadharma Marga Inforindo
(SMI) was as an associated company of Lintasarta, which was finally liquidated in October 2010.
37
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 6. INVESTMENTS IN ASSOCIATED COMPANIES (continued)
Companys Portion of Accumulated Equity in Undistributed Net Loss of Associated Companies
Location
Principal Activity
Ownership (%)
Cost
Carrying Value
2010 PT Multi Media Asia Indonesia Less allowance for impairment Net Indonesia Satellite-based telecommunication 26.67 56,512 (212) 56,300 56,300 -
The Companies believe that the allowance for impairment amounting to Rp56,586 and Rp56,300 as of December 31, 2009 and 2010, respectively, is adequate to cover impairment losses on the above investments. 7. OTHER LONG-TERM INVESTMENTS As of December 31, 2009 and 2010, this account consists of the following: Investments in shares of stock accounted for under the cost method - net Equity securities which are available-for-sale* Total
* consist of BNI and Telkom amounting to Rp89 and Rp10, respectively
2,631 99 2,730
The details of the investments in shares of stock as of December 31, 2009 and 2010 which are accounted for under the cost method are as follows:
Location PT First Media Tbk ICO Global Communication (Holdings) Limited Asean Cableship Pte. Ltd. (ACPL)** Others Total Less allowance for impairment Net Indonesia Bahamas Singapore Principal Activity Cable television and internet network service provider Satellite service Repairs and maintenance of submarine cables Ownership (%) 2.29/1.07* 0.0087 16.67 12.80 - 14.29 Cost/Carrying Value 50,000 49,977 1,265 1,366 102,608 99,977 2,631
** The Company received dividend income from its investment in ACPL totalling US$2,736 (equivalent to Rp26,774) and US$2,140 (equivalent to Rp19,281) for the years
ended December 31, 2009 and 2010, respectively.
On May 20, 2010, the Companys ownership in PT First Media Tbk was diluted to 1.07% since the Company did not exercise its pre-emptive right in relation to a rights issue conducted by PT First Media Tbk.
The Company has provided allowance for impairment of its investments in shares of stock accounted for under the cost method amounting to Rp99,977 as of December 31, 2009 and 2010, which the Company believes is adequate to cover impairment losses on the investments.
38
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 8. PROPERTY AND EQUIPMENT The details of property and equipment are as follows:
2009 Balance at Beginning of Year Carrying Value Landrights 473,109 Buildings 551,700 Information technology equipment 1,856,437 Office equipment 1,605,201 Building and leasehold improvements 8,651,137 Vehicles 24,171 Cellular technical equipment 22,649,669 Transmission and crossconnection equipment 10,750,328 FWA technical equipment 904,347 Operation and maintenance center and measurement unit 1,098,407 Fixed access network equipment 986,961 Properties under construction and installation 13,926,944 Total 63,478,411 Transactions during the Year Additions 18,922 144 56,211 641 156,742 2,129 11,334,716 11,569,505 Derecognitions (33,249) (14,604) (1,258) (817) (88,631) (84,218) (222,777) Reclassifications 31,511 82,055 311,892 55,391 2,287,855 835 8,521,597 5,531,543 380,084 186,122 82,044 (17,470,929) Liquidated Subsidiary (6,047) (570) (70 ) (6,687) Balance at End of Year 504,620 652,677 2,162,426 1,682,984 10,924,318 24,389 31,170,449 16,349,982 1,284,431 1,286,658 1,069,005 7,706,513 74,818,452
Accumulated Depreciation Buildings 258,796 Information technology equipment 1,406,186 Office equipment 1,100,225 Building and leasehold improvements 3,130,120 Vehicles 13,930 Cellular technical equipment 11,359,453 Transmission and cross connection equipment 5,905,416 FWA technical equipment 312,799 Operation and maintenance center and measurement unit 791,781 Fixed access network equipment 707,021 Total Impairment in Value Net Book Value 24,985,727 98,611 38,394,073
24,985 285,131 142,940 832,047 2,944 2,686,281 1,108,994 122,191 168,143 70,580 5,444,236 -
(33,246) (9,637) (1,113) (817) (88,631) (133,444) -
(5,014) (401) (70 ) (5,485) -
283,781 1,686,303 1,209,518 3,952,460 15,761 14,044,917 6,925,779 434,990 959,924 777,601 30,291,034 98,611 44,428,807
39
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 8. PROPERTY AND EQUIPMENT (continued)
2010 Balance at Beginning of Year Cost Landrights Buildings Information technology equipment Office equipment Building and leasehold improvements Vehicles Cellular technical equipment Transmission and crossconnection equipment FWA technical equipment Operation and maintenance center and measurement unit Fixed access network equipment Properties under construction and installation Total Accumulated Depreciation Buildings Information technology equipment Office equipment Building and leasehold improvements Vehicles Cellular technical equipment Transmission and crossconnection equipment FWA technical equipment Operation and maintenance center and measurement unit Fixed access network equipment Total Less Impairment in Value Net Book Value 504,620 652,677 2,162,426 1,682,984 10,924,318 24,389 31,170,449 16,349,982 1,284,431 1,286,658 1,069,005 7,706,513 74,818,452 Transactions during the Year Additions 15,977 4,088 114 50,632 635 158,285 205,849 5,039,357 * 5,474,937 Derecognitions (14,141) (15,016) (70,346) (1,500) (1,741,072) (324,912) (22,070) (1,315) (1,851) (2,192,223) Reclassifications 20,490 157,426 353,493 57,829 1,120,713 1,176 5,262,382 2,098,301 82,796 69,920 59,460 (9,283,986) Balance at End of Year 541,087 814,191 2,501,892 1,776,429 11,974,685 24,700 34,850,044 18,329,220 1,345,157 1,355,263 1,126,614 3,461,884 78,101,166
283,781 1,686,303 1,209,518 3,952,460 15,761 14,044,917 6,925,779 434,990 959,924 777,601 30,291,034 98,611 44,428,807
29,940 286,175 148,219 920,854 3,588 3,026,386 1,435,193 121,922 134,989 66,342 6,173,608 -
(14,141) (14,994) (70,324) (703) (1,582,787) (324,912) (22,070) (1,315 ) (1,851) (2,033,097) -
313,721 1,958,337 1,342,743 4,802,990 18,646 15,488,516 8,036,060 534,842 1,093,598 842,092 34,431,545 98,611 43,571,010
* including additional property and equipment purchased from Lintasarta amounting to Rp71,423 (net of intercompany loss of Rp11,683).
Submarine cables (presented as part of transmission and cross-connection equipment) represent the Companys 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.
40
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 8. PROPERTY AND EQUIPMENT (continued) Depreciation expense charged to the consolidated statements of income amounted to Rp5,444,236 and Rp6,173,608 for the years ended December 31, 2009 and 2010, respectively. Management believes that there is no impairment in asset value or recovery of the impairment reserve as contemplated in SAK 48 for the current year. On August 31, 2009, the Company launched its Palapa D Satellite. The Satellite experienced an underperformance of the launch vehicle during the Satellites placement to its intended orbital position. Consequently, its orbital lifetime has been reduced. The insurance claim for the partial loss of the Satellite has been made and is recorded as a reduction of the cost of the Satellite. The Satellite has been in operation since November 2009 after going through the process of testing and arranging its orbital position in September and October 2009. On January 4 and 19, 2010, the Company collected the Palapa D Satellite insurance claim amounting to US$58,008 (equivalent to Rp537,657) as a loss compensation for the decrease in the Satellites useful life from 15 years to 10.77 years due to the under-performance of the launch vehicle in the Satellites orbital process. As of December 31, 2010, approximately Rp31,691 of property and equipment are pledged as collateral to credit facilities obtained by Lintasarta (Note 15). As of December 31, 2010, the Companies insured their respective property and equipment (except submarine cables and landrights) for US$232,785 and Rp40,306,958 including insurance amounting to US$153,000 on the Companys satellite. Management believes that the sum insured is sufficient to cover possible losses arising from fire, explosion, lightning, aircraft damage and other natural disasters. The details of the Companies properties under construction and installation as of December 31, 2009 and 2010 are as follows:
Percentage of Completion 2009 Cellular technical equipment Transmission and cross-connection equipment Building and leasehold improvements Information technology equipment Operation and maintenance center and measurement unit Building FWA technical equipment Others (each below Rp50,000) Total 2010 Cellular technical equipment Transmission and cross-connection equipment Building and leasehold improvements Others (each below Rp50,000) Total 5 - 99 5 - 99 6 - 95 5 - 95 5 - 99 5 - 95 6 - 60 90 - 95 40 - 90 20 - 75 5 - 95 8 - 95
Cost
Estimated Date of Completion
5,682,137 912,720 686,883 108,980 102,981 79,709 72,754 60,349 7,706,513
January - September 2010 January - September 2010 January 2010 - January 2011 January - June 2010 January - June 2010 January - December 2010 January - September 2010 January - July 2010
2,170,612 955,425 242,194 93,653 3,461,884
January - December 2011 January - December 2011 January - December 2011 January - December 2011
Borrowing costs capitalized to properties under construction and installation for the years ended December 31, 2009 and 2010 amounted to Rp181,522 and Rp18,698, respectively.
41
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 8. PROPERTY AND EQUIPMENT (continued) For the years ended December 31, 2009 and 2010, sales or exchange of certain property and equipment were made as follows:
2009 2010
Exchange of Assets (Note 29b) Carrying amount of assets received Carrying amount of assets given up Sales of Assets Proceeds Net book value Gain (loss)
2,253 (5,115) (2,862 )
158,285 (158,285) 7,741 (841) 6,900
In the above exchange of assets transaction, the fair value of neither the asset received nor the assets given up cannot be measured reliably, hence, its value is measured at the carrying amount of the assets given up. 9. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill arose from the acquisition of ownership in Bimagraha and Satelindo in 2001 and 2002, respectively, and from the acquisition of additional ownership in Lintasarta in 2005, in SMT in 2008 and LMD in 2010, respectively. The details of the other intangible assets arising from the acquisition of Satelindo in 2002 are as follows: Amount Spectrum license Customer base - Post-paid - Prepaid Brand Total The changes in the goodwill and other intangible assets account are as follows: 2009 Balance at beginning of year - net Additions: Non-integrated software Amortization of goodwill Amortization of other intangible assets Balance at end of year - net 10. LONG-TERM PREPAID RENTALS - NET OF CURRENT PORTION This account represents mainly the long-term portion of prepaid rentals on sites and towers. 11. LONG-TERM ADVANCES This account represents advances to suppliers and contractors for the purchase and construction/ installation 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/installation of the property and equipment has reached a certain percentage of completion. 42 1,833,392 15,044 (235,420) (32,936) 1,580,080 2010 1,580,080 40,052 (226,380) (19,692) 1,374,060 222,922 154,220 73,128 147,178 597,448
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 12. PROCUREMENT PAYABLE This account consists of payables for capital and operating expenditures procured from the following: 2009 Related parties (Note 26) (including US$631 in 2009 and US$404 in 2010) Third parties (including US$309,520 in 2009 and US$246,211 in 2010) Total 117,284 5,172,498 5,289,782 2010 68,681 3,575,786 3,644,467
The billed amount of procurement payable amounted to Rp1,478,057 and Rp360,508 as of December 31, 2009 and 2010, respectively. The unbilled amount of procurement payable amounted to Rp3,811,725 and Rp3,283,959 as of December 31, 2009 and 2010, respectively. 13. TAXES PAYABLE This account consists of the following: 2009 Estimated corporate income tax payable, less tax prepayments of Rp439,147 in 2009 and Rp123,281 in 2010 Income tax: Article 4(2) Article 21 Article 22 Article 23 Article 25 Article 26 VAT Others Total 2010
21,826 22,614 26,290 3,826 8,664 40,122 33,622 3,298 1,558 161,820
4,890 14,299 14,032 9,177 18,899 88,787 18,107 1,254 169,445
43
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 13. TAXES PAYABLE (continued) The reconciliation between income before income tax and estimated taxable income (tax loss) of the Company for the years ended December 31, 2009 and 2010 is as follows: 2009 Income before income tax per consolidated statements of income Subsidiaries income before income tax and effect of inter-company consolidation eliminations Income before income tax of the Company Positive adjustments Assessments for income taxes and related penalties Amortization of goodwill and other intangible assets Provision for impairment of receivables Provision for termination, gratuity and compensation benefits of employees Donations Net periodic pension cost Accrual of employee benefits - net Amortization of debt and bonds issuance costs, consent solicitation fees and discount (Notes 15 and 16) Representation and entertainment Others Negative adjustments Depreciation - net Loss on sale of property and equipment - net Equity in net income of investees Interest income already subjected to final tax Amortization of long-term prepaid licenses Write-off of accounts receivable Amortization of debt and bonds issuance costs, consent solicitation fees and discount (Notes 15 and 16) Estimated taxable income (tax loss) of the Company 2,231,993 (190,669) 2,041,324 55,347 23,118 48,640 30,898 12,774 1,446 115,312 7,979 126,642 (888,571) (3,701) (224,842) (119,490) (7,435) (98,905) (2,620) 1,117,916 2010 1,081,817 (197,537) 884,280 82,534 35,811 34,739 32,869 18,653 17,013 15,278 10,318 5,709 143,143 (1,692,108 ) (344,221) (241,230 ) (109,844) (35,005 ) (1,142,061)
The computation of income tax expense for the years ended December 31, 2009 and 2010 is as follows: 2009 Estimated taxable income (tax loss) of the Company Income tax expense - current (at statutory tax rates) Company Subsidiaries Total income tax expense - current 1,117,916 313,016 147,957 460,973 2010 (1,142,061) 128,171 128,171
44
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 13. TAXES PAYABLE (continued) 2009 Income tax expense (benefit) - deferred - effect of temporary differences at enacted maximum tax rates Company Depreciation - net Loss on sale of property and equipment - net Equity in net income of investees Amortization of long-term prepaid licenses Tax loss Amortization of goodwill and other intangible assets Write-off of accounts receivable (provision for impairment of receivables) - net Provision for termination, gratuity and compensation benefits of employees Net periodic pension cost Accrual of employee benefits - net Amortization of debt and bonds issuance costs, consent solicitation fees and discount (Notes 15 and 16) Others Net Subsidiaries Net income tax expense - deferred Total income tax expense 2010
228,846 1,036 56,211 1,722 (6,614) 15,517 (7,662) (115) (27,818) 548 (31,608) 230,063 (13,771) 216,292 677,265
423,027 86,055 60,308 8,751 (285,515) (8,953) (8,685) (8,217) (4,253) (3,820) (2,580) (19,012) 237,106 (7,479) 229,627 357,798
The computation of the estimated income tax payable for the years ended December 31, 2009 and 2010 is as follows: 2009 2010 Income tax expense - current Company Subsidiaries Total income tax expense - current Less prepayments of income tax of the Company Article 22 Article 23 Article 25 Total prepayments of income tax of the Company Less prepayments of income tax of Subsidiaries Article 22 Article 23 Article 25 Total prepayments of income tax of Subsidiaries Total prepayments of income tax Estimated income tax payable Subsidiaries 313,016 147,957 460,973 101,137 7,071 299,289 407,497 128,171 128,171 52,126 6,810 28,795 87,731
7,534 3,306 151,693 162,533 570,030 21,826
1,107 3,696 194,309 199,112 286,843 4,890
45
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 13. TAXES PAYABLE (continued) Claims for tax refund (presented as part of Prepaid Taxes) Company Subsidiaries Total
2009 94,481 36,402 130,883
2010 87,731 75,831 163,562
The reconciliation between the income tax expense calculated by applying the applicable tax rate of 28% in 2009 and 25% in 2010 to the income before income tax and the income tax expense as shown in the consolidated statements of income for the years ended December 31, 2009 and 2010 is as follows: 2009 Income before income tax per consolidated statements of income Income tax expense at the applicable tax rate Companys equity in Subsidiaries income before income tax and reversal of inter-company consolidation eliminations Tax effect on permanent differences Assessment for income taxes and related penalties Employee benefits Donation s Representation and entertainment Interest income already subjected to final tax Others Others Income tax expense per consolidated statements of income 2,231,993 624,958 66,082 15,497 15,815 3,577 2,825 (41,764) (8,451) (1,274) 677,265 2010 1,081,817 270,454 57,427 20,844 16,180 6,037 2,343 (36,200) 8,818 11,895 357,798
The tax effects of significant temporary differences between financial and tax reporting of the Company which are outstanding as of December 31, 2009 and 2010 are as follows: 2009 Deferred tax assets Tax loss Accrual of employee benefits - net Allowance for impairment on receivables Allowance for impairment of investments in associated company and other long-term investments Pension cost Allowance for impairment of short-term investment Others Total 223,067 109,510 39,069 17,890 6,349 1,992 397,877 2010 285,515 235,104 118,195 39,069 22,143 6,349 3,300 709,675
46
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 13. TAXES PAYABLE (continued) Deferred tax liabilities Property and equipment Investments in subsidiaries/associated company - net of amortization of goodwill and other intangible assets Long-term prepaid licenses Deferred debt and bonds issuance costs, consent solicitation fees and discount Difference in transactions of equity changes in associated company Others Total Deferred tax liabilities - net
2009 1,711,076 196,498 4,811 13,106 1,460 1,448 1,928,399 1,530,522
2010 2,220,158 229,239 13,562 10,526 1,460 659 2,475,604 1,765,929
The breakdown by entity of the deferred tax assets and liabilities outstanding as of December 31, 2009 and 2010 is as follows: 2009 2010 Deferred Tax Assets Company Subsidiaries Lintasarta IMM APE SMT ISPL LMD Total 74,513 11,299 85,812 Deferred Tax Liabilities 1,530,522 3,070 991 619 1,535,202 Deferred Tax Assets 77,755 17,263 95,018 Deferred Tax Liabilities 1,765,929 4,383 1,597 428 1,772,337
The deferred tax assets of Lintasarta relate mainly to the deferred tax on the temporary difference in the recognition of depreciation on property and equipment. The significant temporary differences deductible for income tax purposes accounts are written off, the allowance long-term investments is realized upon cost is paid. on which deferred tax assets have been computed are not until the accrued employee benefits are paid, the doubtful for impairment of investments in associated company and other sale of the investments, write-off of receivables and the pension
The significant deferred tax liabilities relate to the differences in the book and tax bases of property and equipment, investments in subsidiaries/associated company, debt and bonds issuance costs, consent solicitation fees and discount, and long-term prepaid licenses. The Company provides for deferred tax liabilities and deferred tax assets relating to the book-versus-taxbasis 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. On June 8, 2009, the Company received SKPKBs from the DGT for Satelindos 2002 and 2003 income tax articles 21, 23 and 4(2), and VAT totalling Rp28,960 (including penalties and interest), which were charged to current operations in 2009 as part of Other Income (Expenses) - Others - Net. On June 8, 2009, the Company received SKPKB from the DGT for Satelindos 2003 corporate income tax amounting to Rp30,870 (including interests), which was charged to current operations in 2009 as part of Other Income (Expenses) - Others - Net. 47
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 13. TAXES PAYABLE (continued) On July 7, 2009, the Company paid all tax underpayments that resulted from the tax audit of Satelindos corporate income tax, income tax articles 4(2), 21, 23 and 26, and VAT for fiscal years 2002 and 2003 totalling Rp257,492 (Note 5). On September 17, 2010, the Company received STPs from the DGT for the underpayment of the Companys 2008 and 2009 income tax article 26 totalling Rp80,018 (including interest). On October 13, 2010, the Company submitted cancellation letters to the Tax Office regarding such STPs. Subsequently, on November 16, 2010, the Company was required to pay a certain portion of these STPs by using the approved tax refund claim for on the Companys corporate Income Tax for fiscal year 2005 (Note 5) amounting to Rp38,155. As of December 31, 2010, the remaining amount of Rp41,863 has not yet been paid (Note 35a). The tax losses carryover of SMT and the Company as of December 31, 2010 can be carried forward through 2015 based on the following schedule: Year of Expiration 2011 2012 2013 2014 2015 Total 14. ACCRUED EXPENSES This account consists of the following: Interest Network repairs and maintenance Employee benefits (Notes 18 and 25) Radio frequency fee Dealer incentives (Note 2n) Marketing Utilities Consultancy fees Universal Service Obligation (USO) (Note 31) Concession fee (Note 31) Link Rental General and administration Blackberry access fee Others (each below Rp20,000) Total 2009 228,743 301,857 152,447 240,718 80,778 125,908 94,359 66,218 62,378 2,468 7,204 18,225 25,546 10,340 108,372 1,525,561 2010 339,957 265,428 216,732 195,686 125,836 120,092 85,650 65,288 59,899 38,005 31,111 28,090 27,706 20,679 90,726 1,710,885 Amount 14,190 30,205 26,660 31,901 1,192,832 1,295,788
48
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. LOANS PAYABLE This account consists of the following: Related party (Note 26) Mandiri - net of unamortized debt issuance cost and consent solicitation fees of Rp7,511 in 2009 and Rp2,955 in 2010 Third parties - net of unamortized debt issuance cost and consent solicitation fees of Rp250,888 in 2009 and Rp189,979 in 2010; unamortized debt discount of Rp25,892 in 2009 and Rp19,267 in 2010 Total loans payable Less current maturities (net of unamortized debt issuance cost and consent solicitation fees of Rp373 in 2010) Related party Third parties Total current maturities Long-term portion Related party Third parties Total long-term portion The details of the loans from Mandiri are as follows: Credit Facility 1 On September 18, 2007, the Company obtained a five-year unsecured credit facility from Mandiri amounting to Rp2,000,000 for the purchase of telecommunications equipment. The loan bears interest at (i) fixed annual rates for the first two years (9.75% on the first year and 10.5% on the second year), and (ii) floating rates for the remaining years based on the prevailing annual rate of average 3-month Jakarta Interbank Offered Rate (JIBOR) plus 1.5% per annum. The loan has an effective interest rate of 8.96% per annum. The interest is payable quarterly. The repayment of the st loan drawdowns will be made annually, as follows: (a) 10% of the total loan drawdowns in the 1 and nd rd th 2 years after the first drawdown, (b) 15% of the total loan drawdowns in the 3 and 4 years after th the first drawdown, and (c) 50% of the total loan drawdowns in the 5 year after the signing date of the agreement. On September 27 and December 27, 2007, the Company made the first and second loan drawdowns representing the full amount of the facility. Voluntary early repayment (whole or any part of the loan) is permitted without penalty if the th repayment is made after the 24 month from the date of the agreement subject to 7 days prior th written notice. Repayment prior to the 24 month after the agreement date is allowed with penalty of 2% of the prepaid amount. On September 27, 2008 and September 25, 2009, the Company paid the first and second annual installments, respectively, amounting to Rp200,000 each. On March 23, 2009, the five-year unsecured credit facility agreement with Mandiri was amended on the basis of the consent letter received on the same date, which represents the outstanding principal amount of Rp1,800,000. The amendment included the changes in the definition of certain terms and the financial ratios required to be maintained. On September 27, 2010, the Company paid the third annual installment amounting to Rp300,000. 49 2009 2010
2,592,489
1,297,045
11,569,078 14,161,567
9,553,906 10,850,951
400,000 1,040,259 1,440,259 2,192,489 10,528,819 12,721,308
300,000 2,884,147 3,184,147 997,045 6,669,759 7,666,804
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. LOANS PAYABLE (continued) Credit Facility 2 On July 28, 2009, the Company entered into a five-year unsecured credit facility agreement with Mandiri amounting to Rp1,000,000 for general corporate purposes. The loan bears interest at the annual rate of average 3-month JIBOR plus 4.00% per annum. The loan has an effective interest rate of 11.31% per annum. The interest is payable quarterly. The repayment of the loan will be made st nd annually, as follows: (a) 10% of the loan in the 1 and 2 years after the loan drawdown, (b) 15% of rd th th the loan in the 3 and 4 years after the loan drawdown and (c) 50% of the loan in the 5 year after the signing date of the agreement. On July 31, 2009, the Company drew down the full amount of the facility. Voluntary early repayment (whole or any part of the loan) is permitted subject to 2% penalty of the prepaid amount. Based on the loan agreement, the Company is required to comply with certain covenants, such as maintaining certain financial ratios. On May 20, 2010, the Company received a letter from Mandiri regarding the change of interest rate from an average 3-month JIBOR plus 4.00% per annum to an average 3-month JIBOR plus 2.25% per annum, effective on May 31, 2010. On July 30, 2010, the Company paid the first annual installment amounting to Rp100,000. On November 15, 2010, the Company made an early repayment of the remaining loan balance amounting to Rp900,000. The loans from third parties consist of the following: 2009 Syndicated U.S. Dollar Loan Facility - net of unamortized debt issuance cost and consent solicitation fees of Rp44,563 in 2009 and Rp27,122 in 2010 AB Svensk Exportkredit, Sweden with Guarantee from Export Kredit Namnden - net of unamortized debt issuance cost of Rp36,909 in 2009 and Rp27,593 in 2010 HSBC France - net of unamortized debt issuance cost and consent solicitation fees of Rp156,357 in 2009 and Rp129,167 in 2010 BCA - net of unamortized debt issuance cost and consent solicitation fees of Rp7,055 in 2009 and Rp2,903 in 2010 Goldman Sachs International Principal, net of unamortized debt discount of Rp25,892 in 2009 and Rp19,267 in 2010 Foreign Exchange (FX) Conversion Option 9-Year Commercial Loan - net of unamortized debt issuance cost and consent solicitation fees of Rp3,707 in 2009 and Rp2,821 in 2010 Investment Credit Facility 6 from CIMB Niaga Finnish Export Credit Ltd. - net of unamortized debt issuance cost and consent solicitation fees of Rp1,113 in 2009 and Rp373 in 2010 2010
4,185,437 1,200,551 1,736,678 3,092,945 408,408 103,758 237,733 23,772 106,047
4,018,828 1,972,905 1,500,434 1,297,097 415,033 54,595 203,805 52,483 33,793
50
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. LOANS PAYABLE (continued) 2009 Investment Credit Facility 5 from CIMB Niaga DBS - net of unamortized debt issuance cost and consent solicitation fees of Rp1,184 Total Less current maturities (net of unamortized debt issuance costs and consent solicitation fees totaling Rp373 in 2010) Long-term portion 24,933 448,816 11,569,078 1,040,259 10,528,819 2010 4,933 9,553,906 2,884,147 6,669,759
a. Syndicated U.S. Dollar Loan Facility - 13 Financial Institutions On June 12, 2008, the Company entered into a five-year unsecured credit facility agreement with 13 financial institutions with ING Bank N.V. and DBS Bank Ltd. as arrangers and DBS as the facility agent, in the total amount of US$450,000. The loan proceeds are used to finance the Companys (i) capital expenditure, (ii) purchase of a portion of its Guaranteed Notes Due 2010 and/or Guaranteed Notes 2012, and/or (iii) general working capital requirements. The loan bears interest at floating rates based on U.S. dollar London Interbank Offered Rate (LIBOR) plus margin (1.9% per annum for onshore lenders and 1.85% per annum for offshore lenders), which is payable semi-annually. The loan has an effective interest rate of 5.78% per annum. The repayment of the loan drawdowns will be made semi-annually, as follows: (a) 25% of the total rd loan drawdowns in 3 year after the signing date of the agreement (first repayment date), (b) 24% of th the total loan drawdowns in 6 month after the first repayment date, (c) 8% each of the total loan th th drawdowns in 12 and 18 months after the first repayment date, and (d) 35% of the total loan th drawdowns in 24 month after the first repayment date. Based on the loan agreement, the Company is required to comply with certain covenants, such as maintaining certain financial ratios. Voluntary early repayment is permitted only after the 6 month from the date of loan agreement subject to 15 days prior written notice. The Company may repay the whole or any part of the loan before the due dates (in the minimum amount of US$10,000 and in an amount divisible by US$1,000). On September 26 and October 30, 2008, the Company received the first and second drawdowns representing the full amount of the facility totalling US$450,000 (equivalent to Rp4,704,650). On February 24, 2009, the Company amended the Syndicated U.S. Dollar Loan Facility based on the consent letter received on February 19, 2009 from DBS Bank Ltd., which covers the consent provided by a majority of the 13 financial institutions to which the aggregate principal amount of US$405,000 or 90% of the outstanding loan is payable. The amendment included the changes in the definition of certain terms and the financial ratios required to be maintained.
th
51
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. LOANS PAYABLE (continued) b. AB Svensk Exportkredit (SEK), Sweden with Guarantee from Export Kredit Namnden (EKN) On August 18, 2009, the Company obtained credit facilities guaranteed by EKN, Sweden with maximum amounts totalling US$315,000 for the purchase of Ericsson telecommunications equipment, with The Hongkong and Shanghai Banking Corporation Limited (HSBC), Hong Kong and The Royal Bank of Scofland N.V. (formerly ABN-AMRO Bank N.V.), Hong Kong Branch as the original lenders and arrangers, while HSBC Bank PLC, London, United Kingdom acted as the facility agent and EKN agent. The agreement stipulates that the original lenders may assign any of their rights or transfer any of their rights and obligations as provided in the agreement to another bank or financial institution or SEK or EKN. On September 2, 2009, the original lenders transferred such rights and obligations to SEK. The credit facilities consist of facilities A, B and C with maximum amounts of US$100,000, US$155,000 and US$60,000, respectively. The loans from the facilities bear interest at certain rates per annum as determined in the agreement and the related interest is payable semi-annually until the respective maturity dates. Facilities A and B have effective interest rates of 3.23% and 4.21% per annum, respectively. The repayment of each of facilities A, B and C shall be made in 14 installments starting six months after May 31, 2009, February 28, 2010 and November 30, 2010, respectively. Based on the loan agreement, the Company is required to comply with certain covenants, such as maintaining certain financial ratios. Voluntary early repayment for each facility is permitted only if the repayment for facilities A, B and C is made at the same time and in proportionate amount for each of facilities A, B and C after the last day of the availability period and on a repayment date subject to 20 days prior written notice. The Company may repay the whole or any part of the loan before the due dates (in the minimum amount of US$5,000 and in an amount divisible by US$500). Any repayment shall satisfy the obligations of loan repayment in inverse chronological order for the relevant facility. As of December 31, 2010, the Company has already drawn US$100,000 and US$155,000 from facilities A and B, respectively. On November 30, 2009, May 27, 2010 and November 30, 2010, the Company paid the first, second and third semi-annual installments, respectively, for facility A amounting to US$7,142.86 each. On August 28, 2010, the Company paid the first semi-annual installment for facility B amounting to US$11,071.43. c. HSBC France On November 27, 2007, the Company entered into an unsecured facility agreement with HSBC France relating to: 12-year COFACE Term Facility Agreement (COFACE Facility) This facility amounts to US$157,243 to be used to finance the payment of 85% of the French Content under the Palapa D Satellite Contract plus 100% of the COFACE Premium. The loan bears interest at the fixed annual rate of 5.69% which is payable semi-annually. The loan has an effective interest rate of 7.86% per annum. The total loan outstanding after the availability period shall be repaid in twenty semi-annual installments. The semi-annual repayment of the principal will start six months after the earlier of (a) date of successful completion of the Satellite In-Orbit Acceptance Review under the Palapa D Satellite Contract and (b) September 29, 2009.
52
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. LOANS PAYABLE (continued) c. HSBC France (continued) 12-year COFACE Term Facility Agreement (COFACE Facility) (continued) The Company has already drawn from this credit facility the amount of US$157,186.69. Voluntary early repayment is permitted only with a corresponding proportionate voluntary prepayment under SINOSURE Facility after the last day of the availability period and on a repayment date subject to 30 days prior written notice. The Company may repay the whole or any part of the loan before the due date (in the minimum amount of US$10,000 and in an amount divisible by US$1,000). Any repayment shall satisfy the obligations of loan repayment in inverse chronological order. On March 29 and September 29, 2010, the Company paid the first and second semi-annual installments amounting to US$7,859.34 each. 12-year SINOSURE Term Facility Agreement (SINOSURE Facility) This facility amounts to US$44,200 to be used to finance the payment of 85% of the Launch Service Contract. The loan bears interest at floating rates based on U.S. dollar LIBOR plus 0.35% per annum, which is payable semi-annually. The loan has an effective interest rate of 2.90% per annum. The total loan outstanding after the availability period shall be repaid in twenty semi-annual installments. The semi-annual repayment of the principal will start six months after the earlier of (a) date of successful completion of the Satellite In-Orbit Acceptance Review under the Palapa D Satellite Contract and (b) September 29, 2009. The Company has already drawn the full amount of US$44,200 from this credit facility. Voluntary early repayment is permitted only with a corresponding proportionate voluntary prepayment under COFACE Facility after the last day of the availability period and on a repayment date subject to 30 days prior written notice. The Company may repay the whole or any part of the loan before the due date (in the minimum amount of US$10,000 and in an amount divisible by US$1,000). Any repayment shall satisfy the obligations of loan repayment in inverse chronological order. On March 29 and September 29, 2010, the Company paid the first and second semi-annual installments amounting to US$2,210 each. Based on the credit facility agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. On March 18, 2009, the Company amended the COFACE Facility and SINOSURE Facility agreements with HSBC France based on two consent letters received on March 11, 2009, which represent the outstanding principal amounts of US$157,243 and US$44,200, respectively. The amendment included the changes in the definition of certain terms and the financial ratios required to be maintained.
53
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. LOANS PAYABLE (continued) d. BCA Credit Facility 1 On August 28, 2007, the Company obtained a five-year unsecured credit facility from BCA amounting to Rp1,600,000 for the repayment of Syndicated Loan Facility 2 and the purchase of telecommunications equipment. The loan bears interest at (i) fixed annual rates for the first two years (9.75% on the first year and 10.5% on the second year), and (ii) floating rates for the remaining years based on the prevailing annual rate of 3-month JIBOR plus 1.5% per annum. The loan has an effective interest rate of 9.03% per annum. On September 20, 2007, the Company obtained an increase in the credit facility by Rp400,000. As a result, the credit facility has become Rp2,000,000. The interest is payable quarterly. The repayment of the loan drawdowns will be made st nd annually, as follows: (a) 10% each of the total loan drawdowns in the 1 and 2 years after the first rd th drawdown, (b) 15% each of the total loan drawdowns in the 3 and 4 years after the first th drawdown, and (c) 50% of the total loan drawdowns in the 5 year after the first drawdown. On September 27, October 26 and December 27, 2007, the Company made the first, second and third loan drawdowns representing the full amount of the facility. Voluntary early repayment (whole or any part of the loan) is permitted without penalty if the th repayment is made after the 24 month from the date of the agreement subject to 7 days prior th written notice. Repayment prior to the 24 month after the agreement is allowed with penalty of 2% of the prepaid amount. On September 27, 2008 and September 25, 2009, the Company paid the first and second annual installments, respectively, amounting to Rp200,000 each. On September 27, 2010, the Company paid the third annual installment amounting to Rp300,000. Credit Facility 2 On September 17, 2008, the Company entered into a three-year unsecured credit facility agreement with BCA amounting to Rp500,000 for the refinancing and/or purchase of telecommunications equipment. The loan bears interest at 3-month JIBOR plus 2.25% per annum. The loan has an effective interest rate of 11.69% per annum. The repayment of the loan drawdowns will be made annually, as follows: (a) 20% of the total loan drawdowns in the first year, (b) 30% of the total loan drawdowns in the second year, and (c) 50% of the total loan drawdowns in the third year. On March 16, 2009, the Company made the drawdown of the full amount of the facility. On March 16, 2010, the Company paid the first annual installment amounting to Rp100,000. Voluntary early repayment (whole or any part of the loan) is permitted with penalty of 1% of the prepaid amount. On February 12, 2009, the Company amended its five-year and three-year credit facility agreements with BCA based on the consent letter received on February 6, 2009, which represents the outstanding principal amounts of Rp1,800,000 and Rp500,000, respectively. The amendment included the changes in the definition of certain terms and the financial ratios required to be maintained. On October 19, 2010, the Company made an early repayment of the remaining loan balance amounting to Rp400,000.
54
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. LOANS PAYABLE (continued) d. BCA (continued) Credit Facility 3 On June 8, 2009, the Company entered into a five-year unsecured credit facility agreement with BCA amounting to Rp1,000,000 for the refinancing and/or procurement of telecommunications equipment. The loan bears interest at 3-month JIBOR plus 4.00% per annum, which is subject to change by BCA depending on the market condition. The repayment of the loan drawdowns will be made annually, as follows: (a) 10% of the total loan drawdowns in the first and second years, (b) 15% of the total loan drawdowns in the third and fourth years, and (c) 50% of the total loan drawdowns in the fifth year. The loan has an effective interest rate of 11.65% per annum. On June 25, 2009, the Company drew down the full amount of the facility. On April 28, 2010, the Company received a letter from BCA regarding the change of interest rate from 3-month JIBOR plus 4.00% per annum to 3-month JIBOR plus 2.25% per annum, effective on June 25, 2010. On June 25, 2010, the Company paid the first annual installment amounting to Rp100,000. Voluntary early repayment (whole or any part of the loan) is permitted subject to 1% penalty of the prepaid amount, except for prepayment to refinance this credit facility. On October 19, 2010, the Company made an early repayment of the remaining loan balance amounting to Rp900,000. Based on the loan agreement, the Company is required to comply with certain covenants, such as maintaining certain financial ratios. e. Goldman Sachs International (GSI) On May 30, 2007, the Company received from GSI a loan amounting to Rp434,300 which was received in U.S. dollar amounting to US$50,000 for financing the purchase of telecommunications equipment. The loan will mature on May 30, 2013. The loan bears interest at the fixed annual rate of 8.75% applied on the Rp434,300, which is payable quarterly every February 28, May 30, August 30 and November 30 commencing on August 30, 2007 up to May 30, 2012. The loan has an effective interest rate of 10.86% per annum. The loan agreement provides an option for GSI to convert the loan payable into a U.S. dollar loan of US$50,000 on May 30, 2012 (FX Conversion Option). The fair value of the FX Conversion Option as of December 31, 2009 and 2010 amounted to US$11,038.10 (equivalent to Rp103,758) and US$6,072.20 (equivalent to Rp54,595), respectively. If GSI takes such option, starting May 30, 2012, the loan will bear interest at the fixed annual rate of 6.45% applied on the US$50,000 principal and both U.S. dollar principal and interest thereon will be due on May 30, 2013. Based on the loan agreement, the Company is required to notify GSI regarding the following events which can result in loan termination, such as (i) certain changes affecting withholding taxes in the United Kingdom or Indonesia, (ii) default under Guaranteed Notes due 2012 (Note 16), (iii) default under the Companys USD Notes and IDR Bonds (Note 16), (iv) redemption, purchase or cancellation of the Guaranteed Notes Due 2012 (Note 16) and there are no USD Indosat Notes outstanding upon such redemption, purchase or cancellation, and (v) change of control in the Company. On June 24, 2008, the Company received a waiver letter from GSI affirming that it will not terminate the loan due to the change of control in the Company (Note 19). 55
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. LOANS PAYABLE (continued) f. 9-Year Commercial Facility with HSBC Jakarta Branch, CIMB Niaga (formerly PT Bank Lippo Tbk) and Bank of China Limited, Jakarta Branch On November 27, 2007, the Company entered into an unsecured facility agreement with HSBC Jakarta Branch as the arranger and HSBC Limited, Hong Kong as the facility agent, relating to a 9-year Commercial Facility Agreement amounting to US$27,037 from HSBC Jakarta Branch to finance the construction and launch of the satellite and the payment of the SINOSURE Premium in connection with the SINOSURE Facility (Note 14d). The loan bears interest at floating rates based on U.S. dollar LIBOR plus 1.45% per annum, which is payable semi-annually. The loan has an effective interest rate of 2.36% per annum. The repayment of the loan shall be made in fifteen semi-annual installments starting 24 months from st the date of the loan agreement. For the 1 five installments, the Company will repay US$1,351.85 each and US$2,027.78 for the remaining installments thereafter. The agreement also stipulates that HSBC Jakarta Branch may assign any of its rights or transfer any of its rights and obligations as provided in the agreement to another bank or financial institution. On March 10, 2008, HSBC Jakarta Branch transferred such rights and obligations to CIMB Niaga and Bank of China Limited, Jakarta Branch. On April 1, 2008, the Company received the full drawdown from the 9-year Commercial Facility. The drawdown consisted of US$13,537 (equivalent to Rp124,527) from HSBC Jakarta Branch, US$10,000 (equivalent to Rp91,990) from CIMB Niaga and US$3,500 (equivalent to Rp32,197) from Bank of China Limited, Jakarta Branch. Based on the facility agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. Voluntary early repayment is permitted only on each repayment date after the first repayment date subject to 30 days prior written notice. The Company may repay the whole or any part of the loan before the due date (in the minimum amount of US$5,000 and in an amount divisible by US$1,000). Any repayment shall satisfy the obligations of loan repayment proportionately. On March 18, 2009, the Company amended its 9-Year Commercial Facility based on the consent letter received on March 5, 2009 from HSBC Limited, Hong Kong which represents the aggregate principal amount of US$17,057 or 63% of the outstanding loan. The amendment included the changes in the definition of certain terms and the financial ratios required to be maintained. On November 27, 2009, May 27, 2010 and November 29, 2010, the Company paid the first, second and third semi-annual installments, respectively, amounting to US$1,351.85 each. g. Investment Credit Facility 6 from CIMB Niaga On February 24, 2009, Lintasarta obtained a loan from a credit facility from CIMB Niaga for the purchase of telecommunications equipment, computers and other supporting facilities amounting to Rp75,000. The loan bears interest at the annual rate of 14.5%, which is subject to change by CIMB Niaga depending on the market condition. The quarterly repayment of the principal amount at Rp7,500 each started on May 24, 2010 and will continue up to August 24, 2012. Lintasarta has already drawn the full amount of this facility.
56
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. LOANS PAYABLE (continued) g. Investment Credit Facility 6 from CIMB Niaga (continued) Voluntary early repayment is permitted only on interest payment date subject to 15 days prior written notice. Lintasarta may repay the whole or any part of the loan before the due date only by using the fund from Lintasartas operational activities. Repayment using the fund from loans obtained from other parties is allowed with penalty determined by CIMB Niaga. The loan is collateralized by all equipment (Note 8) purchased from the proceeds of the credit facility. The loan also has the same restrictive covenants as the Investment Credit Facility 5. h. Finnish Export Credit Ltd. (FEC) On May 12, 2006, the Company obtained a credit facility from FEC amounting to US$38,000, with The Royal Bank of Scofland N.V. (formerly ABN-AMRO Bank N.V.), Jakarta Branch as the arranger and The Royal Bank of Scofland N.V. (formerly 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%. The loan has an effective interest rate of 3.56% per annum. The loan, together with the related interest, is payable semi-annually until May 12, 2011. Voluntary early repayment is permitted only after 60 days from the date of the loan agreement subject to 15 days prior written notice. The Company may repay the whole or any part of the loan before the due dates (in the minimum amount of US$10,000 and in an amount divisible by US$1,000). Based on the loan agreement, the Company is required to comply with certain covenants, such as maintaining certain financial ratios. On March 20, 2009, the Company amended its credit facility agreement with FEC based on the consent letter received on February 27, 2009 from ABN-AMRO Bank N.V., Stockholm Branch, which represents the outstanding principal amount of US$19,000. The amendment included the changes in the definition of certain terms and the financial ratios required to be maintained. i. Investment Credit Facility 5 from CIMB Niaga On July 10, 2007, Lintasarta obtained a credit facility from CIMB Niaga amounting to Rp50,000 for the purchase of telecommunications equipment, computers and other supporting facilities. The loan bears interest at the prevailing rate of 1-month Certificate of Bank Indonesia plus 2.25% per annum. The quarterly repayment of the principal amount at Rp5,000 each started on October 10, 2008 and will continue up to January 10, 2011. Lintasarta has already drawn the full amount of this credit facility. Voluntary early repayment is permitted only on interest payment date subject to 3 days prior written notice. Lintasarta may repay the whole or any part of the loan before the due date only by using the fund from Lintasartas operational activities. Repayment using the fund from loans obtained from other parties is allowed with penalty of 1% of the early repaid amount. The loan is collateralized by all equipment (Note 8) purchased from the proceeds of the credit facility. The loan also has the same restrictive covenants as the Investment Credit Facility 6 from CIMB Niaga.
57
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. LOANS PAYABLE (continued) j. DBS On November 1, 2007, the Company obtained a five-year unsecured credit facility from DBS with a maximum amount of Rp500,000 for capital expenditure and general corporate purposes. The loan bears interest at (i) fixed annual rates for the first two years (9.7% in the first year and 10.4% in the second year), and (ii) floating rates for the remaining years based on prevailing annual interest rate of 3-month Certificates of Bank Indonesia plus 1.5% per annum. The loan has an effective interest rate of 10.54% per annum. The interest is payable quarterly. The repayment of the loan drawdowns will be st nd made annually, as follows: (a) 10% each of the total loan drawdowns in the 1 and 2 years after the rd th first drawdown, (b) 15% each of the total loan drawdowns in the 3 and 4 years after the first th drawdown, and (c) 50% of the total loan drawdowns in the 5 year after the signing date of the agreement. On January 31, 2008, the Company drew down the full amount of the facility. Based on the credit facility agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. Voluntary early repayment is permitted on each interest payment date without penalty if the repayment is made after the 24th month from the date of the first drawdown subject to 15 days prior written notice. Repayment prior to the 24th month after the agreement date is allowed with penalty of 1% of the prepaid amount. On January 30, 2009 and February 1, 2010, the Company paid the first and second annual installments, respectively, amounting to Rp50,000 each. On March 25, 2009, the Company amended the credit facility agreement based on the consent letter received on February 27, 2009, which represents the outstanding principal amount of Rp450,000. The amendment included the changes in the definition of certain terms and the financial ratios required to be maintained. On October 30, 2010, the Company made an early repayment of the remaining loan balance amounting to Rp400,000. The scheduled principal payments from 2011 to 2015 and thereafter of all the loans payable as of December 31, 2010 are as follows:
Twelve months ending December 31, 2011 In rupiah Mandiri BCA GSI CIMB Niaga Sub-total 300,000 300,000 34,933 634,933 1,000,000 1,000,000 22,483 2,022,483 434,300 434,300 1,300,000 1,300,000 434,300 57,416 3,091,716 2012 2013 2014 2015 and thereafter Total
58
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. LOANS PAYABLE (continued)
2011 In U.S. dollar Syndicated U.S. Dollar Loan facility (US$450,000) 1,982,516 SEK, Sweden (US$222,500) 327,529 HSBC France (US$181,248.02) 181,067 9-Year Commercial Facility (US$22,981.45) 24,309 GSI (US$6,072.20) FEC (US$3,800) 34,166 Sub-total Total 2,549,587 3,184,520 647,352 327,529 181,067 36,463 1,192,411 3,214,894 1,416,082 327,529 181,067 36,463 54,595 2,015,736 2,450,036 327,529 181,067 36,463 545,059 545,059 690,382 905,333 72,928 1,668,643 1,668,643 4,045,950 2,000,498 1,629,601 206,626 54,595 34,166 7,971,436 11,063,152 2012
Twelve months ending December 31, 2013 2014 2015 and thereafter Total
Less: - unamortized debt issuance costs and consent solicitation fees - unamortized debt discount Net
(192,934) (19,267) 10,850,951
The total amortization of debt issuance, discount and consent solicitation fees on the loans for the years ended December 31, 2009 and 2010 amounted to Rp35,838 and Rp72,091, respectively (Note 24). As of December 31, 2009 and 2010, the Companies have complied with all financial ratios required to be maintained under the loan agreements. 16. BONDS PAYABLE This account consists of the following: 2009 Guaranteed Notes Due 2020 - net of unamortized notes issuance cost of Rp64,885 and discount of Rp29,666 Fifth Indosat Bonds in Year 2007 with Fixed Rates - net of unamortized bonds issuance cost and consent solicitation fees of Rp12,793 in 2009 and Rp11,041 in 2010 Seventh Indosat Bonds in Year 2009 with Fixed Rates - net of unamortized bonds issuance cost of Rp6,198 in 2009 and Rp5,362 in 2010 Sixth Indosat Bonds in Year 2008 with Fixed Rates - net of unamortized bonds issuance cost and consent solicitation fees of Rp7,050 in 2009 and Rp5,414 in 2010 Fourth Indosat Bonds in Year 2005 with Fixed Rate - net of unamortized bonds issuance cost and consent solicitation fees of Rp4,050 in 2009 and Rp1,382 in 2010 Indosat Sukuk Ijarah III in Year 2008 - net of unamortized bonds issuance cost and consent solicitation fees of Rp3,601 in 2009 and Rp2,625 in 2010 Indosat Sukuk Ijarah II in Year 2007 - net of unamortized bonds issuance cost and consent solicitation fees of Rp1,872 in 2009 and Rp1,517 in 2010 59 2,587,207 1,293,802 1,072,950 810,950 566,399 398,128 2010 5,749,599 2,588,959 1,294,638 1,074,586 813,618 567,375 398,483
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) This account consists of the following: Indosat Syariah Ijarah Bonds in Year 2005 - net of unamortized bonds issuance cost and consent solicitation fees of Rp1,429 in 2009 and Rp487 in 2010 Second Indosat Bonds in Year 2002 with Fixed and Floating Rates - net of unamortized consent solicitation fees of Rp656 in 2009 and Rp652 in 2010 Indosat Sukuk Ijarah IV in Year 2009 - net of unamortized bonds issuance cost of Rp982 in 2009 and Rp873 in 2010 Limited Bonds II issued by Lintasarta* Limited Bonds I issued by Lintasarta** Guaranteed Notes Due 2010 - net of unamortized notes issuance cost of Rp3,879 Guaranteed Notes Due 2012 - net of unamortized notes discount of Rp3,116 and unamortized notes issuance cost of Rp6,521 Third Indosat Bonds in Year 2003 with Fixed Rates - net of unamortized bonds issuance cost and consent solicitation fees of Rp2,081 Total bonds payable Less current maturities (net of unamortized bonds issuance cost and consent solicitation fees totalling Rp5,960 in 2009 and Rp1,869 in 2010) Long-term portion
* ** 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
2009
2010
283,571 199,344 199,018 25,000 16,989 2,202,743 1,018,817 637,919 11,312,837 2,840,662 8,472,175
284,513 199,348 199,127 25,000 16,989 13,212,235 1,098,131 12,114,104
Guaranteed Notes Due 2020 On July 29, 2010, IPBV issued Guaranteed Notes (GN) Due 2020 with fixed rate and with a total face value of US$650,000. The notes were issued at 99.478% of their principal amount. The notes bear interest at the fixed rate of 7.375% per annum payable semi-annually on January 29 and July 29 of each year, commencing on January 29, 2011. The notes have an effective interest rate of 7.62% per annum. The notes will mature on July 29, 2020. The notes will be redeemable at the option of IPBV, in whole or in part, at any time on or after July 29, 2015 at prices equal to 103.6875%, 102.4583%, 101.2292% and 100% of the principal amount during the 12-month period commencing July 29, 2015, 2016, 2017 and 2018 and thereafter, respectively, plus accrued and unpaid interest and additional amounts, if any. In addition, prior to July 29, 2013, IPBV may redeem up to a maximum of 35 % of the original aggregate principal amount, with the proceeds of one or more public equity offerings at a price equal to 107.375% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any. The notes are also redeemable at the option of IPBV or the Company, in whole but not in part, at any time, upon not less than 30 days nor more than 60 days prior notice, at a price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest to (but not including) the redemption date and any additional amounts, in the event of certain changes affecting withholding taxes in Indonesia and the Netherlands. Upon a change in control of the Company (including sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all of the Companys assets), the holder of the notes has the right to require IPBV to repurchase all or any part of such holders 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. 60
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) Guaranteed Notes Due 2020 (continued) The net proceeds, after deducting the underwriting fees and offering expenses, were received on July 29, 2010 and used (i) to fund the offers to purchase the outstanding GN Due 2010 and GN Due 2012 and any consent solicitation relating to, or redemption of, such notes and (ii) to refinance part of the Companys other existing indebtedness. The notes are unconditionally and irrevocably guaranteed by the Company. Based on the notes indenture, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. Based on the latest rating reports (released in August and December 2010), the notes have BB (stable outlook), Ba1 (negative outlook) and BBB- (stable outlook) ratings from Standard & Poors (S&P), Moodys Investors Service (Moodys) and Fitch (Fitch), respectively. Fifth Indosat Bonds in Year 2007 with Fixed Rates On May 29, 2007, the Company issued its Fifth Indosat Bonds in Year 2007 with Fixed Rates (Fifth Indosat Bonds), with BRI as the trustee as covered under a Trustee Agreement. The bonds have a total face value of Rp2,600,000. The bonds consist of two series: Series A bonds amounting to Rp1,230,000 which bear interest at the fixed rate of 10.20% per annum starting May 29, 2007. The bonds have an effective interest rate of 10.33% per annum. These bonds will mature on May 29, 2014. Series B bonds amounting to Rp1,370,000 which bear interest at the fixed rate of 10.65% per annum starting May 29, 2007. The bonds have an effective interest rate of 10.75% per annum. These bonds will mature on May 29, 2017.
st
The bonds will mature before the maturity dates if, after the 1 anniversary of the bonds, the Company exercises its option 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, shall pay interest on the bonds, as follows: Series A : on August 29, 2007 and every quarter thereafter up to May 29, 2014. Series B : on August 29, 2007 and every quarter thereafter up to May 29, 2017. The Company received the proceeds of the bonds on May 31, 2007. The net proceeds, after deducting the underwriting fee and offering expenses, were used for capital expenditure to expand the Companys cellular network. Based on the Trustee Agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. The bonds are neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Companys assets, except for the assets that have been specifically used as security to its other creditors, are used as pari-passu security to all of the Companys other liabilities including the bonds. Based on the minutes of the General Meeting of Bondholders (RUPO) dated March 24, 2009, the bondholders of the Fifth Indosat Bonds agreed to amend the Trustee Agreement related to the changes in the definition of certain terms and the financial ratios required to be maintained. Based on the latest rating report (released in October 2010), the bonds have idAA+ (stable outlook) rating from PT Pemeringkat Efek Indonesia (Pefindo).
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) Seventh Indosat Bonds in Year 2009 with Fixed Rates On December 8, 2009, the Company issued its Seventh Indosat Bonds in Year 2009 with Fixed Rates (Seventh Indosat Bonds), with BRI as the trustee as covered under a Trustee Agreement. The bonds have a total face value of Rp1,300,000. The bonds consist of two series: Series A bonds amounting to Rp700,000 which bear interest at the fixed rate of 11.25% per annum starting December 8, 2009. The bonds have an effective interest rate of 11.38% per annum. These bonds will mature on December 8, 2014. Series B bonds amounting to Rp600,000 which bear interest at the fixed rate of 11.75% per annum starting December 8, 2009. The bonds have an effective interest rate of 11.85% per annum. These bonds will mature on December 8, 2016.
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The bonds will mature before the maturity dates if, after the 1 anniversary of the bonds, the Company exercises its option to buy back part or all of the bonds at market price temporarily or as an early settlement. KSEI, acting as payment agent, shall pay interest on the bonds, as follows: Series A : on March 8, 2010 and every quarter thereafter up to December 8, 2014. Series B : on March 8, 2010 and every quarter thereafter up to December 8, 2016. The Company received the proceeds of the bonds on December 8, 2009. The net proceeds, after deducting the underwriting fee and offering expenses, were used for the purchase of Base Station Subsystem to expand the Companys cellular network. Based on the Trustee Agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. The bonds are neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Companys assets, except for the assets that have been specifically used as security to its other creditors, are used as pari-passu security to all of the Companys other liabilities including the bonds. Based on the latest rating report (released in October 2010), the bonds have idAA+ (stable outlook) rating from Pefindo. Sixth Indosat Bonds in Year 2008 with Fixed Rates On April 9, 2008, the Company issued its Sixth Indosat Bonds in Year 2008 with Fixed Rates (Sixth Indosat Bonds), with BRI as the trustee as covered under a Trustee Agreement. The bonds have a total face value of Rp1,080,000. The bonds consist of two series: Series A bonds amounting to Rp760,000 which bear interest at the fixed rate of 10.25% per annum starting April 9, 2008. The bonds have an effective interest rate of 10.5% per annum. These bonds will mature on April 9, 2013. Series B bonds amounting to Rp320,000 which bear interest at the fixed rate of 10.80% per annum starting April 9, 2008. The bonds have an effective interest rate of 11.0% per annum. These bonds will mature on April 9, 2015.
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The bonds will mature before the maturity dates if, after the 1 anniversary of the bonds, the Company exercises its option to buy back part or all of the bonds at market price temporarily or as an early settlement.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) Sixth Indosat Bonds in Year 2008 with Fixed Rates (continued) KSEI, acting as payment agent, shall pay interest on the bonds, as follows: Series A : on July 9, 2008 and every quarter thereafter up to April 9, 2013. Series B : on July 9, 2008 and every quarter thereafter up to April 9, 2015. The Company received the proceeds of the bonds on April 9, 2008. The net proceeds, after deducting the underwriting fee and offering expenses, were used for capital expenditure to expand the Companys cellular network. Based on the Trustee Agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. The bonds are neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Companys assets, except for the assets that have been specifically used as security to its other creditors, are used as pari-passu security to all of the Companys other liabilities including the bonds. Based on the minutes of the RUPO dated March 24, 2009, the holders of the Sixth Indosat Bonds agreed to amend the Trustee Agreement related to the changes in the definition of certain terms and the financial ratios required to be maintained. Based on the latest rating report (released in October 2010), the bonds have idAA+ (stable outlook) rating from Pefindo. 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 Bonds), with BRI as the trustee as covered under a Trustee Agreement. 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 have an effective interest rate of 12.38% per annum. The bonds will mature on June 21, 2011. The bonds will mature before maturity date if after the 1 anniversary of the bonds, the Company exercises its option to buy back part or all of the bonds at market price temporarily or as an early settlement. The Company did not exercise its early settlement option to make early payment for all the th bonds on the 4 anniversary of the bonds at 100% of the bonds nominal value. The proceeds of the bonds were used for capital expenditure to expand the Companys cellular network. Based on the Trustee Agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. The bonds are neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Companys assets, except for the assets that have been specifically used as security to its other creditors, are used as pari-passu security to all of the Companys other liabilities including the bonds. Based on the minutes of the RUPO dated March 24, 2009, the holders of the Fourth Indosat Bonds agreed to amend the Trustee Agreement related to the changes in the definition of certain terms and the financial ratios required to be maintained. Based on the latest rating report (released in October 2010), the bonds have idAA+ (stable outlook) rating from Pefindo.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) Indosat Sukuk Ijarah III in Year 2008 (Sukuk Ijarah III) On April 9, 2008, the Company issued its Sukuk Ijarah III, with BRI as the trustee as covered under a Trustee Agreement. The bonds have a total face value of Rp570,000. The bonds will mature on April 9, 2013. The bonds will mature before maturity date if, after the 1 anniversary of the bonds, the Company exercises its option to buy back part or all of the bonds at market price. Bondholders are entitled to annual fixed Ijarah return (Cicilan Imbalan Ijarah) totalling Rp58,425, payable on July 9, 2008 and every quarter thereafter up to April 9, 2013. The bonds have an effective Ijarah return rate of 10.49% per annum. The Company received the proceeds of the bonds on April 9, 2008. The proceeds of the bonds were used for capital expenditure to expand the Companys cellular network. Based on the Trustee Agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. The bonds are neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Companys assets, except for the assets that have been specifically used as security to its other creditors, are used as pari-passu security to all of the Companys other liabilities including the bonds. Based on the minutes of the RUPO dated March 24, 2009, the holders of Indosat Sukuk Ijarah III agreed to amend the Trustee Agreement related to the changes in the definition of certain terms and the financial ratios required to be maintained. Based on the latest rating report (released in October 2010), the bonds have idAA(sy)+ (stable outlook) rating from Pefindo. Indosat Sukuk Ijarah II in Year 2007 (Sukuk Ijarah II) On May 29, 2007, the Company issued its Sukuk Ijarah II, with BRI as the trustee as covered under a Trustee Agreement. The bonds have a total face value of Rp400,000. The bonds will mature on May 29, 2014. The bonds will mature before maturity date if, after the 1 anniversary of the bonds, the Company exercises its option to buy back part or all of the bonds at market price. Bondholders are entitled to annual fixed Ijarah return (Cicilan Imbalan Ijarah) totalling Rp40,800, payable on August 29, 2007 and every quarter thereafter up to May 29, 2014. The bonds have an effective Ijarah return rate of 10.34% per annum. The Company received the proceeds of the bonds on May 31, 2007. The proceeds of the bonds were used for capital expenditure to expand the Companys cellular network. Based on the Trustee Agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. The bonds are neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Companys assets, except for the assets that have been specifically used as security to its other creditors, are used as pari-passu security to all of the Companys other liabilities including the bonds.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) Indosat Sukuk Ijarah II in Year 2007 (Sukuk Ijarah II) (continued) Based on the minutes of the RUPO dated March 24, 2009, the holders of Indosat Sukuk Ijarah II agreed to amend the Trustee Agreement related to the changes in the definition of certain terms and the financial ratios required to be maintained. Based on the latest rating report (released in October 2010), the bonds have idAA(sy)+ (stable outlook) rating from Pefindo. Indosat Syariah Ijarah Bonds in Year 2005 (Syariah Ijarah Bonds) On June 21, 2005, the Company issued its Syariah Ijarah Bonds, with BRI as the trustee as covered under a Trustee Agreement. The bonds have a total face value of Rp285,000 in Rp50 denomination. The bonds will mature on June 21, 2011. Bondholders are entitled to annual fixed Ijarah return (Cicilan Imbalan Ijarah) totalling Rp34,200, payable on September 21, 2005 and every quarter thereafter up to June 21, 2011. The bonds have an effective Ijarah return rate of 12.39% per annum. The bonds will mature before maturity date if after the 1 anniversary of the bonds, the Company exercises its option to buy back part or all of the bonds at market price temporarily or as an early settlement. The Company did not exercise its early settlement option to make early payment for all the th bonds on the 4 anniversary of the bonds at 100% of the bonds nominal value. The proceeds of the bonds were used for capital expenditure to expand the Companys cellular network. Based on the Trustee Agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. The bonds are neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Companys assets, except for the assets that have been specifically used as security to its other creditors, are used as pari-passu security to all of the Companys other liabilities including the bonds. Based on the minutes of the RUPO dated March 24, 2009, the holders of Indosat Syariah Ijarah Bonds agreed to amend the Trustee Agreement related to the changes in the definition of certain terms and the financial ratios required to be maintained. Based on the latest rating report (released in October 2010), the bonds have idAA(sy)+ (stable outlook) rating from Pefindo. 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 Bonds), with BRI as the trustee as covered under a Trustee Agreement. The bonds were issued in three series. The Series A and Series C bonds matured on November 6, 2007. The Series B bonds which amount to Rp200,000 bear interest at the fixed rate of 16% per annum for 30 years starting February 6, 2003. The bonds have an effective interest rate of 16.05% per annum. The bonds will mature before maturity date 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 th th th th th on the 5 , 10 , 15 , 20 and 25 anniversaries of the bonds at 101% of the bonds nominal value.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) Second Indosat Bonds in Year 2002 with Fixed and Floating Rates (continued) 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 th th th decreases to idAA- or lower (Special Sell Option) or 2) on the 15 , 20 and 25 anniversaries of the bonds (Regular Sell Option).
KSEI, acting as payment agent, pays interest on the Series B bonds on February 6, 2003 and every quarter thereafter up to November 6, 2032. The proceeds of the bonds were used to repay working capital loan from Mandiri and time loan facility from BCA. Based on the Trustee Agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. The bonds are neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Companys assets, except for the assets that have been specifically used as security to its other creditors, are used as pari-passu security to all of the Companys other liabilities including the bonds. Based on the minutes of the RUPO dated March 24, 2009, the holders of the Second Indosat Bonds agreed to amend the Trustee Agreement related to the changes in the definition of certain terms and the financial ratios required to be maintained. Based on the latest rating report (released in October 2010), the bonds have idAA+ (stable outlook) rating from Pefindo. Indosat Sukuk Ijarah IV in Year 2009 (Sukuk Ijarah IV) On December 8, 2009, the Company issued its Sukuk Ijarah IV, with BRI as the trustee as covered under a Trustee Agreement. The bonds have a total face value of Rp200,000. The bonds consist of two series: Series A bonds amounting to Rp28,000 with annual fixed Ijarah return (Cicilan Imbalan Ijarah) totalling Rp3,150, payable on March 8, 2010 and every quarter thereafter up to December 8, 2014. The bonds have an effective Ijarah return rate of 11.38% per annum. Series B bonds amounting to Rp172,000 with annual fixed Ijarah return (Cicilan Imbalan Ijarah) totalling Rp20,210, payable on March 8, 2010 and every quarter thereafter up to December 8, 2016. The bonds have an effective Ijarah return rate of 11.86% per annum.
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The bonds will mature before maturity date if, after the 1 anniversary of the bonds, the Company exercises its option to buy back part or all of the bonds at market price. The Company received the proceeds of the bonds on December 8, 2009. The net proceeds, after deducting the underwriting fee and offering expenses, were used for the purchase of Base Station Subsystem to expand the Companys cellular network. Based on the Trustee Agreement, the Company is required to comply with certain conditions, such as maintaining certain financial ratios. The bonds are neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Companys assets, except for the assets that have been specifically used as security to its other creditors, are used as pari-passu security to all of the Companys other liabilities including the bonds. Based on the latest rating report (released in October 2010), the bonds have idAA(sy)+ (stable outlook) rating from Pefindo. 66
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) 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 were originally set to mature on June 14, 2009 and bore 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 rates was 19% and the minimum limit was 11% per annum. The interest is payable on a quarterly basis starting September 14, 2006. The proceeds of the limited bonds were used for capital expenditure to expand Lintasartas telecommunications peripherals. On July 17, 2006, Lintasarta obtained approval from CIMB Niaga on the issuance of the limited bonds (Note 15). On June 14, 2009, Lintasarta paid a portion of the limited bonds amounting to Rp6,150. Based on the Minutes of the Joint Meeting of Lintasartas Boards of Commissioners and Directors held on May 20, 2009, the representatives of Lintasartas stockholders agreed to extend the maturity date of the remaining Limited Bonds II of Rp60,000 to June 14, 2012 and to increase the minimum limit of the floating interest rates to 12.75%. On August 25, 2009, the Limited Bonds II agreement, after being amended to accommodate the changes in maturity date and minimum limit of floating interest rates, was finalized. 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 represent unsecured bonds which were originally set to mature 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. On June 2, 2006, Lintasarta paid a certain portion of the limited bonds 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 based on the first amendment dated June 14, 2006 of the Limited Bonds I agreement. The floating interest rates of the bonds 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 rates was 19% and the minimum limit was 11% per annum. On July 17, 2006, Lintasarta obtained approval from CIMB Niaga on the changes in maturity date and nominal value of the limited bonds. On June 2, 2009, Lintasarta paid a portion of the limited bonds amounting to Rp8,303. Based on the Minutes of the Joint Meeting of Lintasartas Boards of Commissioners and Directors held on May 20, 2009, the representatives of Lintasartas stockholders agreed to extend the maturity date of the remaining Limited Bonds I of Rp26,553 to June 2, 2012 and to increase the minimum limit of the floating interest rates to 12.75%. On August 25, 2009, the Limited Bonds I agreement, after being amended to accommodate the changes in maturity date and minimum limit of floating interest rates, was finalized.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) Guaranteed Notes Due 2010 In October 2003, the Company, through IFB, issued Guaranteed Notes Due 2010 with fixed rate and with a total face value of US$300,000. The notes bore interest at the fixed rate of 7.75% per annum payable semi-annually on May 5 and November 5 of each year, commencing on May 5, 2004. The notes had an effective interest rate of 7.93% per annum. The notes matured on November 5, 2010. The notes would be redeemable at the option of IFB, in whole or in part, at any time on or after November 5, 2008. The notes were 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, 2008, 2009 and 2010, respectively. The notes were 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 additional amounts 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 the Company (including sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all of the Companys assets), the holder of the notes had the right to require IFB to repurchase all or any part of such holders 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 net proceeds, after deducting the underwriting fee and offering expenses, were received on November 5, 2003 and used primarily to repay a portion of Indosats (including Satelindos and IM3s) outstanding indebtedness amounting to Rp1,500,000 and US$447,500. Based on the notes indenture, the Company was required to comply with certain conditions, such as maintaining certain financial ratios. The notes were unconditionally and irrevocably guaranteed by the Company and IIFB. On January 11, 2006, IFB released a solicitation relating to the outstanding notes. The primary purpose of the solicitation was to modify certain covenants under the indenture of the notes 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 IFBs ability to incur new debt. On January 24, 2006, IFB received consents from holders of the notes representing an aggregate principal amount of US$239,526 or 79.842% of the outstanding notes. On July 22, 2008, IFB announced the Change of Control Offer to all holders of the notes. This offer was to purchase the notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest up to the date of settlement and any additional amounts. Such offer expired on September 17, 2008. The bondholders exercised their rights that required IFB to repurchase all or any part of such holders notes. On September 19, 2008, IFB paid a total of US$67,805 (equivalent to Rp642,109) for the purchased portion of the notes with a total principal amount of US$65,253 (equivalent to Rp617,946) at a price equal to 101% of the principal amount purchased, plus the accrued and unpaid interest up to settlement date and other additional expenses. On May 12, 2010, the Company, together with IFB and IIFB, announced the commencement by IFB and IIFB of cash tender offers to purchase for cash any or all of IFB's outstanding GN Due 2010 (the "2010 Notes") and IIFB's outstanding GN Due 2012 (the 2012 Notes). In addition to its offer to purchase the 2010 Notes, IFB is also soliciting, as one proposal, consents to certain proposed amendments to the amended and restated indenture, dated as of January 25, 2006 (the "2010 Indenture"), which would shorten the notice period for optional redemption of the 2010 Notes and to the release of IIFB as a guarantor under the 2010 Indenture. 68
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) Guaranteed Notes Due 2010 (continued) On August 2, 2010, IFB paid a total of US$174,699 (equivalent to Rp1,561,460) for the purchased portion of the 2010 Notes under tender offers with total principal amounts of US$167,774 (equivalent to Rp1,499,564) and US$100 (equivalent to Rp894) at prices equal to 102.1875% and 101.9375%, respectively, of the principal amounts purchased, plus the accrued and unpaid interest up to settlement date, consent fee of US$9 (equivalent to Rp83) and other additional expense (Note 24). On August 10, 2010, IFB paid a total of US$69,536 (equivalent to Rp622,556) for the remaining purchased portion of the 2010 Notes which was called with a total principal amount of US$66,873 (equivalent to Rp598,715) at a price equal to 101.9375% of the principal amount called, plus the accrued and unpaid interest up to settlement date and other additional expense (Note 24). Guaranteed Notes Due 2012 On June 22, 2005, the Company, through IIFB, issued GN Due 2012 with fixed rate and with a total face value of US$250,000. The notes were issued at 99.323% of their principal amount. The notes bore interest at the fixed rate of 7.125% per annum payable semi-annually on June 22 and December 22 of each year, commencing December 22, 2005. The notes had an effective interest rate of 8.13% per annum. The notes would mature on June 22, 2012. The notes would 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 might 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 were 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 the Company (including sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all of the Companys assets), the holder of the notes had the right to require IIFB to repurchase all or any part of such holders 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 net proceeds, after deducting the underwriting fee and offering expenses, were received on June 23, 2005 and used for general corporate purposes, including capital expenditures. Based on the notes indenture, the Company was required to comply with certain conditions, such as maintaining certain financial ratios. The notes were unconditionally and irrevocably guaranteed by the Company. On July 22, 2008, IIFB announced the Change of Control Offer to all holders of the notes. This offer was intended to purchase the notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest up to the date of settlement and any additional amounts. Such offer expired on September 17, 2008. The bondholders exercised their rights that required IIFB to repurchase all or any part of such holders notes. On September 19, 2008, IIFB paid a total of US$144,441 (equivalent to Rp1,367,858) for the purchased portion of the notes with a total principal amount of US$140,590 (equivalent to Rp1,331,387) at a price equal to 101% of the principal amount purchased, plus the accrued and unpaid interest up to settlement date and other additional expenses. 69
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) Guaranteed Notes Due 2012 (continued) On May 12, 2010, the Company, together with IFB and IIFB, announced the commencement by IFB and IIFB of cash tender offers to purchase for cash any or all of IFBs outstanding 2010 Notes and IIFBs outstanding 2012 Notes. On August 2, 2010, IIFB paid a total of US$58,614 (equivalent to Rp523,892) for the purchased portion of the 2012 Notes under tender offers with total principal amounts of US$55,835 (equivalent to Rp499,053) and US$200 (equivalent to Rp1,788) at prices equal to 103.8125% and 103.5625%, respectively, of the principal amounts purchased, plus the accrued and unpaid interest up to settlement date and other additional expenses (Note 24). On September 2, 2010, IIFB paid a total of US$56,016 (equivalent to Rp504,592) for the remaining purchased portion of the 2012 Notes which was called with a total principal amount of US$53,375 (equivalent to Rp480,802) at a price equal to 103.5625% of the principal amount called, plus the accrued and unpaid interest up to settlement date and other additional expenses. Third Indosat Bonds in Year 2003 with Fixed Rates On October 22, 2003, the Company issued its Third Indosat Bonds in the Year 2003 with Fixed Rates (Third Indosat Bonds), with BRI as the trustee as covered under a Trustee Agreement. The bonds were issued in two series. The Series A matured on October 21, 2008. The Series B bonds which amounted to Rp640,000 bore interest at the fixed rate of 12.875% per annum for 7 years starting October 22, 2003. On October 22, 2010, the Company paid in full the Series B bonds amounting to Rp640,000. The bonds had an effective interest rate of 13.31% per annum. The bonds would mature before maturity date if after the 1 anniversary of the bonds, the Company exercised its option to buy back part or all of the bonds at market price temporarily or as an early settlement. The Company did not exercise its early settlement option to make early payment for all the th bonds on the 6 anniversary of the bonds at 100% of the bonds nominal value. KSEI, acting as payment agent, paid interest on the Series B bonds, on 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. Based on the Trustee Agreement, the Company was required to comply with certain conditions, such as maintaining certain financial ratios. The bonds were neither collateralized by any specific Company assets nor guaranteed by other parties. All of the Companys assets, except for the assets that had been specifically used as security to its other creditors, were used as pari-passu security to all of the Companys other liabilities including the bonds. Based on the minutes of the RUPO dated March 24, 2009, the holders of the Third Indosat Bonds agreed to amend the Trustee Agreement related to the changes in the definition of certain terms and the financial ratios required to be maintained.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. BONDS PAYABLE (continued) The scheduled principal payments of all the bonds payable outstanding as of December 31, 2010 are as follows:
Twelve months ending December 31, 2011 In U.S. dollar Guaranteed Notes * Due 2020 (US$650,000) In Rupiah Fifth Indosat Bonds * Seventh Indosat Bonds* Sixth Indosat Bonds* Fourth Indosat Bonds * Sukuk Ijarah III * Sukuk Ijarah II * Syariah Ijarah Bonds * Second Indosat Bonds * Sukuk Ijarah IV * Limited Bonds II Limited Bonds I Sub-total Total 815,000 285,000 1,100,000 1,100,000 25,000 16,989 41,989 41,989 760,000 570,000 1,330,000 1,330,000 1,230,000 700,000 400,000 28,000 2,358,000 2,358,000 1,370,000 600,000 320,000 200,000 172,000 2,662,000 8,506,150 2,600,000 1,300,000 1,080,000 815,000 570,000 400,000 285,000 200,000 200,000 25,000 16,989 7,491,989 13,336,139 (64,885) (29,353) (29,666) 13,212,235 2012 2013 2014 2015 and thereafter * Total
5,844,150
5,844,150
Less: - unamortized notes issuance cost - unamortized bonds issuance costs and consent solicitation fees - unamortized notes discount Net * Refer to previous discussion on early repayment options for each bond/note.
The amortization of bonds issuance cost, consent solicitation fees, notes issuance cost and discount for the years ended December 31, 2009 and 2010 totaling to Rp15,467 and Rp18,025, respectively (Note 24). As of December 31, 2009 and 2010, the Companies have complied with all financial ratios required to be maintained under the Notes Indenture and Trustee Agreements. 17. FINANCIAL ASSETS AND LIABILITIES The Companies have various financial assets such as trade and other accounts receivable, cash and cash equivalents and short-term investments, which arise directly from the Companies operations. The Companies principal financial liabilities, other than derivatives, consist of loans and bonds payable, accrued expenses, procurement payable, trade and other accounts payable. The main purpose of these financial liabilities is to finance the Companies operations. The Company also enters into derivative transactions, primarily cross currency swaps and interest rate swaps, for the purpose of managing its foreign exchange and interest rate exposures emanating from the Companys loans and bonds payable in foreign currencies.
71
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 17. FINANCIAL ASSETS AND LIABILITIES (continued) The following table sets forth the Companies financial assets and financial liabilities as of December 31, 2009 and 2010: 2009 Financial Assets Held for trading Derivative assets Loans and receivables Cash and cash equivalents Accounts receivable - trade and others - net Other current financial assets Due from related parties - net Other non-current financial assets Available for sale Short-term investments - net Other long-term investments - net Total Financial Assets Financial Liabilities Held for trading Derivative liabilities Liabilities at amortized cost Accounts payable - trade Procurement payable Accrued expenses Deposits from customers Loans payable - current maturities Bonds payable - current maturities Other current financial liabilities Due to related parties Loans payable - net of current maturities Bonds payable - net of current maturities Total Financial Liabilities 2010
224,743 2,835,999 1,949,984 35,173 7,215 100,004 2,730 5,155,848
69,334 2,075,270 1,558,457 53,119 8,421 77,675 2,730 3,845,006
200,202 537,476 5,289,782 1,525,561 22,463 1,440,259 2,840,662 43,721 13,764 12,721,308 8,472,175 33,107,373
215,403 645,505 3,644,467 1,710,885 50,279 3,184,147 1,098,131 23,127 22,099 7,666,804 12,114,104 30,374,951
72
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 17. FINANCIAL ASSETS AND LIABILITIES (continued) The following table sets forth the carrying values and estimated fair values of the Companies financial instruments that are carried in the consolidated balance sheet as of December 31, 2010: Carrying Amount Current Financial Assets Cash and cash equivalents Short-term investments - net Accounts receivable - trade and others - net Derivative assets Other current financial assets Total current financial assets Non-Current Financial Assets Due from related parties - net Other long-term investments - net Other non-current financial assets Total non-current financial assets Total Financial Assets Current Financial Liabilities Accounts payable - trade Procurement payable Accrued expenses Deposits from customers Derivative liabilities Loans payable - current maturities Bonds payable - current maturities Other current financial liabilities Total current financial liabilities Non-Current Financial Liabilities Due to related parties Loans payable - net of current maturities Bonds payable - net of current maturities Total non-current financial liabilities Total Financial Liabilities 2,075,270 1,558,457 69,334 53,119 3,756,180 8,421 2,730 77,675 88,826 3,845,006 645,505 3,644,467 1,710,885 50,279 215,403 3,184,147 1,098,131 23,127 10,571,944 22,099 7,666,804 12,114,104 19,803,007 30,374,951 Fair Value Amount 2,075,270 1,558,457 69,334 53,119 3,756,180 7,176 2,730 73,309 83,215 3,839,395 645,505 3,644,467 1,710,885 50,279 215,403 3,155,634 1,110,737 23,127 10,556,037 18,833 7,510,510 13,228,171 20,757,514 31,313,551
The fair values of the financial assets and liabilities are presented at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:
73
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 17. FINANCIAL ASSETS AND LIABILITIES (continued) Short-term financial assets and liabilities: Short-term financial instruments with remaining maturities of one year or less (cash and cash equivalents, trade and other accounts receivable, other current financial assets, trade accounts payable , procurement payable, accrued expenses, deposits from customers and other current financial liabilities). These financial instruments approximate their carrying amounts largely due to their short-term maturities. Derivative Financial Instruments Cross currency swap contracts (including bifurcated embedded derivative) These derivatives are measured at their fair values using internal valuation techniques as no quoted market prices exist for such instruments. The principal technique used to value these instruments is the use of discounted cash flows. The key inputs include interest rate yield curves, foreign exchange rates, Credit Default Spread (CDS), and the spot price of the underlying instruments. Interest rate swap contracts These derivatives are measured at their fair values, computed using discounted cash flows based on observable market inputs which include interest rate yield curves and payment dates. Long-term financial assets and liabilities: Long-term fixed-rate and variable-rate financial liabilities (unquoted loans and bonds payable) The fair value of these financial liabilities is determined by discounting future cash flows using applicable rates from observable current market transactions for instruments with similar terms, credit risk and remaining maturities. Other long-term financial assets and liabilities (due from/to related parties, other long-term investments and other non-current financial assets) Estimated fair value is based on discounted value of future cash flows adjusted to reflect counterparty risk (for financial assets) and the Companies own credit risk (for financial liabilities) and using risk-free rates for similar instruments. Financial instruments quoted in an active market The fair value of the bonds issued by the Company which are traded in an active market is determined with reference to their quoted market prices. For equity investments classified as available-for-sale, the fair value is determined based on the latest market quotation as published by the Indonesia Stock Exchange as of December 31, 2010.
74
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 18. EMPLOYEE BENEFIT OBLIGATIONS This account consists of the non-current portions of employee benefit obligations as follows: 2009 Post-retirement healthcare (Note 25) Labor Law 13 (Note 25) Service award Accumulated leave benefits Post-retirement benefit of salary continuation before retirement* Total
*
2010 639,271 187,944 43,058 2,134 872,407
549,007 147,790 31,265 1,391 96,261 825,714
Before December 31, 2010, the current portion of salary continuation before retirement included in accrued expenses (Note 14) amounted to Rp1,412 and the non-current portion included in employee benefit obligations amounted to Rp117,773, before deducting benefit payments made during the year amounting to Rp852. On December 31, 2010, the Company and its employees union reached a collective labor agreement (CLA) on the revocation of post-retirement benefit of salary continuation before retirement effective January 1, 2011. This revocation eliminates the Companys legal or constructive obligation on the benefit. Consequently, the Company reversed the outstanding accrual for this benefit as of December 31, 2010 amounting to Rp118,333.
19. CAPITAL STOCK The Companys capital stock ownership as of December 31, 2009 and 2010 is as follows:
Number of Shares Issued and Fully Paid Percentage of Ownership (%)
Stockholders 2009 A Share Government B Shares Qatar Telecom (Qtel Asia) Pte. Ltd. (previously ICLS) Government Director: Fadzri Sentosa Others (each holding below 5%) Total 2010 A Share Government B Shares Qatar Telecom (Qtel Asia) Pte. Ltd. Government SKAGEN Funds (SKAGEN AS) Director: Fadzri Sentosa Others (each holding below 5%) Total
Amount
1 3,532,056,600 776,624,999 10,000 1,125,241,900 5,433,933,500
353,206 77,662 1 112,524 543,393
65.00 14.29 0.00 20.71 100.00
1 3,532,056,600 776,624,999 277,824,400 10,000 847,417,500 5,433,933,500
353,206 77,662 27,782 1 84,742 543,393
65.00 14.29 5.11 0.00 15.60 100.00
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (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 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, which 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, acquisition and demerger; (iv) amendment to the provisions regarding the rights of A share as stipulated in the Articles of Association; and (v) dissolution, bankruptcy and liquidation of the Company. The A share also has the right to appoint one director and one commissioner of the Company. On January 8, 2009, Qtel filed tender offer statements with the United States Securities and Exchange Commission (U.S. SEC) and BAPEPAM-LK to purchase additional Company shares which became effective on January 16, 2009. Subsequently, as required by the U.S. SEC, on January 20, 2009, the Company filed schedule 14D-9, Solicitation/Recommendation Statement, with the U.S. SEC in response to the Tender Offers made by Qtel in the United States of America and Indonesia through Qtels indirect wholly owned subsidiary, ICLS, to purchase Series B shares (including Series B shares held as ADS, each representing 50 Series B shares) which represent approximately 24.19% of the Companys total issued and outstanding Series B shares. On March 4, 2009, ICLS increased its ownership interest in the Company from 0.85% to 25.04%. On May 29, 2009, ICL entered into a Share Purchase Agreement to sell its 39.96% ownership in the Company to ICLS. The closing process of such sale was made on June 4, 2009; consequently, from this date, ICLS has become the legal owner of 3,532,056,600 B shares representing 65.00% ownership in the Company. On September 11, 2009, ICLS changed its name into Qatar Telecom (Qtel Asia) Pte. Ltd. 20. OPERATING REVENUES This account consists of the following: Cellular Usage charges Value-added services Interconnection revenues (Note 32) Tower leasing (Note 29d) Monthly subscription charges Sale of Blackberry handsets Others Upfront discount and Customer Loyalty Program (Note 2n) Net MIDI Internet Protocol Virtual Private Network (IP VPN) Internet World link and direct link Frame net Leased line Application services Satellite lease Digital data network Multiprotocol Label Switching (MPLS) Others Sub-total 76 2009 7,085,741 5,998,963 1,709,193 62,365 184,174 206,481 140,310 (1,087,064) 14,300,163 566,105 677,375 394,189 276,477 211,092 146,137 113,060 144,619 67,141 124,789 2,720,984 2010 7,943,960 7,039,243 1,252,751 251,981 200,519 34,956 172,080 (868,428) 16,027,062 605,685 519,553 278,788 227,051 189,112 168,196 136,008 94,686 66,579 190,618 2,476,276
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 20. OPERATING REVENUES (continued) 2009 Fixed Telecommunication International Calls Fixed Wireless Fixed Line Others Sub-total Total 1,422,268 249,886 129,935 950 1,803,039 18,824,186 2010 993,165 174,157 125,383 472 1,293,177 19,796,515
Operating revenues from related parties amounted to Rp1,474,208 and Rp1,640,591 for the years ended December 31, 2009 and 2010, respectively. These amounts represent 7.83% and 8.29% of the total operating revenues for the years ended December 31, 2009 and 2010, respectively (Note 26). The operating revenues from interconnection services are presented on a gross basis (Note 2o). 21. OPERATING EXPENSES - COST OF SERVICES 2009 Interconnection (Note 32) Radio frequency fee (Note 1) Maintenance Utilities Rent Leased circuits Cost of SIM cards and pulse reload vouchers USO (Note 32) Blackberry access fee Installation Concession fee (Note 32) Delivery and transportation Cost of handsets and modems Billing and collection License Others Total 1,880,105 1,331,416 922,225 772,450 449,759 487,074 326,472 218,210 50,068 97,142 83,970 80,157 247,135 44,297 67,030 30,340 7,087,850 2010 1,735,942 1,612,375 943,503 715,349 517,432 377,580 259,323 214,636 197,434 133,746 112,404 84,075 74,266 54,816 31,543 48,986 7,113,410
Interconnection relates to the expenses for the interconnection between the Companys telecommunications networks and those owned by Telkom or other telecommunications carriers (Note 2n).
77
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 22. OPERATING EXPENSES - PERSONNEL This account consists of: 2009 Salaries Incentives and other employee benefits Bonuses Employee income tax Post-retirement healthcare benefits (Note 25) Medical expense Outsourcing Pension (Note 25) Separation, appreciation and compensation expense under Labor Law No. 13/2003 (Note 25) Early retirement* Post-retirement benefit of salary continuation before retirement (Note 18) Others Total
*
2010 492,452 277,361 236,950 131,630 104,600 69,509 60,858 45,688 42,833 16,253 (96,820) 29,930 1,411,244
451,150 260,884 207,690 145,421 88,615 68,471 74,809 32,336 40,972 38,106 14,933 28,173 1,451,560
On June 27, 2006, the Companys 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 package. For the years ended December 31, 2009 and 2010, there were 66 and 19 employees, respectively, who took the option.
The personnel expenses capitalized to properties under construction and installation for the years ended December 31, 2009 and 2010 amounted to Rp34,092 and Rp38,668, respectively. 23. OPERATING EXPENSES - GENERAL AND ADMINISTRATION This account consists of: 2009 Rent Professional fees Utilities Provision for impairment of receivables (Note 4) Transportation Office Insurance Catering Others (each below Rp20,000) Total 144,585 103,916 77,318 98,042 58,882 44,710 29,183 20,730 116,071 693,437 2010 120,428 109,374 97,518 67,041 64,485 48,370 39,807 25,585 87,379 659,987
78
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. OTHER EXPENSES - FINANCING COST This account consists of: Interest on loans Loss on the redemption of GN 2010 and GN 2012 (Note 16) Amortization of debt and bonds/notes issuance costs, consent solicitation fees and discount (Notes 15 and 16) Bank charges Total 2009 1,808,620 51,305 13,042 1,872,967 2010 2,080,274 96,487 90,116 4,751 2,271,628
25. 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 Companys pension plan, which was further amended on March 29, 2001, the benefits and the 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 and were paid on due dates. On March 1, 2007, the Company entered into an agreement with Jiwasraya to provide defined death insurance plan to 1,276 employees as of January 1, 2007, who are not covered by the defined benefit pension plan as stated above. Based on the agreement, a participating employee will receive: Expiration benefit equivalent to the cash value at the normal retirement age, or Death benefit not due to accident equivalent to 100% of insurance money plus cash value when the employee dies not due to accident, or Death benefit due to accident equivalent to 200% of insurance money plus cash value when the employee dies due to accident.
79
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 25. PENSION PLAN (continued) Defined Benefit Pension Plan (continued) The premium of Rp7,600 was fully paid on March 29, 2007. Subsequently, in August 2007, February to December 2008, January to December 2009 and January to December 2010, the Company made payments for additional premium of Rp275 for additional 55 employees, Rp805 for additional 161 employees, Rp415 for additional 81 employees, and Rp120 for additional 14 employees, respectively. On June 25, 2003, Satelindo entered into an agreement with Jiwasraya to amend the benefits and premium payment pattern of the formers 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 the premium payment pattern were changed. This agreement is effective starting January 1, 2005. The total premium installments based on the agreement amounted to Rp61,623, which is payable in 10 annual installments starting 2005 until 2015. 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 pension basic salary 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 10 annual premium installments totalling Rp1,653 which are payable starting 2005 until 2015. The contributions made by Lintasarta to Jiwasraya amounted to Rp9,653 each for the years ended December 31, 2009 and 2010.
80
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 25. PENSION PLAN (continued) Defined Benefit Pension Plan (continued) The net periodic pension cost for the pension plans for the years ended December 31, 2009 and 2010 was calculated based on actuarial valuations as of December 31, 2009 and 2010, respectively. The actuarial valuations were prepared by an independent actuary, using the projected-unit-credit method and applying the following assumptions: 2009 Annual discount rate Expected annual rate of return on plan assets Annual rate of increase in compensation Mortality rate (Indonesian Mortality Table - TMI) 10.5 - 10.7% 4.5 - 9.0% 3.0 - 9.0% TMI 1999 2010 8.5 - 9.0% 4.5 - 9.0% 3.0 - 9.0% TMI 1999
a. The composition of the net periodic pension cost for the years ended December 31, 2009 and 2010 is as follows: 2009 Interest cost Service cost Amortization of unrecognized actuarial loss (gain) Return on plan assets Net periodic pension cost (Note 22) 63,648 39,510 (1,429) (69,393) 32,336 2010 74,558 41,749 850 (71,469) 45,688
b. The funded status of the plans as of December 31, 2009 and 2010 is as follows: 2009 Plan assets at fair value Projected benefit obligation Excess of plan assets over projected benefit obligation Unrecognized actuarial loss Total prepaid pension cost 813,588 (726,427) 87,161 62,659 149,820 2010 852,958 (750,625) 102,333 10,928 113,261
81
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 25. PENSION PLAN (continued) Defined Benefit Pension Plan (continued) c. Movements in the prepaid pension cost for the years ended December 31, 2009 and 2010 are as follows: 2009 2010 Beginning balance Company Lintasarta Net periodic pension cost Company Lintasarta Refund from Jiwasraya Company Lintasarta Contribution to Jiwasraya Company Lintasarta Ending balance Company Lintasarta 154,441 18,659 (29,487) (2,849) (649) (363) 415 9,653 124,720 25,100 124,720 25,100 (41,505) (4,183) (464) (180) 120 9,653 82,871 30,390
d. Prepaid pension cost consists of: Current portion (presented as part of Prepaid Expenses) Company Lintasarta
2009 1,715 725 2,440
2010 1,401 516 1,917 81,470 29,874 111,344 113,261
Long-term portion Company Lintasarta
123,005 24,375 147,380
Total prepaid pension cost
149,820
Plan assets as of December 31, 2009 and 2010 principally consisted of time deposits, debt securities, long-term investment in shares of stock and property.
82
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 25. PENSION PLAN (continued) 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 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 employees for the years ended December 31, 2009 and 2010 amounted to Rp19,451 and Rp46,557, 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 Company, Lintasarta and IMM also accrue benefits under Labor Law No. 13/2003 (Labor Law) dated March 25, 2003. Their employees will receive the benefits which are higher under either this law or the defined benefit pension plan. The net periodic pension cost under the Labor Law for the years ended December 31, 2009 and 2010 was calculated based on actuarial valuations as of December 31, 2009 and 2010, respectively. The actuarial valuations were prepared by an independent actuary, using the projected-unit-credit method and applying the following assumptions: 2009 2010 Annual discount rate Annual rate of increase in compensation 10.5% 9.0 - 10.0% 8.5 - 9.0% 8.0 - 9.0%
a. The composition of the periodic pension cost under the Labor Law for the years ended December 31, 2009 and 2010 is as follows: 2009 Service cost Interest cost Amortization of unrecognized actuarial loss Immediate recognition of past service cost - vested benefit Total periodic pension cost under the Labor Law (Note 22) 19,587 18,639 1,842 904 40,972 2010 21,747 19,586 1,500 42,833
b. The composition of the accrued pension cost under the Labor Law as of December 31, 2009 and 2010 is as follows: 2009 2010 Projected benefit obligation Unrecognized actuarial loss Unrecognized past service cost Accrued pension cost 187,888 (27,147) (10,348) 150,393 217,754 (17,245) (9,632) 190,877
83
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 25. PENSION PLAN (continued) Labor Law No. 13/2003 (continued) c. Movements in the accrued pension cost under the Labor Law for the years ended December 31, 2009 and 2010 are as follows: 2009 2010 Beginning balance Company Lintasarta IMM Periodic pension cost under the Labor Law Company Lintasarta IMM Benefit payment Company Lintasarta IMM Ending balance Company Lintasarta IMM 100,518 8,609 4,202 34,739 4,209 2,024 (3,841) (47) (20) 131,416 12,771 6,206 131,416 12,771 6,206 35,019 4,974 2,840 (2,150) (97) (102) 164,285 17,648 8,944
As of December 31, 2009 and 2010, the current portion of pension cost under the Labor Law included in accrued expenses (Note 14) amounted to Rp2,603 and Rp2,933, respectively, and the non-current portion included in employee benefit obligations amounted to Rp147,790 and Rp187,944, respectively (Note 18). Post-retirement Healthcare The Company provides post-retirement healthcare benefits to its employees who leave the Company after the employees fulfill the early retirement requirement. The spouse and children who have been officially registered in the administration records of the Company are also eligible to receive benefits. If the employees die, the spouse and children are still eligible for the post-retirement healthcare until the spouse dies or remarries and the children reach the age of 25 or get married. The utilization of post-retirement healthcare is limited to an annual maximum ceiling that refers to monthly pension from Jiwasraya as follows: 16 times the Jiwasraya monthly pension for a pensioner who receives monthly pension from Jiwasraya 16 times the equality monthly pension for a pensioner who became permanent employee after September 1, 2000 16 times the last monthly pension for a pensioner who retired after July 1, 2003 and does not receive Jiwasraya monthly pension.
84
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 25. PENSION PLAN (continued) Post-retirement Healthcare (continued) The net periodic post-retirement healthcare cost for the years ended December 31, 2009 and 2010 was calculated based on actuarial valuations as of December 31, 2009 and 2010, respectively. The actuarial valuations were prepared by an independent actuary, using the projected-unit-credit method and applying the following assumptions: 2009 Annual discount rate Ultimate cost trend rate Next year trend rate Period to reach ultimate cost trend rate 11.0% 6.0% 16.0% 5 years 2010 9.5% 6.0% 14.0% 4 years
a. The composition of the periodic post-retirement healthcare cost for the years ended December 31, 2009 and 2010 is as follows: 2009 Interest cost Service cost Amortization of unrecognized past service cost Periodic post-retirement healthcare cost (Note 22) 58,535 19,628 10,452 88,615 2010 65,919 28,229 10,452 104,600
b. The composition of the accrued post-retirement healthcare cost as of December 31, 2009 and 2010 is as follows: 2009 2010 Projected benefit obligation Unrecognized past service cost Unrecognized actuarial loss Accrued post-retirement healthcare cost 605,660 (41,705) (2,150) 561,805 846,636 (31,253) (161,443) 653,940
85
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 25. PENSION PLAN (continued) Post-retirement Healthcare (continued) c. Movements in the accrued post-retirement December 31, 2009 and 2010 are as follows: healthcare cost for the years 2010 561,805 104,600 (12,465) 653,940 ended
2009 Beginning balance Net periodic post-retirement healthcare cost Benefit payment Ending balance 483,772 88,615 (10,582) 561,805
d. The effect of a one percentage point change in assumed post-retirement healthcare cost trend rate would result in aggregate service and interest costs for the years ended December 31, 2009 and 2010 and accumulated post-retirement healthcare benefit obligation as of December 31, 2009 and 2010, as follows: 2009 Increase Service and interest costs Accumulated post-retirement healthcare benefit obligation Decrease Service and interest costs Accumulated post-retirement healthcare benefit obligation 95,709 725,664 64,493 510,522 2010 116,581 1,030,938 76,868 702,632
As of December 31, 2009 and 2010, the current portion of post-retirement healthcare cost included in accrued expenses (Note 14) amounted to Rp12,798 and Rp14,669 respectively, and the non-current portion included in employee benefit obligations amounted to Rp549,007 and Rp639,271, respectively (Note 18).
86
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 26. 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 2009 Cash and cash equivalents (Note 3) State-owned banks Accounts receivable - trade (Note 4) State-owned banks Telkom PT Televisi Republik Indonesia (Persero) (TVRI) PT Citra Sari Makmur (CSM) PT Telekomunikasi Selular (Telkomsel) PT Pos Indonesia (Persero) PT Pasifik Satelit Nusantara (PSN) Qtel PT Perusahaan Tambang Minyak Negara (Persero) (Pertamina) PT Indonesia Comnet Plus (Comnet) Others Total Less allowance for impairment of receivables Net Prepaid expenses MOCIT Kopindosat Telkom PT Industri Telekomunikasi Indonesia (Persero) (INTI) Jiwasraya (Note 25) Others Total Other current financial assets State-owned banks Other current assets Others Due from related parties Kopindosat Senior management Telkomsel Others Total Less allowance for impairment of receivables Net Long-term prepaid pension (Note 25) Jiwasraya Long-term advances INTI Kopindosat Total 2010 Percentage to Total Assets/Liabilities (%) 2009 2010
2,068,042
1,615,651
3.76
3.06
42,860 31,724 25,322 13,807 5,318 10,752 2,746 3,460 1,737 45,724 183,450 57,538 125,912
91,774 56,108 38,261 13,135 9,073 8,935 8,607 2,827 2,281 1,683 37,462 270,146 47,640 222,506
0.08 0.06 0.04 0.02 0.01 0.02 0.00 0.01 0.00 0.09 0.33 0.10 0.23
0.17 0.11 0.07 0.02 0.02 0.02 0.02 0.01 0.00 0.00 0.07 0.51 0.09 0.42
783,533 2,306 1,434 2,116 2,440 3,051 794,880
1,186,669 3,294 2,452 1,947 1,917 5,367 1,201,646
1.42 0.00 0.00 0.00 0.01 0.01 1.44
2.16 0.01 0.00 0.00 0.00 0.01 2.18
20,173
35,957
0.04
0.07
54 5,958 68 1,558 813 8,397 1,182 7,215
5,958 1,362 1,053 694 9,067 646 8,421
0.00 0.01 0.00 0.00 0.01 0.00 0.01
0.01 0.01 0.00 0.00 0.02 0.00 0.02
147,380
111,344
0.27
0.21
3,108 2,059 5,167
3,705 1,016 4,721
0.01 0.00 0.01
0.01 0.00 0.01
87
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 26. ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued)
Amount 2009 Long-term prepaid rentals Telkom Kopindosat INTI Others Total Other non-current financial assets State-owned banks Other non-current assets Others 2010 Percentage to Total Assets/Liabilities (%) 2009 2010
19,598 11,982 5,499 2,608 39,687
18,164 12,817 3,658 2,850 37,489
0.04 0.03 0.01 0.00 0.08
0.03 0.02 0.01 0.01 0.07
46,170
55,274
0.08
0.10
87
0.00
Accounts payable - trade Telkomsel Comnet Telkom Others Total Procurement payable (Note 12) INTI Kopindosat PT Personel Alih Daya (Persada) PT Pembangunan Perumahan PT Perusahaan Listrik Negara (Persero) (PLN) TVRI Other Total Accrued expenses MOCIT (Note 14) PLN Senior management Persada Kopindosat Telkom Total
30,901 2,793 4,447 529 38,670
20,292 1,345 456 167 22,260
0.09 0.01 0.01 0.00 0.11
0.06 0.00 0.00 0.00 0.06
30,143 25,509 13,907 35,911 11,797 17 117,284
24,048 22,123 13,210 7,007 210 2,083 68,681
0.08 0.07 0.04 0.10 0.03 0.00 0.32
0.07 0.06 0.04 0.02 0.00 0.01 0.20
305,564 94,337 27,825 9,305 6,702 1,112 444,845
293,590 81,578 33,553 16,906 13,838 1,063 440,528
0.83 0.26 0.08 0.03 0.01 0.00 1.21
0.85 0.23 0.10 0.05 0.04 0.00 1.27
Other current liabilities Telkomsel
1,664
1,664
0.00
0.00
Due to related parties TVRI Kopindosat State-owned banks Others Total
10,147 1,490 977 1,150 13,764
19,141 1,490 101 1,367 22,099
0.03 0.01 0.00 0.00 0.04
0.06 0.00 0.00 0.00 0.06
88
Amount 2009 Loans payable (including current maturities) (Note 15) Mandiri Other non-current liabilities Telkomsel Kas Negara Total 2010 Percentage to Total Assets/Liabilities (%) 2009 2010
2,592,489
1,297,045
7.05
3.75
8,118 8,118
6,454 3,895 10,349
0.02 0.02
0.02 0.01 0.03
Amount 2009 Operating revenues (Note 20) Telkom Telkomsel State-owned banks Qtel PSN Governmental departments TVRI PT Pos Indonesia Pertamina State-owned universities Comnet CSM PT Angkasa Pura (Persero) Badan Pusat Statistik PLN PT Infomedia Nusantara Badan Meteorologi dan Geofisika (BMG) PT Aneka Tambang Tbk Others Total 2010
Percentage to Respective Income or Expenses (%) 2009 2010
672,225 260,345 301,434 6,714 7,202 12,668 22,547 14,379 11,238 17,348 5,831 14,855 3,887 430 2,667 2,274 3,027 1,591 113,546 1,474,208
587,386 414,860 387,546 36,521 23,694 23,478 19,698 15,378 10,431 8,445 8,121 7,124 6,213 3,922 2,527 2,248 2,217 1,623 79,159 1,640,591
3.57 1.38 1.60 0.04 0.04 0.07 0.12 0.08 0.06 0.09 0.03 0.08 0.02 0.00 0.01 0.01 0.02 0.01 0.60 7.83
2.97 2.10 1.96 0.18 0.12 0.12 0.10 0.08 0.05 0.04 0.04 0.04 0.03 0.02 0.01 0.01 0.01 0.01 0.40 8.29
Operating expenses Cost of services MOCIT (Note 21) Telkom Telkomsel PLN Persada Kopindosat Comnet Qtel PT Pos Indonesia INTI PT Perusahaan Gas Negara (Persero) Tbk (PGN) PSN Total Personnel Senior management Jiwasraya (Note 25) Persada Total 1,633,596 711,784 566,334 617,953 57,714 5,661 36,741 2,821 6,121 3,367 3,213 1,692 3,646,997 1,939,415 550,124 528,067 508,473 80,902 59,205 27,681 27,375 14,947 10,040 1,933 1,024 3,749,186 10.46 4.56 3.63 3.96 0.37 0.04 0.23 0.02 0.04 0.02 0.02 0.01 23.36 11.88 3.37 3.23 3.12 0.50 0.36 0.17 0.17 0.09 0.06 0.01 0.01 22.97
145,510 32,336 56,613 234,459
131,906 45,688 40,139 217,733
0.93 0.21 0.36 1.50
0.81 0.28 0.24 1.33
89
Amount 2009 General and administration PLN Kopindosat Persada Telkom Usaha Gedung Bank Dagang Negara (UGBDN) State-owned banks Others Total Other income (expenses) Interest income State-owned banks Others Total Financing cost State-owned banks Others Total Net 75,967 24,465 35,912 658 887 1,971 3,464 143,324 2010 88,697 26,072 17,914 2,393 1,603 1,567 6,727 144,973 Percentage to Respective Income or Expenses (%) 2009 0.49 0.16 0.23 0.01 0.00 0.01 0.02 0.92 2010 0.54 0.16 0.11 0.02 0.01 0.01 0.04 0.89
101,693 306 101,999
106,177 754 106,931
10.37 0.03 10.40
4.44 0.03 4.47
(225,216) (5,624) (230,840) (128,841)
(231,530) (231,530) (124,599)
(22.96 ) (0.57 ) (23.53 ) (13.13 )
(9.68) (9.68) (5.21)
The relationship and nature of account balances/transactions with related parties are as follows: No. 1. Related Parties State-owned banks Relationship Under common control (UCC) UCC Nature of Account Balances/Transactions Cash and cash equivalents, loans payable and operating revenues - MIDI Operating revenues - cellular, fixed telecommunications and MIDI; operating expenses cost of services Operating revenues - MIDI Operating revenues - MIDI Operating revenues - cellular and fixed telecommunications Operating revenues - MIDI Operating revenues - MIDI
2.
Telkom (Notes 29j and 32)
3. 4. 5. 6. 7.
TVRI CSM Telkomsel (Note 32) PT Pos Indonesia (Persero) PSN
UCC UCC UCC UCC UCC
90
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 26. ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued) No. 8. 9. Qtel Pertamina Related Parties Relationship Ultimate stockholder UCC UCC Government agency Nature of Account Balances/Transactions Operating revenues - fixed telecommunications Due from related party, operating revenues - MIDI Operating expenses - cost of services Operating revenues - MIDI; operating expenses - cost of services Operating expenses - personnel expenses, general and administration expenses Procurement payable Long-term prepaid pension Operating expenses - personnel expenses, prepaid expense - unamortized portions of housing and transformation advances, and transformation incentives Operating expenses - personnel expenses and cost of services Procurement payable Operating expenses - cost of services Other non-current liabilities Operating revenues - MIDI Operating revenues - MIDI Operating revenues - MIDI Operating revenues - MIDI Operating revenues - MIDI Operating revenues - MIDI
10. Comnet 11. MOCIT
12. Kopindosat
The Companies employees cooperative UCC UCC Key management personnel
13. INTI 14. Jiwasraya 15. Senior management
16. Persada 17. PT Pembangunan Perumahan 18. PLN 19. Kas Negara 20. Governmental Departments 21. State-owned universities 22. PT Angkasa Pura (Persero) 23. Badan Pusat Statistik 24. PT Infomedia Nusantara 25. BMG
Under common significant influence UCC UCC Government agency Government agency UCC UCC Government agency UCC Government agency
91
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 26. ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued) No. Related Parties Relationship UCC UCC UCC Nature of Account Balances/Transactions Operating revenues - MIDI Operating revenues - MIDI Operating expenses - cost of services
26. PT Aneka Tambang Tbk 27. PGN 28. UGBDN
27. DISTRIBUTION OF INCOME AND APPROPRIATION OF RETAINED EARNINGS At the Companys Annual Stockholders General Meeting (ASGM), the stockholders approved, among others, the appropriation of annual net income for reserve fund and cash dividend distribution, as follows, and the utilization of the remaining amount for reinvestment and working capital. ASGM Date 2008 Net Income June 11, 2009 2009 Net Income June 22, 2010 Reserve Fund (Rp) 18,786 Dividend per Share (Rp) 172.85 Dividend Payment Date July 22, 2009
14,982
137.86
August 2, 2010
Dividend for the Government was paid in accordance with the prevailing laws and regulations in Indonesia. 28. DERIVATIVES The Company entered into several swap contracts. Listed below is information related to the contracts and their fair values (net of credit risk adjustment) as of December 31, 2009 and 2010:
Fair Value (Rp) Notional Amount (US$) Cross Currency Swap Contracts: a. Goldman Sachs International (GSI) (*) b. GSI (*) c. GSI d. StandChart e. StandChart f. StandChart g. HSBC, Jakarta Branch (**) h. Merrill Lynch International Bank Limited, London Branch (MLIB) i. MLIB j. MLIB k. DBS l. GSI (***) Sub-total 100,000 25,000 75,000 25,000 25,000 25,000 25,000 50,000 25,000 25,000 25,000 84,000 2009 Receivable 88,523 70,588 12,003 22,996 14,451 3,382 5,541 1,619 5,640 224,743 Payable 10,033 458 7,058 17,549 Receivable 50,866 9,443 2,154 3,778 3,093 69,334 2010 Payable 12,055 1,731 2,234 16,020
(*) (**) (***)
contract entered into May 2005 and settled in November 2010 contract entered into August 2006 and settled in November 2010 contract entered into December 2008 and settled in November 2010
92
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES (continued)
Fair Value (Rp) Notional Amount (US$) Interest Rate Swap Contracts: m. HSBC, Jakarta Branch n. o. p. q. r. s. t. u. v. w. x. y. z. HSBC, Jakarta Branch GSI DBS DBS Bank of Tokyo MUFJ (BTMUFJ) BTMUFJ BTMUFJ StandChart DBS DBS BTMUFJ ING Bank N.V. ING Bank N.V. 27,037 with decreasing amount 44,200 with decreasing amount 100,000 25,000 with decreasing amount 25,000 with decreasing amount 25,000 with decreasing amount 25,000 with decreasing amount 25,000 with decreasing amount 40,000 with decreasing amount 26,000 with decreasing amount 26,000 with decreasing amount 36,500 with decreasing amount 25,000 with decreasing amount 33,500 2009 Receivable Payable Receivable 2010 Payable
224,743
11,842 30,144 80,840 11,791 10,959 5,668 4,327 3,305 1,447 3,699 2,500 6,758 4,459 4,914 182,653 200,202
69,334
13,100 29,027 90,273 9,238 9,343 6,656 5,885 5,297 6,814 4,966 4,303 7,347 4,014 3,120 199,383 215,403
Sub-total Total
The net changes in fair value of the swap contracts and embedded derivative (Note 15e), swap income or cost, termination income or cost, and settlement of derivative instruments totalling (Rp517,655) and (Rp418,092) in 2009 and 2010, respectively, were charged to Loss on Change in Fair Value of Derivatives - Net, which is presented under Other Income (Expenses) in the consolidated statements of income. The following are the details of the contracts: Cross Currency Swap Contracts
No. a. Counterparties GSI (i) Contract Period and Swap Amount May 13, 2005 - November 5, 2010 Swap Rp832,250 for US$100,000 Annual Swap Premium Rate (i) Fixed rate of 6.96% per annum for US$50,000 and (ii) 6-month U.S. dollar LIBOR plus 2.62% per annum for US$50,000, netted with (a) 6-month U.S. dollar LIBOR per annum multiplied by US$11,750 during the period May 13, 2005 through May 13, 2008 and (b) the amount of US$11,750 on May 13, 2008. On May 14, 2008, the Company received from GSI the fixed amount of US$11,750 (equivalent to Rp109,099) related to cross currency swap contract. 4.30% of US$25,000 Swap Premium Payment Date Every May 5 and November 5 Amount of Swap Premium Paid/Amortized (Rp) 2009 2010 54,116 46,136
b.
GSI (ii)
May 13, 2005 - November 5, 2010 Swap Rp245,000 for US$25,000
Every May 5 and November 5
10,906
9,841
(i) (ii)
On November 5, 2010, this contract expired and the Company received settlement gain on the cross currency swap amounting to Rp59,929. On November 5, 2010, this contract expired and the Company paid settlement loss on the cross currency swap amounting to Rp21,881.
93
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES (continued) Cross Currency Swap Contracts (continued)
No. c. Counterparties GSI Contract Period and Swap Amount August 22, 2005 - June 22, 2012 The Company will swap the following: US$75,000 which is equal to US$75,000 multiplied by the lowest IDR/USD exchange rate within the period of August 22, 2005 - June 22, 2012 if the IDR/USD spot rate at termination date is less than or equal to the lowest of IDR/USD exchange rate mentioned above plus Rp4,300 (in full amount) US$75,000 which is equal to US$75,000 multiplied by IDR/USD spot rate at termination date minus Rp4,300 (in full amount) if IDR/USD spot rate at termination date is greater than the lowest of IDR/USD exchange rate mentioned above plus Rp4,300 (in full amount) January 11, 2006 - June 22, 2012 Swap Rp236,250 for US$25,000 March 15, 2006 - June 22, 2012 Swap Rp228,550 for US$25,000 May 12, 2006 - September 22, 2012 Swap Rp217,500 for US$25,000 August 8, 2006 - November 5, 2010 Swap Rp225,000 for US$25,000 August 8, 2008 - June 22, 2012 The Company will receive the following: zero amount if the IDR/USD spot rate at termination date is less than or equal to Rp8,950 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$50,000 multiplied by (1 - Rp8,950 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp8,950 but is less than or equal to Rp11,000 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$50,000 multiplied by (Rp11,000 Rp8,950) divided by IDR/USD spot rate (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp11,000 to US$1 (in full amounts) September 2, 2008 - June 12, 2013 The Company will receive the following: zero amount if the IDR/USD spot rate at termination date is less than or equal to Rp8,800 to US$1 (in full amounts) certain U.S. dollar amount as arranged in the contract multiplied by (IDR/USD spot rate - Rp8,800) divided by IDR/USD spot rate (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp8,800 but is less than or equal to Rp12,000 to US$1 (in full amounts) certain U.S. dollar amount as arranged in the contract multiplied by (Rp3,200 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp12,000 to US$1 (in full amounts) Annual Swap Premium Rate 3.28% of US$75,000 Swap Premium Payment Date Every June 22 and December 22 Amount of Swap Premium Paid/Amortized (Rp) 2009 2010 24,357 22,866
d. e. f. g. h.
StandChart StandChart StandChart HSBC (iii) MLIB
4.78% of US$25,000 3.75% of US$25,000 3.45% of US$25,000 4.00% of US$25,000 4.22% of US$50,000
Every June 22 and December 22 Every June 22 and December 22 Every June 22 and December 22 Every May 5 and November 5 Every June 22 and December 22
11,791 9,250 8,510 10,145 22,778
11,034 8,657 7,964 9,074 23,965
i.
MLIB
4.10% of US$25,000 up to June 12, 2011, and 4.10% of decreasing U.S. dollar amount as arranged in the contract up to June 12, 2013
Every June 12 and December 12
11,230
11,852
(iii)
On November 5, 2010, this contract expired and the Company paid settlement loss on the cross currency swap amounting to Rp2,550.
94
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES (continued) Cross Currency Swap Contracts (continued)
No. j. Counterparties MLIB Contract Period and Swap Amount September 8, 2008 - June 22, 2012 The Company will receive the following: zero amount if the IDR/USD spot rate at termination date is less than or equal to Rp9,000 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$25,000 multiplied by (1 - Rp9,000 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp9,000 but is less than or equal to Rp11,000 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$25,000 multiplied by (Rp11,000 - Rp9,000) divided by IDR/USD spot rate (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp11,000 to US$1 (in full amounts) September 10, 2008 - June 12, 2013 The Company will receive the following: zero amount if the IDR/USD spot rate at the scheduled settlement date is at or less than Rp8,800 to US$1 (in full amounts) certain U.S. dollar amount which is equal to U.S. dollar amount at scheduled settlement date multiplied by (IDR/USD spot rate Rp8,800) divided by IDR/USD spot rate (in full amounts) if the IDR/USD spot rate at settlement date is greater than Rp8,800 and is at or less than Rp12,000 to US$1 (in full amounts) certain U.S. dollar amount which is equal to U.S. dollar amount at scheduled settlement date multiplied by (Rp12,000 - Rp8,800) divided by IDR/USD spot rate (in full amounts) if the IDR/USD spot rate at settlement date is greater than Rp12,000 to US$1 (in full amounts) December 16, 2008 - November 5, 2010 The Company will receive the following: zero amount if the IDR/USD spot rate at termination date is less than or equal to Rp11,500 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$84,000 multiplied by (IDR/USD spot rate - Rp11,500 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp11,500 but is less than or equal to Rp15,000 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$84,000 multiplied by (Rp3,500 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp15,000 to US$1 (in full amounts) Annual Swap Premium Rate 2.52% of US$25,000 Swap Premium Payment Date Every June 22 and December 22 Amount of Swap Premium Paid/ Amortized (Rp) 2009 2010 6,801 7,156
k.
DBS
3.945% of US$25,000 up to June 12, 2011, and 3.945% of decreasing U.S. dollar amount as arranged in the contract up to June 12, 2013
9,980
9,044
l.
GSI (iv)
Upfront premium of US$9,500 (equivalent to Rp105,212) which was fully paid on December 19, 2008. The premium (charged to prepaid expenses) is amortized over the contract period.
55,899
47,323
(iv)
On November 5, 2010, this contract expired and the Company received zero settlement on the cross currency swap.
95
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES (continued) Cross Currency Swap Contracts (continued) All cross currency swap contracts with GSI (contracts No. a, b and c) are structured to include creditlinkage with the Company as the reference entity and with the Companys (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 Companys obligations and those of GSI under these swap contracts will be terminated 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
No.
m.
Counterparties
HSBC
Contract Period
April 23, 2008 November 27, 2016
Annual Interest Swap Rate

5.42% of US$27,037, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.45% per annum 4.82% of US$44,200, the notional amount of which will decrease based on predetermined schedule, in exchange for U.S. dollar LIBOR plus 0.35% per annum (8.10% underlyer return) of US$100,000 per annum, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 5.625% of US$25,000 per annum, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 5.28% of US$25,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 4.46% of US$25,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 4.25% of US$25,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 4.09% of US$25,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 3.85% of US$40,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum
Swap Income (Expense) Receipt Date

Every April 1 and October 1 up to October 2009, and every May 27 and November 27 up to termination date Every January 28 and July 28 up to July 2009, and every March 29 and September 29 up to termination date Every June 10 and December 10 up to June 2011, and every June 12 and December 12 up to termination date Every June 10 and December 10 up to December 2010, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date
Amount of Swap Income (Expense) Received (Paid) (Rp) 2009 2010

(4,320) (7,589)
n.
HSBC
April 23, 2008 September 29, 2019
(7,309)
(16,920)
o.
GSI
September 2, 2008 June 12, 2013
(24,051)
(39,332)
p.
DBS
September 5, 2008 June 12, 2013
(4,539)
(7,289)
q.
DBS
October 23, 2008 June 12, 2013
(2,106)
(6,676)
r.
BTMUFJ
December 1, 2008 June 12, 2013
(1,107)
(4,778)
s.
BTMUFJ
December 4, 2008 June 12, 2013
(935)
(4,291)
t.
BTMUFJ
December 12, 2008 June 12, 2013
(835)
(3,921)
u.
StandChart
December 19, 2008 June 12, 2013
(504)
(5,384)
96
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES (continued) Interest Rate Swap Contracts (continued)
No.
v.
Counterparties
DBS
Contract Period
December 22, 2008 - December 12, 2012

4.02% of US$26,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 3.83% of US$26,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 4.10% of US$36,500, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 4.0094% of US$25,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 3.75% of US$33,500, in exchange for 6month U.S. dollar LIBOR plus 1.85% per annum
w.
DBS
January 21, 2009 December 12, 2012
x.
BTMUFJ
March 2, 2009 June 12, 2012
y.
ING Bank N.V.
March 3, 2009 December 12, 2011
z.
ING Bank N.V.
April 14, 2009 June 12, 2011
Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and on June 12, 2011
Amount of Swap Income (Expense) Received (Paid) (Rp)

(558) (3,909)
(302)
(3,451)
(627)
(5,758)
(522)
(3,734)
(4,199)
29. SIGNIFICANT AGREEMENTS AND COMMITMENTS a. As of December 31, 2010, commitments on capital expenditures which are contractual agreements not yet realized relate to the procurement and installation of property and equipment amounting to US$90,015 (Note 35j) and Rp569,173. The significant commitments on capital expenditures are as follows:
Contract Date
December 2010 June 16, 2010 May 16, 2007 10,
Contract Description
The Procurement of Technology Upgrade for 2G and 3G Telecommunications Network in Kalimantan (see b below) The Procurement of Telco Infrastructure Supply of GSM Cellular Infrastructure
Vendor
PT Nokia Siemens Networks and Nokia Siemens Networks Oy PT Nokia Siemens Networks and Nokia Siemens Networks Oy PT Nokia Siemens Networks, Nokia Siemens Networks Oy and Nokia Siemens Networks GmbH & Co. KG. PT Alcatel Lucent Indonesia and Alcatel Shanghai Bell Co. Ltd. PT Ericsson Indonesia and Ericsson AB
US$38,439
Amount of Contract/Purchase Orders (POs) Already Issued
US$17,959
Amount of Contract/POs Not Yet Served
US$106,655 and Rp461,479 US$318,446 and Rp1,385,390 US$79,311 and Rp679,301 US$383,104 and Rp1,110,375
US$13,344 and Rp142,002 US$4,118 and Rp55,310 US$2,334 and Rp41,105 US$358 and Rp24,871
April 20, 2007 April 3, 2007
Telecommunications Equipment Supply and Service Supply of GSM Infrastructure
b.
On December 10, 2010, the Company agreed with PT Nokia Siemens Networks and Nokia Siemens Networks OY (Nokia) to restate and amend the agreement for The Procurement of Technology Upgrade for 2G and 3G Telecommunication Network in Kalimantan that was originally entered into on June 30, 2010. Based on the new agreement, the Company agreed to exchange certain existing cellular technical equipment units in Kalimantan area with new equipment units from Nokia with total value of US$75,243 consisting of cellular technical equipment with net book value of U$66,963 (net of discount amounting to US$2,029) for 1,325 units of 2G Base Transceiver Station [BTS], 24 units of Base Station Controller [BSC], 11 units of Transcoders, 66 units of Node B equipment and 3 units of Radio Network Controller [RNC], and pay US$6,251 to Nokia for the installation services. As of December 31, 2010, carrying amount of the cellular technical equipment units given up (122 units of 2G BTS, 5 units of BSC, 25 units of Node B equipment and 1 unit of RNC) totalling Rp158,285 (Note 8). The Company also committed to procure additional equipment units from Nokia with total value of US$11,708 until the end of 2012. 97
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 29. SIGNIFICANT AGREEMENTS AND COMMITMENTS (continued) c. On August 18, 2010, the Company and Telkom signed a memorandum of understanding on the cooperation for joint utilization of filing of satellite networks at 150.5 degree East geostationary orbital slot. This cooperation will include procuring, operating and maintaining satellite between the Company and Telkom in order to utilize filing of satellite networks at 150.5 degree East geostationary orbital slot after the termination of the operation of Satellite Palapa C-2 owned by the Company. The capital expenditure related to such cooperation will be borne on a pro rata basis between the Company and Telkom. As of December 31, 2010, the Company has not made any capital expenditure related to such cooperation. d. On January 29, April 15, May 24 and June 3, 2010, the Company agreed to lease part of its telecommunications towers and sites to PT Hutchison CP Telecommunication (Hutchison) for a period of 12 years, to PT Natrindo Telepon Selular (NTS) for a period of 10 years, to PT XL Axiata Tbk (XL Axiata, formerly PT Excelcomindo Pratama Tbk or Excelcom) for a period of 10 years and to PT Berca Global Access (Berca) for a period of 10 years, respectively. Hutchison, NTS, and XL Axiata (on annual basis) and Berca (on quarterly basis) are required to pay the lease and maintenance fees in advance which are recorded as part of unearned income. The agreements are cancellable before termination under certain conditions, as stated in the agreements. e. On April 15, 2010, Lintasarta, a subsidiary, entered into agreements with MOCITBalai Telekomunikasi dan Informatika Pedesaan (MOCIT-BTIP), whereby Lintasarta agreed to provide Pusat Layanan Jasa Akses Internet Kecamatan (Center for Internet Access and Services in Rural Areas) (PLIK) for Work Packages (Paket Pekerjaan) 7, 8 and 9 that cover the provinces of Bali, West Nusa Tenggara, East Nusa Tenggara, West Kalimantan, South Kalimantan, East Kalimantan, Central Kalimantan, Maluku and Papua. On December 22, 2010, the agreements were amended to increase the contract value. The agreements cover four years starting from October 15, 2010 with contract value amounting to Rp91,895, Rp143,668 and Rp116,721 for Work Packages 7, 8 and 9, respectively. As of December 31, 2010, Lintasarta has outstanding advance payments from MOCITBTIP related with the agreements amounting to Rp56,573 and Rp11,739 which are classified as part of unearned income for the current portion and other non-current liabilities for the long-term portion, respectively. In accordance with the agreements, Lintasarta placed its time deposits totalling Rp18,200 as a performance bond for the four-year contract period which is classified as part of other non-current financial assets (Note 2c). On May 6, 2010, Lintasarta entered into an agreement with PT Wira Eka Bhakti (WEB), for the procurement of equipment and infrastructure required for the construction of PLIKs, as agreed with the MOCIT-BTIP above, with total contract value amounting to Rp189,704. On October 20, 2010, the agreement was amended to increase the contract value to become Rp203,776. As of December 31, 2010, Lintasarta has outstanding advances to WEB totalling Rp39,107 and Rp2,668 which are classified as part of advances for the current portion and long-term advances for the long-term portion, respectively.
98
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 29. SIGNIFICANT AGREEMENTS AND COMMITMENTS (continued) On December 12, 2010, Lintasarta entered into agreements with MOCIT-BTIP to provide Pusat Layanan Jasa Akses Internet Kecamatan Bergerak (Mobile Center for Internet Access and Services in Rural Areas) (PLIKB) for Work Packages 2, 3, 11, 15, 16 and 18 that cover the provinces of North Sumatra, West Sumatra, East Nusa Tenggara, West Kalimantan, South Kalimantan and East Kalimantan. The agreements cover four years starting on June 22, 2011 with contract values amounting to Rp79,533, Rp92,003, Rp71,879, Rp84,583, Rp69,830 and Rp60,149 for Work Packages 2, 3, 11, 15, 16 and 18, respectively. As of December 31, 2010, Lintasarta has outstanding advance payments from MOCIT-BTIP related with the agreements amounting to Rp9,725 and Rp73,543 which are classified as part of unearned income for the current portion and other noncurrent liabilities for the long-term portion, respectively. f. On May 25, 2007, the Company and six other telecommunications operators signed a memorandum of understanding on the construction of the national optical fiber network Palapa Ring for the eastern part of Indonesia (Palapa Ring Project Phase I) wherein the Company will share 10% of the total project cost of Rp3,000,000. In addition, they also agreed to equally bear the cost of preparation and implementation (preparation cost) of Palapa Ring Project Phase I up to the amount of Rp2,000. If the preparation cost exceeds Rp2,000, there will be further discussion among them. However, one of the telecommunications operators subsequently decided not to join the project. On November 10, 2007, the Company and the other five telecommunications operators (including Telkom, a related party) signed the agreement on the consortium for the construction and maintenance of Palapa Ring wherein the Company agreed to bear 13.36% of the total project cost of US$225,037. This agreement replaced the previous memorandum of understanding. Furthermore, three of the telecommunications operators also no longer joined the project. Consequently, as of December 31, 2010, the remaining telecommunications operators which are still committed to this project are the Company, Telkom and Bakrie Telecom. Hence, the projects commitment is being evaluated to accommodate the change in the number of participating telecommunications operators. As of December 31, 2010, the Company has paid the amount of US$1,503 which is recorded as part of other non-current financial assets. g. The Company and IMM have committed to pay annual radio frequency fee over the 3G and BWA licenses period, provided the Company and IMM hold the 3G and BWA licenses (Note 1a). The amount of annual payment is based on the payment scheme set out in Regulations No. 7/PER/M.KOMINFO/2/2006, No. 268/KEP/M.KOMINFO/9/2009 and No. 237/KEP/ M.KOMINFO/7/2009 dated February 8, 2006, September 1, 2009 and July 27, 2009, respectively, of the MOCIT. On July 20, 2005, the Company obtained facilities from HSBC to fund the Companys short-term working capital needs. These facilities were amended on May 14, 2007 to extend the expiration date to February 28, 2008. On December 4, 2009, these facilities were further amended to extend the expiration date to April 30, 2010. Subsequently, on June 17, 2010, these facilities were further extended up to April 30, 2011. The facilities consist of the following:
h.
Overdraft facility amounting to US$2,000 (including overdraft facility denominated in rupiah amounting to Rp17,000). Interest is 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.
99
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 29. SIGNIFICANT AGREEMENTS AND COMMITMENTS (continued)
Revolving loan facility amounting to US$30,000 (including revolving loan denominated in rupiah amounting to Rp255,000). The loan matures within a maximum period of 180 days and can be drawn in tranches with minimum amounts of US$500 and Rp500 for loans denominated in U.S. dollar and rupiah, respectively. Interest is charged on daily balances at 3% per annum above the HSBC Cost of Fund Rate for the loans denominated either in rupiah or U.S. dollar.
As of December 31, 2010, the Company has not used these facilities. i. In 1994, the Company was appointed as a Financial Administrator (FA) 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 APCNs Indefeasible Right of Use (IRU), Defined Underwritten Capacity (DUC) and Occasional Commercial Use (OCU). The funds received from the sale of IRU, DUC and OCU and for upgrading the APCN cable did not belong to the Company and, therefore, were not recorded in the Companys books. However, the Company managed these funds in separate accounts. As of December 31, 2010, the balance of the funds (including interest earned) which are under the Companys custody amounted to US$5,428. Besides receiving their share of the funds from the sale of IRU, DUC and OCU, the members of the consortium also received their share of the interest earned by the above funds. j. Other agreements made with Telkom are as follows: Under a cooperation agreement, the compensation to Telkom relating to leased circuit/channel services, such as world link and bit link, is calculated at 15% of the Companys collected revenues from such services. The Company and Satelindo also lease circuits from Telkom to link Jakarta, Medan and Surabaya. In 1994, Satelindo entered into a land transfer agreement for the transfer of Telkoms rights to use a 134,925-square meter land property located at Daan Mogot, West Jakarta, where Satelindos 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. The term of the agreement may be extended based on mutual agreement. This agreement was subsequently superseded by a land rental agreement dated December 6, 2001, generally under the same terms as those of the land transfer agreement. 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 ninth amendment agreement dated May 24, 2010. Transponder lease expense charged to operations amounting to Rp30,255 and Rp27,547 in 2009 and 2010, respectively, is presented as part of Operating Expenses - Cost of Services in the consolidated statements of income.
100
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 30. 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 1/3.061 SDR. 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 MOC, which rates are generally higher than the accounting rates. During the period 1996 to 1998, the MOC 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 of the MOCIT, 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 The basic telephony tariffs for cellular mobile network service are set on the basis of Regulation No. 12/PER/M.KOMINFO/ 02/2006 dated February 28, 2006 of the MOCIT. Under this regulation, the cellular tariffs consist of the following: Connection fee Monthly charges Usage charges Additional facilities fee
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. On April 7, 2008, the MOCIT issued Ministerial Decree No. 09/PER/M.KOMINFO/04/2008 about guidelines on calculating basic telephony service tariffs through cellular mobile network. Under this new Decree, the cellular providers should implement the new tariffs referred to as price cap. The types of tariffs for telecommunications services through cellular network consist of the following: Tariff for basic telephony services Tariff for roaming Tariff for multimedia services
The retail tariffs should be calculated based on Network Element Cost, Activation Cost of Retail Services and Profit Margin. 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 revenue of more than 25% of the total industry revenue for a certain segment. Starting May 2008, the Company has fully adopted the new cellular tariff system. 101
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 30. TARIFF SYSTEM (continued) c. Fixed telecommunications services In February 2006, the MOCIT released Regulation No. 09/PER/M.KOMINFO/02/2006 regarding basic telephony tariffs for fixed network service. On April 30, 2008, the MOCIT issued Ministerial Decree No. 15/PER/M.KOMINFO/04/2008 about the guidelines on calculating basic telephony service tariffs through fixed network. This Decree also applies to fixed wireless access (FWA) network. Under this new decree, the tariffs for basic telephony services and SMS (short message service) must be calculated based on the formula stated in the Decree. The fixed network providers should implement the new tariffs referred to as price cap. Starting May 2008, the Company has fully adopted the new fixed telecommunications tariff system. 31. INTERCONNECTION TARIFFS Interconnection tariffs among domestic telecommunications operators are regulated by the MOC 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 (Decree No. 37) dated June 11, 1999. This Decree, along with Decree No. KM.46/PR.301/MPPT-98 (Decree No. 46) 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. Based on the Decree of the MOC, the interconnection tariff arrangements are as follows: 1. Structure of Interconnection Tariffs a. Between international and domestic PSTN Based on Decree No. 37 dated June 11, 1999, the interconnection tariffs are as follows:
Tariff Access charge Usage charge Rp850 per call Rp550 per paid minute Basis Number of successful outgoing and incoming calls Duration of successful outgoing and incoming calls
b. Between domestic PSTN and another domestic PSTN Interconnection charges for domestic telecommunications traffic (local and long-distance) between a domestic PSTN and another domestic PSTN are based on agreements made by those domestic PSTN telecommunications carriers. c. Between cellular telecommunications network and domestic PSTN Based on 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 tariffs 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. 102
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 31. INTERCONNECTION TARIFFS (continued) 1. Structure of Interconnection Tariffs (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 tariffs, which portion ranges from 15% of the prevailing SLJJ tariffs plus the airtime charges in cases where the entire long-distance portion is not carried by the cellular operator, to 60% of the tariffs 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 tariffs, which portion ranges from 15% of the tariffs in cases where the entire long-distance portion is not carried by the cellular operator, to 60% of the tariffs 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 tariffs 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 tariffs, which portion ranges from 15% of the tariffs in cases where the entire long-distance portion is not carried by the cellular operator, to 85% of the tariffs 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 in 1998, the interconnection tariffs 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 tariffs applied to traffic made through domestic PSTN as discussed in a above. However, 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 until December 31, 2006 (Note 32). 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.
103
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 31. INTERCONNECTION TARIFFS (continued) 2. USO On September 30, 2005, the MOCIT issued Regulation No. 15/PER/M.KOMINFO/9/2005, which sets forth the basic policy underlying the USO program and requiring telecommunications operators in Indonesia to contribute 0.75% of annual gross revenue (after deducting bad debts and interconnection charges) for USO development. The MOCIT also issued Regulation No. 11/PER/M.KOMINFO/04/2007 dated April 13, 2007, which gives guidance on USO provisioning, such as on auction mechanism, tariff, USO area and technical requirements. On January 16, 2009, the Government issued Regulation No. 7 Year 2009 increasing the USO development contribution from 0.75% to 1.25% and decreasing the concession fee from 1% to 0.50% of annual gross revenue (after deducting bad debts and interconnection charges) effective January 1, 2009. 3. Revenue Sharing 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 Decree No. 08/PER/M.KOMINFO/02.2006, is to be proportionally shared with each carrier, which proportion is to be bilaterally arranged between the carriers. Decree No. 37 and Decree No. 46 were subsequently superseded by Decree No. 32 Year 2004 of the MOC 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 determines the interconnection charge to be received by it based on a formula mandated by the Government, which is intended to have the effect of requiring that operators charge for calls based on the cost of carrying such calls. The effective date of the new 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 MOCIT (Note 32). 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. On August 4, 2006, the DGPT issued Decree No. 278/DIRJEN/2006, which approved the RIO of the Company and two other dominant telecommunications operators (Telkom and Telkomsel). This decree was implemented since January 1, 2007 as agreed by all operators and approved by the Government. On April 11, 2008, the DGPT approved the new RIO for dominant operators (Telkom, Telkomsel and the Company). The DGPT requires all domestic operators to amend their interconnection agreements in line with the approved new RIO starting April 1, 2008. On April 1, 2008, the Company implemented the new interconnection tariffs based on the approved RIO. However, on December 31, 2010, the Badan Regulasi Telekomunikasi Indonesia (BRTI or Indonesian Telecommunications Regulatory Bureau) issued letter No. 227/BRTI/XII/2010 regarding the implementation of new interconnection tariffs based on the implementation of cost-based interconnection fees, which will be used by all telecommunications operators effective January 1, 2011.
104
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 32. INTERCONNECTION AGREEMENTS The Company (including Satelindo and IM3 until they were merged - Note 1e) has interconnection arrangements with domestic and overseas operators. Some significant interconnection agreements are as follows: 1. Telkom The following are significant interconnection agreements/transactions with Telkom: a. Fixed telecommunications services On September 23, 2005, the Company and Telkom signed an agreement regarding the interconnection of local, long-distance and international fixed networks. The principal matters covered by the agreement are as follows: Interconnection between the Companys and Telkoms local, long-distance and international fixed networks enables the Companys fixed telecommunications service subscribers to make or receive calls to or from Telkoms subscribers or international gateways. The Companys and Telkoms international services are accessible and continuously open to each others 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 partys international calls service used by the other partys 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 per record of outgoing call as compensation for billing processing. However, the collection and billing process expense was changed to service charge, which was computed at Rp1,250 per minute of outgoing call starting April 1, 2008. Based on the latest agreement, the service charge rate has been reduced to Rp1,200 per minute of outgoing call starting January 1, 2009.
On December 28, 2006, the Company entered into a memorandum of understanding with Telkom applying the new interconnection rates under cost-based regime that are effective starting January 1, 2007. This memorandum of understanding was replaced by the agreement dated December 18, 2007. This agreement was amended several times. The latest amendment was dated December 30, 2009 (Note 35c). b. Cellular Services On December 1, 2005, the Company and Telkom signed an agreement regarding the interconnection between the Companys cellular telecommunications network with Telkoms fixed telecommunications network. Under this agreement, the interconnection between the Companys cellular telecommunications network and Telkoms fixed telecommunications network enables the Companys cellular subscribers to make or receive calls to or from Telkoms fixed telecommunications subscribers. On December 28, 2006, the Company entered into a memorandum of understanding with Telkom applying the new interconnection rates under cost-based regime that are effective starting January 1, 2007. This memorandum of understanding was replaced by an agreement dated December 18, 2007. This agreement was amended several times. The latest amendment was dated December 30, 2009.
105
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 32. INTERCONNECTION AGREEMENTS (continued) 2. XL Axiata, PT Mobile-8 Telecom Tbk (Mobile-8) and Telkomsel The principal matters covered by the agreements with these operators are as follows: The Companys and Satelindos international gateway exchanges are interconnected with the mobile cellular telecommunications operators networks to make outgoing or receive incoming international calls through the Companys and Satelindos 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 Companys and Satelindos international gateway exchanges. Satelindo and IM3 also have an agreement with the above operators for the interconnection of Satelindos and IM3s GSM mobile cellular telecommunications network with the above operators network, enabling the above operators customers to make calls/send SMS to or receive calls/SMS from Satelindos and IM3s customers. The agreements are renewable annually.
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 8, 27 and 28, 2006, the Company entered into a memorandum of understanding with each of Telkomsel, Mobile-8 and XL Axiata, respectively, applying the new interconnection rates under cost-based scheme effective January 1, 2007 to comply with Regulation No. 08/PER/M.KOMINFO/02/2006 of the MOCIT (Note 2n). The memoranda of understanding with each of Mobile-8, XL Axiata and Telkomsel were replaced by agreements dated September 14, and December 17 and 19, 2007, respectively. The agreements with Mobile-8 and XL Axiata were amended on March 31, 2008, while the agreement with Telkomsel was amended on February 18, 2008. Subsequently, the agreement with Telkomsel was further amended on September 7, 2010. 3. PT Bakrie Telecom Tbk (Bakrie Telecom) The principal matters covered by the latest amendment of the agreement dated June 10, 2009 are related to interconnection between the Companys mobile cellular network and international gateway exchanges to Bakrie Telecoms network, including SLI 009 network (Note 35c). Net interconnection revenues (charges) from (to) major operators are as follows: 2009 Telkom Mobile-8 Telkomsel XL Axiata Bakrie Telecom Net charges 142,514 11,841 (131,127) (71,339) (8,103) (56,214) 2010 169,389 10,455 (158,860) (103,125) (5,381) (87,522)
106
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 33. SEGMENT INFORMATION The Companies manage and evaluate their operations in three major reportable segments: cellular, fixed telecommunications 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. Consolidated information by industry segment follows:
Major Segments Cellular 2009 Operating revenues Revenues from external customers Inter-segment revenues Total operating revenues Inter-segment revenues elimination Operating revenues - net Income Operating income Gain on foreign exchange - net Interest income Financing cost Income tax expense Loss on change in fair value of derivatives - net Amortization of goodwill Others - net Income before minority interest in net income of subsidiaries Other Information Segment assets Unallocated assets Inter-segment assets elimination Assets - net Segment liabilities Unallocated liabilities Inter-segment liabilities elimination Liabilities - net Capital expenditures Depreciation and amortization 9,661,360 4,585,081 579,862 335,270 1,343,327 641,039 31,678,430 1,028,375 3,748,888 43,871,953 2,606,166 7,776,333 2,003,034 330,401 879,580 14,300,163 14,300,163 1,803,039 1,803,039 2,720,984 515,961 3,236,945 18,824,186 515,961 19,340,147 (515,961) 18,824,186 3,213,015 1,656,407 138,951 (1,872,967) (677,265) (517,655) (235,420) (150,338 ) 1,554,728 54,254,452 5,740,701 (4,953,666) 55,041,487 36,455,693 3,840,474 (3,542,963) 36,753,204 11,584,549 5,561,390 Fixed Telecommunications MIDI Segment Total
107
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 33. SEGMENT INFORMATION (continued)
Major Segments Cellular 2010 Operating revenues Revenues from external customers Inter-segment revenues Total operating revenues Inter-segment revenues elimination Operating revenues - net Income Operating income (loss) Gain on foreign exchange - net Interest income Financing cost Loss on change in fair value of derivatives - net Income tax expense Amortization of goodwill Others - net Income before minority interest in net income of subsidiaries Other Information Segment assets Unallocated assets Inter-segment assets elimination Assets - net Segment liabilities Unallocated liabilities Inter-segment liabilities elimination Liabilities - net Capital expenditures Depreciation and amortization 4,455,608 5,052,691 210,770 297,334 848,611 801,886 27,195,689 630,442 3,250,615 45,875,021 2,020,957 8,459,948 16,027,062 16,027,062 1,293,177 1,293,177 2,476,276 563,726 3,040,002 19,796,515 563,726 20,360,241 (563,726) 19,796,515 Fixed Telecommunications MIDI Segment Total
2,745,063
(34,495)
763,376
3,473,944 492,401 143,402 (2,271,628) (418,092) (357,798) (226,380) (111,830) 724,019 56,355,926 4,264,808 (7,802,547) 52,818,187 31,076,746 9,724,480 (6,219,525) 34,581,701 5,514,989 6,151,911
34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES A. RISK MANAGEMENT The main risks arising from the Companies financial instruments are interest rate risk, foreign exchange rate risk, equity risk, credit risk and liquidity risk. The importance of managing these risks has significantly increased in light of the considerable change and volatility in both Indonesian and international financial markets. The Companys Board of Directors reviews and approves the policies for managing these risks which are summarized below. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Companies exposure to the risk of changes in market interest rates relates primarily to their loans and bonds payable with floating interest rates.
108
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) A. RISK MANAGEMENT (continued) Interest rate risk (continued) The Companys policies relating to interest rate risk are as follows: (1) Manage interest cost through a mix of fixed and variable rate debts. The Company evaluates the fixed to floating rate ratio of its loans and bonds payable in line with movements of relevant interest rates in the financial markets. Based on managements assessment, new financing will be priced either on a fixed or floating rate basis, and (2) Manage interest rate exposure on its loans and bonds payables by entering into interest rate swap contracts. As of December 31, 2010, more than 60% of the Companies debts are fixed-rated. Several interest rate swap contracts are entered into to hedge floating rate U.S. dollar debts. These contracts are accounted for as transactions not designated as hedges, wherein the changes in the fair value are credited or charged directly to profit or loss for the year. The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Companys consolidated net income for the year ended December 31, 2010 (through the impact on floating rate borrowings which is based on LIBOR for U.S. dollar borrowings and on JIBOR for rupiah borrowings). Increase/decrease in basis points: U.S. dollar Rupiah Effect on consolidated net income for the year: U.S. dollar Rupiah US$1,445 (equivalent to Rp12,994) Rp9,490 31 41
Management conducted a survey among the Companys banks to determine the outlook of the LIBOR and JIBOR interest rates until the Companys next reporting date of March 31, 2011. The outlook is that the LIBOR and JIBOR interest rates may move 31 and 41 basis points, respectively, higher or lower than the interest rates at the end of the fourth quarter of 2010. If LIBOR interest rates were 31 basis points higher or lower than the market levels for the year ended December 31, 2010, with all other variables held constant, the Company consolidated net income for the year then ended and the consolidated stockholders equity would be Rp634,180 or Rp660,168 and Rp17,837,652 or Rp17,863,640, respectively, which are lower or higher than the actual results for the year ended December 31, 2010, mainly due to the higher or lower interest expense on floating rate borrowings. If JIBOR interest rates were 41 basis points higher or lower than the market levels for the year ended December 31, 2010, with all other variables held constant, the Company consolidated net income for the year then ended and the consolidated stockholders equity would be Rp637,684 or Rp656,664 and Rp17,841,156 or Rp17,860,136, respectively, which are lower or higher than the actual results for the year ended December 31, 2010, mainly due to the higher or lower interest expense on floating rate borrowings.
109
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) A. RISK MANAGEMENT (continued) Foreign exchange rate risk Foreign exchange rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Companies exposure to exchange rate fluctuations results primarily from U.S. dollar-denominated loans and bonds payable, accounts receivable, accounts payable and procurement payable. To manage foreign exchange rate risks, the Company entered into several cross currency swap contracts and other permitted instruments, if considered necessary. These contracts are accounted for as transactions not designated as hedges, wherein the changes in the fair value are credited or charged directly to profit or loss for the year. The Companies accounts payable are primarily foreign currency net settlement payables to foreign telecommunications operators, while most of the Companies accounts receivable are Indonesian rupiah-denominated collectibles from domestic operators. To the extent the Indonesian rupiah depreciated further from the exchange rates in effect at December 31, 2010, the Companies obligations under such loans and bonds payable, accounts payable and procurement payable would increase in Indonesian rupiah terms. However, the increases in these obligations would be offset in part by increases in the values of foreign currencydenominated time deposits and accounts receivable. As of December 31, 2010, 17.90% of the Companies U.S. dollar-denominated debts were insured from exchange rate risk by entering into several cross currency swap contracts. The following table shows the Companies consolidated U.S. dollar-denominated assets and liabilities as of December 31, 2010: 2010 U.S. Dollar Assets: Cash and cash equivalents Accounts receivable Trade Others Derivative assets Other current financial assets Due from related parties Other non-current financial assets Total assets Liabilities: Accounts payable - trade Procurement payable Accrued expenses Deposits from customers Derivative liabilities Other current financial liabilities Other current liabilities Loans payable (including current maturities) Bonds payable (including current maturities) Other non-current liabilities Total liabilities Net liabilities position 111,782 115,530 544 7,711 1,715 117 1,427 238,826 32,788 246,615 46,263 1,477 23,958 67 6,124 886,602 650,000 8,730 1,902,624 1,663,798 Rupiah * 1,005,042 1,038,726 4,893 69,334 15,418 1,047 12,833 2,147,293 294,797 2,217,320 415,953 13,275 215,403 602 55,058 7,971,436 5,844,150 78,494 17,106,488 14,959,195
* The exchange rate used to translate the U.S. dollar amounts into rupiah was Rp8,991 to US$1 (in full amounts) as published by the Indonesian Central Bank as of December 31, 2010.
110
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) A. RISK MANAGEMENT (continued) Foreign exchange rate risk (continued) The following table demonstrates the sensitivity to a reasonably possible change in the U.S. dollar exchange rate, with all other variables held constant, of the Companys consolidated net income for the year: Change in U.S. dollar exchange rate Effect on consolidated net income for the year 2% (224,388)
Management conducted a survey among the Companys banks to determine the outlook of the U.S. dollar exchange rate until the Companys next reporting date of March 31, 2011. The outlook is that the U.S. dollar exchange rate may strengthen by 2% as compared to the exchange rate at December 31, 2010. If the U.S. dollar exchange rate strengthened by 2% as compared to the exchange rate as of December 31, 2010, with all other variables held constant, the Companys consolidated net income for the year then ended would be Rp422,786, which is lower than the actual results mainly due to the consolidated net foreign exchange loss on the translation of U.S. dollar-denominated net liabilities. Equity price risk The Companies long-term investments consist primarily of minority investment in the equity of private Indonesian companies and equity of foreign companies. With respect to the Indonesian companies in which the Companies have investments, the financial performance of such companies may be adversely affected by the economic conditions in Indonesia. Credit risk Credit risk is the risk that the Companies will incur a loss arising from their customers, clients or counterparties that fail to discharge their contractual obligations. There are no significant concentrations of credit risk. The Companies manage and control this credit risk by setting limits on the amount of risk they are willing to accept for individual customers and by monitoring exposures in relation to such limits. The Companies trade only with recognized and creditworthy third parties. It is the Companies policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis to reduce the exposure to bad debts.
111
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) A. RISK MANAGEMENT (continued) Credit risk (continued) The table below shows the maximum exposure to credit risk for the components of the consolidated balance sheet as of December 31, 2010: Gross Maximum Exposure (1) Loans and receivables: Cash and cash equivalents Accounts receivable Trade - net Others - net Other current financial assets Due from related parties - net Other non-current financial assets Held-for-trading: Cross currency swaps Available-for-sale investments: Other long-term investments - net Total 2,075,270 1,548,426 10,031 53,119 8,421 77,675 69,334 2,730 3,845,006 Net Maximum Exposure (2) 2,075,270 1,548,426 10,031 53,119 8,421 77,675 69,334 2,730 3,845,006
(1) gross financial assets before taking into account any collateral held or other credit enhancements or offsetting arrangements (2) gross financial assets after taking into account any collateral held or other credit enhancements or offsetting arrangements
Liquidity risk The liquidity risk is defined as a risk when the cash flow position of the Companies indicates that the short-term revenue is not enough to cover the short-term expenditure. The Companies liquidity requirements have historically arisen from the need to finance investments and capital expenditures related to the expansion of their telecommunications business. The Companies telecommunications business requires substantial capital to construct and expand mobile and data network infrastructure and to fund operations, particularly during the network development stage. Although the Companies have substantial existing network infrastructure, the Companies expect to incur additional capital expenditures primarily in order to focus cellular network development in areas they anticipate will be high-growth areas, as well as to enhance the quality and coverage of their existing network. In the management of liquidity risk, the Companies monitor and maintain a level of cash and cash equivalents deemed adequate to finance the Companies operations and to mitigate the effects of fluctuation in cash flows. The Companies also regularly evaluate the projected and actual cash flows, including their loan maturity profiles, and continuously assess conditions in the financial markets for opportunities to pursue fund-raising initiatives. These activities may include bank loans, debt capital and equity market issues.
112
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) A. RISK MANAGEMENT (continued) Liquidity risk (continued) The table below summarizes the maturity profile of the Companies financial liabilities based on contractual undiscounted payments.
Expected maturity as of December 31,
2011 Accounts payable - trade Procurement payable Accrued expenses Deposits from customers Derivative liabilities Other current financial liabilities Due to related parties Loans payable In rupiah In U.S. dollar Total loans payable Bonds payable In rupiah In U.S. dollar Total bonds payable Total 645,505 3,644,467 1,710,885 50,279 215,403 23,127 634,933 2,549,587 3,184,520 1,100,000 1,100,000 10,574,186
2012 22,099 2,022,483 1,192,411 3,214,894 41,989 41,989 3,278,982
2013 434,300 2,015,736 2,450,036 1,330,000 1,330,000 3,780,036
2014 545,059 545,059 2,358,000 2,358,000
2015 and thereafter 1,668,643 1,668,643 2,662,000 5,844,150 8,506,150
Total 645,505 3,644,467 1,710,885 50,279 215,403 23,127 22,099 3,091,716 7,971,436 11,063,152 7,491,989 5,844,150 13,336,139
Discount/ debt issuance Carrying costs and value consent as of solicitation December fees 31, 2010 645,505 3,644,467 1,710,885 50,279 215,403 23,127 22,099
(25,125) 3,066,591 (187,076) 7,784,360 (212,201) 10,850,951 (29,353) 7,462,636 (94,551) 5,749,599 (123,904) 13,212,235 (336,105) 30,374,951
2,903,059 10,174,793 30,711,056
B. COLLATERAL The loans of Lintasarta, a subsidiary, which were obtained from CIMB Niaga, are collateralized by all equipment (Notes 8,15g and 15i) purchased by Lintasarta from the proceeds of the credit facilities. There are no other significant terms and conditions associated with the use of collateral. The Company did not hold any collateral as of December 31, 2010.
113
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 35. SUBSEQUENT EVENTS a. On January 1, 2011, Lintasarta paid the last installment amounting to Rp4,933 on Investment Credit Facility 5 loan from CIMB Niaga (Note 15i). b. On January 7, 2011, the Company paid the remaining amount of Rp41,863 on the underpayment of the Companys 2008 and 2009 income tax article 26 based on STPs from the DGT (Note 13). c. On January 11, 2011 and February 9, 2011, the Company agreed to amend the latest interconnection agreements with Telkom and Bakrie Telcom, respectively (Note 32), to meet the requirement in the BRTI letter No. 227/BRTI/XII/2010 dated December 31, 2010 regarding the implementation of new interconnection tariff in 2011. d. On January 20, 2011, the Companys Board of Directors issued Directors Decree No. 003/Direksi/2011 regarding the Organizational Restructuring Program through an offering program on the basis of mutual agreement between the Company and certain employees (Voluntary Separation Scheme), that became effective on the same date. e. On February 4, 2011, the Company and PT Dayamitra Telekomunikasi (Mitratel) entered into a Tower Lease Agreement. Mitratel may re-lease the Company's tower to Telkom and Telkomsel with additional infrastructure at Mitratel's cost. f. On February 8, 2011, the Company held an Extraordinary General Meeting of Stockholders approving the changes in the composition of the Company's Board of Commissioners (until the closing of Annual General Meeting in 2012) and Board of Directors (until the closing of Annual General Meeting in 2015).
g. On February 10, 2011, the Company entered into a Revolving Time Loan facility agreement with BCA covering a maximum amount of Rp1,000,000 to fund the Company's capital expenditure and/or for general corporate purposes. This facility will be available from February 10, 2011 to February 10, 2014 and drawdowns bear interest at 1-month JIBOR plus 1.4% per annum. h. On February 10, 2011, SKAGEN AS increased its ownership in the Company to 5.15%. i. On February 10, 2011, the Company agreed to lease part of its telecommunications towers and sites to PT First Media Tbk (FM) for a period of 5 years. FM is required to pay the lease and maintenance fees in advance on a semi-annual basis. As of February 10, 2011, the prevailing exchange rate of the rupiah to U.S. dollar is Rp8,924 to US$1 (in full amounts), while as of December 31, 2010, the prevailing exchange rate was Rp8,991 to US$1 (in full amounts). Using the exchange rate as of February 10, 2011, the Companies earned foreign exchange gain amounting to approximately Rp111,474 (excluding the effect of revaluing derivative contracts on February 10, 2011) on the foreign currency liabilities, net of foreign currency assets, as of December 31, 2010 (Note 34). 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 prevailing exchange rate of the rupiah to U.S. dollar as of December 31, 2010 or at any other rate of exchange. The commitments for the capital expenditures denominated in foreign currencies as of December 31, 2010 as disclosed in Note 29a are approximately Rp803,294 if translated at the prevailing exchange rate as of February 10, 2011.
j.
114
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 36. RECENT DEVELOPMENTS AFFECTING ACCOUNTING STANDARDS The revised accounting standards and interpretations issued by the Indonesian Financial Accounting Standards Board (DSAK) up to the date of completion of the Companies consolidated financial statements but not yet effective as of December 31, 2010 are summarized below: Effective for financial statements starting on or after January 1, 2011: SAK 1 (Revised 2009), Presentation of Financial Statements, prescribes the basis for presentation of general purpose financial statements to ensure comparability both with an entity's financial statements of previous periods and with the financial statements of other entities. SAK 2 (Revised 2009), Statement of Cash Flows, requires the provision of information about the historical changes in cash and cash equivalents by means of a statement of cash flows which classifies cash flows during the period into operating, investing and financing activities. SAK 3 (Revised 2010), Interim Financial Reporting, prescribes the minimum content of an interim financial report and the principles for recognition and measurement in financial statements presented for an interim period. SAK 4 (Revised 2009), Consolidated and Separate Financial Statements, applies to the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent and in accounting for investments in subsidiaries, jointly controlled entities and associates when separate financial statements are presented as additional information. SAK 5 (Revised 2009), Operating Segments, requires segment information be disclosed to enable users of financial statements to evaluate the nature and financial effects of the business activities in which the entity engages and the economic environments in which it operates. SAK 7 (Revised 2010), Related Party Disclosures, requires disclosure of related party relationships, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements of a parent, and also applies to individual financial statements. Early application is allowed. SAK 8 (Revised 2010), Events after the Reporting Period, prescribes when an entity should adjust its financial statements for events after the reporting period and the disclosures that an entity should give about the date when the financial statements were authorized for issue and about events after the reporting period. This SAK also requires an entity not to prepare its financial statements on a going concern basis if events after the reporting period indicate that the going concern assumption is not appropriate. SAK 10 (Revised 2010), The Effects of Changes in Foreign Exchange Rates, prescribes how to include foreign currency transactions and foreign operations in the financial statements of an entity and translate financial statements into a presentation currency. SAK 15 (Revised 2009), Investments in Associates, applies to the accounting for investments in associates and supersedes SAK 15 (1994), Accounting for Investments in Associates, and SAK 40 (1997), Accounting for Changes in Equity of Subsidiaries/Associates. SAK 19 (Revised 2010), Intangible Assets, prescribes the accounting treatment for intangible assets that are not dealt with specifically in other SAKs. It requires the recognition of an intangible asset if, and only if, the specified criteria are met, and also specifies how to measure the carrying amount of intangible assets and related disclosures.
115
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 36. RECENT DEVELOPMENTS AFFECTING ACCOUNTING STANDARDS (continued) Effective for financial statements starting on or after January 1, 2011 (continued): SAK 22 (Revised 2010), Business Combinations, applies to a transaction or other event that meets the definition of a business combination to improve the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. SAK 23 (Revised 2010), Revenue, identifies the circumstances in which the criteria on revenue recognition will be met and, therefore, revenue will be recognized. It prescribes the accounting treatment of revenue arising from certain types of transactions and events, as well as practical guidance on the application of criteria on revenue recognition. SAK 25 (Revised 2009), Accounting Policies, Changes in Accounting Estimates and Errors, prescribes the criteria for selecting and changing accounting policies, together with the treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. SAK 48 (Revised 2009), Impairment of Assets, prescribes the procedures to be applied to ensure that assets are carried at no more than their recoverable amount and if the assets are impaired, an impairment loss should be recognized. SAK 57 (Revised 2009), Provisions, Contingent Liabilities and Contingent Assets, aims to provide that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and to ensure that sufficient information is disclosed in the notes to enable users to understand the nature, timing and amount related to the information. SAK 58 (Revised 2009), Non-current Assets Held for Sale and Discontinued Operations, specifies the accounting for assets held for sale, and the presentation and disclosure of discontinued operations. Interpretations of Financial Accounting Standards (ISAK) 7, Consolidation - Special Purpose Entities, addresses when a special purpose entity (SPE) should be consolidated by a reporting enterprise under the consolidation principles in SAK 4. Under ISAK 7, a company must consolidate the SPE when, in substance, the company controls the SPE. ISAK 9, Changes in Existing Decommissioning, Restoration and Similar Liabilities, applies to changes in the measurement of any existing decommissioning, restoration or similar liability recognized as part of the cost of an item of property, plant and equipment in accordance with SAK 16 and as a liability in accordance with SAK 57. ISAK 10, Customer Loyalty Programs, applies to customer loyalty award credits granted to customers as part of a sales transaction, and, subject to meeting any further qualifying conditions, the customers can redeem the credits in the future for free goods or services or at discounted prices. ISAK 17, Interim Financial Reporting and Impairment, requires that an entity shall not reverse an impairment loss recognized in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost.
116
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 36. RECENT DEVELOPMENTS AFFECTING ACCOUNTING STANDARDS (continued) Effective for financial statements starting on or after January 1, 2012: SAK 18 (Revised 2010), Accounting and Reporting by Retirement Benefit Plans, provides guidance on the accounting and reporting by plan to all participants as a group. This Standard complements SAK 24 (Revised 2010), Employee Benefits. SAK 24 (Revised 2010), Employee Benefits, established the accounting and disclosures for employee benefits. SAK 34 (Revised 2010), Accounting for Construction Contracts, prescribes the accounting treatment of revenue and costs associated with construction contracts. SAK 46 (Revised 2010), Accounting for Income Taxes, prescribes the accounting treatment for income taxes to account for the current and future tax consequences of the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognized in the balance sheet; and transactions and other events of the current period that are recognized in the financial statements. SAK 50 (Revised 2010), Financial Instruments: Presentation, established the principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. SAK 53 (Revised 2010), Share-based Payment, specifies the financial reporting by an entity when it undertakes a share-based payment transaction. SAK 60, Financial Instruments: Disclosures, requires disclosures in financial statements that enable users to evaluate the significance of financial instruments for financial position and performance; and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks. SAK 61, Accounting for Government Grants and Disclosures of Government Assistance, provides guidance on the accounting for, and in the disclosures of, government grants and in the disclosures of other forms of government assistance. ISAK 15, SAK 24 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, provides guidance on how to assess the limit on the amount of surplus in a defined scheme that can be recognized as an asset under SAK 24 (Revised 2010), Employee Benefits. ISAK 18, Government Assistance - No Specific Relation to Operating Activities, prescribes that government grants to entities meet the definition of government grants in SAK 61, Accounting for Government Grants and Disclosures of Government Assistance, even if there are no conditions specifically relating to the operating activities of the entity other than the requirement to operate in certain regions or industry sectors. ISAK 20, Income Taxes - Changes in the Tax Status of an Entity or its Shareholders, prescribes how an entity should account for the current and deferred tax consequences of a change in its tax status or that of its shareholders.
The Companies are presently evaluating and have not yet determined the effects of these revised standards and interpretations on the consolidated financial statements.
117
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 37. RECLASSIFICATION OF ACCOUNTS Following are the accounts in the 2009 consolidated financial statements which have been reclassified to allow their comparison with the accounts in the 2010 consolidated financial statements: As Previously Reported Accounts receivable others Other current assets As Reclassified Accounts receivable trade - third parties Other current financial assets Amount 28,428 Reason Reclassification to conform with the 2010 presentation Reclassification to conform with the presentation requirement of SAK 50 (Revised 2006) Reclassification to conform with the presentation requirement of SAK 50 (Revised 2006) Reclassification to conform with the 2010 presentation Reclassification to conform with the presentation requirement of SAK 50 (Revised 2006) Reclassification to conform with the presentation requirement of SAK 50 (Revised 2006) Reclassification to conform with the presentation requirement of SAK 50 (Revised 2006) Reclassification to conform with the 2010 presentation Reclassification to conform with the presentation requirement of SAK 50 (Revised 2006) Reclassification resulting from the revocation of SAK 35 Reclassification resulting from the revocation of SAK 35 Reclassification to conform with the 2010 presentation
35,173
Long-term receivables
Other non-current financial assets
15,844
Other non-current assets
Long-term prepaid rentals - net of current portion Other non-current financial assets
735,185
84,160
Other current liabilities
Other current financial liabilities
43,721
Accrued expenses
Other current liabilities
58,171
Other non-current liabilities
Employee benefit obligations - net of current portion Other current liabilities
825,714
3,112
Operating revenues cellular Operating revenues - fixed telecommunications
Operating expenses cost of services Operating expenses cost of services Operating revenues cellular 118
217,421
213,749
154,140
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 38. 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 February 10, 2011.
119
Introduction
Operational Review
Financial Report
Corporate Data
Reconciliations/Reclassifications of Indonesian GAP to IFRS as of December 31, 2010

The following tables (Reconciliation Tables) set forth a reconciliation of consolidated statement of financial position as of December 31,2010 and consolidated statement of comprehensive income for the year ended December 31, 2010, in each case between IFRS and the previously reported Indonesian GAP consolidated financial statements. Reconciliation of audited consolidated statement of financial position under Indonesian GAP and IFRS as of December 31, 2010: Indonesian GAP Reconciliations/ReclasThe reconcilliation from Indonesian GAP to IFRS has not had a material impact on the consolidated statements of cash flows.
PSAK ASSETS CURRENT ASSETS Reconciliations/ Reclassifications IFRS
Cash and cash equivalents Short-term investments - net Accounts receivable Trade Related parties - net of allowance for impairment Third parties - net of allowance for impairment Others Inventories - net Derivative assets Advances Prepaid taxes Taxes receivable Prepaid expenses Other current financial assets Other current assets
Total Current Assets
2,075,270 1,548,426 222,506 1,325,920 10,031 105,885 69,334 67,273 701,560 1,527,254 53,119 702 6,158,854
(701,560) 479,786 221,774 -
2,075,270 1,548,426 222,506 1,325,920 10,031 105,885 69,334 67,273 479,786 1,527,254 53,119 222,476 6,158,854
NON-CURRENT ASSETS
Due from related parties - net Deferred tax assets - net Investments in associated companies Other long-term investments Property and equipment - net Goodwill and other intangible assets - net Long-term prepaid rentals - net of current portion Long-term prepaid licenses - net of current portion Long-term advances Long-term prepaid pension - net of current portion Long-term receivables Other non-current financial assets Other non-current assets
Total Non-current Assets
8,421 95,018 2,730 43,571,010 1,374,060 750,472 397,708 216,643 111,344 45,911 77,675 8,341 46,659,333
(81,609) 689,117 607,508
8,421 95,018 2,730 43,489,401 2,063,177 750,472 397,708 216,643 111,344 45,911 77,675 8,341 47,266,841
273
PSAK
Reconciliations/ Reclassifications
IFRS
TOTAL ASSETS
52,818,187
607,508
53,425,695
LIABILITIES AND EQUITY CURRENT LIABILITIES
Accounts payable - trade Procurement payable Taxes payable Accrued expenses Unearned income Deposits from customers Derivative liabilities Current maturities of: Loans payable Bonds payable Other current financial liabilities Other current liabilities
Total Current Liabilities
645,505 3,644,467 169,445 1,710,885 1,143,852 50,279 215,403 3,184,147 1,098,131 23,127 61,612 11,946,853
(145,656) (36,938) 145,656 (36,938)
645,505 3,644,467 23,789 1,710,885 1,106,914 50,279 215,403 3,184,147 1,098,131 23,127 207,268 11,909,915
NON-CURRENT LIABILITIES
Due to related parties Deferred tax liabilities - net Loans payable - net of current maturities Bonds payable - net of current maturities Employee benefits obligations Other non-current liabilities
Total Non-current Liabilities
22,099 1,772,337 7,666,804 12,114,104 872,407 187,097 22,634,848 34,581,701 385,840
178,969 178,969 142,031 (385,840)
22,099 1,951,306 7,666,804 12,114,104 872,407 187,097 22,813,817 34,723,732 -
TOTAL LIABILITIES
MINORITY INTEREST
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
Capital stock Premium on capital stock
543,393 1,546,587
543,393 1,546,587
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PSAK
IFRS
Retained earnings Appropriated Unappropriated Other components of equity

Total Equity Attributable to Owners of the Company
134,446 15,224,843 401,377 17,850,646 385,840 18,236,486 52,818,187
466,930 466,930 (1,453) 465,477 607,508
134,446 15,691,773 401,377 18,317,576 384,387 18,701,963 53,425,695
Non-controlling Interests
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
OPERATING REVENUES
Cellular Multimedia, Data Communication, Internet (MIDI) Fixed telecommunication

Total Operating Revenues OPERATING EXPENSES
16,027,062 2,476,276 1,293,177 19,796,515 7,113,410 6,151,911 1,411,244 986,019 659,987 16,322,571 3,473,944 492,401 143,402 (2,271,628) (418,092) (226,380) (111,830) (2,392,127) 1,081,817 (128,171) (229,627) (357,798)
(159,971) 11,834 (148,137) 10,940 (206,827) (195,887) 47,750 (30,739) 226,380 195,641 243,391 (64,540) (64,540)
15,867,091 2,488,110 1,293,177 19,648,378 7,113,410 6,162,851 1,411,244 779,192 659,987 16,126,684 3,521,694 492,401 143,402 (2,271,628) (448,831) (111,830) (2,196,486) 1,325,208 (128,171) (294,167) (422,338)
Cost of services Depreciation and amortization Personnel Marketing General and administration
Total Operating Expenses OPERATING INCOME OTHER INCOME (EXPENSES)
Gain on foreign exchange - net Interest income Financing cost Loss on change in fair value of derivatives - net Amortization of goodwill Others - net
Other Expenses - Net PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE
Current Deferred
Income Tax Expense - Net
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PSAK PROFIT FOR THE YEAR
IFRS
724,019
178,851
902,870
OTHER COMPREHENSIVE INCOME
Differences in foreign curreny translation Income tax effect

Differences in foreign curreny translation - net
724,019
(6,795) 1,699 (5,096) 173,755
(6,795) 1,699 (5,096) 897,774
NET COMPREHENSIVE INCOME
PROFIT FOR THE YEAR ATTRIBUTABLE TO:
Owners of the Company Non-controlling Interests

Total OTHER COMPREHENSIVE INCOME - Net ATTRIBUTABLE TO:
647,174 76,845 724,019
177,463 1,388 178,851
824,637 78,233 902,870

Total NET COMPREHENSIVE INCOME ATTRIBUTABLE TO:
647,174 76,845 724,019
(5,096) (5,096) 172,367 1,388 173,755
(5,096) (5,096) 819,541 78,233 897,774

Total
The reconciliation from Indonesian GAAP to IFRS has not had a material impact on the consolidated statements of cash flows Reconciliation: a. Landrights Under Indonesian GAAP, landrights are stated at cost. Other expenses associated with the acquisition of the government permit to use the land (i.e., notary fee, tax, etc) should be amortized over the period the holder is expected to retain the landrights which, in the case of the Companies, is an initial period ranging from approximately 20 to 30 years. Before January 1, 2010, under IFRS as issued by IASB, the copaksts to acquire the landrights as well as other expenses associated with the acquisition are capitalized as prepaid landrights lease, and are amortized over the period of the right to use the land obtained from the Government which ranges from 20 to 30 years.
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Based on IAS 17 amendment (as part of the Improvements Project), starting January 1, 2010, the Companies classify land leases as finance leases and present in the financial statements as property and equipment. The Companies apply retrospective application and amortize land leases over 50 years (i.e., over the initial lease term of 30 years plus one extension of 20 years). b. Goodwill Under Indonesian GAAP, goodwill is amortized using the straight-line method over the useful life of the goodwill. Under IFRS as issued by IASB, goodwill is not amortized but subjected to annual impairment test under IAS 36, Impairment of Assets. The carrying amount of goodwill in the opening balance sheet as of January 1, 2008 is stated as the carrying amount under Indonesian GAAP as of that date. c. Revenue Recognition Under Indonesian GAAP, up to December 31, 2009 revenue from service connection is recognized as income at the time the connection takes place (for post-paid service) or at the time of activation of starter packs by customers (for prepaid service). Starting January 1, 2010, the activation component of starter package sales has been deferred and recognized as revenue over the expected average period of the costumer relationship. The change in accounting policy resulted from the revocation of PSAK 35 in which applied prospectively. Under IFRS as issued by IASB, revenue from service connection should be deferred and recognized as income at the time the connection takes place (for post-paid service) or at the time of activation of starter packs by customers (for prepaid service). Starting January 1, 2010, there is no reconciliation adjustment for such service connection, except that recognition from the outstanding balance as of December 31, 2009. d. Credit Risk Adjustment Under Indonesian GAAP, up to December 31, 2009 the Company, in determining the fair value of derivative instruments, does not adjusts the price to reflect any differences in counterparty credit risk between instruments traded in that market and the one being valued for financial asset positions. In determining the fair value of financial liability positions, the Companys own credit risk associated with the instrument is not taken into account. Starting January 1, 2010, the Company considers credit risk PSAK 55 (Revised 2006). Under IFRS as issued by IASB, the Company, in determining the fair value of derivative instruments, adjusts the price to reflect any differences in counterparty credit risk between instruments traded in that market and the one being valued for financial asset positions. In determining the fair value of financial liability positions, the Companys own credit risk associated with the instrument is taken into account. Starting January 1, 2010, there is no reconciliation adjustment for credit risk adjustment, except that resulting from reversal of the outstanding balance as of December 31, 2009. e. Dealer Commission Under Indonesian GAAP, dealer commission given to reseller in which the Company received, or will receive, an identifiable benefit in exchange for the cash sales incentives, and the fair value of such benefit can be reasonably estimated, the cash sales incentives being accounted for as a marketing expense.
277
Under IFRS as issued by IASB, dealer commission is characterized as a reduction of revenue based on a systematic and rational allocation of the cost of honoring cash sales incentives earned and claimed to each of the underlying revenue transactions that result in progress by the reseller toward earning the cash sales incentives. The sales incentives portion related to revenue which has not yet been earned is presented as reduction of unearned income. Reclassifications: Certain accounts were reclassified to conform with IFRS presentation requirements in the 2010 consolidated financial statements. The following items discuss the significant reclassifications: a. Under Indonesian GAAP, non-controlling interests are presented outside of equity on the consolidated statements of financial position, whereas, under IFRS, non-controlling interests are presented as part of equity. b. A different presentation format was used for the consolidated statements of comprehensive income as a result of adoption of IAS 1 (Revised), which introduces the use of a statement of comprehensive income. Non-owner changes in equity during the year such as foreign currency translation and equity changes in associated companies/subsidiaries, which are shown in the consolidated statement of changes in stockholders equity under Indonesian GAAP and IFRS, the statements of changes in stockholders equity include only details of transactions with owners, with non-owner changes in equity presented in a reconciliation of each component of equity. c. Under Indonesian GAAP, prepaid taxes and taxes payable consist of receivable and payable related to Corporate Income Tax, Value Added Tax and Other Income Tax. Under IFRS, prepaid taxes and taxes payable include only domestic and foreign taxes which are based on taxable profits and withholding taxes, which are payable by a subsidiary, associate or joint venture on distributions to the reporting entity. All other taxes receivable or payable are recorded under other current assets or other current liabilities.
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RESPONSIBILITY FOR 2010 ANNUAL REPORT

This Annual Report 2010 including the annual financial statements/financial report and other information related to the contents thereof, is prepared by PT Indosat Tbk. All members of the Board of Commissioners and Board of Directors of PT Indosat Tbk have affixed their respective signatures hereunder as a form of responsibility for the execution of their duties for the year ended on December 31, 2010. The Financial information reported is organized and based on the accounting principles generally accepted in Indonesia and in certain sections encompasses number of approximations which are based on estimations and the best judgements of the Board of Directors of PT Indosat Tbk.
BOARD OF COMMISSIONERS
Sheikh Abdulla Mohammed S.A Al Thani President Commissioner
Dr. Nasser Mohammed Marafih Commissioner
Richard Farnsworth Seney Commissioner
Rachmat Gobel Commissioner
Rionald Silaban Commissioner
Parikesit Suprapto Commissioner
Soeprapto S.I.P Independent Commissioner
Alexander Rusli Independent Commissioner
George Thia Peng Heok Independent Commissioner
Chris Kanter Independent Commissioner
BOARD OF DIRECTORS
Harry Sasongko Tirtotjondro President Director and Chief Executive Officer
Peter Wladyslaw Kuncewicz Director and Chief Financial Officer
Stephen Edward Hobbs Director and Chief Technology Officer
Fadzri Sentosa Director and Chief Wholesale and Infrastructure Officer
Laszlo Imre Barta Director and Chief Commercial Officer
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ANNUAL REPORT ON FORM 20-F

(Filed with the US-Securities and Exchange Commission)
281
TABLE OF CONTENTS Page CERTAIN DEFINITIONS, CONVENTIONS AND GENERAL INFORMATION FORWARD-LOOKING STATEMENTS GLOSSARY PART I Item 1: Item 2: Item 3: Item 4: Item 5: Item 6: Item 7: Item 8: Item 9: Item 10: Item 11: Item 12: PART II Item 13: Item 14: Item 15: Item 16A: Item 16B: Item 16C: Item 16D: Item 16E: Item 16F: Item 16G: PART III Item 17: Item 18: FINANCIAL STATEMENTS FINANCIAL STATEMENTS 137 137 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS CONTROLS AND PROCEDURES AUDIT COMMITTEE FINANCIAL EXPERT CODE OF ETHICS PRINCIPAL ACCOUNTANT FEES AND SERVICES EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT CORPORATE GOVERNANCE 133 133 133 134 134 134 135 135 135 135 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS OFFER STATISTICS AND EXPECTED TIMETABLE KEY INFORMATION INFORMATION ON THE COMPANY OPERATING AND FINANCIAL REVIEW AND PROSPECTS DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS FINANCIAL INFORMATION THE OFFER AND LISTING ADDITIONAL INFORMATION QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 8 8 8 32 67 97 106 108 112 114 127 131 3 3 4
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CERTAIN DEFINITIONS, CONVENTIONS AND GENERAL INFORMATION

Unless the context otherwise requires, references in this Form 20-F to the Company, Indosat, we, us, and our are to PT Indosat Tbk and its consolidated subsidiaries. All references to Indonesia are references to the Republic of Indonesia. All references to the Government herein are references to the Government of the Republic of Indonesia. References to United States or U.S. are to the United States of America. References to United Kingdom are to the United Kingdom of Great Britain and Northern Ireland. References to Indonesian rupiah or Rp are to the lawful currency of Indonesia and references to U.S. dollars or US$ are to the lawful currency of the United States. Certain figures (including percentages) have been rounded for convenience, and therefore indicated and actual sums, quotients, percentages and ratios may differ. Our consolidated financial statements as of January 1, 2009 and December 31, 2009 and 2010, and for the years ended December 31, 2008, 2009 and 2010 included in this annual report have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Our consolidated financial statements as of January 1, 2009 and December 31, 2009, and for the years ended December 31, 2008 and 2009 included in this annual report contains the restatement of our consolidated statement of financial position, consolidated statement of comprehensive income and consolidated statement of changes in stockholders equity for the years ended December 31, 2008 and 2009, to cover the accounting policy change relating to leases, which is detailed in Note 2g to our consolidated financial statements included elsewhere in this annual report. Before January 1, 2010, under IFRS, the costs to acquire landrights, as well as other expenses associated with such acquisition, are capitalized as prepaid landrights lease, and were amortized over the period of the right to use the land obtained from the Government, ranging from 20 to 30 years. Starting January 1, 2010, based on an amendment to IAS 17, we classify our land leases as finance leases and present them in our financial statements as property and equipment. We give retroactive application to this accounting change, and amortize land leases over 50 years. Solely for the convenience of the reader, certain Indonesian rupiah amounts have been translated into U.S. dollars at specified rates. Unless otherwise indicated, U.S. dollar equivalent information for amounts in Indonesian rupiah is translated at the Indonesian Central Bank Rate for December 31, 2010, which was Rp8,991 to US$1.00. The exchange rate of Indonesian rupiah for U.S. dollars on April 20, 2011 was Rp8,657 to US$1.00. The Federal Reserve Bank of New York does not certify for customs purposes a noon buying rate for cable transfers in Indonesian rupiah. No representation is made that the Indonesian rupiah or U.S. dollar amounts shown herein could have been or could be converted into U.S. dollars or Indonesian rupiah, as the case may be, at any particular rate or at all. See Item 3: Key InformationExchange Rate Information for further information regarding rates of exchange between Indonesian rupiah and U.S. dollars.
FORWARD-LOOKING STATEMENTS
This Form 20-F contains forward-looking statements, as defined in Section 27A of the Securities Act, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, and within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our expectations and projections for our future operating performance and business prospects. The words believe, expect, anticipate, estimate, project, and similar words identify forward-looking statements. In addition, all statements other than statements of historical facts included in this Form 20-F are forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements herein are reasonable, we can give no assurance that such expectations will prove to be correct. These forwardlooking statements are subject to a number of risks and uncertainties, including changes in the economic, social and political environments in Indonesia. This Form 20-F discloses, under Item 3: Key InformationRisk Factors and elsewhere, important factors that could cause actual results to differ materially from our expectations.
283
GLOSSARY
The explanations of technical terms set forth below are intended to assist you to understand such terms, but are not intended to be technical definitions. 2G 3G ADS analog second generation of wireless telephone technology that includes GSM, Interim Standard95 (IS-95) and personnel digital cellular (PDC) technology third generation of mobile telecommunications standards, including Wideband Code Division Multiple Access/Universal Mobile Telecommunication System (WCDMA/UMTS) American Depository Share, a security that represents an ownership interest in the shares of a foreign private issuer. Each of our ADSs represents 50 shares of our common stock. a signal, whether voice, video or data, which is transmitted in similar, or analogous, signals; commonly used to describe telephone transmission and/or switching services that are not digital the average monthly revenue per minute (in Indonesian rupiah), computed by dividing revenues from monthly recurring prepaid and postpaid cellular services, excluding nonrecurring revenues such as activation fees and special auctions of telephone numbers, for the relevant period, by the total minutes (billed and unbilled) of outgoing call usage of prepaid and postpaid cellular subscribers for such period Average Revenue Per User, an evaluation statistic for a network operators subscriber base. ARPU is computed by dividing monthly recurring prepaid and postpaid cellular services revenues (usage charges, value-added services, interconnection revenues and monthly subscription charges), excluding non-recurring revenues such as activation fees and special auctions of telephone numbers, for the relevant period by the average number of prepaid and postpaid cellular subscribers. The average number of prepaid and postpaid cellular subscribers is the sum of the total number of active cellular subscribers at the beginning and end of each month divided by two. We define an active cellular subscriber as a cellular subscriber who: (i) in the case of a postpaid cellular subscriber, has no outstanding balance remaining due more than 120 days after the last statement date; or (ii) in the case of a prepaid cellular subscriber, recharges the SIM card within a 33-day grace period immediately following the SIM cards expiry date by adding certain minimum amounts to the SIM card. Due to changes in the method used to calculate the number of our prepaid cellular subscribers, our ARPU set forth in this annual report are not comparable between certain periods. See Item 3: Key InformationRisk FactorsRisks Relating to Our Cellular Services BusinessOur subscriber related operating data may not be comparable between periods Asynchronous Transfer Mode, the standard packet-switching protocol for transmitting and receiving data via cell relay (uniform 53-byte cells), wherein information for multiple service types, such as voice, video or data is conveyed in small, fixed-size cells gradual loss in intensity of radio frequency signals by absorption and scattering the highest level in hierarchical network and designed to carry the heaviest traffic. Backbones are either switched (using ATM, frame relay or both) or routed (using only routers and no switches). The transmission links between nodes or switching facilities consist of microwave, submarine cable, satellite, optical fiber or other transmission technology the capacity of a communication link
ARPM
ARPU
ATM
attenuation backbone
bandwidth
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base station controller BTS
the controlling equipment in a 2G network that coordinates the operation of multiple BTSs Base Transceiver Station, a mobile phone base station comprised of radio transmitter and receiver units used for transmitting and receiving voice and data to and from mobile phones in a particular cell area Code Division Multiple Access, a transmission technology where each transmission is sent over multiple frequencies and a unique code is assigned to each data or voice transmission, allowing multiple users to share the same frequency spectrum the transmission lines that connect base station controllers, BTSs and mobile switching centers the subscriber disconnections for a given period, determined by dividing the sum of voluntary and involuntary deactivations during the period by the average number of cellular subscribers for the same period. The average number of cellular subscribers is the sum of the total number of active cellular subscribers at the beginning and end of each month divided by two decibel referencing one watt a method of storing, processing and transmitting information through the use of distinct electronic or optical pulses that represent the binary digits 0 and 1. Digital transmission and switching technologies employ a sequence of these pulses to represent information as opposed to the continuously variable analog signal. Compared to analog networks, digital networks allow for greater capacity, lower interference, protection against eavesdropping and automatic error correction Domestic Long-Distance, long-distance telecommunications services within a country Enhanced Data GSM Environment, a faster version of the global system for GSM wireless service designed to deliver data at rates of up to 384 Kbps, thereby enabling the delivery of multimedia and other broadband applications to mobile users a transmission medium constructed from extremely pure and consistent glass through which digital signals are transmitted as pulses of light. Fiber optic cables offer greater transmission capacity and lower signal distortion than traditional copper cables also referred to as fixed voice service and includes IDD, DLD and fixed local service. This service also includes fixed wireless access service a form of packet switching protocol which breaks data stream into small data packets called frames, equipped with more sophisticated error detection and correction checking, compared to traditional forms of packet switching (also referred to as frame net in our audited consolidated financial statements included elsewhere in this annual report) Fixed Wireless Access service, a limited mobility service that links to an area code Global System for Mobile Communications, a digital cellular telecommunications system standardized by the European Telecommunications Standards Institute based on digital transmission and cellular network architecture with roaming in use throughout Europe, Japan and in various other countries General Packet Radio Service, a standard for cellular communications which supports a wide range of bandwidths and is particularly suited for sending and receiving data, including e-mail and other high bandwidth applications
CDMA
cellular backhaul churn rate
dBW digital
DLD EDGE
fiber optic cable
Fixed telecommunication frame relay
FWA GSM
GPRS
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HSDPA
High Speed Downlink Packet Access, a packet-based data service or protocol in the 3G (WCDMA/UMTS) standard which provides downlink transmission data at speeds of up to 14.4 Mbps High Speed Packet Access +, a packet-based data service or protocol in the 3G (WCDMA/ UMTS) standard which provides higher downlink and uplink transmission data speeds by enhancing higher order modulation and utilizing multiple-input and multiple-output (MIMO) and multicarrier technologies, reaching downlink speed of up to 42Mbps and uplink speed of up to 11.6Mbps International Direct Dialing, a telecommunications service that allows a user to make international long-distance calls without using an operator practice of allowing a competing telecommunications operator to connect its network to the network or network elements of other telecommunications operators to enable the termination of traffic originated by customers of the competing telecommunications operators network to the customers of the other telecommunications operators network an international private line circuit Internet Protocol Virtual Private Network, a packet-based IP routing service that provides economic data transaction facilities between customer locations while maintaining the level of privacy, reliability and service quality dictated by rapidly evolving businesses. IP VPN service provides flexible any-to-any connectivity using Internet Protocol and allows businesses to communicate privately with branch offices, to exchange corporate network traffic, and to establish communication with trusted external partners at low-wide area networking costs Internet Service Provider, a company that provides access to the Internet by providing the interface to the Internet backbone kilobits per second, a measure of digital transmission speed Local Area Network, a short-distance network designed to connect computers within a localized environment to enable the sharing of data and other communication megabits per second, a measure of digital transmission speed a translation unit between telecommunications networks using different standards, such as PSTN, next generation networks and radio access networks Fixed data services, which include Multimedia, Data Communications and Internet services the minutes of usage per cellular subscriber, computed by dividing the total minutes of outgoing call usage of prepaid and postpaid cellular subscribers for each month by the average number of prepaid and postpaid cellular subscribers. The average number of prepaid and postpaid cellular subscribers is the sum of the total number of active cellular subscribers at the beginning and end of each month divided by two. We define an active cellular subscriber as a cellular subscriber who: (i) in the case of a postpaid cellular subscriber, has no outstanding balance remaining due more than 120 days after the last statement date; or (ii) in the case of a prepaid cellular subscriber, recharges the SIM card within a 33 day grace period immediately following the SIM cards expiry date by adding certain minimum amounts to the SIM card. Due to changes in the method used to calculate the number of our prepaid cellular subscribers, our minutes of usage per cellular subscriber set forth in this annual report are not comparable between certain periods. See Item 3: Key InformationRisk FactorsRisks Relating to Our Cellular Services BusinessOur subscriber-related operating data may not be comparable between periods
HSPA+
IDD intercaonnection
IPLC IP VPN
ISP Kbps LAN Mbps media gateway MIDI Minutes of Usage
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MMS MPLS
Multimedia Messaging Services, a cellular telecommunications system that allows SMS messages to include graphics, audio or video components Multi-Protocol Label Switching, a data packet forwarding technology with improved forwarding speed of routers using labels to make data-forwarding decisions that increase the efficiency of data traffic flow through a traffic management pattern that classifies data based on its application the fixed infrastructure equipment consisting of fiber optic cables, copper cables, transmission equipment, multiplexing equipment, switches, radio transceivers, antennas, management information systems and other equipment that receives, transmits and processes signals to and from subscriber equipment and/or between wireless networks and fixed networks a BTS for a 3G network Public Switched Telephone Network, a fixed telephone network operated and maintained by PT Telekomunikasi Indonesia Tbk Reference Interconnect Offer, a regulatory term that refers to the document that covers technical, operational, economical and other aspects of interconnection access by one telecommunications network operator in favor of other telecommunications operators the cellular telecommunications feature that permits subscribers of one network to use their mobile handsets and telephone numbers when in a region with cellular network coverage provided by another provider Subscriber Identity Module, the smart card designed to be inserted into a mobile handset containing all subscriber-related data such as phone numbers, service details and memory for storing messages Short Message Service, a means to send or receive alphanumeric messages to or from mobile handsets Voice over Internet Protocol, a means of sending voice information using Internet protocol. The voice information is transmitted in discrete packets in digital form rather than the traditional circuit-committed protocols of the PSTN, thereby avoiding the tolls charged by conventional long-distance service providers Very Small Aperture Terminal, a relatively small satellite dish, typically 1.5 to 3.8 meters in diameter, placed at users premises and used for two-way data communications through satellite Wireless Application Protocol, an open and global standard of technology platform that enables mobile users to access and interact with mobile information services such as e-mail, websites, financial information, online banking information, entertainment (infotainment), games and micro-payments a widely used data packet-switching standard that has been partially replaced by frame relay services
network infrastructure
Node B PSTN RIO
roaming
SIM or SIM card
SMS VoIP
VSAT
WAP
x.25
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PART I Item 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.
Item 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.
Item 3: KEY INFORMATION

Selected Financial and Other Data The following tables present our selected consolidated financial information and operating statistics as of the dates and for each of the periods indicated. The selected financial information as of and for the years ended December 31, 2008, 2009 and 2010 presented below is based upon our audited consolidated financial statements prepared in conformity with IFRS as issued by IASB. The selected consolidated financial information as of and for the years ended December 31, 2008 and 2009 presented below has been adjusted to reflect the restatement of our consolidated statement of financial position and consolidated statement of comprehensive income for the years ended December 31, 2008 and 2009, as more fully described in the front of this annual report and in Note 2g to our consolidated financial statements included elsewhere in this annual report. The selected financial information as of and for the years ended December 31, 2008, 2009 and 2010 should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements, including the notes thereto, and the other information included elsewhere in this annual report. The selected financial information as of and for the years ended December 31, 2006 and 2007 is based upon our audited consolidated financial statements prepared in conformity with generally accepted accounting principles in Indonesia (Indonesian GAAP), with a reconciliation to U.S. GAAP. The selected financial information as of and for the years ended December 31, 2006 and 2007 should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements, including the notes thereto, and the other information included elsewhere in our previous annual reports filed with the U.S. SEC on May 8, 2008. Therefore, financial information for 2008, 2009 and 2010 are not comparable with financial information for 2006 and 2007 and are presented separately. The audited consolidated financial statements as of and for the years ended December 31, 2006, 2007, 2008 and 2009 have been audited by Purwantono, Sarwoko & Sandjaja and the audited consolidated financial statements as of and for the year ended December 31, 2010 has been audited by Purwantono, Suherman & Surja, the Indonesian member firm of Ernst & Young Global.
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As of December 31, 2008 (Restated) Rp 2009 (Restated) Rp Rp 2010 US$
(Rp in billions and US$ in millions, except for number of outstanding shares) Financial Position Data: IFRS: Assets Cash and cash equivalents Other current assets (other than cash and cash equivalents)net Due from related partiesnet Deferred tax assetsnet Long-term investments Property and equipmentnet Goodwill and other intangible assetsnet Other non-current assets Total assets Liabilities Current liabilities Due to related parties Deferred tax liabilitiesnet Loans payable (net of current maturities) Bonds payable (net of current maturities) Other non-current liabilities Total liabilities Net assets (total assetstotal liabilities) Capital stock Stockholders equity Total liabilities and stockholders equity Number of outstanding shares 10,719.7 14.7 1,348.8 10,812.2 10,315.6 871.8 34,082.8 17,779.7 543.4 17,779.7 51, 862.5 5,433,933,500 13,067.3 13.8 1,651.8 12,715.5 8,472.2 939.5 36,860.1 18,574.9 543.4 18,574.9 55,435.0 5,433,933,500 11,909.9 22.1 1,951.3 7,666.8 12,114.1 1,059.5 34,723.7 18,702.0 543.4 18,702.0 53,425.7 5,433,933,500 1,324.6 2.5 217.0 852.7 1,347.4 117.8 3,862.0 2,080.1 60.4 2,080.1 5,942.1 N/A 5,737.9 3,953.9 42.5 70.8 3.4 38,333.6 2,060.7 1,659.7 51,862.5 2,836.0 4,302.9 7.2 88.0 3.2 44,358.1 2,042.8 1,796.8 55,435.0 2,075.3 4,083.6 8.4 95.0 2.7 43,489.4 2,063.2 1,608.1 53,425.7 230.8 454.2 0.9 10.5 0.3 4,837.0 229.5 178.9 5,942.1
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For the years ended December 31, 2008 (Restated) Rp Comprehensive Income Data: IFRS: Operating revenues: Cellular MIDI Fixed telecommunication Total operating revenues Total operating expenses Operating income Other income (expense): Interest income Gain (loss) on foreign exchangenet Gain (loss) on change in fair value of derivatives net Financing cost Other expensenet Total other expensenet Income tax expensenet Profit for the year Attributable to owners of the Company Attributable to non-controlling interests Weighted average number of shares outstanding Basic and diluted earnings per share attributable to owners of the Company (in full amounts)(2) Dividends declared per share (in full amounts)(2) Dividends declared per share (in full amounts) (in US$)(2)(4) Dividends declared per ADS (in full amounts) (in US$)(2)(3)(4) 460.1 (885.7) 136.6 (1,858.3) (25.6) (2,172.9) (485.3) 2,070.0 2,043.8 26.2 5,433,933,500 376.11 172.85 0.02 0.86 139.0 1,656.4 (486.9) (1,873.0) (116.8) (681.3) (783.9) 1,760.3 1,704.0 56.3 5,433,933,500 313.57 137.86 0.015 0.77 143.4 492.4 (448.8) (2,271.6) (111.8) (2,196.4) (422.4) 902.9 824.7 78.2 5,433,933,500 151.76 15.9 54.8 (49.9) (252.7) (12.4) (244.3) (47.0) 100.4 91.7 8.7 N/A 14,460.8 2,733.4 2,021.8 19,216.0 14,487.8 4,728.2 14,331.3 2,712.6 1,803.0 18,846.9 15,621.4 3,225.5 15,867.1 2,488.1 1,293.2 19,648.4 16,126.7 3,521.7 1,764.8 276.7 143.8 2,185.3 1,793.6 391.7 2009 (Restated) Rp Rp 2010 US$(1)
(Rp in billions and US$ in millions, except shares and per ADS data)
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As of and for the years ended December 31, 2008 (Restated) 2009 (Restated) 2010 Rp Rp Rp US$(1) (Rp in billions and US$ in millions, except for number of outstanding shares, EBITDA margin and financial ratios) IFRS: Cash Flow Statement Data: Net cash provided by (used in): Operating activities Investing activities Financing activities Other Financial Data (unaudited) EBITDA(5) EBITDA margin(6) Other Financial Data Capital expenditures(7) Financial Ratios (unaudited) Total Debt to EBITDA(8) Net Debt to EBITDA(9) EBITDA to Interest Expense
6,513.3 (10,286.9) 1,458.5 9,293.6 48.4% 12,341.9 2.38x 1.76x 5.23
4,051.2 (10,670.7) 3,724.7 8,797.1 46.7% 11,584.5 2.93x 2.90x 4.86x
6,839.0 (5,970.7) (1,629.7) 9,684.5 49.3% 5,515.0 2.52x 2.48x 4.66x
760.6 (664.1) (181.2) 1,077.1 49.3% 613.4
As of and for the years ended December 31, 2006 2007 Rp Rp (Rp in billions and US$ in millions, except for number of outstanding shares) Balance Sheet Data: Indonesian GAAP: Assets Cash and cash equivalents Other current assets (other than cash and cash equivalents) Due from related partiesnet Deferred tax assetsnet Long-term investments Property and equipmentnet Goodwill and other intangible assetsnet Other non-current assets Total assets Liabilities Current liabilities Due to related parties Deferred tax liabilitiesnet Loans payable (net of current portion) Bonds payable (net of current portion) Other non-current liabilities Total liabilities Net assets (total assetstotal liabilities) Minority interest Stockholders equity Total liabilities and stockholders equity Number of outstanding shares U.S. GAAP:(10) Total assets Total stockholders equity
2,807.3 2,858.2 23.3 46.6 8.8 24,918.6 2,394.5 1,171.4 34,228.7 6,803.2 29.4 1,244.5 1,504.8 8,734.0 510.4 18,826.3 15,402.4 200.6 15,201.8 34,228.7 5,433,933,500 36,990.9 16,574.8
8,053.0 2,773.1 56.5 87.1 3.0 30,572.8 2,087.2 1,672.4 45,305.1 11,658.6 64.9 1,482.2 4,249.0 10,088.7 919.6 28,463.0 16,842.1 297.4 16,544.7 45,305.1 5,433,933,500 48,840.1 18,260.6
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For the years ended December 31, 2006 Rp 2007 Rp
(Rp in billions and US$ in millions, except per share and per ADS data) Income Statement Data: Indonesian GAAP: Operating revenues: Cellular(11)(17) MIDI Fixed telecommunication(17) Total operating revenues Total operating expenses(11) Operating income Other income (expense): Interest income Gain (loss) on foreign exchangenet Gain (loss) on change in fair value of derivativesnet Amortization of goodwill Financing cost Other expensenet Total other expensenet Equity in net income of associated companies Minority interest in net income of subsidiaries Income tax expensenet Net income Weighted average number of shares outstanding Operating income from operations per share Diluted earnings per share Basic earnings per share(2) Dividends declared per share
(2)
9,446.9 1,902.6 1,146.8 12,496.3 9,097.6 3,398.7 212.8 304.4 (438.8) (226.5) (1,248.9) 21.2 (1,375.8) (0.2) (36.5) (576.1) 1,410.1 5,404,654,859 628.8 258.8 260.9 129.75 0.014 0.69 1,751.0 324.0 16,199.3 321.9 16,097.2
12,924.8 2,168.6 1,780.4 16,873.8 12,354.2 4,519.6 232.4 (155.3) 68.0 (226.5) (1,428.6) (80.0) (1,590.0) (28.1) (859.5) 2,042.0 5,433,933,500 831.7 375.8 375.8 187.90 0.017 0.86 2,475.8 455.6 22,781.0 455.6 22,781.0
Dividends declared per share (in US$)(2)(4) Dividends declared per ADS (in US$)(2)(3)(4) U.S. GAAP:(10) Net income Basic earnings per share(2) Basic earnings per ADS(2)(3) Diluted earnings per share Diluted earnings per ADS
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As of and for the years ended December 31, 2006 Rp 2007 Rp
(Rp in billions and US$ in millions, except fornumber of outstanding shares, EBITDAmargin and financial ratios) Indonesian GAAP: Cash Flow Statement Data Net cash provided by (used in): Operating activities Investing activities Financing activities Other Financial Data (unaudited) EBITDA(12) EBITDA margin(13) Other Financial Data Capital expenditures(14) Financial Ratios (unaudited) Total Debt to EBITDA(15) Net Debt to EBITDA(16) EBITDA to Interest Expense 1.64x 1.24x 5.83x 1.94x 1.01x 6.22x 6,921.3 9,726.4 7,027.2 56.2% 8,682.8 51.4% 5,669.6 (6,331.0) (1,248.7) 8,273.9 (7,290.4) 4,237.0
Footnotes to Selected Financial Information: (1) Translated into U.S. dollars based on a conversion rate of Rp8,991 = US$1.00, the Indonesian Central Bank Rate on December 31, 2010. See Exchange Rate Information below. (2) Basic earnings per share/ADS, and dividends declared per share/ADS are reported in whole Indonesian rupiah and U.S. dollars. Basic earnings per share/ADS and dividends declared per share/ADS for all periods presented have been computed based upon the weighted average number of shares outstanding, after considering the effect of the stock option where applicable. (3) The basic earnings and dividends declared per ADS data is calculated on the basis that each ADS represents fifty shares of common stock and does not make allowance for withholding tax to which the holders of the ADSs will be subject. (4) Calculated using the Indonesian Central Bank Rate on each dividend payment date. (5) We have defined EBITDA as earnings before interest, non-operating income and expense, income tax expense, depreciation and minority interest in net income of subsidiaries as reported in the consolidated financial statements included in this annual report prepared under IFRS. EBITDA is not a standard measure under IFRS. As the telecommunications business is capital intensive, capital expenditure requirements and levels of debt and interest expenses may have a significant impact on the net income of companies with similar operating results. Therefore, we believe that EBITDA provides a useful reflection of our operating results and that net income is the most directly comparable financial measure to EBITDA as an indicator of our operating performance. You should not consider our definition of EBITDA in isolation or as an indicator of operating performance, liquidity or any other standard measure under IFRS, or other companies definition of EBITDA. Our definition of EBITDA does not account for taxes and other non-operating cash expenses. Funds depicted by this measure may not be available for debt service due to covenant restrictions, capital expenditure requirements and other commitments. The following table reconciles profit attributable to owners of the Company under IFRS to our definition of EBITDA for the periods indicated:
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EBITDA Adjustment: Gain (loss) on foreign exchangenet Interest income Financing cost (including interest expense) Gain (loss) on change in fair value of derivativesnet Othersnet Income tax expensenet Depreciation and amortization Profit attributable to non controlling interest Profit attributable to owners of the Company
(6) (7) (8)
For the years ended December 31, 2008 (Restated) 2009 (Restated) 2010 Rp Rp Rp (in billions) 9,293.6 8,797.1 9,684.5 (885.7) 460.1 (1,858.3) 136.6 (25.6) (485.3) (4,565.4) (26.2) 2,043.8 1,656.4 139.0 (1,873.0) (486.9) (116.8) (783.9) (5,571.6) (56.3) 1,704.0 492.4 143.4 (2,271.6) (448.8) (111.8) (422.4) (6,162.8) (78.2) 824.7
EBITDA margin is computed by dividing EBITDA as defined in note (5) above by total operating revenues recorded under IFRS. Capital expenditures is computed by adding total additions of property and equipment and total additions of goodwill and other intangible assets recorded under IFRS. We define total debt as total loans payable and bonds payable (current and non-current maturities), unamortized issuance cost (loans, bonds and notes), unamortized consent solicitation fees (loans and bonds) and unamortized discounts (loans and notes) recorded under IFRS. (9) We define net debt as total debt less cash and cash equivalents recorded under IFRS. (10) U.S. GAAP amounts reflect adjustments resulting principally from differences in the accounting treatment of capitalization of interest expense, capitalization of net foreign exchange losses, revenue recognition, equity in net income (loss) of associated companies, amortization of goodwill, amortization of land rights, post-retirement benefit cost, pension plan and deferred income tax effect of U.S. GAAP adjustments. (11) In 2007, the Government adopted a new cost-based interconnection regime, replacing the previous revenue-sharing interconnection regime. Under this new regime, we now report operating revenues on a gross basis rather than on a net-based method. Under the net-based method, we recognized interconnection income net of interconnection expenses. Under the gross basis method, we recognize interconnection income in operating revenue and interconnection expenses in operating expenses. (12) We have defined EBITDA as earnings before financing cost (including interest expense), interest income, income tax expense (net), depreciation and amortization expense, amortization of goodwill, loss on foreign exchange (net), loss on change in fair value of derivatives (net), other non-operating expenses (net), and minority interest in net income of subsidiaries as reported in the consolidated financial statements included in this report prepared under Indonesian GAAP. EBITDA is not a standard measure under either Indonesian GAAP or U.S. GAAP. As the telecommunications business is capital intensive, capital expenditure requirements and levels of debt and interest expenses may have a significant impact on the net income of companies with similar operating results. Therefore, we believe that EBITDA provides a useful reflection of our operating results and that net income is the most directly comparable financial measure to EBITDA as an indicator of our operating performance. You should not consider our definition of EBITDA in isolation or as an indicator of operating performance, liquidity or any other standard measure under either Indonesian GAAP or U.S. GAAP or other companies definition of EBITDA. Funds depicted by this measure may not be available for debt service due to covenant restrictions, capital expenditure requirements and other commitments. The definition of EBITDA under certain agreements related to our indebtedness may differ from the definition we use here. The following table reconciles our net income under Indonesian GAAP to our definition of EBITDA for the periods indicated:
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EBITDA Adjustments: Other income (expense): Interest income Gain (loss) on foreign exchangenet Gain (loss) on change in fair value of derivativesnet Amortization of goodwill Financing cost Others income (expense)net Equity in net income of associated companies Minority interest in net income of subsidiaries Income tax expensenet Depreciation and amortization Net income
For the years ended December 31, 2006 2007 Rp Rp (Rp in billions, US$ in millions) 7,027.2 8,682.8
212.8 304.4 (438.8) (226.5) (1,248.9) 21.2 (0.2) (36.5) (576.1) (3,628.5) 1,410.1
232.4 (155.3) 68.0 (226.5) (1,428.6) (80.0) (28.1) (859.5) (4,163.2) 2,042.0
(13) EBITDA margin is computed by dividing EBITDA as defined in note (12) above by total operating revenues recorded under Indonesian GAAP. (14) Capital expenditures is computed by adding total additions of property and equipment and total additions of goodwill and other intangible assets recorded under Indonesian GAAP. (15) We define total debt as total loans payable and bonds payable (current and non-current maturities), unamortized issuance cost (loans, bonds and notes), unamortized consent solicitation fees (loans and bonds) and unamortized discounts (loans and notes) recorded under Indonesian GAAP. (16) We define net debt as total debt less cash and cash equivalents recorded under Indonesian GAAP. (17) Cellular revenue arising from airtime and roaming calls are recognized based on the duration of successful calls made through the Companys cellular network, which up to December 31, 2007, had been presented on a net basis. To improve the comparability of the consolidated financial statements, the Company made accounts reclassification in the consolidated financial statements for the year ended December 31, 2006 and 2007.
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Exchange Rate Information

Exchange Rates of Indonesian Rupiah Per U.S. Dollar Period end Period 2006 2007 2008 2009 2010 October November December 2011 January February March April (through April 20, 2011) 9,057 8,823 8,709 8,657 9,037 8,913 8,761 8,666 9,088 9,042 8,824 8,699 8,976 8,823 8,708 8,641 9,020 9,419 10,950 9,400 8,991 8,928 9,013 8,991 9,141 9,137 9,761 10,398 9,085 8,928 8,938 9,023 9,395 9,479 12,400 12,065 9,413 8,947 9,033 9,050 8,775 8,672 9,051 9,293 8,888 8,913 8,888 8,978 Average(1)(2) Low High
Source: Bank Indonesia (1) The annual average exchange rates are calculated as averages of each monthly period-end exchange rate. (2) The monthly average exchange rates are calculated as averages of each daily close exchange rate.
Bank Indonesia is the sole issuer of Indonesian rupiah and is responsible for maintaining its stability. Since 1970, Indonesia has implemented three exchange rate systems: (i) a fixed rate system between 1970 and 1978; (ii) a managed floating exchange rate system between 1978 and 1997; and (iii) a free-floating exchange rate system since August 14, 1997. Under the floating exchange rate system, Bank Indonesia maintained stability of the Indonesian rupiah through a trading band policy, pursuant to which Bank Indonesia would enter the foreign currency market and buy or sell Indonesian rupiah, as required, when trading in the Indonesian rupiah exceeded bid and offer prices announced by Bank Indonesia on a daily basis. On August 14, 1997, Bank Indonesia terminated the trading band policy and permitted the exchange rate for the Indonesian rupiah to float without an announced level at which it would intervene, which resulted in a substantial decrease in the value of the Indonesian rupiah relative to the U.S. dollar. Under the current system, the exchange rate of the Indonesian rupiah is determined by the market, reflecting the interaction of supply and demand in the market. However, Bank Indonesia may take measures to maintain a stable exchange rate. The prevailing exchange rate was Rp10,950 = US$1.00 as of December 31, 2008, Rp9,400 = US$1.00 as of December 31, 2009 and Rp8,991 = US$1.00 as of December 31, 2010, respectively. On April 20, 2011, the exchange rate was Rp8,657 per U.S. dollar. The Federal Reserve Bank of New York does not certify for customs purposes a noon buying rate for cable transfers in Indonesian rupiah. The Indonesian rupiah has been and in general is freely convertible or transferable. Bank Indonesia has introduced regulations to restrict the movement of Indonesian rupiah from banks within Indonesia to offshore banks without underlying trade or investment reasons, thereby limiting offshore trading to existing sources of liquidity. In addition, Bank Indonesia has the authority to request information and data concerning the foreign exchange activities of all people and legal entities that are domiciled, or plan to reside, in Indonesia for at least one year.
Foreign Exchange
Foreign exchange controls were abolished in 1971, and Indonesia now maintains a liberal foreign exchange system that permits the free flow of foreign exchange. Capital transactions, including remittances of capital, profits, dividends and interests, are free from exchange controls. A number of regulations, however, have an impact on the exchange system.
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Bank Indonesia recently introduced regulations to restrict the movement of Indonesian rupiah from banks within Indonesia to offshore banks without underlying trade or investment reasons, thereby limiting offshore trading to existing sources of liquidity. In addition, Bank Indonesia has the authority to request information and data concerning the foreign exchange activities of all people and legal entities that are domiciled in Indonesia or plan to domicile in Indonesia for at least one year.
RISK FACTORS Risks Relating to Indonesia

We are incorporated in Indonesia and substantially all of our operations, assets and customers are located in Indonesia. As a result, future political, economic, legal and social conditions in Indonesia, as well as certain actions and policies which the Government may, or may not, take or adopt may have a material adverse effect on our business, financial condition, results of operations and prospects. Domestic, regional or global economic changes may adversely affect our business The economic crisis which affected Southeast Asia, including Indonesia, from mid-1997 was characterized in Indonesia by, among other things, currency depreciation, negative economic growth, high interest rates, social unrest and extraordinary political events. These conditions had a material adverse effect on Indonesian businesses, including a material adverse effect on the quality and growth of our subscriber base and service offerings, which depend on the health of the overall Indonesian economy. In addition, the economic crisis resulted in the failure of many Indonesian companies to meet their debt obligations. Many Indonesian companies have not fully recovered from the economic crisis, and many such companies are still in the process of restructuring their debt obligations or are engaged in disputes arising from defaults under their debt obligations. More recently, the global financial crisis which was triggered in part by the subprime mortgage crisis in the United States, caused failures of large U.S. financial institutions and rapidly evolved into a global credit crisis. U.S. bank failures were followed by failures in a number of European banks and declines in various stock indexes, as well as large reductions in the market value of equities and commodities worldwide, including in Indonesia. The world economic downturn has adversely affected the economic performance of Indonesia, resulting in declining economic growth, slowing household consumption and weakening investment due to loss of external demand and increased uncertainty in the world economy. These conditions have had a negative impact on Indonesian businesses and consumers, which may result in reduced demand for telecommunication services. Volatility in oil prices and potential food shortages may also cause an economic slowdown in many countries, including Indonesia. An economic downturn in Indonesia could also lead to additional defaults by Indonesian borrowers and could have a material adverse effect on our business, financial condition and results of operations and prospects. The Government continues to have a large fiscal deficit and a high level of sovereign debt. Its foreign currency reserves are modest and the banking sector is weak and suffers from relatively high levels of non-performing loans. The current high inflation rate in Indonesia may also result in less disposable income available to consumers to spend or cause consumer purchasing power to decrease, which may reduce consumer demand for telecommunication services, including our services. A loss of investor confidence in the financial systems of emerging and other markets, or other factors, including the deterioration of the global economic situation, may cause increased volatility in the Indonesian financial markets and a slowdown in economic growth or negative economic growth in Indonesia. Any such increased volatility or slowdown or negative growth could have a material adverse effect on our business, financial condition and results of operations and prospects. Political and social instability may adversely affect us Since 1998, Indonesia has experienced a process of democratic change, resulting in political and social events that have highlighted the unpredictable nature of Indonesias changing political landscape. These events have resulted in political
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instability as well as general social and civil unrest on certain occasions in the past few years. As a relatively new democratic country, Indonesia continues to face various socio-political issues and has, from time to time, experienced political instability and social and civil unrest. Since 2000, thousands of Indonesians have participated in demonstrations in Jakarta and other Indonesian cities both for and against former President Wahid, former President Megawati, and current President Yudhoyono, as well as in response to specific issues, including fuel subsidy reductions, privatization of state assets, anti-corruption measures, the bailout of PT Bank Century in 2008, decentralization and provincial autonomy and the American-led military campaigns in Afghanistan and Iraq. In June 2001, demonstrations and strikes affected at least 19 cities after the Government mandated a 30.0% increase in fuel prices. Similar demonstrations occurred in January 2003, when the Government again tried to increase fuel prices, as well as electricity rates and telephone charges. In both instances, the Government was forced to drop or substantially reduce the proposed increases. In March 2005, the Government implemented an approximately 29.0% increase in fuel prices. In October 2005, the Government terminated fuel subsidies on premium and regular gasoline and decreased fuel subsidies on diesel, which resulted in increases in fuel prices. In response, several non-violent mass protests were organized in opposition to the increases in domestic fuel prices, and political tensions have resulted from the Governments decision. In May 2008, the Government further decreased fuel subsidies to the public, which led to public demonstrations. Although these demonstrations were generally peaceful, some turned violent. We cannot assure you that this situation will not lead to further political and social instability. Regional political instability and clashes between religious and ethnic groups remain problematic. Separatist movements and clashes between religious and ethnic groups have resulted in social and civil unrest in parts of Indonesia. In the provinces of Aceh and Papua (formerly Irian Jaya), there have been clashes between supporters of those separatist movements and the Indonesian military, although there has been little conflict in Aceh since a memorandum of understanding was signed in August 2005. In April 2006, hundreds of people were involved in a violent protest directed at Freeports gold mining operations in the province of Papua. In recent years, political instability in Maluku and Poso, a district in the province of Central Sulawesi, has intensified and clashes between religious groups in these regions have resulted in thousands of casualties and displaced persons in Central Kalimantan and Central Sulawesi over the past several years. In recent years, the Government has made limited progress in negotiations with these troubled regions, except in the Province of Aceh where peaceful local elections were recently held which resulted in former separatists winning the election and becoming the governors of the Province. In 2004, Indonesians directly elected the President, Vice-President and representatives in the Indonesian parliament for the first time through proportional voting with an open list of candidates. At the lower governmental level, Indonesians have started directly electing their respective heads of local governments. In 2009, another set of elections were held in Indonesia to elect the President, Vice-President and representatives in the Parliament. Increased political activity can be expected in Indonesia. Although the 2004 and 2009 elections were conducted peacefully, political campaigns in Indonesia may bring a degree of political and social uncertainty to Indonesia. Political and related social developments in Indonesia have been unpredictable in the past, and we cannot assure you that social and civil disturbances will not occur in the future and on a wider scale, or that any such disturbances will not, directly or indirectly, have a material adverse effect on our business, financial condition, results of operations and prospects. Indonesia is located in an earthquake zone and is subject to significant geological risks which could lead to social unrest and economic loss Many parts of Indonesia are vulnerable to natural disasters such as earthquakes, tsunamis, floods, volcanic eruptions as well as droughts, power outages or other events beyond our control. In recent years, several natural disasters have occurred in
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Indonesia (in addition to the Asian tsunami in 2004), including an explosive eruption of Mount Merapi and Mount Bromo, a tsunami in Mentawai in West Sumatera, both in 2010, a tsunami in Pangandaran in West Java in 2006, an earthquake in Jogyakarta in Central Java in 2006, a hot mud eruption and subsequent flooding in East Java in 2006 and separate earthquakes in Papua, West Java, Sulawesi and Sumatra in 2009. Indonesia also experienced significant flooding in Jakarta in February 2007 and in Solo in Central Java in January 2008. In March 2009, torrential rain caused a dam to burst outside Jakarta, flooding homes in a densely populated neighborhood, resulting in the death of approximately 100 people. The flood submerged hundreds of homes and resulted in a number of people being reported missing. Recently, in October 2010, at least 145 people died in a flash flood in Wasior district, West Papua. Also in October 2010, an earthquake off the coast of Western Sumatra released a tsunami on the Mentawai Islands in which more than 500 people died. From October 24, 2010 to November 5, 2010, Mount Merapi, a volcano in Southern Java near Yogyakarta, erupted a number of times and is believed to have killed more than 380 people. As a result of these natural disasters, the Government has had to spend significant amounts on emergency aid and resettlement efforts. Most of these costs have been underwritten by foreign governments and international aid agencies. We cannot assure you that such aid will continue to be forthcoming, or that it will be delivered to recipients on a timely basis. If the Government is unable to timely deliver foreign aid to affected communities, political and social unrest could result. Additionally, recovery and relief efforts are likely to continue to impose a strain on the Governments finances, and may affect its ability to meet its obligations on its sovereign debt. Any such failure on the part of the Government, or declaration by it of a moratorium on its sovereign debt, could trigger an event of default under numerous private-sector borrowings including those of our Company, thereby materially and adversely affecting our business. We cannot assure you that our insurance coverage will be sufficient to protect us from potential losses resulting from such natural disasters and other events beyond our control. In addition, we cannot assure you that the premium payable for these insurance policies upon renewal will not increase substantially, which may materially and adversely affect our financial condition and results of operations. We also cannot assure you that future geological or meteorological occurrences will not have more of an impact on the Indonesian economy. A significant earthquake, other geological disturbance or weatherrelated natural disaster in any of Indonesias more populated cities and financial centers could severely disrupt the Indonesian economy and undermine investor confidence, thereby materially and adversely affecting our business, financial condition, results of operations and prospects. Terrorist activities in Indonesia could destabilize the country, thereby adversely affecting our business, financial condition, results of operations and prospects Several bombing incidents have taken place in Indonesia, most significantly in October 2002 in Bali, a region of Indonesia previously considered safe from the unrest affecting other parts of the country. Other bombing incidents, although on a lesser scale, have also been committed in Indonesia on a number of occasions over the past few years, including at shopping centers and places of worship. In April 2003, a bomb exploded outside the main United Nations building in Jakarta and in front of the domestic terminal at Soekarno Hatta International Airport. In August 2003, a bomb exploded at the JW Marriott Hotel in Jakarta, and in September 2004, a bomb exploded in front of the Australian embassy in Jakarta. In May 2005, bomb blasts in Central Sulawesi killed at least 21 people and injured at least 60 people. In October 2005, bomb blasts in Bali killed at least 23 people and injured at least 101 others. Indonesian, Australian and U.S. government officials have indicated that these bombings may be linked to an international terrorist organization. Demonstrations have taken place in Indonesia in response to plans for and subsequent to U.S., British and Australian military action in Iraq. In January 2007, sectarian terrorists conducted bombings in Poso. In July 2009, bomb blasts in the JW Marriott and Ritz Carlton hotels in Jakarta killed six people and injured at least 50 people. Further terrorist acts may occur in the future and may be directed at foreigners in Indonesia. Violent acts arising from, and leading to, instability and unrest could destabilize Indonesia and the Government and have had, and may continue to have, a material adverse effect on investment and confidence in, and the performance of, the Indonesian economy, and may have a material adverse effect on our business, financial condition, results of operations and prospects.
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Our operations may be adversely affected by an outbreak of Severe Acute Respiratory Syndrome (SARS), avian influenza, Influenza A (H1N1) virus or other epidemics In 2003, certain countries in Asia including, Indonesia, the China, Vietnam, Thailand and Cambodia, experienced an outbreak of SARS, a highly contagious form of atypical pneumonia, which seriously interrupted the economic activities in, and the demand for goods plummeted in, the affected regions. During the last four years, large parts of Asia experienced unprecedented outbreaks of avian influenza. As of June 2, 2009, the World Health Organization (WHO) had confirmed a total of 262 fatalities in a total number of 433 cases reported to the WHO, which only reports laboratory confirmed cases of avian influenza. Of these, the Indonesian Ministry of Health reported to the WHO 115 fatalities in a total number of 141 cases of avian influenza in Indonesia. In addition, the WHO announced in June 2006 that human-to-human transmission of avian influenza had been confirmed in Sumatra, Indonesia. According to the United Nations Food and Agricultural Organization, avian influenza virus is entrenched in 31 of Indonesias 33 provinces and efforts to contain avian influenza are failing in Indonesia, increasing the possibility that the virus may mutate into a deadlier form. No fully effective avian influenza vaccines have been developed and an effective vaccine may not be discovered in time to protect against a potential avian influenza pandemic. In April 2009, there was an outbreak of the Influenza A (H1N1) virus, which originated in Mexico but has since spread globally, including confirmed reports in Hong Kong, Indonesia, Japan, Malaysia, Singapore and elsewhere in Asia. The Influenza A (H1N1) virus is believed to be highly contagious and may not be easily contained. An outbreak of SARS, avian influenza, Influenza A (H1N1) virus or a similar epidemic, or the measures taken by the governments of affected countries, including Indonesia, against such an outbreak, could severely disrupt the Indonesian and other economies and undermine investor confidence, thereby materially and adversely affecting our financial condition or results of operations. Labor activism and unrest may adversely affect our business The liberalization of regulations permitting the formation of labor unions, combined with weak economic conditions, has resulted, and will likely continue to result, in labor unrest and activism in Indonesia. In 2000, the Government issued a labor regulation allowing employees to form unions without employer intervention. In March 2003, the Government enacted a manpower law, Law No. 13/2003 (the Labor Law), which, among other things, increased the amount of required severance, service and compensation payments to terminated employees, and required employers with 50 or more employees to establish bipartite forums with the participation of employers and employees. To negotiate a collective labor agreement with such a company, a labor unions membership must consist of more than 50.0% of the companys employees. In response to a challenge to its validity, the Indonesian Constitutional Court declared the Labor Law to be mostly valid, except for certain provisions. The Government proposed to amend the Labor Law in a manner which, in the view of labor activists, would result in reduced pension benefits, the increased use of outsourced employees and prohibitions on unions to conduct strikes. The proposal has been suspended and the new Government regulation addressing lay-offs of workers has not yet become effective. Labor unrest and activism could disrupt our operations and could adversely affect the financial condition of Indonesian companies in general and the value of the Indonesian rupiah relative to other currencies, which could have a material adverse effect on our business, financial condition, results of operations and prospects. Depreciation in the value of the Indonesian rupiah may adversely affect our business, financial condition, results of operations and prospects One of the most important immediate causes of the economic crisis which began in Indonesia in mid-1997 was the depreciation and volatility of the value of the Indonesian rupiah, as measured against other currencies, such as the U.S. dollar. Although the Indonesian rupiah has appreciated considerably from its low point of approximately Rp17,000 per U.S. dollar in 1998, it may experience volatility again in the future. During the period between January 1, 2008 through December 31, 2010, the Indonesian rupiah/U.S. dollar exchange rate ranged from a low of Rp12,400 per U.S. dollar to a high of Rp8,888 per U.S. dollar. As a result, we recorded a loss on foreign exchange-net of Rp885.7 billion in 2008, a gain of Rp1,656.4 billion
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in 2009 and a gain of Rp492.4 in 2010. We cannot assure you that further depreciation of the Indonesian rupiah against other currencies, including the U.S. dollar, will not occur. To the extent the Indonesian rupiah depreciates further from the exchange rates at December 31, 2010, our obligations under our accounts payable, procurements payable and our foreign currency-denominated loans payable and bonds payable would increase in Indonesian rupiah terms. Such depreciation of the Indonesia rupiah would result in additional losses on foreign exchange translation and significantly impact our other income and net income. In addition, while the Indonesian rupiah has generally been freely convertible and transferable (except that Indonesian banks may not transfer Indonesian rupiah to persons outside of Indonesia who lack a bona fide trade or investment purpose), from time to time, Bank Indonesia has intervened in the currency exchange markets in furtherance of its policies, either by selling Indonesian rupiah or by using its foreign currency reserves to purchase Indonesian rupiah. We cannot assure you that the current floating exchange rate policy of Bank Indonesia will not be modified or that the Government will take additional action to stabilize, maintain or increase the value of the Indonesian rupiah, or that any of these actions, if taken, will be successful. Modification of the current floating exchange rate policy could result in significantly higher domestic interest rates, liquidity shortages, capital or exchange controls or the withholding of additional financial assistance by multinational lenders. This could result in a reduction of economic activity, an economic recession, loan defaults or declining usage of our subscribers, and as a result, we may also face difficulties in funding our capital expenditures and in implementing our business strategy. Any of the foregoing consequences could have a material adverse effect on our business, financial condition, results of operations and prospects. Downgrades of credit ratings of the Government or Indonesian companies could adversely affect our business Beginning in 1997, certain recognized statistical rating organizations, including Moodys, Standard & Poors, and Fitch, downgraded Indonesias sovereign rating and the credit ratings of various credit instruments of the Government and a large number of Indonesian banks and other companies. As of April 20, 2011, Indonesias sovereign foreign currency longterm debt is rated Ba1 by Moodys, BB by Standard & Poors and BBB- by Fitch. These ratings reflect an assessment of the Governments overall financial capacity to pay its obligations and its ability or willingness to meet its financial commitments as they become due. We cannot assure you that Moodys, Standard & Poors, Fitch or any other statistical rating organization will not downgrade the credit ratings of Indonesia or Indonesian companies, including us. Any such downgrade could have an adverse impact on liquidity in the Indonesian financial markets, the ability of the Government and Indonesian companies, including us, to raise additional financing and the interest rates and other commercial terms at which such additional financing is available. Interest rates on our floating rate Indonesian rupiah-denominated debt would also likely increase. Such events could have material adverse effects on our business, financial condition, results of operations and prospects. We are subject to corporate disclosure and reporting requirements that differ from those in other countries As we are a public company listed in the Indonesia Stock Exchange and New York Stock Exchange, we are subject to corporate governance and reporting requirements in Indonesia and the United States that differ, in significant respects, from those applicable to companies in certain other countries. The amount of information made publicly available by issuers in Indonesia may be less than that made publicly available by comparable companies in certain more developed countries, and certain statistical and financial information of a type typically published by companies in certain more developed countries may not be available. As a result, investors may not have access to the same level and type of disclosure as that available in other countries, and comparisons with other companies in other countries may not be possible in all respects. We are incorporated in Indonesia, and it may not be possible for investors to effect service of process, or enforce judgments, on us within the United States, or to enforce judgments of a foreign court against us in Indonesia We are a limited liability company incorporated in Indonesia, operating within the framework of Indonesian laws relating to foreign capital invested companies, and all of our significant assets are located in Indonesia. In addition, several of our Commissioners and substantially all of our Directors reside in Indonesia and a substantial portion of the assets of such
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persons is located outside the United States. As a result, it may be difficult for investors to effect service of process, or enforce judgments, on us or such persons within the United States, or to enforce against us or such persons in the United States, judgments obtained in U.S. courts. We have been advised by our Indonesian legal advisor that judgments of U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws or the securities laws of any state within the United States, are not enforceable in Indonesian courts, although such judgments could be admissible as non-conclusive evidence in a proceeding on the underlying claim in an Indonesian court. There is doubt as to whether Indonesian courts will enter judgments in original actions brought in Indonesian courts predicated solely upon the civil liability provisions of the U.S. federal securities laws or the securities laws of any state within the United States. As a result, the claimant would be required to pursue claims against us or such persons in Indonesian courts.
Risks Relating to Our Business

We operate in a legal and regulatory environment that is undergoing significant reforms. These reforms may result in increased competition, which may result in reduced margins and operating revenues, among other things, all of which may have a material adverse effect on us The regulatory reform of the Indonesian telecommunications sector, which was initiated by the Government in 1999, has to a certain extent resulted in the liberalization of the telecommunications industry, including facilitation of new market entrants and changes to the competitive structure of the telecommunications industry. However, in recent years, the volume and complexity of regulatory changes has created an environment of considerable regulatory uncertainty. In addition, as the reform of the Indonesian telecommunications sector continues, competitors, potentially with greater resources than us, may enter the Indonesian telecommunications sector and compete with us in providing telecommunications services. For example, since January 2007, the Government, through the Ministry of Communication and Information Technology (MOCIT), has been responsible for setting tariffs for interconnection services. See Item 3: Key InformationRisk Factors Risks Relating to Our BusinessWe depend on interconnection agreements relating to the use of our competitors cellular and fixed-line telephone networks. The MOCIT sets interconnection tariffs for dominant service providers on a cost basis, based on RIOs submitted by the dominant service providers, which include us. In contrast, telecommunications operators which are not designated as dominant operators may simply notify the MOCIT regarding their tariffs and may implement such tariffs for its customers without MOCIT approval. The disparity in the treatment of dominant and non-dominant telecommunications operators may create opportunities for new entrants in the telecommunications industry, providing them with increased flexibility to establish lower tariffs and offer lower pricing terms to their customers. In addition, the tariffs in our RIOs have been decreasing in the past few years, and we expect this downward trend to continue. Any decrease in the amount of interconnection costs might reduce our revenue and also our costs for inter-operator traffic. On January 25, 2010, the MOCIT passed a new regulation pursuant to which an existing telecommunications network operator that already has an allocated frequency and access code for the provision of a certain network is exempted from following the selection process when seeking to obtain a new network license with another access code. This is expected to allow certain telecommunications network operators to expand their businesses more easily. On December 13, 2010, the Government issued Government Regulation No. 76/2010 on the Amendment of PP No.7/2009 on the types and tariffs of non-tax state income applicable to MOCIT. This regulation affects the calculation method and payment of the spectrum fee due on the spectrum allocated to the Company (800 Mhz, 900 Mhz and 1,800 MHz frequency bands). On December 31, 2010, Badan Regulasi Telekomunikasi Indonesia (BRTI or Indonesian Telecommunications Regulatory Bureau) issued letter No.227/BRTI/XII/2010 regarding the implementation of new interconnection tariffs which will take into effect on January 1, 2011 and will be used by all telecommunications operators.
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In the future, the Government may announce or implement other regulatory changes, such as changes in interconnection or tariff policies, which may adversely affect our business or our existing licenses. We cannot assure you that we will be able to compete successfully with other domestic and foreign telecommunications operators or that regulatory changes, amendments or interpretations of current or future laws and regulations promulgated by the Government will not have a material adverse effect on our business, financial condition, results of operations and prospects. We may be unable to fund the capital expenditures needed for us to remain competitive in the telecommunications industry in Indonesia The delivery of telecommunications services is capital intensive. In order to be competitive, we must continually expand, modernize and update our telecommunications infrastructure technology, which involves substantial capital investment. For the years ended December 31, 2008, 2009 and 2010, our actual consolidated capital expenditures totaled Rp12,341.9 billion, Rp11,584.5 billion, and Rp5,515.0 billion (US$613.4 million), respectively. During 2011, we intend to allocate US$794.5 million for new capital expenditures, which, taken together with estimated actual capital expenditures expended for 2011 for capital expenditure commitments in prior periods, will result in approximately US$1,053.8 million total actual capital expenditures for 2011. Our ability to fund capital expenditures in the future will depend on our future operating performance, which is subject to prevailing economic conditions, levels of interest rates and financial, business and other factors, many of which are beyond our control, and upon our ability to obtain additional external financing. We cannot assure you that additional financing will be available to us on commercially acceptable terms, or at all. In addition, we can only incur additional financing in compliance with the terms of our debt agreements. Accordingly, we cannot assure you that we will have sufficient capital resources to improve or expand our telecommunications infrastructure technology or update our other technology to the extent necessary to remain competitive in the Indonesian telecommunications market. Our failure to do so could have a material adverse effect on our business, financial condition, results of operations and prospects. We depend on interconnection agreements relating to the use of our competitors cellular and fixed-line telephone networks We are dependent on interconnection agreements relating to the use of our competitors cellular and fixed-line telephone networks and associated infrastructure for the successful operation of our business. If any disputes involving such interconnection arrangements arise, whether due to a failure by a counterparty to perform its contractual obligations or for any other reason, the delivery of one or more of our services may be delayed, interrupted or stopped, the quality of our services may be lowered, our subscriber churn rates may increase or our interconnection rates may increase. Any disputes involving our current interconnection agreements, as well as our failure to enter into or renew interconnection agreements, could have a material adverse effect on our business, financial condition, results of operations and prospects. We may become subject to limitations on foreign ownership in the telecommunication services business Presidential Regulation No. 36 of 2010 (the Presidential Regulation) sets out the industries and business fields in which foreign investment is prohibited, restricted or subject to the fulfillment of certain conditions as stipulated by the applicable Governmental authorities (the Negative List). The telecommunication industry is one of the industries set out in the Negative List, and foreign investment in the Indonesian telecommunication industry is accordingly subject to applicable restrictions and conditions. The Negative List is implemented by the Capital Investment Coordinating Board (BKPM). Restrictions applicable to the telecommunication industry are dependent upon the type of telecommunication business undertaken. Different limitation thresholds are applicable depending upon whether the business pertains to telecommunication networks or services. The limitation on foreign holdings in companies engaging in the telecommunication network business ranges from 49.0%65.0%, and the limitation on foreign shareholdings in Indonesian companies engaged in the provision of multimedia services (including data communication such as broadband wireless services), from 49.0% 95.0%. Pursuant to Article 8 of the Presidential Regulation, the restrictions set forth therein shall not apply to investments that have been approved prior to the effectiveness of the Presidential Regulation pursuant to investment approval issued by BKPM unless such restrictions are more favorable to the investments. The Presidential Regulation does not change the limitation of foreign shareholding in our business.
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On June 22, 2008, Qatar Telecom (Qtel) Q.S.C. (Qtel), through its subsidiary, Qatar South East Asia Holding S.P.C. purchased all of the issued and outstanding shares of capital stock of each of Indonesia Communications Limited (ICLM), and Indonesia Communications Pte. Ltd. (ICLS) from Asia Mobile Holdings Pte. Ltd. (AMH), a company incorporated in Singapore. Following this acquisition, a change of control occurred in the Company, requiring Qtel to conduct a mandatory tender offer. In connection with the tender offer, on December 23, 2008, the Capital Market and Financial Institution Supervisory Agency of the Ministry of Finance of the Republic of Indonesia (Bapepam-LK) issued a letter (i) noting that it had received a letter from BKPM dated December 19, 2008, pursuant to which BKPM confirmed that the maximum amount of foreign capital ownership in the Company shall be 65.0%, and that the Company may still conduct its cellular network operation and local fixed network business and (ii) permitting Qtel to conduct the tender offer. Following the issuance of such letter, Qtel conducted a mandatory tender offer to acquire up to 1,314,466,775 Series B Shares, representing approximately 24.19% of our total issued and outstanding Series B Shares (including Series B Shares represented by ADSs). As we are a publicly listed company, we believe that the Negative List restrictions do not apply to us. If the relevant regulatory authorities were to apply the Negative List to us, notwithstanding our status as a publicly listed company, our controlling and/ or other foreign shareholders may be required to reduce their shareholding in us, which could create downward pressure on the trading price for our shares. This could have a material adverse effect on our business, financial condition, results of operations and prospects. We may also be required to separate our business entity into two sectors, mobile or cellular network and fixed network, in order to comply with the relevant regulation. Separating our business into two sectors may involve divesting either our fixed network or mobile or cellular network operation businesses to a subsidiary or a third party, which could materially alter our operations and result in a reduction of our total operating revenue. In addition, if the relevant regulatory authorities determine that our foreign ownership still exceeds the Negative List restriction, the regulatory authorities may prohibit us from participating in bidding for or obtaining further licenses or additional spectrum. If this occurs, our business, prospects, financial condition and results of operations would be adversely affected. A failure in the continuing operations of our network, certain key systems, gateways to our network or the networks of other network operators could adversely affect our business, financial condition, results of operations and prospects We depend to a significant degree on the uninterrupted operation of our network to provide our services. For example, we depend on access to the PSTN for termination and origination of cellular telephone calls to and from fixed-line telephones, and a significant portion of our cellular and international long-distance call traffic is routed through the PSTN. The limited interconnection facilities of the PSTN available to us have adversely affected our business in the past and may adversely affect our business in the future. Because of interconnection capacity constraints, our cellular subscribers have at times experienced blocked calls. We cannot assure you that these interconnection facilities can be increased or maintained at current levels. We also depend on certain technologically sophisticated management information systems and other systems, such as our customer billing system, to enable us to conduct our operations. In addition, we rely to a certain extent on interconnection to the networks of other telecommunications operators to carry calls from our subscribers to the subscribers of fixed-line operators and other cellular operators, both within Indonesia and overseas. Our network, including our information systems, information technology and infrastructure and the networks of other operators with whom our subscribers interconnect, are vulnerable to damage or interruptions in operation from a variety of sources including earthquake, fire, flood, power loss, equipment failure, network software flaws, transmission cable disruption or similar events. For example, our telecommunications control and information technology back-up facilities are highly concentrated within our headquarters and our principal operating and tape back-up storage facilities are located at two sites in Jakarta. Any failure that results in an interruption of our operations or of the provision of any service, whether from operational disruption, natural disaster or otherwise, could damage our ability to attract and retain subscribers, cause significant subscriber dissatisfaction and adversely affect our business, financial condition, results of operations and prospects.
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Our failure to react to rapid technological changes could adversely affect our business The telecommunications industry is characterized by rapid and significant changes in technology. We may face increasing competition due to technologies currently under development or which may be developed in the future. Future development or application of new or alternative technologies, services or standards could require significant changes to our business model, the development of new products, the provision of additional services and substantial new investments by us. For example, the development of fixed-mobile convergence technology, which allows a call that originates on a cellular handset to bypass a cellular network and instead be carried over a fixed-line telephone network, could adversely affect our business. New products and services may be expensive to develop and may result in the introduction of additional competitors into the marketplace. We cannot accurately predict how emerging and future technological changes will affect our operations or the competitiveness of our services. We cannot assure you that our technologies will not become obsolete, or be subjected to competition from new technologies in the future, or that we will be able to acquire new technologies necessary to compete in changed circumstances on commercially acceptable terms. Our failure to react to rapid technological changes could adversely affect our business, financial condition, results of operations and prospects. The Government is the majority shareholder of our major competitors, Telkom and Telkomsel. The Government may give priority to Telkoms or Telkomsels businesses over ours As of December 31, 2010, the Government had a 14.29% equity stake in us, including the Series A share, which has special voting rights and veto rights over certain strategic matters under our Articles of Association, including decisions on dissolution, liquidation and bankruptcy, and also permits the Government to nominate one Director to our Board of Directors and one Commissioner to our Board of Commissioners. As of December 31, 2010, the Government also had a 52.47% equity stake in Telkom, which is our foremost competitor in fixed IDD telecommunications services. As of the same date, Telkom owns a 65.0% interest in Telkomsel, one of our two main competitors in the provision of cellular services. The percentage of the Governments ownership interest in Telkom is significantly greater than its ownership interest in us. We cannot assure you that significant Government policies and plans will support our business or that the Government will treat us equally with Telkom and Telkomsel when implementing future decisions, or when exercising regulatory power over the Indonesian telecommunications industry. If the Government were to give priority to Telkoms or Telkomsels business over ours, our business, financial condition, and results of operations and prospects could be materially and adversely affected. Our controlling shareholders interests may differ from those of our other shareholders As of December 31, 2010, Qatar Telecom (Qtel Asia) Pte. Ltd. (Qtel Asia), owned approximately 65.0% of our issued and outstanding share capital. Qtel Asia is currently wholly owned and controlled by Qtel, which is majority-owned by the State of Qatar and its affiliated entities. Qtel Asia and its controlling shareholder have the ability to exercise a controlling influence over our business and may cause us to take actions that are not in, or may conflict with, our or our other shareholders best interests, including matters relating to our management and policies. Although nominees of Qtel Asia hold positions on our Board of Commissioners and Board of Directors, we cannot assure you that our controlling shareholder will elect directors and commissioners or be able to influence our business in a way that benefits our other shareholders. We rely on key management personnel, and our business may be adversely affected by any inability to recruit, train, retain and motivate our key employees We believe that our current management team contributes significant experience and expertise to the management of our business. The continued success of our business and our ability to execute our business strategies in the future will depend in large part on the efforts of our key personnel. There is a shortage of skilled personnel in the telecommunications industry in Indonesia and this shortage is likely to continue. As a result, competition for certain specialist personnel is intense. In addition, as new market entrants begin or expand operations in Indonesia, certain of our key employees may leave their current positions. Our inability to recruit, train, retain and motivate key employees could have a material adverse effect on our business, financial condition, results of operations and prospects.
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The implementation of our organizational restructuring may disrupt our business and may not successfully achieve improved longer-term operating results In January 2011, the Company introduced an organizational restructuring which forms part of our transformation program that began in 2009 to increase the Companys productivity and improve our longer-term operating results. The Company is offering special compensation packages to employees who meet certain criteria as determined by the Company and who opt to end their employment relationship with the Company as part of such organizational restructuring under the Voluntary Separation Scheme (VSS) Program. We anticipate having significant workforce reduction that may result in the Company incurring certain costs, which may include the costs in connection with the aforementioned special compensation packages. We cannot assure you that the consequences of the organizational restructuring program may not harm our business and our future results of operations. If we are found liable for price fixing by the Indonesian Anti-Monopoly Committee and for class action allegations, we may be subject to substantial liability which could lead to a decrease in our revenue and affect our business, reputation and profitability On November 1, 2007, the Indonesian Supervising Committee for Business Competition (the KPPU) issued a decision regarding a preliminary investigation involving us and eight other telecommunication companies based on allegations of price-fixing for SMS services and breach of Article 5 of the Anti-monopoly Law (Law No. 5 / 1999). On June 18, 2008, the KPPU determined that Telkom, Telkomsel, XL Axiata Tbk. (XL), PT Bakrie Telecom Tbk (Bakrie Telecom), PT Mobile-8 Telecom Tbk (Mobile-8) which we understand has changed its Company name to PT Smartfren Telecom Tbk, effective March, 2011 and PT Smart Telecom (Smart Telecom) had jointly breached Article 5 of Law No. 5 / 1999. Mobile-8 appealed this ruling to the Central Jakarta District Court, where Telkomsel, XL, Telkom, Indosat, PT Hutchison CP Telecommunication (Hutchison), Bakrie Telecom, Smart Telecom, PT Natrindo Telepon Selular (Natrindo) were summoned to appear as co-defendants in the hearing, while Telkomsel appealed this ruling to the South Jakarta District Court. Although the KPPU decided in our favor with respect to the allegations of price-fixing of SMS, we cannot assure you that the District Court will affirm the KPPU decision. The District Court will consider objections against the KPPU decision based on a re-examination of the KPPU decision and case files submitted by KPPU. If the District Court issues a verdict against us, we could be subjected to the payment of a fine, the amount of which will be subject to the discretion of the District Court, which could have an adverse effect on our business, reputation and profitability. In addition, a series of class action lawsuits were filed against us and Telkomsel during 2007 and 2008 in the District Court of Bekasi, the Central Jakarta District Court and the Tangerang District Court, relating to Temasek Holdings prior cross ownership of shares in us and Telkomsel, which is alleged to have caused price fixing of telecommunications services that harmed the public. The plaintiffs have since revoked the lawsuit filed with the District Court of Bekasi. On January 27, 2010, the judges ruled that the class action filed with the Central Jakarta District Court was unacceptable because the plaintiffs refused to prove their legal standing and two members of the plaintiff class did not qualify to stand as class representatives. Since the time limit to file an appeal lapse on March 18, 2010, the decision of the Central Jakarta District Court dated January 27, 2010 is final and binding. The Tangerang class action continued on May 3, 2010, whereby the defendants submitted a demurrer, and on May 24, 2010, the judges ruled that the class action filed with the Tangerang District Court was unacceptable because the plaintiffs were not serious in filing the lawsuit and the plaintiffs failed to prove legal standing as class representatives. Since the time limit to file an appeal lapsed on July 21, 2010, the decision of the Tangerang District Court dated May 24, 2010 is final and binding. See Item 8: Financial InformationLegal Proceedings Although the class action allegation was not accepted by neither the Central Jakarta District Court nor the Tangerang District Court and the lawsuit filed with the District Court of Bekasi was revoked, we cannot assure you that other subscribers will not file similar cases in the future. If any new class action suit or the District Court issues a verdict in favor of such plaintiffs, it could have an adverse effect on our business, reputation and profitability.
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We are exposed to interest rate risk Our debt includes bank borrowings to finance our operations. Where appropriate, we seek to minimize our interest rate risk exposure by entering into interest rate swap contracts to swap floating interest rates for fixed interest rates over the duration of certain of our borrowings. However, our hedging policy may not adequately cover our exposure to interest rate fluctuations and this may result in a large interest expense and an adverse effect on our business, financial condition and results of operations. We are exposed to counter-party risk We may enter into various transactions from time to time which will expose us to the credit of our counter-parties and their ability to satisfy the terms of contracts with us. For example, we may enter into swap arrangements, which expose us to the risk that counter-parties may default on their obligations to perform under the relevant contract. In the event a counter-party, including a financial institution, is declared bankrupt or becomes insolvent, this may result in delays in obtaining funds or us having to liquidate our position, potentially leading to losses. We may not be able to successfully manage our foreign currency exchange risk Changes in exchange rates have affected and may continue to affect our financial condition and results of operations. Most of our debt obligations are denominated in Indonesian rupiah and a majority of our capital expenditures are denominated in U.S. dollars. A substantial portion of our revenues are denominated in Indonesian rupiah, but a portion of our operating revenues are U.S. dollar-denominated or U.S. dollar-linked. We may also incur additional long-term indebtedness in currencies other than the Indonesian rupiah, including the U.S. dollar, to finance further capital expenditures. We currently hedge a portion of our foreign currency exposure principally because our annual U.S. dollar-denominated operating revenues are less than the sum of our U.S. dollar-denominated operating obligations, such as our U.S. dollardenominated expenses and our U.S. dollar-denominated principal and interest payments. In 2005, in an effort to manage our foreign currency exposure and lower our overall funding costs, we entered into several foreign currency swap contracts with three separate international financial institutions. From 2006 to 2009, we also entered into several foreign currency swap contracts with seven international financial institutions in an effort to reduce our foreign currency risk exposure. For these contracts, we pay either an upfront or fixed rate premium. We cannot assure you that we will be able to manage our exchange rate risk successfully in the future or that our business, financial condition or results of operations will not be adversely affected by our exposure to exchange rate risk. See Item 11: Quantitative and Qualitative Disclosures about Market Risk.
Risks Relating to our Cellular Services Business

Competition from industry incumbents and new market entrants may adversely affect our cellular services business The Indonesian cellular services business is highly competitive. Competition among cellular service providers in Indonesia is based on various factors, including pricing, network quality and coverage, the range of services, features offered and customer service. Our cellular services business competes primarily against Telkomsel and XL. Several other smaller GSM and CDMA operators also provide cellular services in Indonesia, including Hutchison, Natrindo and Smart Telecom. In addition to current cellular service providers, the MOCIT may license additional cellular service providers in the future, and such new entrants may compete with us. We expect competition in the cellular services business to further intensify. New and existing cellular service providers may offer more attractive product and service packages or new technologies or the convergence of various telecommunication services, resulting in higher churn rates, lower ARPU or a reduction of, or slower growth in, our cellular subscriber base. In 2010, the continuing competition from industry incumbents and new market entrants in the cellular services market led to aggressive pricing campaigns by cellular service providers. The decrease in prices for cellular usage also led to an increase
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in the number of subscribers and in network traffic, resulting in increased network congestion among operators, which has required us to incur additional capital expenditures to continue to expand our network. On the other hand, mobile penetration is quite high and we expect growth to be slower. The competitive landscape in the cellular services business may also be affected by industry consolidation. In March 2010, Smart Telecom and Mobile-8 announced that they entered into a cooperation agreement to use the same logo and brand under the name smartfren. Competition from providers of new technology, together with new entrants, incumbents, almost saturated market and consolidated providers could adversely affect our competitive position, cellular services business, financial condition, results of operations and prospects. Cellular network congestion and limited spectrum availability could limit our cellular subscriber growth and cause reductions in our cellular service quality We expect to continue to offer promotional plans to attract subscribers and increase usage of our network by our cellular subscribers. We also expect to continue to promote our data services, including our BlackBerry and wireless broadband services. As a result, we may experience increased network congestion, which may affect our network performance and damage our reputation with our subscribers. In addition, higher cellular usage in dense urban areas may require us to use radio frequency engineering techniques, including a combination of macro, micro and indoor cellular designs, to maintain cellular network quality despite radio frequency interference and tighter radio frequency re-use patterns. However, if our cellular subscriber base or usage of our voice and data services should grow significantly in high-density areas, we cannot assure you that these efforts will be sufficient to maintain and improve service quality. To support such additional demands on our network, we may be required to make significant capital expenditures to improve our network coverage. Such additional capital expenditures, together with the possible degradation of our cellular services, could adversely affect our competitive position, business, financial condition, results of operations and prospects. Despite expending significant financial resources to increase our cellular subscriber base, the number of our cellular subscribers may increase without a corresponding increase in our operating revenues We have expended significant financial resources to develop and expand our cellular network and add to our cellular subscriber base. However, the uncertain economic situation in Indonesia and increasing prices of primary goods may decrease our cellular subscribers purchasing power. Moreover, a continued decline in effective tariffs for voice usage resulting from free-talk campaigns and recent tariff discount promotions, increasing SMS usage, and greater cellular penetration in the lower-income segment of the market has led to a decrease in ARPU in 2010. Our number of cellular subscribers (including wireless broadband subscribers) increased from approximately 36.5 million as of December 31, 2008 to approximately 33.0 million as of December 31, 2009, to approximately 44.3 million as of December 31, 2010. For the years ended December 31, 2008, 2009 and 2010, our ARPU was Rp38,639, Rp37,664 and Rp34,712, respectively. While we intend to continue to expend significant financial resources to expand our cellular subscriber base and expand our cellular network to support the requirements of such an expanded cellular subscriber base, we cannot assure you that such expenditures will be accompanied by a corresponding increase in our ARPU or operating revenues. Accordingly, our subscriber acquisition costs and the capital expenditures required to expand our network capacity could increase without a corresponding increase in our revenue or profitability, which would materially and adversely affect our business, financial condition, results of operations and prospects. We experience a high churn rate We experience a high churn rate, as is common for Indonesian telecommunication operators providing prepaid cellular services. We believe that our high churn rate is due to the fact that many of our prepaid subscribers own multiple SIM cards from various cellular providers, allowing them to choose the cheapest package available. We believe that our high churn rate was exacerbated by our efforts, during the first nine months of 2009, to clean up our subscriber base by discouraging calling card behavior and focusing instead on subscriber loyalty. We believe that such subscribers were short-term subscribers and were not likely to recharge their SIM cards. Our high churn rates may result in loss of revenue, which could
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have a material adverse effect on our business, financial condition, results of operations and prospects. At the end of the third quarter of 2010, we launched a retention and loyalty program called Senyum Setia Indosat which gives benefits to our customers who extend their subscription. We believe that this program contributed to the decrease of our churn rate to 13.3% in 2010, compared to 15.1% in 2009. We depend on the availability of telecommunications towers We are highly dependent on our and others telecommunications tower infrastructure to provide GSM, FWA and 3G network and mobile cellular telecommunications services, as we typically install transmitter and transceiver antennas and other BTS supporting facilities on such towers. The availability and installation of such telecommunication towers require licenses from the relevant central and regional authorities. Recently, a number of regional authorities have implemented regulations which limit the number and location of telecommunication towers and established requirements for operators to share in the utilization of telecommunications towers. In addition, on March 17, 2008, the MOCIT issued a regulation on the sharing of telecommunications towers. See Item 4: Information on the CompanyRegulation of the Indonesian Telecommunications IndustryTower Sharing Obligation. Under the regulation, the construction of telecommunications towers requires permits from the relevant governmental institution, while the local government determines the placement and location at which telecommunications towers can be constructed. Moreover, a joint regulation promulgated on March 30, 2009 by the Minister of Home Affairs, the Minister of Public Works, the MOCIT and the Head of the Indonesia Investment Coordinating Board requires a tower construction permit for every tower built and used for telecommunications services, which would demonstrate compliance with certain technical specifications. If a tower owner fails to obtain such a permit, the appropriate regional authorities will be entitled to impose penalties on the tower owner. Moreover, a telecommunications provider which owns telecommunication towers or tower owner is obligated to allow other telecommunication operators to utilize its telecommunication towers (other than the towers used for its main network), without any discrimination. Such regulatory requirements may require us to adjust our telecommunications tower construction and leasing plans, relocate our existing telecommunications towers, allow other operators access to our telecommunications towers and perform other measures which may result in the increase of telecommunications tower construction costs, delays in the construction process and potential service disruption for our subscribers. If we cannot fulfill the regulatory requirements for telecommunications towers or meet our own network capacity needs for telecommunications towers, we may face difficulties in developing and providing cellular GSM, FWA and 3G telecommunications services. Our dependency on our own or others telecommunications tower infrastructure, combined with the burden of sharing our telecommunications towers in certain instances, may also adversely affect our competitive advantage relative to other operators. Any of these events could result in a material adverse effect on our network capacity, the performance and quality of our networks and services, our reputation, business, results of operations and prospects. Our ability to maintain and expand our cellular network or conduct our business may be affected by disruptions of supplies and services from our principal suppliers We rely upon a few principal vendors to supply a substantial portion of the equipment we require to maintain and expand our cellular network, including our microwave backbone, and upon other vendors in relation to other supplies necessary to conduct our business. We depend on equipment and other supplies and services from such vendors to maintain and replace key components of our cellular network and to operate our business. If we are unable to obtain adequate supplies or services in a timely manner or on commercially acceptable terms, or if there are significant increases in the cost of such supplies or services, our ability to maintain and to expand our cellular network and our business, financial condition, results of operations and prospects may be adversely affected. We depend on our licenses to provide cellular services, and our licenses could be cancelled if we fail to comply with their terms and conditions We rely on licenses issued by the MOCIT for the provision of our cellular services as well as for the utilization of our allocated spectrum frequencies. The MOCIT, with due regard to prevailing laws and regulations, may amend the terms of our licenses at its discretion. Any breach of the terms and conditions of our licenses or failure to comply with applicable regulations could
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result in our licenses being cancelled. Any revocation or unfavorable amendment of the terms of our licenses, or any failure to renew them on comparable terms, could have a material adverse effect on our business, financial condition, results of operations and prospects. Our subscriber-related operating data may not be comparable between periods We define an active cellular subscriber as a cellular subscriber who, in the case of a prepaid cellular subscriber, recharges their SIM card within a 33-day grace period immediately following the SIM cards expiry date by adding a minimum amount to the SIM card. We have from time to time decreased the grace period applicable to our calculation of prepaid cellular subscribers in order to more accurately reflect those subscribers whom were most likely to recharge their SIM cards. Increasing or decreasing the grace period affects the calculation of our number of subscribers, Minutes of Usage per subscriber and ARPU. As a result of the foregoing, our number of subscribers, Minutes of Usage per subscriber and ARPU may not reflect the actual number of subscribers and are not comparable between periods. Accordingly, you should not place undue reliance on the accuracy of this data or comparison of this data from period to period. A significant increase in frequency fees could adversely affect our business, financial condition and results of operations Previously, we were required to pay frequency fees for 800 MHz, 900 MHz and 1800 Mhz bands based on the number of radio stations. Starting on December 15, 2010, the government changed the basis of computing frequency fees to a new formula based on the width of allocated spectrum occupied by operators. As the largest holder of spectrum in Indonesia, Indosat is expected to pay a large amount of frequency fees going forward. The increase of the frequency fees will mainly be based on the consumer price index and the population of Indonesia. Allegations of health risks from the electromagnetic fields generated by BTSs and cellular handsets, and the lawsuits and publicity relating to them, regardless of merit, could adversely affect our operations There has been public speculation about possible health risks to individuals from exposure to electromagnetic fields from BTSs and from the use of cellular handsets. We cannot assure you that future studies of these health risks will not suggest a link between electromagnetic fields and adverse health effects which may subject us to legal action from individuals alleging personal injuries or otherwise adversely affect our business.
Risks Relating to Our Fixed Data (MIDI) Services Business

Our MIDI services are facing increasing competition, and we may experience declining margins from such services as such competition intensifies Our MIDI services are facing increased competition from new and established operators, which may have wider customer bases and greater financial resources than us, such as Telkom, with its regional international reach and developed domestic infrastructure. In addition, operators such as XL, First Media and Icon+, some of which have alliances with foreign telecommunications operators, compete with us in this business segment. In 2009, our World Link leased line services faced increased competition following the launch of an international Matrix cable operated by PT NAP Info Lintas Nusa in August 2008. Our satellite business also faces increasing competition as new and more powerful satellites are launched by our competitors and as companies acquire exclusive licenses to provide broadcast services in Indonesia. Our Palapa-C2 and Palapa-D satellite transponder capacity agreements generally involve terms of between two to five years, and we estimate the remaining useful life of such satellites to be approximately three and 9.7 years, respectively. As additional satellites become operational and our transponder leases expire or are terminated and price competition intensifies, our transponder lessees may utilize other satellites, thereby adversely affecting our operating margins and operating revenues from such services.
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Our satellites have limited operational life and may be damaged or destroyed during in-orbit operation. The loss or reduced performance of our satellites, whether caused by equipment failure or its license being revoked, may adversely affect our financial condition, results of operations and ability to provide certain services Our Palapa-C2 and Palapa-D satellites have a limited operational life, currently estimated to end in 2014 and 2020, respectively. A number of factors affect the operational lives of satellites, including the quality of their construction, the durability of their systems, subsystems and component parts, on-board fuel reserves, accuracy of their launch into orbit, exposure to micrometeorite storms, or other natural events in space, collision with orbital debris, or the manner in which the satellite is monitored and operated. We currently use satellite transponder capacity on our satellites in connection with many aspects of our business, including direct leasing of such capacity and routing for our international long-distance and cellular services. We note, that based on the factors identified above, our Palapa-C2 satellite could fail prior to 2014 and our Palapa-D satellite could fail prior to 2020, and in-orbit repairs would not be feasible with the exception of repairs that may be addressed through ground-based software or operational fixes. Moreover, International Telecommunication Union (ITU) regulations specify that a designated satellite slot has been allocated for Indonesia, and the Government has the right to determine which party is licensed to use such slot. While we currently hold a license to use the designated satellite slot, in the event our Palapa-D satellite experiences technical problems or failure, the Government may determine that we have failed to optimize the existing slot under our license, which may result in the Government withdrawing our license and granting it to one of our competitors. We cannot assure you that we will be able to maintain use of the designated satellite slot in a manner deemed satisfactory by the Government. We maintain in-orbit insurance on our Palapa-C2 and Palapa-D satellites on terms and conditions consistent with industry practice. As of December 31, 2010, we had an insurance policy with a total coverage limit of US$153 million for total and partial loss of our Palapa-C2 and Palapa D satellites. If damage or failure renders our satellites unfit for use, we may elect to cease our satellite operations or lease transponder capacity from a third-party provider rather than acquiring a new satellite. The termination of our satellite business could increase operating expenses associated with our provision of other telecommunications services and could adversely affect our business, financial condition and results of operations.
Risks Relating to Our Fixed Telecommunications Services Business

The entry of additional Indonesian telecommunications operators as providers of international long-distance services could adversely affect our fixed telecommunications services operating margins, market share and results of operations Telkom, a well-established Indonesian telecommunications incumbent with significant political and financial resources, obtained a license to provide international long-distance services and launched its commercial service in 2004. As a result of Telkoms entry into the international long-distance market, we lost market share and experienced other adverse effects relating to our fixed telecommunications services business. By the end of 2006, Telkom had acquired significant market share for IDD services. In addition, in 2009, the Government issued Bakrie Telecom an international long-distance license in an effort to encourage greater competition in the international long-distance services market. The operations of incumbents and the entrance of new operators into the international long-distance market, including the VoIP services provided by such operators, continue to pose a significant competitive threat to us. We cannot assure you that such adverse effects will not continue or that such increased competition will not continue to erode our market share or adversely affect our fixed telecommunications services operating margins and results of operations. We face risks related to the opening of new long distance access codes In an attempt to liberalize DLD services, the Government has issued regulations requiring each provider of DLD services to implement a three-digit access code to be dialed by customers making DLD calls. In 2005, the MOCIT announced that three-digit access codes for DLD calls will be implemented gradually within five years and that it would assign us the 011 DLD access code for five major cities, including Jakarta, and allow us to progressively extend it to all other area codes within five years. Telkom was assigned 017 as its DLD access code. In December 2007, the Government issued new regulations opening DLD access codes in the first city in Balikpapan in April 2008. Following the implementation, Balikpapan residents will be able to choose from options 0, 011 or 017 in connecting their long distance calls.
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In April 2008, we and Telkom agreed to open DLD access from our respective subscribers in Balikpapan. Whether the opening of the DLD access code will be implemented in other cities will be based on a study by the Indonesian Telecommunication Regulatory Board. The implementation of any new DLD access codes can potentially increase competition by offering our subscribers more options for DLD services. In addition, the opening of new DLD access codes is expected to result in increased competition and less cooperation among industry incumbents, which may result in reduced margins and operating revenue, among other things, all of which may have a material adverse effect on us. We cannot assure you that our access codes will remain intact or be successful in increasing our revenues from DLD services.
Item 4: INFORMATION ON THE COMPANY History and Development of the Company

PT Indosat Tbk was established on November 10, 1967 as a foreign investment company to provide international telecommunications services in Indonesia and began commercial operations in September 1969 to build, transfer and operate an International Telecommunications Satellite Organization (Intelsat) earth station in Indonesia to access Intelsats Indian Ocean Region satellites for a period of 20 years. In 2001, as part of the Governments initiative to restructure the telecommunications industry, we entered into an agreement with Telkom to eliminate our respective cross-shareholdings in several operating subsidiaries, including: our acquisition of Telkoms 22.5% ownership interest in Satelindo (at the time the second largest cellular operator in Indonesia); Telkoms acquisition of our 35.0% ownership interest in Telkomsel; and our acquisition of Telkoms 37.2% ownership interest in Lintasarta and the purchase of Lintasartas convertible bonds held by Telkom. Subsequent to the agreement with Telkom, we completed the acquisition of the remaining minority interests in Satelindo in June 2002. Since entering the Indonesian cellular market through our acquisition of Satelindo and establishment of IM3 and the subsequent integration of such companies in 2003, cellular services have become the largest contributor to our operating revenues. In August 2002, we entered the domestic fixed line telecommunications sector by obtaining a license to provide local fixed network services in the Jakarta and Surabaya areas. In 2002, the Government divested 517.5 million shares, representing approximately 50.0% of our outstanding Series B shares at the time, in two stages. In May 2002, the Government sold 8.1% of our outstanding shares through an accelerated global tender. In December 2002, the Government divested 41.9% of our outstanding Series B shares to a former subsidiary of STT Communications Ltd. (STT). In June 2008, Qtel acquired STTs interest in us, triggering a mandatory tender offer by Qtel to acquire up to 1,314,466,775 Series B Shares, representing approximately 24.19% of our total issued and outstanding Series B Shares, at a purchase price of the U.S. Dollar equivalent of Rp369,400 per ADS and Rp7,388 per Series B Share. Qtel is a publicly held corporation which is majority-owned by the State of Qatar and its affiliated entities. Qtel is organized under the laws of the State of Qatar with shares listed on the Doha Securities Market, as well as the Abu Dhabi Securities Market, and Global Depository Receipts traded on the London Stock Exchange. As of December 31, 2010, the Government owned 14.29% of our outstanding shares, including 1 Series A share, Qtel Asia owned approximately 65.00% of our outstanding Series B shares and SKAGEN AS owned approximately 5.11% of our outstanding Series B shares. Qtel Asia is owned by Qtel. The remaining 15.59% of our outstanding Series B shares is
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owned by public shareholders as of December 31, 2010. See Item 6: Directors, Senior Management and EmployeesShare Ownership. For a description of our principal capital expenditures since January 1, 2008 and principal capital expenditures currently in progress, including the amount invested and method of financing, see Item 5. Operating and Financial Review and ProspectsLiquidity and Capital ResourcesCapital Expenditures. Our registered office is located at Indosat Building, Jalan Medan Merdeka Barat, No. 21, Jakarta 10110, Republic of Indonesia, and our telephone number is +62-21-3869615. Our corporate website may be accessed through the URL http:// www.indosat.com. The information found on our corporate website does not, however, form part of this annual report and is not incorporated by reference herein. Our agent for service of process in the United States with respect to our ADSs is Bank of New York Mellon, Depository Receipt Division, 101 Barclay Street, New York, New York 10286, U.S.A.
Business Overview
We are a fully integrated Indonesian telecommunications network and service provider and we offer a full complement of national and international telecommunications services in Indonesia. We are the second-largest cellular operator, as measured by number of cellular subscribers, and a leading provider of international long-distance services in Indonesia. We also provide MIDI services for domestic and regional corporate and wholesale customers as well as domestic retail customers. For the years ended December 31, 2008, 2009 and 2010, our operating revenues totaled Rp19,216.0 billion, Rp18,864.9 billion and Rp19,648.4 billion (US$2,185.3 million), respectively. Our principal products and services include: Cellular services. We provide GSM 900 and 1800 and 3G cellular services to approximately 44.3 million cellular subscribers (including wireless broadband subscribers) throughout Indonesia, as of December 31, 2010. We also commenced providing wireless broadband services using our 3G platform in 2006 and, as of December 31, 2010, had approximately 536,675 subscribers. MIDI services. We provide broadband and narrowband MIDI services consisting of Internet services and Data Communication services, such as International and Domestic Leased Circuit, Frame Relay services, and MPLS-based services. We also offer satellite-based services such as Transponder leasing and VSAT services and Value Added Services, such as Disaster Recovery Center and Data Center services. We provide these services directly and through our subsidiaries, Lintasarta and IM2. We offer this suite of products and services primarily to our valued corporate and wholesale customers in an attempt to be their information and telecommunication solution provider. Fixed telecommunications (voice) services. We are one of the leading providers of international long-distance services in Indonesia, as measured by aggregate incoming and outgoing call minutes for 2010. To complement our cellular services and to enhance our access to domestic and international long-distance customers, we also provide fixed wireless access services using CDMA 2000 1x technology. We have also provided DLD services since 2003 and local fixed telephony services since 2002. Our business does not experience significant seasonality. Our principal shareholders are Qtel Asia, with an ownership interest of approximately 65.00% of our common stock, and the Government through the Ministry of State-Owned Enterprises, with an ownership interest of 14.29% of our common stock, including the one Series A share and SKAGEN AS, with an ownership of interest of approximately 5.11% of our common stock, in each case as of December 31, 2010. Qtel Asia is wholly owned by Qtel. As a fully integrated Indonesian telecommunications network and service provider, we offer our customers a full complement of national and international telecommunications services in Indonesia, including cellular services and international longdistance services. As of December 31, 2010, our postpaid cellular subscribers could roam internationally in 153 countries. In
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addition, for our international long-distance services, we maintain direct connections with 64 foreign telecommunications operators in 40 countries. As part of the global coverage we offer to our customers, we offer international calling services to Iran and to Cuba, Sudan, and Syria. There are roaming arrangements between Indosat and each of Mobile Company of Iran (MCI), C Com, Syriatel Mobile Telecom SA (Syriatel) and Sudanese Mobile Telephone Co. (Mobitel) for Iran, Cuba, Syria and Sudan, respectively. We consider the business between Indosat and Telecommunications Company of Iran (TCI), MCI, C Com, Syriatel and Mobitel, as well as business in Iran, Cuba, Syria and Sudan, as being insignificant relative to our size.
As of and for the years endedDecember 31, 2008 Operating Data: Cellular:(1) Number of cellular subscribers (excluding wireless broadband): Prepaid Postpaid (Matrix) Total cellular subscribers Number of wireless broadband subscribers:(2) Prepaid Postpaid Total wireless broadband subscribers Total cellular subscribers: ARPU (Rp)(3) Minutes of Usage(4) ARPM (Rp)(5) Number of base station sites(6) Number of base station controllers(6) Number of mobile switching centers(6) MIDI: International High Speed Leased Circuit (000s) Domestic High Speed Leased Circuit (000s) Fixed telecommunications: Incoming traffic (in millions of minutes) Outgoing traffic (in millions of minutes) Incoming/outgoing call ratio
(1)
2009(7) (unaudited)
2010
35,591,033 661,213 36,252,246 116,341 141,659 258,000 36,510,246 38,639 98 287 13,662 265 73 46 129 1,582 474 3.3
31,163,859 1,082,215 32,246,074 610,446 110,681 721,127 32,967,201 37,664 102 220 16,353 315 95 80 171 1,559 502 3.1
43,170,139 565,503 43,735,642 448,116 88,559 536,675 44,272,317 34,712 113 163 18,108 330 87 218 251 1,724 463 3.7
(2) (3)
(4)
Due to changes in the method used to calculate the number of our prepaid cellular subscribers, our number of cellular subscribers, minutes of usage per cellular subscriber and ARPU set forth in this report are not comparable between certain periods. See Item 3: Key InformationRisk FactorsRisks Relating to Our Cellular Services BusinessOur subscriber-related operating data may not be comparable between periods. The number of wireless broadband subscribers only includes those who exclusively subscribe to our wireless broadband services, and does not include those who use our broadband on demand services. The average monthly revenue (in Indonesian rupiah) per cellular subscriber, or APRU, is computed by dividing monthly recurring prepaid and postpaid cellular services revenues (usage charges, value-added services, interconnection revenues and monthly subscription charges), excluding non-recurring revenues such as activation fees and special auctions of telephone numbers recorded under Indonesian GAAP, for the relevant period by the average number of prepaid and postpaid cellular subscribers. The average number of prepaid and postpaid cellular subscribers is the sum of the total number of active cellular subscribers at the beginning and end of each month divided by two. Due to changes in the method used to calculate the number of our prepaid cellular subscribers, our ARPU set forth in this report are not comparable between certain periods. See Item 3: Key InformationRisk FactorsRisks Relating to Our Cellular Services BusinessOur subscriber-related operating data may not be comparable between periods. The Minutes of Usage per cellular subscriber is computed by dividing the total minutes of outgoing call usage of prepaid and postpaid cellular subscribers for each month by the average number of prepaid and postpaid cellular subscribers. The average number of prepaid and postpaid cellular subscribers is the sum of the total number of active cellular subscribers at the beginning and end of each month divided by two. Due to changes in the method used to calculate the number of our prepaid cellular subscribers, our minutes of usage per cellular subscriber set forth in this report are not comparable between certain periods. See Item 3: Key InformationRisk FactorsRisks Relating to Our Cellular Services BusinessOur subscriber-related operating data may not be comparable between periods.
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(5)
(6)
(7)
ARPM (in Indonesian rupiah) is computed by dividing the monthly recurring revenues from prepaid and postpaid cellular services (usage charges, value-added services, interconnection revenues and monthly subscription charges), excluding non-recurring revenues such as activation fees and special auctions of telephone numbers recorded under Indonesian GAAP, for the relevant period, by the total minutes of outgoing call usage of prepaid and postpaid cellular subscribers for such period. Prior to the first quarter of 2010, newly-built or newly-acquired base station sites, base station controllers or mobile switching centers which were not yet in operation were included in the number of base station sites, base station controllers or mobile switching centers reported by the Company (the Prior Computation). Beginning in the first quarter of 2010, as disclosed herein, the Company included newly-built or newly-acquired base station sites, base station controllers or mobile switching centers in its various reports only when such base station sites, base station controllers or mobile switching centers were actually put in operation. Under the Prior Computation, the Company would have reported that it owned 14,162, 16,804 and 18,704 base station sites, 279, 315 and 331 base station controllers and 73, 96 and 92 mobile switching centers for the year ended December 31, 2008, 2009 and 2010, respectively. As reported in our Form 6-K filed on July 22, 2010, we issued a restatement of our cellular subscriber base as at March 31, 2010 from 39.1 million to 37.7 million. This discrepancy arose during the compilation of data from multiple reporting systems. The same issue resulted in an over-reporting of subscribers in the second and third quarters of 2009. Accordingly, the total number of subscribers of 33.0 million and ARPU of Rp37,664 for 2009 reported above reflect the restated figures, compared with the total number of subsrcribers of 33.1 million and ARPU of Rp37,330 previously reported.
The following table sets forth the breakdown of our operating revenues for each of the periods indicated and the percentage contribution of each of our services to our operating revenues:
For the year ended December 31, 2008 (Restated) Rp Cellular services MIDI services Fixed telecommunications Total operating revenues 14,460.8 2,733.4 2,021.8 19,216.0 % 75.3 14.2 10.5 100.0 2009 (Restated) Rp 14,331.3 2,712.6 1,803.0 18,846.9 % 76.0 14.4 9.6 100.0 Rp 15,867.1 2,488.1 1,293.2 19,648.4 (Rp in billions, except percentages) 80.8 12.7 6.5 100.0 2010 %
Cellular Services
Cellular services contributed revenues of Rp15,867.1 billion (US$1,764.8 million) for the year ended December 31, 2010, representing 80.8% of our total consolidated operating revenues in 2010. We are the second-largest cellular provider in Indonesia, as measured by the number of cellular subscribers, with 44.3 million subscribers (including wireless broadband subscribers) as of December 31, 2010. For 2010, we had an estimated subscriber market share of 24.8%, which figure is based on our estimates based on available market data. Our cellular network currently provides network coverage in all major cities and population centers across Indonesia. We provide our cellular services using GSM 900 and GSM 1800 technology and, for our 3G platform, IMT-2000 technology. We are also one of the leading providers of prepaid and postpaid wireless broadband services in Indonesia. As of December 31, 2010, we had approximately 536,675 prepaid and postpaid wireless broadband subscribers. Services Our principal cellular services are the provision of voice and data services, which we sell through postpaid and prepaid plans. Our prepaid and postpaid subscribers are able to make and receive on-net voice calls to and from other Indosat subscribers (including our Matrix, Mentari, and IM3 subscribers) on our telecommunication network, as well as off-net voice calls to and from subscribers of other telecommunication operators on their fixed and cellular telecommunication networks. We offer prepaid plans under the brand names Mentari and IM3. Both products have a high degree of brand recognition, providing us with an advantage when attempting to attract and retain subscribers in a competitive market. We have differentiated our two prepaid brands based on market segments. Such differentiation allows us to target the usage and spending patterns of different consumer segments through our promotional plans. Our Mentari brand is marketed towards a more mature market, with voice services being promoted at competitive prices. Our IM3 brand is marketed toward the younger generation, with very attractive voice, SMS and data packages. We continue to develop the Mentari and IM3 brands, offer promotions and engage in advertising tailored for those specific market segments. Frontier Consulting Group and Marketing Magazine awarded us the Top Brand Award in 2008, 2009 and 2010 for both our Mentari and IM3 brands for outstanding achievement in building our brand awareness and market share.
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We offer postpaid plans, designed for high-end professional and corporate users, under the brand name Matrix. Matrix is a basic service package with a postpaid payment plan that provides the ability to register with numerous other supplementary plans, value-added services and corporate-based services. We offer various Matrix packages with different features and benefits to suit the needs of our subscribers. Our Matrix brand received the Top Brand Award in 2010 from the Frontier Consulting Group and Marketing Magazine. Prepaid and postpaid subscribers have access to local, DLD and international direct long-distance dialing. In addition, we offer a variety of value-added services, functions and features to our subscribers. Such services, functions and features, which, in certain cases, are free of charge, can be purchased individually, or bundled according to the package selected, include: SMS: allows subscribers to send short text messages to other cellular users mobile phone display screens; MMS: allows subscribers of GSM service to send pictures, text and sound/voice in a single packet message; Voice SMS: allows subscribers to send audible messages; Ring-back tone: allows subscribers to choose their favorite song as the ringtone that is heard by callers for incoming calls; GPRS: provides mobile data communications with GSM-based technology, including mobile Internet, data transfer and push e-mail (BlackBerry services); Mobile data and broadband services: allows subscribers to browse and download sports, news, horoscope, movies, music and finance content to their mobile handsets, connect to a computer as modem, send and receive using GPRS and 3G network for broadband quality; Facsimile services: allows subscribers to send and receive faxes; BlackBerry services: allows subscribers to register and use a full suite of BlackBerry services, including email, chat, browsing, GPS, and many other BlackBerry based applications; Voicemail: enables callers to leave voice messages that can be retrieved by subscribers; Caller identification: displays the incoming call number on a subscribers mobile phone display screen; Call holding: allows subscribers to place an incoming or outgoing call on hold while making or receiving other calls; Call waiting: signals subscribers that they have an incoming call while the line is engaged. Upon hearing such a signal, subscribers can answer the second call and place the original call on hold; Call forwarding: enables subscribers to forward incoming calls to other cellular or fixed-line numbers; Detailed billing: provides subscribers with detailed billing statements indicating the duration and cost of calls made to and from a particular mobile phone; Direct debit payment: provides a payment option that automatically deducts billed amounts from the subscribers bank account or credit card; Recharge via SMS and automated teller machines: enables subscribers to recharge their prepaid airtime plans via SMS and automated teller machines automatically deducting billed amounts from the subscribers bank account; and International roaming: allows prepaid and postpaid subscribers to send/receive SMS, voice and data (GPRS/3G) services while roaming on foreign cellular networks.
Facsimile services, detailed billing and direct debit payments are only available to postpaid subscribers. Since 2009, postpaid subscribers have been able to request delivery of printed billing statements or billing statements by e-mail, which minimizes the number of unreceived bills. We offer certain services free of charge, including caller identification, call holding, call waiting and call forwarding, while others, such as SMS, mobile data, broadband, BlackBerry, facsimile services and detailed billing, carry additional fees. We provide our SMS service to prepaid and postpaid cellular subscribers. Usage levels have increased from an average of approximately 90.4 million text messages (excluding value-added service SMSs, such as SMSs related to promotions by content providers and advertisers) per day in December 2007 to a daily average of approximately 516.0 million text messages (excluding value-added service SMSs) in December 2010. In 2008, 2009 and 2010, SMS usage fees represented a substantial portion of our operating revenues from value-added cellular services and features. However, we have recently seen an increase in revenues from mobile data services. We expect SMS to continue to contribute a substantial portion of revenues
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from value-added cellular services and features, but anticipate a continuing increase in revenues from GPRS, BlackBerry and other mobile data services in the future. We have entered into interconnection agreements with other Indonesian telecommunications operators to allow our cellular networks to interconnect with the PSTN operated by Telkom, our international gateways and the networks of each of the other Indonesian cellular and fixed wireless access operators, thereby allowing our cellular subscribers to communicate with customers of other telecommunications service providers. We offer international roaming services to our cellular subscribers to enable them to make and receive calls and to send and receive SMS text messages and use Data connection (on GPRS or 3G) when outside Indonesia. We have entered into roaming agreements with operators of GSM cellular networks in Africa, Europe, North and South America and Asia. As of December 31, 2010, our postpaid cellular subscribers could roam internationally on 468 networks, owned by 336 operators in 153 countries, and our prepaid cellular subscribers could roam internationally on 20 networks, owned by 20 operators in 16 countries. On December 12, 2006, we became a member of the largest international telecommunications operator alliance in Asia, CONEXUS, which was formed to increase each members competitive value in providing international telecommunication services in its respective country and across the Asia-Pacific region. To support current roaming services through GSM, GPRS and wideband code division multiple access (W-CDMA), the members of the alliance are cooperating to provide roaming with HSDPA technology. This alliance has expanded service coverage to more than 150 million customers in nine countries, including Indonesia. Within the CONEXUS and DIGI (Malaysia) networks, our postpaid subscribers can enjoy a special flat data/internet/BlackBerry usage rate of Rp 25,000 per day of unlimited data usage. Mobile Data Services We launched our portfolio of mobile data services in 2000. Mobile data services can be accessed through, among others, SMS, direct dial-up connection to a WAP server or wireless broadband, where subscribers can access a variety of information, including movie listings, stock quotes, exchange rates, sports and business news and astrological predictions, and recharge their prepaid SMS cards. In addition, subscribers can send and receive e-mail and conduct mobile banking services with several leading banks through their mobile handsets. We provide GPRS service with EDGE technology in most large cities in Java, Bali, Sumatra, Kalimantan, Sulawesi and Papua. We were the first telecommunications provider to launch the BlackBerry service in Indonesia. In cooperation with ResearchIn-Motion (RIM), we introduced BlackBerry Enterprise Service to our Postpaid/Matrix corporate customers in December 2004 and BlackBerry services for personal Postpaid/Matrix users in March 2005. In June 2008, to differentiate ourselves from other BlackBerry service operators, we launched I-GPS and I-Stock applications which allow our BlackBerry customers to access a navigation system and real-time stock prices. In January 2009, we launched a BlackBerry service subscription via our prepaid brands, Mentari and IM3. In October 2010, we increased the link capacity to RIM to 500 Mbps dual link, providing our BlackBerry subscribers with faster access. This increase means that we have the largest link capacity to RIM in Indonesia. We have approximately 600,000 BlackBerry subscribers as of December 31, 2010. Indonesia is the second largest growth market in the world for BlackBerry devices. On February 8, 2006, the Government conducted an open bidding process for 3G spectrum licenses and, following satisfactory completion of the bidding process, we were awarded one 3G spectrum license for 5 MHz of paired spectrum. In the same bidding, Telkomsel and XL were also awarded 3G spectrum licenses. In 2007, we began offering an enhanced 3G (3.5G) broadband service using HSDPA technology, a mobile wireless telecommunication service with enhanced 3G technology. In August 2009, we were granted additional spectrum under our existing license, which will allow us to double our network capacity to serve our broadband subscribers. In 2009, we started to deploy the new 3.5G network using HSPA+ technology, with downlink speeds of up to 42Mbps and uplink speeds up of to 5.6Mbps, and we began offering such services in 2010.
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In 2007, we began offering 3.5G broadband services, a mobile wireless telecommunications service with 3.5G technology. In August 2009, we were granted additional spectrum for a second 3.5G carrier, which we believe will allow us to double our network capacity to serve our broadband subscribers. We have started to deploy the new HSPA+ 3.5G network, with downlink speed of up to 42Mbps and uplink speed up of to 5.6Mbps. We have re-aligned our broadband portfolio to focus more on our target segments. Since September 2009, pure data/Internet broadband services, which is for use on personal computers (data only/large screen), have been managed and sold by IM2. Wireless broadband services for handheld devices (for small screen use) are provided through Matrix, Mentari and IM3. In December 2009, we successfully launched our Broadband-On-Request program, which is activated by subscribers via SMS or USSD, for Mentari and IM3 customers, and on October 2010 for matrix subscribers providing options of daily, weekly and monthly packages, with quotas allocated for the respective period of subscription and unlimited packages. Subscribers and Marketing We segment the Indonesian population by location, disposable income and other factors we believe indicate the desire and ability of individuals and corporations to purchase our products and services. We then target areas that are generally more prosperous as these areas tend to yield a higher density of potential cellular subscribers. Through this approach, we have achieved a diversified cellular subscriber base spread throughout Indonesias major population centers. We implemented this strategy to adapt to competition from new entrants and pricing pressures in major urban areas. Our prepaid subscriber base has grown significantly over the past three years relative to our postpaid subscriber base. As of December 31, 2008, we had 661,213 postpaid and 35,591,033 prepaid cellular subscribers. As of December 31, 2009, we had 1,082,215 postpaid and 31,163,859 prepaid cellular subscribers. As of December 31, 2010, we had 565,503 postpaid (Matrix) and 43,170,139 prepaid cellular subscribers. We conduct nationwide marketing and promotional activities in an attempt to retain our existing valued cellular subscribers and to acquire new cellular subscribers. We believe Indonesian cellular subscribers tend to favor the convenience, ease of activation, avoidance of fixed commitments and lack of credit checks associated with prepaid cellular plans. Accordingly, we have focused on this particular subscriber base in our marketing efforts. The following table presents certain information regarding our cellular subscriber base, ARPU, Minutes of Usage and ARPM as of the dates indicated:
As of or for the years endedDecember 31, 2008 Number of cellular subscribers (excluding wireless broadband)(1)(2): Prepaid Postpaid (Matrix) Total cellular subscribers Number of wireless broadband subscribers(3): Prepaid Postpaid Total wireless broadband subscribers Total cellular subscribers: ARPU (Rp)
(4)
2009(7) 31,163,859 1,082,215 32,246,074 610,446 110,681 721,127 32,967,201 37,664 102 220
2010 43,170,139 565,503 43,735,642 448,116 88,559 536,675 44,272,317 34,712 113 163
35,591,033 661,213 36,252,246 116,341 141,659 258,000 36,510,246 38,639 98 287
Minutes of Usage(5) ARPM (Rp)(6)

(1)
(2)
Due to changes in the method used to calculate the number of our prepaid cellular subscribers, our number of cellular subscribers, minutes of usage per cellular subscriber and ARPU set forth in this are not comparable between certain periods. See Item 3: Key InformationRisk FactorsRisks Relating to Our Cellular Services BusinessOur subscriber-related operating data may not be comparable between periods. Cellular subscribers means total registered and active cellular subscribers at the end of the relevant period. Due to changes in the method used to calculate the number of our prepaid cellular subscribers, our number of cellular subscribers, minutes of usage per cellular subscriber and ARPU set forth in this annual report are not comparable between certain periods. See Item 3: Key InformationRisk FactorsRisks Relating to Our Cellular Services BusinessOur subscriber-related operating data may not be comparable between periods.
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(3) (4)
(5)
(6)
(7)
The number of wireless broadband subscribers only includes those who exclusively subscribe to our wireless broadband services, and does not include those who use our broadband on demand services. The average monthly revenue (in Indonesian rupiah) per cellular subscriber, or ARPU, is computed by dividing monthly recurring prepaid and postpaid cellular services revenues (usage charges, value-added services, interconnection revenues and monthly subscription charges), excluding non-recurring revenues such as activation fees and special auctions of telephone numbers recorded under Indonesian GAAP, for the relevant period by the average number of prepaid and postpaid cellular subscribers. The average number of prepaid and postpaid cellular subscribers is the sum of the total number of active cellular subscribers at the beginning and end of each month divided by two. Due to changes in the method used to calculate the number of our prepaid cellular subscribers, our ARPU set forth in this annual report are not comparable between certain periods. See Item 3: Key InformationRisk FactorsRisks Relating to Our Cellular Services BusinessOur subscriber-related operating data may not be comparable between periods. The Minutes of Usage per cellular subscriber is computed by dividing the total minutes of outgoing call usage of prepaid and postpaid cellular subscribers for each month by the average number of prepaid and postpaid cellular subscribers. The average number of prepaid and postpaid cellular subscribers is the sum of the total number of active cellular subscribers at the beginning and end of each month divided by two. Due to changes in the method used to calculate the number of our prepaid cellular subscribers, our minutes of usage per cellular subscriber set forth in this annual report are not comparable between certain periods. See Item 3: Key InformationRisk FactorsRisks Relating to Our Cellular Services BusinessOur subscriber-related operating data may not be comparable between periods. ARPM (in Indonesian rupiah) is computed by dividing revenues from monthly recurring prepaid and postpaid cellular services, excluding non-recurring revenues such as activation fees and special auctions of telephone numbers recorded under Indonesian GAAP, for the relevant period, by the total minutes (billed and unbilled) of outgoing call usage of prepaid and postpaid cellular subscribers for such period. As reported in our Form 6-K filed on July 22, 2010, we issued a restatement of our cellular subscriber base as at March 31, 2010 from 39.1 million to 37.7 million. This discrepancy arose during the compilation of data from multiple reporting systems. The same issue resulted in an over-reporting of subscribers in the second and third quarters of 2009. Accordingly, the total number of subscribers of 33.0 million and ARPU of Rp37,664 for 2009 reported above reflect the restated figures, compared with the total number of subscribers of 33.1 million and ARPU of Rp37,330 previously reported.
As of December 31, 2010, we had approximately 44,272,317 subscribers, including approximately 536,675 subscribers to our wireless broadband services. To consolidate our marketing channels for cellular services, we have opened integrated walk-in centers, under the names Galeri Indosat, which we operate, and Griya Indosat, which are operated by our exclusive distributors. These walk-in centers function as sales outlets and provide potential and existing cellular subscribers with customer service and product information. We also have a dedicated team of employees who coordinate sales and services to Indonesian corporations. To supplement our direct marketing channels, we maintain a network of approximately 51 independent dealers, to whom we offer various incentives for the promotion and sale of our services. These independent regional and multi-regional dealers have their own distribution networks throughout Indonesia and promote our cellular services, primarily to individuals. These dealers include major distributors of mobile handsets and typically have their own retail networks, direct sales forces and sub-dealers in Indonesia. These outlets serve as additional branch outlets for us and offer a broad range of services, including product and service information, customer service and bill payment processing. Existing and new cellular subscribers can activate and register and pay for all of our prepaid cellular services at these outlets. We continue to maintain our relationships with our dealers in an attempt to generate higher sales volume through better product placement, an integrated dealer network and enhanced dealer loyalty. Tariff Structure and Pricing The MOCIT establishes a tariff formula that determines the amounts that operators may charge for prepaid and postpaid cellular services, although allows cellular service providers to offer promotional programs that offer lower prices than the ceiling tariffs. We currently price our prepaid cellular services under a variety of ongoing promotional programs pursuant to which we offer a variety of incentives to attract new subscribers, stimulate demand and improve our competitive position. We may charge different rates for prepaid and postpaid cellular services, depending on various factors that apply to a particular type of service. For instance, the billing expenses we incur to serve our postpaid subscribers will likely be higher and accordingly, our rates for postpaid cellular services tend to be higher than those for prepaid cellular services. The Indonesian cellular telecommunications market uses a calling party pays system, which requires the originators of telephone calls to pay for calls. If our subscriber makes a call to another network, we incur interconnection charges. SMS operates on a sender-keeps-all basis, which means that we earn revenues whenever one of our cellular subscribers sends an SMS, but not when a customer of another telecommunications operator sends an SMS to one of our cellular subscribers. For our GPRS service, we charge cellular subscribers Rp3 per kilobyte of data downloaded for the first 300k and Rp0.5/ kB up to Rp2/kB (excluding tax) thereafter, depending on the download time(off peak or peak time). We receive roaming settlements from foreign telecommunications operators when their cellular subscribers roam on our network. For our wireless
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broadband services, we offer various pricing packages depending on the payment method (prepaid or postpaid), transmission speed and monthly quotas. Activation Fees and Monthly Charges. Activation fees represent the initial connection fees charged to new prepaid subscribers when subscribing to a cellular network. Monthly charges represent fixed amounts charged to postpaid subscribers, particularly Corporate BlackBerry Enterprise Service users that require new BlackBerry software. Since 1998, we have not charged our postpaid subscribers an activation fee. We offer several programs for postpaid subscribers, including a minimum monthly usage of Rp25,000, Matrix Strong package plan for Rp50,000 providing 75 free on-net calls and 75 SMS, Matrix Unlimited package plan providing unlimited calls to 1 or 2 registered Indosat numbers starting from Rp60,000 per month and other promotional programs. Usage charges. There are three types of calls: local, domestic long distance, and international calls. Calls are charged on different charging blocks, from per second up to per minute block, depending on the package plan chosen by the subscriber. Calls may terminate on any of the cellular, fixed or satellite networks. For on-net calls, our subscribers are charged favorable rates because of our ability to offer bundled products, such as cellular and international long-distance services. For off-net calls, the usage charges of subscribers are greater because of interconnection, domestic long-distance, and international long-distance charges. Value-added Services. Prior to 2008, tariffs for value-added services were not regulated by the Government. Since April 2008, the MOCIT has been responsible for setting the tariff formula for SMS. As with voice services, we offer promotional discounts for SMS and mobile data services for both postpaid and prepaid subscribers. Interconnection The charges for postpaid subscription services consist of monthly subscription and interconnection-based usage charges. Charges for prepaid subscription services likewise include interconnection-based usage charges. The interconnection-based usage charges for both prepaid and postpaid cellular services are calculated by considering three interconnection costs: originating, transit and terminating costs. Since January 2007, the MOCIT has set a tariff formula for interconnection services. The MOCIT sets this tariff formula on a cost basis, based on RIOs submitted by dominant service providers in Indonesia, which include us. The MOCIT approved the RIOs we submitted in 2007 and 2008, which have not been adjusted for 2009 and 2010. On December 31, 2010, BRTI issued letter No. 227/BRTI/XII/2010 which set a new set of interconnection tariffs. The new interconnection tariffs took effect on January 1, 2011 and will be reflected in the adjustment of our RIOs. We will apply the charges in our RIOs to the interconnection agreements we have with other operators. The charges under our RIOs have been decreasing in the past few years, and we expect the downward trend to continue. We currently interconnect with fixed line and cellular networks operated by all network operators at numerous locations throughout Indonesia. To minimize our interconnection expenses, we utilize our own backbone transmission facilities whenever possible and in compliance with applicable regulations. For example, routing a long-distance call from a customer in Surabaya to a destination customer in Jakarta through our fiber optic or microwave transmission lines allows us to avoid the use of another operators network, thereby lowering our interconnection expenses associated with routing our intranetwork usage. Activation, Billing and Collection Prepaid cellular subscribers can purchase starter packs from our sales and distribution points or through our various independent dealers. To activate service, a new prepaid cellular subscriber must register with us by following the instructions using the interactive menu. Potential postpaid subscribers can apply for our cellular services at our sales and distribution points or through our independent dealers. Many of our independent dealers, however, can only receive new applications for postpaid cellular services, which are then forwarded to us for processing. A potential subscriber for our postpaid service
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is required to provide proof that such subscriber meets our minimum credit requirements. If a potential subscriber does not meet our postpaid requirements, our sales representative recommends our prepaid services. Once approved, postpaid service SIM cards are activated within 24 hours. We bill our postpaid subscribers on a monthly basis through our centralized billing division. In the case of prepaid subscribers, the wireless billing system automatically reduces the value of each prepaid subscribers account as originating, transit and terminating charges are assessed. Our postpaid subscribers have a variety of payment options in paying their monthly bills. Payments may be made by cash and major credit cards through Indosat galleries, bank tellers or post office branches. In addition, subscribers can also make payment via automatic debit through banks or participating credit card companies, bank transfers, automated teller machines, Electronic Data Capture, mobile banking, Internet banking, and phone banking. Payments are due 20 days after the account statement date. Twenty-seven days after the statement date, we remind subscribers who have not paid their balance and block their ability to make outgoing calls. We block a subscribers ability to make or receive calls 40 days after the statement date if he or she still has not paid his or her balance. We suspend the service for accounts that are more than 50 days past due and remove such subscribers data from our network and permanently disconnect the number and SIM card after 120 days from the statement date. We have taken a number of steps to prevent subscriber fraud and to minimize losses. We deliver prepaid vouchers to our independent dealers only on a cash-on-delivery basis and we do not collect payments for our services from cellular subscribers through our independent dealers. In addition, depending on usage levels, we may require refundable deposits from subscribers. We also review accounts of our high-usage subscribers at regular intervals to ensure that the deposit levels continue to be adequate. Competition The cellular services business in Indonesia has become increasingly competitive during recent years. Competition in the cellular communications industry is based principally on network coverage, technical quality, price, the availability of data services and special features, and quality and responsiveness of customer service. Based on our internal estimates, the three major providers of wireless services in Indonesia, Telkomsel (which is majority-owned by Telkom), us and XL (which is indirectly majority-owned by Axiata Bhd. of Malaysia), accounted for almost 77% of the 2010 wireless subscriber base in Indonesia. We also compete with others fixed wireless access service providers. In May 2003, Telkom introduced TelkomFlexi, a CDMA 2000-1X service in the Jakarta area. Currently, Telkom offers this service nationwide. Telkom offers this service as a fixed wireless access service, but the service has expanded mobility and value-added features similar to cellular services. After receiving requests from industry associations, the MOCIT issued a decree stating that the service area of the fixed wireless access network must be limited to an area equal to one area code of the local fixed network service. An operator of fixed wireless access service is therefore prohibited from extending its roaming services to other area codes, but CDMA operators still have the ability to achieve similar results by giving subscribers a new number when they move to other cities. In addition to TelkomFlexi, other telecommunications operators offer similar services such as Bakrie Telecom and Mobile-8, which offer their services nationwide. From time to time, Indonesian telecommunications operators conduct aggressive subscriber acquisition programs with the goal of increasing individual market share. Through the offer of discounts, bonuses and special rates, operators attempt to differentiate their services from those of other operators, primarily based on price. This competition has caused tariffs to decline and, as a result, we believe cellular subscriber ARPU has continued to decline for most Indonesian telecommunications operators. We believe competition for 3G services will be intense as telecommunications operators begin to deploy their networks in major population centers. Currently, there are five telecommunications operators holding 3G licenses: Telkomsel, Hutchison, Natrindo, XL and us. We commenced providing wireless broadband services using our 3G platform in 2009 and, as of December 31, 2009, we offered 3G services in 50 cities nationwide.
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Our main competitors for wireless broadband services are Telkomsel, with its Flash service, and XL with its XL Unlimited, both of which use 3.5G W-CDMA technology. Other operators such as Smart Telecom and Mobile 8 also provide wireless broadband service with EVDO-CDMA technology. We believe barriers to entry in the Indonesian cellular and fixed wireless access services industry are currently comparatively high due to the limited availability of frequency spectrum, a capital intensive operating environment, difficulties in acquiring tower sites for network expansion and the established market presence of the three incumbents, us, Telkomsel and XL. Nevertheless, we are anticipating continued intense competition within the Indonesian cellular and fixed wireless access services industry generally. In response to this, we intend to dedicate a substantial portion of our future capital expenditures to our cellular business in an effort to increase network capacity and service quality and to provide various value-added services.
MIDI Services
The products and services that we offer in this business segment include high-speed point-to-point international and domestic leased line with broadband and narrowband capacity, a high-performance packet-switching service, and Internet service, a multi layer of MPLS-based services, satellite transponder leasing for telecommunication providers and broadcaster segments, and value added services such as Disaster Recovery Center and Data Center. Recognizing the significant growth potential of data and other network services, including Internet-based services, and their increasing importance to our overall business strategy, we have placed considerable emphasis on this business segment. The growing emphasis on reliable data transmission and interconnectivity by our corporate customers, especially those with multiple branches or locations, presents an excellent opportunity for us. MIDI services represented Rp2,488.1 billion (US$276.7 million), or 12.7% of our total consolidated operating revenues for the year ended December 31, 2010.
For the years endedDecember 31, 2008 MIDI: International High Speed Leased Circuit (000s) Domestic High Speed Leased Circuit (000s) 46 129 80 171 218 251 2009 2010
Service World Link, Direct Link and Domestic Link. World Link is an IPLC that provides international connection of high-speed digital data circuits on a point-to-point basis via submarine and terrestrial cables and offers line speeds from 64 Kbps and multiples thereof up to 2 Mbps for narrowband or 45 Mbps and above for broadband. Direct Link is a leased line service through satellite / VSAT connections which provides high-speed digital data circuits on point-to-multipoint basis and offers line speeds from 64 Kbps and multiples thereof up to 2 Mbps for narrowband. Domestic Link is a domestic private leased circuits service that provides high-speed digital data circuits on a point-to-point basis and offers line speeds from 64 Kbps and multiples thereof up to 2 Mbps for narrowband or 45 Mbps and above for broadband. Most of our broadband World Link customers are telecommunications providers who require dedicated broadband international data links, and our narrowband World Link customers consist primarily of corporate users who subscribe to our World Link service for their own internal use. Direct Link is used for international connections and other leased line users located in areas that are not covered by terrestrial domestic networks. Our broadband Domestic Link customers in the domestic market include telecommunications providers that need dedicated domestic broadband data links, and our narrowband Domestic Link customers mostly are corporate users who use the service for their own internal use. We recorded operating revenues of Rp278.8 billion (US$31.0 million), from World Link, Direct Link and Domestic Link operations, representing 11.2% of our consolidated MIDI services operating revenues for the year ended December 31, 2010. IP VPN. We provide both international and domestic IP VPN services through Indosat, Lintasarta, and IM2, which provide customers with multi-point connectivity for data communication through our robust IP network cloud. These services
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support flexibility, scalability, and accommodate complex distributed computing applications, while maintaining the quality of service, security, and reliability close to that of private leased circuit. As of December 31, 2010, Indosats, Lintasartas, and IM2 domestic IP VPN services were available in 74 major cities in Indonesia, and Indosats international IP VPN services have a strong presence in South East Asia, with coverage extensions to North Asia, Europe, Japan, and the United States, in cooperation with several global service providers such as AT&T, C&W, BT, and NTT. We recorded operating revenue of Rp605.7 billion (US$67.4 million) from IP VPN operations, representing 24.3% of our consolidated MIDI services operating revenues for the year ended December 31, 2010. MPLS and Metro Ethernet. MPLS and Metro Ethernet are domestic and international leased line services, provided through our robust Internet Protocol network cloud. MPLS is a technology platform that has an ability to provide various classes of services on an Internet Protocol network, resulting in a flexible, scalable, reliable and secure data communication link, both for point-to-point or multipoint domestic inter-city and international connections. Our MPLS-based services consist of Premium Ethernet Point to Point, Premium Ethernet Multi Point, and IP VPN; and offer line speeds from 64 Kbps and multiples thereof up to 2 Mbps for narrowband or 45 Mbps and 155 Mbps for broadband. Metro Ethernet provides highspeed domestic inner-city bandwidth connections with line port speeds of 10 Mbps, 100 Mbps and 1 Gbps and an Ethernet base with an incremental guaranteed bandwidth of nx1 Mbps. Frame Relay and ATM. We provide both international and domestic Frame Relay and ATM services, a high-speed leased packet switch technology, primarily through Indosat and Lintasarta, supplying customers with multilateral connectivity, reliable LAN interconnections and the power to support complex distributed computing applications. We offer our various data connectivity servicesWorld Link, Direct Link, Domestic Link, IP VPN, MPLS and Metro Ethernet, Frame Relay and ATMto our various corporate customers, including multinational corporations, tailored to fit their specific information and telecommunications requirements, pricing parameters, speed requirements, and security concerns. Satellite Services. We lease transponder capacity on our Palapa-D satellite, which is positioned in an orbital slot located over the Asia-Pacific region, to broadcasters and telecommunications operators. Indonesia has a large television market in which a number of privately-owned domestic broadcasters and international programmers compete with the state-owned broadcaster and many of these domestic and international broadcasters lease capacity on our satellite. We have entered into lease arrangements governing transponders on our Palapa-D satellite that vary in duration but generally terminate within two to five years of the effective date of the lease. Transponder leases may be terminated for breach of the lease agreement and, most of the leases provide that the lessee may terminate the lease with notice (generally six to 12 months) subject to the payment by the lessee of a termination fee equal to a percentage of the lease payments that would have been due had the lease not been terminated. Apart from our own use, we also lease transponder capacity on our Palapa-C2 satellite, with a maximum lease term of three years, to other telecommunications operators. We also provide a variety of other supplementary satellite services, including occasional use for TV services, Indosat TV link, private network services, Internet access and multimedia and video conferencing. We expect demand for satellite services to continue to grow, mainly driven by accelerating growth of satellite derivative services. Pressure on pricing is expected to ease as a consequence of improved demand. Satellite services represented Rp136.0 billion (US$15.1 million) or 5.5% of our MIDI services operating revenues for the year ended December 31, 2010. Internet Services. We provide Internet Network Provider Services for ISPs and Dedicated Internet Access services for end users and corporate customers. For the year ended December 31, 2010, we operated three ISPs that contributed revenues of Rp519.6 billion (US$57.8 million). IM2 provides dedicated and dial-up services, and as of December 31, 2010, it had 2,130 corporate and small-to medium-size enterprises (SME) subscribers and 12,756 retail subscribers. In anticipation of increased competition in the Internet business, IM2 has developed a strategy to expand its business by developing an Internet
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protocol backbone through potential growth areas, deploying public hotspot services, establishing customer care centers, developing its network through joint investment schemes by using hybrid fiber and coaxial technology, and improving its business processes. Lintasarta offers its Internet subscribers IdOLA and LintasartaNet service for corporate subscribers. With IdOLA and LintasartaNet, subscribers can access information from many content providers in Indonesia and worldwide. Corporations may use LintasartaNet for Internet promotions, software and computer allocations, co-operative ventures or domestic and international trade transactions. We derived 20.9% of our consolidated MIDI services operating revenues from Internet services for the year ended December 31, 2010. VSAT Net/IP and VSAT Link. Lintasartas VSAT Net/IP and VSAT Link services are satellite-based data networking systems. VSAT Net/IP connects and controls data traffic among remote locations, allowing for quick development of data for network customers with low-to-medium traffic in such sectors as financial services, transportation, trading and distribution. VSAT Link provides point-to-point digital transmission for remote locations by businesses with medium-to-heavy traffic such as those in the manufacturing, mining and financial services industries. Disaster Recovery Center (DRC) and Data Center. We provide DRC and Data Center through Indosat and Lintasarta. We offer co-location, rack, cage, power, and other supporting facilities as value added services to corporate customers. We also provide backbone or domestic leased line services from our DRC or Data Center locations to customer headquarters, as part of our total telecommunications solutions. Customers and Marketing Our customers for MIDI services are primarily corporate clients and SMEs, although we also have wholesale and retail customers for certain services, such as our Internet services. Our marketing activities for MIDI services include group presentations, direct mail, partner promotions, customer retention programs and advertisements in publications and printed media. In June 2010, we launched our Indosat Corporate Solutions Micro site, which aims to facilitate corporate customers obtain information about Indosat Corporate Solutions products and services and increase brand awareness of the services. Each business unit seeks to maintain existing customer relationships through activities such as user forums, training seminars, courtesy visits and informal gatherings with customers. Lintasarta focuses on expanding its market share in industry segments outside its core competencies in banking and finance, in light of the anticipated consolidation and restructuring of those industries in Indonesia. In addition, Lintasarta has increasingly focused its sales and marketing efforts on SMEs by repackaging its products and services for their particular needs. Lintasarta is expanding the existing geographic coverage of its products and services to address the increasing demand for telecommunications infrastructure in outlying regions as a result of Indonesian political developments, including increased regional autonomy. We support our subscribers through local area staff, a 24-hour help desk and integrated real-time network management. In April 2000, Lintasarta achieved ISO 9002 certification for its frame relay, digital data network and VSAT services. In January 2002, we obtained ISO 9001 certification for our frame relay, digital data network and VSAT services, evidencing our commitment to customer satisfaction and continuous service quality improvement. As a result of these activities, Frontier and Marketing Magazine awarded us the Top Brand Award in the ISP category for the years 2005 through 2010 and the Best Contact Center Award for 2007, 2008 and 2009. As appreciation of our commitment to operational excellence, in June 2010, Cable and Wireless awarded Indosat as Best Partner in the Maintain and Achieve Operational Excellent in Asia category in the Cable and Wireless Global partner Gathering in Singapore. Tariff Structure and Pricing Customers of our various MIDI services are charged based on the type of product and service provided, the capacity leased, their industry sector, geographic location and the length of service contracts with us (which generally range from one to three years). Service charges generally include the following components: initial installation; monthly service charges (based
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on location and access speed); transactional charges (based on the volume, duration and/or distance traveled for network traffic); and other charges for services such as consultancy and project management. Satellite transponder lease rates to international lessees are negotiated individually with customers and depend on the supply and demand for services in the areas covered by our Palapa-C2 and Palapa-D satellites. Our offshore leases average US$1.03 million per annum for a full transponder. Almost all offshore lease payments are payable quarterly in advance in U.S. dollars and other widely used currencies. Competition Data communications service providers in Indonesia compete principally on the basis of price, range of services provided and customer service quality. During the last few years, competition among data communications service providers has intensified principally due to the issuance of new licenses resulting from the deregulation of the Indonesian telecommunications industry. We expect competition to continue to intensify. We believe that our major competitors are Citra Sari Makmur, Tangara Mitracom, Satkomindo and Primacom with respect to our VSAT services, and Telkom, XL, Indonesia Comnet Plus (Icon+), and Citra Sari Makmur, with respect to our domestic leased line services. In 2010, our international leased line services faced great challenges from new operators, such as Matrix and Moratel besides our main competitors, Telkom and XL. The Government declared Telkom as a dominant operator for leased circuits in 2007. As a result of this declaration, we believe Telkom will be subject to more regulatory approvals while we will be able to propose new tariffs without the requirement of Government approval. ISPs in Indonesia compete on the basis of network quality, price and network coverage. With respect to Internet-related value-added services, we compete against Telkom and other existing ISPs, such as First Media, Biznet, CBN, Berca and Indonet. We also face significant competition from any new ISPs whose licenses are approved by the MOCIT. As corporate markets demand greater speed at affordable prices, many bandwidth suppliers have begun making significant investments toward building superior infrastructure using new technology, such as Dense Wavelength Division Multiplexing, or DWDM technology. DWDM technology poses a competitive threat to our business services since its infrastructure enables bandwidth suppliers to offer more bandwidth capacity with better cost efficiency. The bandwidth industry has been facing recent challenges from the emergence of new operators, such as Moratel and Matrix Cable System, which set up international cables linking Indonesia and Singapore in 2008. Companies in the satellite business compete primarily on coverage, transponder power, product offerings and cost. Generally, the cost of service depends upon the combination of power and coverage. In recent years, competition within the satellite business in the Asia-Pacific region has been intense. Our satellite operations have primarily consisted of leasing transponders to broadcasters and telecommunications operators of VSAT, cellular and IDD services and ISPs. We face competition from foreign and domestic service providers in each of these areas. In leasing our transponders on the Palapa-D satellite, we compete most closely in Indonesia with Telkom and PT Pasifik Satelit Nusantara (Pasifik Satelit Nusantara). Pasifik Satelit Nusantara also owns transponders on the Mabuhay Philippines Satellite. Telkom currently operates its own satellites (Telkom-1 and Telkom-2) and earth stations primarily to provide backbone transmission links for its network. Telkom also leases satellite transponder capacity and provides earth station satellite uplinking and downlinking service to domestic and international users. Other private satellites serving the broadcast market within the coverage area of the Palapa satellites include AsiaSat-4, AsiaSat-3S, Apstar-2R, Apstar-5, Apstar-6, ThaiCom4, ThaiCom5, Measat-3, Measat-3a, Intelsat7, Intelsat8, Intelsat10 and Intelsat12. Measat Sdn. Bhd, which operates the Measat satellites, APT Satellite, which operates the Apstar satellites, and ThaiCom Public Company Ltd, which operates the ThaiCom satellites, also compete directly with us in the Asian regional market. Moreover, with the increasing popularity of Direct-To-Home television (DTH), our satellite business will face increasing competition as new and more powerful regional satellites are launched. DTH is the reception of satellite programs with a personal dish in an individual home. National broadcasters are seeking DTH licenses to provide nationwide broadcast services in Indonesia. DTH television will enable broadcasters to distribute their program content without utilizing
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our telecommunication network support. In addition, because of the growing popularity of DTH, we face the possible loss of customers because DTH uses a satellite platform that we do not provide.
Fixed Telecommunications Services

Our fixed telecommunication services include international and domestic long distance as well as fixed wireless access services. For the year ended December 31, 2010, we recorded operating revenues of Rp1,293.2 billion (US$143.8 million) from our fixed telecommunications services, representing 6.5% of our total consolidated operating revenues. Except with respect to payments from our cellular, fixed wireless and fixed line subscribers, we do not receive any payments directly from the end users of our international long-distance services. For the year ended December 31, 2010, 12.4% of our fixed telecommunications services operating revenues were derived from amounts received or receivable from Telkom and other domestic operators in respect of outgoing calls, 64.4% was derived from net settlements with foreign telecommunications operators in respect of incoming calls and the remaining 23.2% was derived from fixed wireless access services, direct billing for specific services, such as from calling card and fixed-line subscribers for the same period. Services International Long-Distance Services. We provide a variety of international voice telecommunications services and both international switched and non-switched telecommunications services. Switched services require interconnection with either the PSTN or another mobile cellular operators facilities; non-switched services can be completed through our transmission facilities without the need for interconnection. Through our 001 and 008 international long-distance services, we currently handle approximately 25% of the traditional IDD business in Indonesia. To address increased competition resulting from industry deregulation, we launched FlatCall 016 service in March 2005 and marketed it as a new product aimed at consumers in the most price-sensitive market segment. Beginning January 2007, in compliance with a decree from the Government, we changed the access code to a five digit code and named it FlatCall 01016. The FlatCall 01016 product offers competitive tariff rates for certain top destination countries while offering regular VoIP tariff rates for other countries. Our outgoing international long-distance calls are routed through one of our four international gateways. From these gateways, international long-distance services are transferred via satellite or submarine cable based on predetermined routing plans developed in collaboration with foreign telecommunications operators. The foreign carriers receiving calls through the international gateways are responsible for terminating the calls to their recipients. Similarly, international long-distance calls received at our gateways are switched from the gateway to their destinations domestically through Telkoms local network, our cellular network, our fixed local network or one of the other cellular operators with which we maintain interconnection arrangements. For the year ended December 31, 2010, our revenues from international long-distance services amounted to Rp993.2 billion (US$110.5 million). The following table sets forth certain operating data for our international direct dialing services for the periods indicated:
For the years ended December 31, 2008 minutes Incoming paid minutes Outgoing paid minutes Incoming and outgoing paid minutes Ratio of incoming to outgoing traffic 1,582.4 474.0 2,056.4 3.3 % change 23.2 59.6 30.0 minutes 1,558.5 502.0 2,060.5 3.0 2009 % change -1.5 5.9 0.2 minutes 1,723.9 463.0 2,186.9 3.7 (in millions, except percentages) 10.6 -7.8 6.1 2010 % change
Note: Starting in 2010, we count domestic interconnection traffic as part of international incoming traffic; prior to 2010, we excluded this traffic from the calculation of incoming traffic.
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During 2008, 2009 and 2010, our international outgoing calls measured by paid minutes increased by 59.6%, 5.9% and decreased by 7.8%, compared to the previous year, while our international incoming calls measured by paid minutes increased by 23.2%, decreased by 1.5% and increased by 10.6% for the same period. Combined outgoing and incoming calls, also measured by paid minutes, increased 30.0%, 0.2% and 6.1% during 2008, 2009 and 2010. We believe our growth in 2010 relative to the prior year was primarily due to our aggressive business strategy of emphasizing volume-based sales. We believe that increased competition from Telkom and VoIP operators, some of which are unlicensed, will continue to affect our business in the future. Fixed Wireless Access Services. We launched our fixed wireless access services in 2004 to expand our fixed telecommunications business segment and to complement our cellular services. Using CDMA 2000 1x technology, our fixed wireless access services offer a cost-effective alternative to our cellular services to subscribers who have limited mobility requirements. As of December 31, 2010, our fixed wireless access service, StarOne, had a total subscriber base of 550,130 subscribers with 61,123 postpaid subscribers and 489,007 prepaid subscribers. For the year ended December 31, 2010, revenues from fixed wireless access services totaled Rp174.1 billion (US$19.4 million). On December 12, 2006, the Government granted us a license for two channels of nationwide fixed wireless access in the 800 MHz frequency. This license replaced our previous 1900 MHz fixed wireless access license and by the end of 2007, we migrated our CDMA frequency from 1900 MHz to the new 800 MHz frequency in the greater Jakarta area. We expanded our StarOne services to 82 cities by December 2010. Local and Domestic Long Distance Services. We launched local and domestic long distance service from Indosat access points such as StarOne and INDOSAT phone in October 2005. We currently have local and domestic long-distance coverage of 82 major cities in Indonesia. Customers and Marketing The principal customers of our fixed telecommunications services are corporate clients, our own cellular, fixed telecommunications and fixed wireless access customers, and the customers of other telecommunications operators. We employ a specialized sales force, including a sales group, which focuses on our 500 largest customers, including hotels, large corporate customers, government offices and embassies. We have also implemented a customer loyalty program, which provides incentives to regular users. In addition, we seek to broaden our customer base by conducting joint promotions with other international telecommunications companies to promote our services. We strive to deliver high-quality services that maximize customer satisfaction. We have undertaken a variety of marketing initiatives to improve our services to fixed telecommunications customers. Our marketing strategy focuses on: (i) strengthening our price-tiering strategy through implementation of FlatCall 01016 to compete with VoIP services; (ii) expanding our market share while retaining our customers through bundling initiatives; (iii) establishing volume commitments for incoming traffic from foreign telecommunications operators; and (iv) expanding coverage of our fixed wireless access services. We have traditionally maintained a nationwide advertising campaign, using television, newspapers, magazines, websites and radio to increase brand awareness among business and retail customers. We also maintain regional sales offices in eight locations throughout Indonesia. In 2010, approximately 36.8% of our outgoing international long-distance call minutes (including calls placed through Flatcall 01016) originated in the greater Jakarta area, followed by Eastern Java and Bali Nusa Tenggara, which together accounted for 23.9% of our outgoing international long-distance call minutes. We maintain a proprietary database of customer information, which allows us to analyze consumer preferences and usage patterns and to develop tailored marketing and products. We conduct our own market research and also engage consultants to perform broader research on customer behavior and needs.
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Tariff Structure, Universal Service Obligations and Pricing Rates. Prior to 2008, the MOCIT set tariffs for fixed telecommunications services, which were based on the division of all destinations into six zones. On April 30, 2008, the MOCIT established a tariff formula for basic services on fixed networks and required operators to calculate prices using a cost-based formula, which are then submitted to the Government for approval. However, our international long-distance rates have not changed, and so we intend to continue applying international longdistance rates based on the previous regulations which base tariffs on six zones for call destinations. The provision of international long-distance services between two countries is normally established between telecommunications carriers on a bilateral basis. We typically apply a market termination rate-based pricing system, pursuant to which we agree on asymmetric rates for incoming and outgoing calls. We maintain direct connections with 64 foreign telecommunications operators in 40 countries. Our agreements with these carriers set the terms of payment by us to the foreign telecommunications operators for use of their facilities in connecting international long-distance services billed in Indonesia and by the foreign telecommunications operators to us for use of our facilities (and the local Indonesian networks) in connecting international long-distance services billed abroad. The practice among telecommunications carriers is for charges due in respect of the use of overseas networks to be recorded, collected and forwarded by the telecommunications carrier from the country in which the call is billed. Based on the rates negotiated with each foreign telecommunications operator, we make payments to the carrier for outgoing traffic billed in Indonesia, and we receive payments from such carrier for inbound traffic billed outside Indonesia. Settlements among carriers are normally made quarterly on a net-based method. Our largest correspondent carriers are those located in Malaysia, Singapore, Taiwan, the Middle East and Hong Kong. VoIP service providers may determine their own collection charges, and each service provider must negotiate with the applicable network provider for interconnection charges. We have entered into an agreement for Telkom to be our network provider for VoIP interconnection. Interconnection with Domestic Networks. Although we provide international gateways for outgoing calls from and incoming calls to Indonesia, all international long-distance services must terminate on one of the domestic fixed or cellular networks. The MOCIT sets interconnection tariffs for international long-distance services which traverse the domestic fixed-line and fixed wireless access networks. We have separate interconnection agreements, which reflect these tariffs, with those operators that interconnect directly with our international gateways. Universal Service Obligations. The Government imposes a Universal Service Obligation (USO) tariff, which from 2005 through 2009 was 0.75% of annual gross revenues less interconnection expenses paid to other telecommunication carriers and bad debts. In January 2009, the Government increased USO tariffs from 0.75% of annual gross revenue to 1.25% of annual gross revenue (after deducting interconnection charges and bad debts). Customer Billing and Interconnection Charges Domestic operators maintain control over the billing and collection process for international long-distance services, which are initiated on the domestic networks. Domestic operators retain the appropriate interconnection charges owed to them from the amounts collected and remit the balance (without interest) in Indonesian rupiah to us within not less than 25 days of collection from the customer in Indonesia. The collection cycle for most of the domestic operators is approximately 30 days. We are responsible for generating and delivering such billing information to the domestic operators, through a module known as the System Online Clearing Interconnection service, every twelfth day of the month, which is then billed by the domestic operators approximately five days after receipt from us, resulting in a collection cycle of approximately 50 to 80 days. For purposes of financial reporting, we recognize revenues on a monthly basis based upon our own traffic records. We bill our domestic cellular operators in the middle of the following month and require payment by the end of the month. Accordingly, the normal collection cycle with respect to domestic cellular operators is approximately 20 to 60 days.
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We remit the appropriate interconnection charge to the relevant operator for incoming calls terminating on the domestic networks. We generally remit such charges in 20 to 60 days by netting the receivables for outgoing calls. The settlements from foreign telecommunications operators are typically paid in U.S. dollars, which are deposited in Indonesia, and amounts representing interconnection payments payable by us to the domestic network operators are remitted in Indonesian rupiah. Customer usage of fixed wireless access and domestic long-distance services is calculated starting from the beginning of the month until the end of the month. Customer billing is generated at the beginning of the following month and completed by the fifth day of that month. Billing statements are generally received by customers no later than the tenth of the month and payments are due by the twentieth of the month. For fixed wireless access service, we block the subscribers ability to make calls when they have not paid their balance due by the twenty-second day of the month. We block a customers ability to make or receive calls 40 days after the statement date if he or she still has not paid his or her balance. We permanently disconnect service and cancel accounts for customers whose bills are more than 60 days past due from the first day of the generated bill. For domestic long-distance services, by the end of the month, we block customers from making calls if they have not paid their balance. For customers who have not paid their balance due by the end of the second month, we block the customers ability to make or receive calls. We permanently disconnect service and cancel accounts for customers whose bills are 90 days past due from the first day of the generated bill. Competition We are no longer the only authorized provider of traditional IDD (i.e., non-VoIP) call services in Indonesia. The MOCIT has granted operational licenses to provide IDD services to Telkom, which includes the right to use the IDD access code 007 to enter the international long-distance market, and Bakrie Telecom. The Government may also issue new licenses for IDD services to other telecommunications operators, which will increase competition. In addition, Telkom no longer operates a monopoly for DLD services. The traditional IDD market has become even more competitive with the increased usage of VoIP technology. Our VoIP business has increased significantly from 201.9 million minutes, 442.4 million minutes, and 411.7 million minutes in 2008, 2009 and 2010, respectively. In April 2008, we and Telkom agreed to open DLD access from our respective customers in Balikpapan, pursuant to which Telkoms fixed network customers can dial 011 to access our DLD network while our local fixed network customers can dial 017 to access Telkoms network. In addition, in 2008, Bakrietel was issued a license as a new DLD operator. The opening of DLD access among competitors and the commencement of operations of new DLD operators is expected to increase competition by providing customers with more options for DLD services. We also face competition from other fixed wireless access service providers. Currently, Telkom, the largest fixed wireless access operator, offers TelkomFlexi, a CDMA 2000 1x service in Indonesia. Bakrie Telecom, which offers services in Indonesia, and Mobile-8, have also been granted new nationwide fixed wireless access services licenses, further intensifying competition in this segment.
Facilities and Infrastructure

The discussion below relates to our cellular network, fixed telecommunications network (including IDD network), and other communications facilities and infrastructure, including that of our significant operating subsidiaries. Cellular Network The principal components of our cellular network are: base transceiver/Node B stations: consisting of a transmitter and receiver and serving as a bridge between mobile users in one cell and the mobile switching center via base station controllers and radio network controllers; base station controllers/radio network controller: devices that connect to and control the base station within each cell site; mobile switching centers: centers that control the base station controllers and the routing of telephone calls; and transmission lines: lines that link the mobile switching centers, base station controllers, base stations and the PSTN.
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Our cellular network currently operates using 10 MHz x 2 uplink and downlink of radio frequency bandwidth in the GSM 900 spectrum, 20 MHz x 2 uplink and downlink of frequency bandwidth in the DCS 1800 spectrum and 10 MHz x 2 uplink and downlink in the IMT-2000 spectrum. The following table sets forth selected information regarding the composition of our cellular network as of the dates indicated:
As of December 31, 2008 Base transceiver stations(1) Node B Stations (3G BTS) Base station controllers(1) Mobile switching centers(1) Radio network controllers Media gateways(1)
(1)
(1) (1)
2009 14,385 1,968 16,353 315 95 20 73
2010 15,216 2,892 18,108 330 87 34 79
12,237 1,425 13,662 265 73 14 40
Total BTS (including 2G and 3G)(1)
Prior to the first quarter of 2010, newly-built or newly-acquired base transceiver stations, node B stations, BTS, base station controllers, mobile switching centers, radio network controllers or media gateways which were not yet in operation were included in the reports of the Company. Beginning in the first quarter of 2010, as disclosed herein, the Company included newly-built or newly-acquired base transceiver stations, node B stations, BTS, base station controllers, mobile switching centers, radio network controllers or media gateways in its various reports only when they were actually put in operation. Under the Prior Computation, the Company would have the following numbers:
As of December 31, 2008 Base transceiver stations Node B Stations (3G BTS) Total BTS (including 2G and 3G) Base station controllers Mobile switching centers Radio network controllers Media gateways 12,677 1,485 14,162 279 73 16 54 2009 14,621 2,183 16,804 315 96 21 80 2010 15,870 2,834 18,704 331 92 34 87
We purchase our cellular telecommunications equipment primarily from European and Chinese suppliers. Our network is an integrated system employing switching equipment, cell site equipment and a transmission network of point-to-point microwave radio. Most of our cell sites and radio base stations are located in or on buildings or on vacant lots, which we own, or for which leases have been individually negotiated by us for terms typically varying from five to 20 years. As a result of operating three legacy networks using equipment from numerous suppliers, our capital expenditures have historically been higher than would be the case if we were operating a single network using fewer suppliers. Commencing in 2009, as part of our functional management strategy, we began to rationalize our capital expenditure and procurement planning through our newly-established investment committee. We have focused our procurement on fewer suppliers and have adopted a framework agreement approach with such suppliers, which we believe has significantly increased the efficiency of our capital expenditure program. We are considering various options in connection with the operation, ownership and use of our tower assets that we believe will optimize the value of such assets. Fixed Telecommunications Network We have built a fixed telecommunications network consisting of six international gateways served by satellite circuits, submarine cables and microwave transmission. By the end of 2010, we offered fixed wireless access services across 82 cities in Indonesia.
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International Gateways. For our international long-distance business, we operate through six gateways, three gateways in Jakarta, and one gateway in Surabaya, Medan and Batam, which provide all of the connections for our services to our international long-distance network. The gateway-switching equipment was purchased from Lucent Technologies, Inc. (which has since merged with Alcatel) and Siemens. As of December 31, 2010, we had available international bandwidth capacity of 1,998.72 Mbps for voice and 21,387.00 Mbps for data transmission. All of our destinations are digitally connected. The bandwidth available to us is significantly higher than the utilized capacity to allow for anticipated growth in traffic. It is our policy to maintain average utilization at less than 80.0% of capacity to allow for increased usage during peak hours. Each international gateway is linked to the other international gateways, which permits multiple routing options for each call and provides the system with backup capability in case of equipment failure or overcrowding at any gateway. We have placed interconnection equipment at the facilities of Telkom and certain of the cellular operators to connect our international longdistance network to the domestic telecommunications network. International transmission of voice and data between international gateways occurs across either satellite circuits or submarine cables. Satellite circuits are unaffected by distance and offer broadcast services making them flexible with regard to call destinations. Submarine cables, especially fiber optic digital cables, can offer less expensive high-quality services. However, cable costs increase with distance and destinations are fixed. Satellite circuits can be degraded by atmospheric conditions, while submarine cables can suffer damage from human or natural causes. In general, we use submarine cables with cable-to-cable backup for medium-distance links in Asia and satellite links backup for longer-distance transmission. We use microwave and fiber optic links for connections between gateways and earth stations, as well as for the Batam gateway, which has microwave links to Singapore. It is our policy to maintain 100% redundancy for all of our international long-distance links (which may require routing through a third country) in an effort to provide high-quality services to our customers. Submarine Cables. We have ownership interests in and access to capacity in submarine cables interconnecting the Asia-Pacific region, North Africa and Europe, as well as those linking the Asia-Pacific region with North America. The table below sets forth the geographic coverage and allocated capacity of our cable network, as December 31, 2010: Capacity (in Mbps)
310.00 47,753.00
Submarine Cable Network APCN-2 SEA-ME-WE 3
Geographic Coverage China, Japan, Malaysia, Philippines, Singapore, Hong Kong South Korea and Taiwan Australia, Austria, Belgium, Brunei, Canada, China, Egypt, France, Germany, Greece, Hong Kong, India, Iran, Italy, Japan, Macau, Malaysia, Myanmar, Netherlands, Oman, Pakistan, Portugal, Saudi Arabia, Qatar, Singapore, South Korea, Spain, Sri Lanka, Taiwan, Thailand, Turkey, United Arab Emirates, United States and United Kingdom Singapore China, Taiwan, South Korea and United States Singapore, Malaysia, Thailand, Vietnam, Brunei, Hong Kong, the Philippines, and United States Java, Kalimantan, Batam (Indonesia) Java, Kalimantan, Sulawesi (Indonesia) Java, Sumatera (Indonesia) Java (Indonesia)
Jakabare China-US Asia America Gateway Jakabare Jakasusi Jasutra JakartaSurabaya Total
143,860.00 1,414.00 4,000.00 118,205.00 56,470.00 179,375.00 36,200.00 587,587.00
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To support the operations of our gateway in Surabaya, we have operated the Jakarta-Surabaya submarine fiber optic cable link since January 1997. This link enhances network reliability and improves the quality of our services in the Surabaya region. We, along with the Telecommunications Company of Iran (TCI), are among more than 80 companies that have an ownership interest in, and access to capacity in the SEA-ME-WE 3 submarine cable. Our ownership interest in the SEA-MEWE 3 submarine cable stands at approximately 3.4% while TCIs ownership interest stands at approximately 0.3%. The SEAME-WE 3 submarine cable does not have any landing point in Iran. The connection to Iran is through the UAE-Iran submarine cable system that lands at Fujairah Cable Landing Station (UAE). International Satellite Circuits. As of December 31, 2010, our available data circuits through the earth station at our Jakarta gateway was 0.64 Mbps. Our satellite capacity is currently obtained principally from Intelsat and, to a lesser extent, from our Palapa-D satellite. Since December 31, 2002, we have been migrating traffic from satellite transmission to submarine cables due to higher quality, increased availability and lower costs of submarine cables. Our fixed wireless access network currently operates using 5 MHz of radio frequency bandwidth in the 800 MHz spectrum. The following table sets forth selected information regarding our fixed wireless access network as of the dates indicated:
As of December 31, 2008 Base transceiver stations
(1)
2009 1,421 31 8 25
2010 1,576 37 8 29
1,454 34 9 17
Base station controllers(1) Mobile switching centers(1) Media gateways(1)
(1) Prior to the first quarter of 2010, newly-built or newly-acquired base transceiver stations, base station controllers, mobile switching centers and media gateways which were not yet in operation were included in the reports of the Company. Beginning in the first quarter of 2010, as disclosed herein, the Company included newly-built or newly-acquired base transceiver stations, base station controllers, mobile switching centers and media gateways in its various reports only when they were actually put in operation. Under the Prior Computation, the Company would have the following numbers:
As of December 31, 2008 Base transceiver stations Base station controllers Mobile switching centers Media gateways 1,454 34 9 17 2009 1,505 34 9 17 2010 1,505 34 9 17
Other Communication Facilities Our Palapa-C2 and Palapa-D satellite communication systems and fiber optic link to major commercial centers as well as remote areas of Indonesia are used in the provision of our MIDI services and for cellular backhaul. Satellite Communication System. Communications satellites are of varying use, depending on features such as their footprint, or coverage areas, transponder power (typically stated in dBW), and transponder bandwidth. Transponder bandwidth, expressed in terms of megahertz, varies between C-band and Ku-band transponders. C-band is used worldwide as a standard for satellite communications to transmit signals with minimum atmospheric interference. They can provide very broad coverage over most of the Asian continent, making them very popular for applications such as television broadcasting. Kuband transponders operate at a frequency of approximately 11-14 gigahertz. While Ku-band frequencies are more prone to moisture and rain attenuation than C-band frequencies, they are more suitable for small antenna applications. Ku-band is generally used for the same purposes as C-band, as well as for satellite news-gathering (truck-mounted antennas) and some VSAT applications. Ku-band is especially prevalent in areas with dense ground-based microwave systems. To compensate for loss of signal strength caused by moisture and rain attenuation, Ku-band transponders are generally of higher-power than C-band transponders and their footprints are smaller.
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On August 31, 2009, we launched a new satellite, Palapa-D, to replace Palapa-C2 at orbital slot 113E, which will significantly increase our transponder capacity and provide wider satellite coverage. After a successful traffic transfer from Palapa-C2 to Palapa-D in early November 2009, Palapa-C2 moved to orbital slot 150.5E and operates in inclined orbit until approximately 2014 to carry our cellular backhaul. When our Palapa-D satellite became operational, we significantly increased our transponder capacity, which allowed us to meet our own satellite transponder requirements, in addition to the requirements of customers who lease transponder capacity from us. Thus, approximately 60% of our Palapa-D standard C-band transponder capacity is currently being leased to third parties while the remaining 40% is being used to meet our own requirements. We successfully transferred the source of our own satellite requirements from Palapa D to Palapa-C2, thereby making approximately 40% of Palapa-Ds standard C-band transponder capacity, in addition to Palapa-Ds 11 new extended C-band transponders, available for lease to third parties in the third quarter of 2011. The Palapa-D satellite has eleven 36-megahertz extended C-band transponders, twenty-four 36-megahertz standard C-band transponders, and five 36-megahertz Ku-band transponders wholly owned by us. The maximum power on each of the C-band and Ku-band transponders is 43 and 53 dBW, respectively. The Palapa-D satellite provides C-band coverage to substantially all of Asia with a footprint stretching from the Arabian Peninsula to Japan and China to New Zealand, including central and eastern parts of Australia. Its dBW levels range from a beam edge of 32 dBW to a beam center of 43 dBW. With this power, the Palapa-D satellite has the capability to provide uplink and downlink services from any location within the satellite footprint. The five Ku-band transponders provide coverage over Indonesia and some of ASEAN Countries with peak transponder power of 53 dBW. The Palapa-C2 satellite has six 36-megahertz extended C-band transponders owned by Pasifik Satelit Nusantara, and twenty-four 36-megahertz Standard C-band transponders and four 72-megahertz Ku-band transponders owned by us. The maximum power on each of the C-band transponders is 40 dBW. Since the new location of Palapa-C2 is close to another satellite with the same Ku-band frequency plan, we, consistent with the rules and regulations of the International Telecommunication Union and our license, do not operate Ku-band transponders to avoid harmful interference from the other satellite. The Palapa-C2 satellite provides C-band coverage to substantially all of Asia, with a footprint stretching from Central Asia to Japan and southern China to New Zealand, including parts of Australia. Its dBW levels range from a beam edge of 32 dBW to a beam center of 40 dBW. With this power, the Palapa-C2 satellite has the capacity to provide uplink and downlink services from any location within the satellite footprint. Fiber Optic and Microwave Terrestrial Links. Our new optical fiber backbone based on DWDM connects all provincial cities in Sumatera, Java, Kalimantan, and part of Sulawesi. The optical fiber backbone conveys cellular traffic within and between the cities at 40-60 gigabits per second and facilitates our progressive growth of Internet broadband through 3.5 HSDPA and fixed broadband wireless access. Due to capacity and technology considerations, the existing microwave terrestrial system has been shifted to cover remote spur route areas. As of December 31, 2010, we had fiber optic and microwave terrestrial links to more than 25 major cities nationwide. These links are primarily used to deliver Internet and other MIDI services to corporate customers. In December 2010, we entered into a purchase order with Alcatel Lucent Submarine Networks to upgrade the capacity of existing JAKASUSI submarine cable system, which required us to spend approximately US$ 2.6 million in capital expenditure. The upgraded system will increase inter-island capacity from/to JawaKalimantan (90 Gbps) and KalimantanSulawesi (60 Gbps). The upgraded system is expected to be ready for service in July 2011. In December 2010, we entered into a purchase order with IFactor Sdn Bhd, Malaysia to construct the JAVALI submarine cable system, a new submarine cable system which will link Jawa (East Jawa) island and Bali island and provide high capacity bandwidth, and which involved a total project cost of US$10.8 million. The JAVALI submarine cable system will be whollyowned by us and is designed with 24 optical fiber cores (unrepeated system). The system will be initially equipped with 50 gigabits per second capacity with its ultimate capacity at 160 gigabits per second capacity per fiber pairs. The construction of this new cable system is expected to be ready for service in July 2011.
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IP/MPLS Backbone and Metro Ethernet Network. As of December 31, 2010, we had completed our Metro Ethernet Network deployment project in more than 299 points of presence in Indonesia with fiber optic connectivity. Through this network, we provide virtual leased lines offering point-to-point Ethernet access, virtual private LAN service offering multipoint-tomultipoint Ethernet access and virtual private routed networks offering locally linked IP VPN and Internet. We also use our Metro Ethernet Network for backhauling our 2G and 3G cellular traffic. Dual redundant routers for IP-MPLS backbone have also been deployed in 24 cities and are connected through our fiber optic backbone. A Metro Ethernet network has also been deployed in nine major Indonesian cities to provide broadband access to the corporate market in high-rise buildings and cellular backhaul for 3.5 HSDPA service. Internet access, broadcasting service and data center connectivity are among the services used by our customers. As the technology moves towards all IP and the demand of IP-based services is increasing due to its advantages over legacy networks, we aim to deploy a future network to allow IP-based services to be widely available in the region. In 2008, we completed construction of a Disaster Recovery Center (DRC) in Jatiluhur for corporate customers to allow them to have a data back-up center to secure and protect their business information.
Organizational Structure
The following chart illustrates our simplified corporate structure as of December 31, 2010, including our direct and indirect equity ownership in major subsidiaries, together with the jurisdiction of incorporation or organization of each entity. A complete list of our significant subsidiaries and investments in associated companies, and our ownership percentage of each entity, as of December 31, 2010 is contained in Note 1d to our consolidated financial statements included elsewhere in this annual report. Lintasarta was established in 1988. Pursuant to its articles of association, Lintasarta engages in the business of providing system data telecommunication and information technology services and network application services, which include providing physical infrastructure and software application and consultation services in data communication and information system for banking, finance and other industries. PT Indosat Mega Media (IM2) was established in 1996 to engage in the business of providing Internet and television services. PT Starone Mitra Telekomunikasi (SMT) was established in 2006 to provide telecommunication services and develop telecommunication infrastructure, including multimedia. PT Artajasa Pembayaran Elektronis (Artajasa) was established in 2000 to provide general trade and application services to industries, particularly the banking industry, information technology consultation services, and telecommunication services. PT Lintas Media Danawa was established on July 28, 2008 to provide information and communication services, such as data center services, e-learning and distant learning for public education services, and content services based on Internet Protocol (e.g., IPTV, internet game and internet payment gateway). PT Interactive Vision Media (IVM) was established on April 21, 2009 to engage in the Pay TV business and is currently in the process of obtaining a license to conduct such business. IM2 made the initial capital injection to IVM in March 2011 amounting to Rp4.99 billion.
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PT INDOSAT TBK (INDONESIA)
72.36%
99.85%
100.00%
72.54%
PT APLIKANUSA LINTASARTA (INDONESIA)

55.00%
PT INDOSAT MEGA MEDIA (INDONESIA)
INDOSAT SINGAPORE PTE LTD (SINGAPORE)
PT STARONE MITRA TELEKOMUNIKASI (INDONESIA)
PT ARTAJASA PEMBAYARAN ELEKTRONIS (INDONESIA)

70.00%
100.00%
100.00%
100.00%
PT LINTAS MEDIA DANAWA (INDONESIA)
INDOSAT INTERNATIONAL FINANCE COMPANY B.V. (NETHERLANDS)

99.98%
INDOSAT FINANCE COMPANY B.V. (NETHERLANDS)
INDOSAT PALAPA COMPANY B.V. (NETHERLANDS)

100.00%
PT INTERACTIVE VISION MEDIA (INDONESIA)
INDOSAT MENTARI COMPANY B.V. (NETHERLANDS)
Insurance
As of December 31, 2010, we carried insurance on our property and equipment (except submarine cables and land rights), including business interruption insurance. During 2010, we did not have any insurance against consequential losses associated with the insured property. We generally do not experience difficulty renewing our insurance policies, and we believe that our insurance is reasonable and consistent with industry standards. We maintain in-orbit insurance on the Palapa-C2 and Palapa-D satellites on terms and conditions consistent with industry practice. As of December 31, 2010, we had an insurance policy coverage with a total coverage limit of US$153.0 million, for total and partial loss of our Palapa-C2 and Palapa-D satellite.
Intellectual Property
We have registered trademarks and copyrights for our corporate name, logo and certain services with the Ministry of Law and Human Rights of Indonesia (formerly the Ministry of Justice and Human Rights of Indonesia). We believe that our trademarks are important to our success. We have never had to defend any of our trademarks, but we would vigorously do so if necessary.
Properties
Except for ownership rights granted to individuals in Indonesia, the title to land rests with the Indonesian State under the Basic Agrarian Law No. 5/1960. Land use is accomplished through land rights whereby the holder of the land right enjoys the full use of the land for a stated period of time, subject to renewal and extensions. In most instances, the land rights are freely tradable and may be pledged as security under loan agreements. Our most important properties are located in Jakarta (approximately 12,050 sq.m. used for international gateways and head office), Ancol (approximately 11,809 sq.m. used as a cable station and switching center), Tanjung Pakis, Karawang (approximately 1,850 sq.m. used as a cable station), Daan Mogot (approximately 134,925 sq.m. used as a satellite earth station complex), Jatiluhur (approximately 135,800 sq.m. used as a satellite earth station complex), Medan (approximately 9,780 sq.m. used for international gateways), Pantai Cermin (approximately 68,228 sq.m. used as an earth station and a cable station), Batam Sekupang (approximately 19,989 sq.m. used for international gateways and an earth station), Tanjung Bemban (approximately 3,500 sq.m. used as a cable station), Surabaya (approximately 10,565 sq.m. used as a regional office) and Banyu Urip-Gresik (approximately 125,344 sq.m. used
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as an earth station, for international gateways and as a cable station), TakisungBanjarmasin (approximately 1,000 sq.m. used as a cable station), Aeng Batu-batu-Makasar (approximately 2,000 sq.m. used as a cable station) and Sei Kakap Pontianak (approximately 5,394 sq.m. used as a cable station). Except for our property in Daan Mogot, which we lease from Telkom, we hold registered land rights to some of our properties, the initial periods of which are for approximately years. We expect that our land rights will be renewed at nominal costs for the foreseeable future. None of our properties are mortgaged or otherwise encumbered.
Principal Registered Offices

Headquarters: Jl. Medan Merdeka Barat No. 21 Jakarta 10110, Indonesia Tel: (62-21) 3000 3001, 3869 999 Fax: (62-21) 3000 3754, 3000 3757 Jl. Medan Merdeka Selatan No. 17 Jakarta 10110, Indonesia Tel: (62-21) 3000 7001 Fax: (62-21) 3000 5702 Jl. Medan Merdeka Selatan No. 17 Jakarta 10110, Indonesia Tel: (62-21) 3000 7001 Fax: (62-21) 3000 5702 Jl. Veteran No. 40 Bekasi Selatan 17141, Indonesia Tel: (62-21) 3017 7075, 3017 7076 Fax: (62-21) 3000 0811 Jl. Asia Afrika No. 141-147 Bandung 40112, Indonesia Tel: (62-22) 3000 0900 Fax: (62-22)3000 5702 Komplek Nagoya Gateway Blok E No. 1 Jl. Raden Patah - Baloi Batam, Indonesia Tel: (62-778) 6000 815 Fax: (62-778) 6000 855 Jl. Perintis Kemerdekaan No. 39 Medan 20236, Indonesia Tel: (62-61) 4567 001 Fax: (62-61) 4531 031 Jl. Angkatan 45 No. 222 Palembang 30137, Indonesia Tel: (62-711) 605 9999 Fax: (62-711) 605 9966, 605 9977 Jl. Kayoon No. 72 Surabaya 60271, Indonesia Tel: (62-31) 6000 6001 Fax: (62-31) 5456 001, 5464 392
Jabotabek & West Java Region Office
Jakarta Area Office
Bogor Tangerang Bekasi Area Office
West Java Area Office
Sumatera Region Office
Northern Sumatera Area Office
Southern Sumatera Area Office
Central Java, East Java & Bali Nusra Region Office
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Central Java Area Office
East Java Area Office
Bali Nusra Area Office
Kalimantan & Sulampapua Region Office
Kalimantan Area Office
Sulampapua Area Office
Jl. Pandanaran No. 131 Semarang 50134, Indonesia Tel: (62-24) 3300 2000 Fax: (62-24) 3300 1001 Jl. Kayoon No. 72 Surabaya 60271, Indonesia Tel: (62-31) 6000 6001 Fax: (62-31) 5456 001, 5464 392 Jl. Raya Bay Pass Ngurah Rai No. 88 Kuta Bali 80361, Bali, Indonesia Tel: (62-361) 300 5000 Fax: (62-361) 300 5005 Jl. MT Haryono No. 69 Balikpapan 76114, Indonesia Tel: (62-542) 741 001, 3030 001 Fax: (62-542) 7514 001, 7206 750 Jl. MT Haryono No. 69 Balikpapan 76114, Indonesia Tel: (62-542) 741 001, 3030 001 Fax: (62-542) 7514 001, 7206 750 Jl. Slamet Riyadi No. 4 Makassar 90111, Indonesia Tel: (62-411) 326 808 Fax: (62-411) 326 828
Indonesian Telecommunications Industry

Background Since 1961, telecommunications services in Indonesia have been provided by a succession of state-owned companies. As in other developing economies, the expansion and modernization of telecommunications infrastructure is instrumental to Indonesias general economic development. In addition, Indonesias large population and economic growth have led to increased demand for telecommunications services. Indonesia had an estimated population of approximately 229.96 million people as of 2009, ranking it the fourth mostpopulated country in the world based on International Telecommunications Union estimates. Indonesias gross domestic product, or GDP, has grown significantly from US$257.6 billion in 2004 to US$540.3 billion in 2009 in current U.S. dollars according to the World Bank, which represents a growth rate of 4.5%. This growth rate compares favorably against the approximately -2.2% and approximately -1.7% GDP growth experienced by Thailand and Malaysia, respectively, during the same period. According to the World Bank, GDP per capita at purchasing power parity has also increased from US$3,004.9 in 2003 to US$4,205 in 2008. The Government, through the MOCIT, has extensive regulatory authority and supervisory control over the telecommunications sector. While the Government has historically maintained a monopoly over telecommunications services in Indonesia, recent reforms, the majority of which came into effect on September 8, 2000, have attempted to create a regulatory framework to promote competition and accelerate infrastructure investment in telecommunications facilities.
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In Indonesia, fixed-line services are mostly provided by Telkom, a majority state-owned company, which owns and operates the countrys primary PSTN and fixed wireless access points. Before the implementation of the new interconnection regime, telecommunications operators interconnected with Telkoms network to access all fixed-line and cellular users. Telkoms local fixed-line monopoly ceased on August 1, 2002, and we have since commenced our build-out of a separate fixed-line network. According to the new interconnection regime, telecommunications operators may enter into bilateral agreements which enable them to interconnect directly with other telecommunications operators. Although cellular penetration is low relative to its regional peers, based on International Telecommunications Union estimates, Indonesias cellular penetration rates have increased from approximately 28.7 % in 2006 to approximately 69.3% in 2009, a compound annual growth rate of 42.4%. Indonesias GDP growth profile and relatively low penetration rates suggest the potential for increased cellular customer demand in Indonesia. Moreover, in 2009, the number of fixed lines, including fixed wireless access, was approximately 33.9 million, representing a fixed-line penetration of 14.8 %, among the lowest in the region and a result of stagnant fixed-line growth under previous regulatory systems. The table below summarizes certain information regarding Indonesian and regional cellular and fixed-line penetration in 2009:
For the year ended December 31, 2009 Population(1) (millions) Hong Kong Singapore South Korea Malaysia Thailand Philippines China India Indonesia
(1) (2) (3)
Fixed-line penetration(1) 60.9% 40.6% 53.7% 17.6% 10.6% 7.4% 23.3% 3.1% 14.8%
Cellular penetration(1)(2) 179.4% 145.1% 100.7% 109.7% 97.3% 100.3% 55.5% 43.8% 69.3%
GDP per capita (US$)(3) 45,277 50,705 27,168 13,982 8,004 3,546 6,838 3,275 4,205
7.02 4.74 48.33 27.47 67.76 91.98 1,345.75 1,198.00 229.96
Source: International Telecommunications Union World Telecommunication / ICT Indicators Database & World Bank estimates, ICT Statistics 2009. Cellular penetration is the number of cellular subscribers as a percentage of the population. Source: World Bank 2009.
Cellular Services Market The telecommunications industry in Indonesia has experienced significant growth in cellular telecommunications services in recent years. Based on International Telecommunications Union estimates, the total number of cellular subscribers in Indonesia increased from approximately 63.8 million as of December 31, 2006 to approximately 159.2 million as of December 31, 2009, representing an increase in cellular penetration from approximately 28.7% to approximately 69.3%. Despite this rapid growth rate, the cellular penetration rate of 69.3% as of December 31, 2009, is relatively low compared to other countries in the region.
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The following table contains information relating to the cellular telecommunications industry in Indonesia as of and for the periods indicated:
As of December 31, 2006 2007 2008 (in millions, except percentages) Indonesian population(1) Cellular subscribers
(1)
2009
Compound Annual GrowthRate 2006-2009 1.20% 44.22% 42.40%
222 64 28.7%
225 93 41.6%
227 141 61.8%
229.96 159.2 69.3%
Cellular penetration(2)
(1) (2)
Source: International Telecommunications Union World Telecommunication / ICT Indicators Database ICT Statistics 2009, excluding fixed wireless access services. Cellular penetration is the number of cellular subscribers as a percentage of the Indonesian population.
The wireless market in Indonesia is currently dominated by three major GSM operators: Telkomsel, us and XL. Starting in 2002, the Government issued new cellular licenses for using CDMA technology to Mobile-8 and fixed wireless access services licenses using CDMA technology to Telkom, Indosat, and Bakrie Telecom. As of December 31, 2010, these nationwide GSM operators collectively held almost 90.8% share of the Indonesian wireless market based upon our estimates. As of December 31, 2010, Telkomsel was the largest national licensed cellular services provider in Indonesia, with approximately 94.0 million cellular subscribers and approximately more than 49.4% GSM market share. We were the second largest cellular provider with approximately 44.3 million cellular subscribers and approximately 21.0% GSM market share as of the same date. XL, the third-largest provider, had approximately 40.4 million cellular subscribers and an approximately 20.4% GSM market share as of the same date. Fixed wireless access service is dominated by Telkom under the brand Flexi with 16.8 million subscribers, as reported in Telkoms press release as of December 31, 2010. The second largest provider is Bakrie Telecom under the brand Esia with 21.1 million subscribers, as reported in Bakrie Telecoms Full Year 2009 report. Our fixed wireless access is 0.6 million subscribers under the brand StarOne. There are other smaller players in Indonesian wireless market, such as HCPT, NTS, Mobile-8, Smart Telecom and STI. In part, wireless subscriber growth in Indonesia has been driven by the calling party pays system, the launch of prepaid service, as well as the introduction of SMS. The calling party pays system requires the originators of telephone calls to pay for calls. Based on international experience, countries that implement a calling party pays system typically experience higher wireless penetration rates because wireless subscribers are more likely to give out their telephone numbers and keep their handsets switched on. Since its introduction in 1998, prepaid service has been popular in Indonesia, as in other Asian countries, because it permits customers to register for wireless service without undergoing a credit review. Prepaid service also gives customers more control over monthly expenditures. SMS has proven to be popular in Indonesia, particularly on the prepaid platform, as it provides a convenient and cost-efficient alternative to voice and e-mail communications. Competition in the Indonesian wireless services industry is based primarily on service quality, pricing, availability of data services and value-added features such as voice mail and text messaging. International Long-Distance Market International long-distance providers in Indonesia generate revenues from both inbound and outbound international longdistance traffic. The three international long-distance service providers are Telkom, which offers its 007 service, Bakrietel with its 009 IDD access code and us with our 001 and 008 access codes. Outgoing tariffs are based on rates set by the MOCIT while incoming tariffs are settled at the applicable accounting rates. Outgoing traffic is generated by fixed-line
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and mobile subscribers and delivered to the three international service providers directly through international gateways or indirectly through Telkoms PSTN. Incoming international traffic is received at international gateways and either routed directly to its intended destination from the gateways or indirectly through Telkoms PSTN network through which it is ultimately switched to its intended destination. In Indonesia, as in many emerging market countries, inbound communications traffic has exceeded outbound traffic as more developed countries generate a disproportionate amount of international long-distance traffic. Historically, inter-operator traffic has been settled based on a concept of accounting rates which provide a common method of compensating the originating and terminating carrier. In general, international long-distance carriers negotiate per minute accounting rates on a route-by-route basis with a single rate used by all carriers on that route. During 2003, we began to replace the accounting rate system with a market termination rate-based pricing system with several of our largest foreign telecommunications counterparts, pursuant to which we agreed on asymmetric rates for incoming and outgoing calls. Under the market termination rate-based system, we are able to reduce the rates we pay for outgoing calls to most international destinations by a greater amount than the reduction in prices for calls from such destinations to Indonesia. While this pricing has reduced the prices we receive for incoming calls, we believe that, overall, it will improve our margins on international long-distance services, in particular for outgoing calls. Competition from VoIP providers offering services, including budget calls such as 01017 provided by Telkom and FlatCall 01016 provided by us, and prepaid calling cards has adversely affected and is expected to continue to adversely impact revenues from traditional international long-distance calling services. As the data communications infrastructure expands in Indonesia, demand for VoIP services may increase. VoIP uses data communications connections to transfer voice traffic over the Internet, which usually provides substantial cost savings to subscribers. Although the Government has implemented a licensing system to limit the number of VoIP operators in Indonesia, the Government does not presently control the rates charged to end users of VoIP services. However, the Government has indicated that it intends to regulate such rates in the future, and it is expected that such regulations would limit VoIP tariffs to amounts that represent a maximum discount of approximately 40.0% from the then-current PSTN tariffs. Data Communications Market Historically, data services in Indonesia primarily consisted of narrow bandwidth leased line services, x.25 service, digital data network service and integrated service digital network service. Digital data network services are digital leased line services for data transmission. Integrated service digital network is a protocol which offers high capacity dial-in access for public networks. This protocol allows simultaneous handling of digitized voice and data traffic on the same digital links via integrated switches across the public network. x.25 is an open standard packet switching protocol that allows low- to medium-speed terminals to have either dial-in or permanent access to a network from a users premises and operate on a network. Charges for these services have been declining in recent years. The rise of the Internet and the wider adoption of multimedia applications are expected to increase demand for sophisticated broadband data services. Operators in Indonesia are deploying advanced broadband networks to provide high-end data services such as frame relay, asynchronous transfer mode and Internet protocol service. In particular, virtual private network services, utilizing ATM and Internet protocol technologies, may capture a larger portion of the market share as they provide a reliable and cost-effective alternative to private networks that rely on dedicated leased lines.
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Satellite Services Market In recent years, competition in the Asia-Pacific satellite market has been intense. Companies in this business compete primarily on coverage power, product offerings and price. On September 6, 2005 through MD No.13/2005, the Government issued regulations requiring all telecommunications operators using satellites in connection with the provision of telecommunications services to possess both earth station and space station operating licenses. These operating licenses will be granted only to telecommunications operators with a landing right and on the condition that the radio frequency spectrum used does not cause harmful interference to existing operators. Foreign satellites are allowed to operate in Indonesia if Indonesian telecommunications operators have reciprocal operating rights in such satellites country of origin. Industry Trends We believe that the trends driving the telecommunications industry in Indonesia include: Wireless Services Continued growth in wireless telecommunications. We expect that the wireless telecommunications industry and demand for wireless telecommunications services will continue to grow at a steady rate of around 9% as Indonesia develops and modernizes. A significant amount of this growth will still come from the traditional core markets. In addition to the growth in core markets, there are sizable emerging segments of strong growth, primarily in consumer broadband and mobile towers. It took a century to connect one billion places with phone lines but less than 30 years to connect five billion people with mobiles, and it is expected that up to 50 billion objects will be connected in the next 20 years or less. This is an easy way to compare the penetration between wireless and wireline. Significant growth in wireless penetration rates in regions outside Java. The relatively low wireless penetration rates in regions outside Java offer growth potential for wireless services providers in Indonesia as the population residing outside Java becomes more affluent. Growing use of value-added services. The growth in usage for value-added services such as SMS, content, and Internet access is expected to increase in coming years, thereby helping to stabilize the decrease in usage rates and ARPU for voice services. Today, there are multiple mobile operators and many companies are aggressively pushing for subscribers and traffic to quickly gain scale and earn market share. We expect consolidation to continue, especially beyond the three large players (Telkomsel, Indosat, XL). One of the major threats to the market is further price deterioration. Service offering and innovation will become the major driver in the competition. International Long-Distance Services Increased competition in international long-distance services. We expect further governmental deregulation and service quality improvements for VoIP services to increase competition for international long-distance services. Moderate growth in call volumes. We believe continued domestic economic growth and increase in cellular voice usage will stimulate incremental volume growth for international long-distance services. In addition, the growth of VoIP services is also expected to increase demand for international long-distance services. MIDI Services Increasing demand for advanced data communication services. We believe increasing Internet usage and the broadening market for multimedia applications will boost demand for sophisticated data communication services. Intensified competition in the ISP market. As a result of market liberalization and the continued issuance of new licenses, we anticipate competition in the ISP market will increase. We believe competition will be based primarily on price, quality of service and network coverage. Increasing demand for broadband services for both fixed and wireless. We believe the expected increase in customer preference and demand for high-speed Internet access will stimulate growth of domestic broadband service.
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Regulation of the Indonesian Telecommunications Industry

The Government of the Republic of Indonesia, through the MOCIT, exercises both regulatory authority and control and implements policies that govern the telecommunications industry in Indonesia. The legal framework for the telecommunications industry is based on specific laws as well as government, ministerial and directorate general regulations that are promulgated from time to time. Prior to March 1998, the Ministry of Tourism, Post and Telecommunications regulated the telecommunications industry in Indonesia. Following the 1999 general elections and a change of government in 2001, the Ministry of Communication assumed responsibility for regulating the telecommunications industry. In February 2005, the authority to regulate the telecommunications industry was transferred from the Ministry of Communication to the MOCIT. Through the MOCIT, the Government regulates telecommunications network operations and the provision of telecommunications services. In addition, the MOCIT regulates the radio frequency spectrum allocation for all telecommunications operators, each of whom must be licensed by the DGPT in order to utilize the radio frequency spectrum. In addition to radio frequency spectrum fees, the Government requires all telecommunications operators to pay a concession license fee equal to 0.5% of gross revenues, less interconnection expenses and provisions for bad debt, for each fiscal year, payable in equal quarterly installments. The Governments telecommunications reform policy is set out in its Blueprint of the Indonesian Governments Policy on Telecommunications dated September 17, 1999. The policies, as stated in the blueprint, are to: increase the telecommunications sectors performance; liberalize the telecommunications sector with a competitive structure by removing monopolistic controls; increase transparency and predictability of the regulatory framework; create opportunities for national telecommunications operators to form strategic alliances with foreign partners; and create business opportunities for small-and medium-size enterprises and facilitate new job opportunities. The recent regulatory reforms of the Indonesian telecommunications sector have their foundation in the Telecommunications Law.
The Telecommunications Law

The Telecommunications Law became effective on September 8, 2000 and provides key guidelines for industry reforms, including industry liberalization, facilitation of new entrants and enhanced competition. The Government implements such guidelines through Government regulations, ministerial decrees or regulations and other directives by Government bodies. The Telecommunications Law grants the Government, through the Ministry of Communication, the power to make policies, and to regulate, supervise and control the telecommunications industry. Until 2005, the Ministry of Communication, the former regulatory body of the telecommunications industry, had authority over the telecommunications sector in Indonesia and could issue regulations, policies and licenses, and formulate tariffs. Government Regulation No. 52/2000 on Telecommunications Operations (the Telecommunications Operations Regulation) and Government Regulation No. 53/2000 on Radio Frequency Spectrum and Satellite Orbits, were the initial implementing regulations of the Telecommunications Law. The Ministry of Communication also promulgated various decrees, including (i) Ministry of Communication Decree No. KM 20 Year 2001, which was replaced by MOCIT Decree No. 01/PER/M. KOMINFO/01/2010 on Telecommunications Network Operation (the Telecommunications Network Regulation), (ii) Ministry of Communication Decree No. KM 21 Year 2001, which was amended by MOCIT Decree No. 31/PER/M.KOMINFO/09/2008 on Telecommunications Services Operation (the Telecommunications Services Regulation), and (iii) Ministry of Communication Decree No. KM 31 TAHUN 2003, which was revoked by MOCIT Decree No. 36/PER/M.KOMINFO/2008 and amended by MOCIT Decree No. 31/PER/M.KOMINFO/8/2009 on the Establishment of an Indonesian Telecommunications Regulatory Body (the Telecommunications Regulatory Body Regulation).
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On July 11, 2003, the Ministry of Communication promulgated the Telecommunications Regulatory Body Regulation, pursuant to which it delegated its authority to regulate, supervise and control the Indonesian telecommunications sector to the BRTI, while maintaining the authority to formulate policies for the industry. The BRTI, which first convened in January 2004, consists of seven members, including a chair position held by the DGPT, from the DGPT and the Telecommunications Regulatory Committee. Members of the Telecommunications Regulatory Committee are appointed by the MOCIT. All members of the Telecommunications Regulatory Committee must: (i) be Indonesian citizens; (ii) have professional expertise in telecommunications, information technology, economics, law or any social science; (iii) not have any interests in any of the telecommunications operators; and (iv) not serve as a director, commissioner or employee of any of the telecommunications operators. Ministry of Communications Decree No. KM 67 of 2003 governs the relationship between the Ministry of Communications (and subsequently, MOCIT) and the BRTI. As part of its regulatory function, BRTI is authorized to (i) carry out licensing for telecommunications networks and services in accordance with the MOCITs policies and (ii) propose to the MOCIT operational performance, service quality, interconnection charges and equipment standards for telecommunications networks and services. The BRTI is authorized to monitor and required to report to the MOCIT on (i) the implementation of such operation performance standards; (ii) competition among network and service operators; and (iii) compliance with the standards of utilization of telecommunication equipment. As part of its controlling function, the BRTI is also required to report to the MOCIT regarding (i) progress of any dispute resolution among network and service operators; (ii) the control of the use of telecommunications equipment and (iii) the implementation of service quality standards. Classification of Telecommunications Providers The Telecommunications Law classifies telecommunications providers into (i) network operators, (ii) services providers and (iii) special providers. Network operators are further classified as (i) fixed telecommunications network operators and (ii) mobile telecommunications network operators. Under the Telecommunications Law, licenses are required for each category of telecommunications operators. A telecommunications network operator is licensed to own and/or operate a telecommunications network. By contrast, a telecommunications service provider license allows a service provider to provide services, but does not require such provider to own a network. Special telecommunications licenses are required for providers of private telecommunications services or for purposes relating to broadcasting and national security interests. The Telecommunications Network Regulation provides that telecommunications network operating licenses must be issued by the MOCIT. The Telecommunications Services Regulation differentiates the basic telephony service operating license to be issued by the MOCIT from the other value-added telephony and some multimedia service operating licenses issued by the DGPT. Termination of Exclusivity Rights In 1995, Telkom was granted a monopoly to provide local fixed-line telecommunications services until December 31, 2010, and DLD services until December 31, 2005. Indosat and Satelindo (which has subsequently merged with Indosat) were granted a duopoly for provision of basic international telecommunications services until 2004. As a consequence of the Telecommunications Law and MOCIT Decree No. 21 (2001), the Government terminated the exclusive rights of Telkom and the duopoly rights of Indosat and Satelindo. The Government instead adopted a duopoly policy with Telkom and us competing as full network and service providers. The market for provision of IDD services was liberalized in August 2003 with the termination of Indosats and Satelindos exclusive rights. We began operating fixed line services in 2002 and fixed wireless access and DLD services in 2003 after receiving our DLD services license. Telkom subsequently received an IDD services license and began offering IDD services under the international access code 007 in 2004 in direct competition with us. In an attempt to liberalize DLD services, the Government issued regulations requiring each provider of DLD services to implement a three-digit access code to be dialed by customers making DLD calls. On April 1, 2005, the MOCIT announced that three-digit access codes for DLD calls will be implemented gradually within five years of such date and that it would
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assign us the 011 DLD access code for five major cities, including Jakarta, and allow us to progressively expand to all other area codes within five years. Telkom was assigned 017 as its DLD access code. On December 3, 2007, MOCIT promulgated regulation No. 43/P/M.KOMINFO/12/2007, which delayed the implementation of the DLD access code until April 3, 2008 and also set forth a schedule on implementing 01X long distance access. In January 2007, the Government implemented new interconnection regulations and a five-digit access code system for VoIP services. In April 2008, these access codes were implemented in Balikpapan. Balikpapan residents are able to choose from options 0, 01016 or 01017 to connect their long distance calls. Whether the DLD access code will be implemented in other cities will be based on a study by the Indonesian Telecommunication Regulatory Board of Indosat and Telkoms fixed phone service customers. Tariff for Fixed and Cellular Services The MOCIT is responsible for setting and adjusting tariff formulas. In 2006, the MOCIT promulgated a number of ministerial decrees/regulations, such as (i) No. 8/Per/ M.KOMINF /02/2006 on cost-based interconnection, (ii) No. 2/ PER/M. KOMINFO/1/2006, No. 4/PER/M.KOMINFO/1/2006, No. 7/PER/M.KOMINFO/2/2006, and No. 19/PER/M.KOMINFO/3/2006 on 3G Service Provision, (iii) No. 5/PER/M.KOMINFO/1/2006 on Telecommunication Kiosk, (iv) No. 09/PER/M.KOMINF/02/2006, which was replaced by No. 15/PER/M.KOMINFO/4/2008 on Fixed Telecommunications Tariff, (v) No. 11/Per/M. KOMINF/02/2006 on Lawful Interception, (vi) No. 12 Per/M.KOMINF/02/2006, which was replaced by MOCIT Regulation No. 09/PER/M.KOMINFO/09/2008 on Cellular Tariffs, and (vii) MOCIT Decision No. 102/ Kep/M.Kominfo/10/2006 on Indosat 2G and 3G Cellular Network License, as amended by MOCIT Decree No. 181/2006 on Migration of FWA Network to 800MHz Allocated Frequency. In 2007, the MOCIT promulgated new ministerial decrees, including No. 162/2007 on the 800 MHz radio frequency channel allocation for operating FWA-CDMA and cellular networks (amendment of MOCIT decree No. 181/2006), MOCIT Regulation No. 05/PER/M.KOMINFO/2/2007 on Guidance For Tariff Implementation on USO Contributions, No. 03/PER/M.KOMINFO/1/2007 on Leased Circuits, No. 11/PER/M.KOMINFO/4/2007 (now No. 38/2007) on the implementation of infrastructure development using USO funds and MOCIT Regulation No. 43/P/M.KOMINFO/12/2007 on changes to all four FTPs (Fundamental Technical Plans)2000, which delayed the date of implementation of the long distance access code in Balikpapan to April 3, 2008. In April 2008, the MOCIT promulgated ministerial regulation No. 9/ PER/M.KOMINFO/04/2008 on tariff determination for cellular services, which determines the type and structure of cellular retail tariffs based on a formula, and No. 15/PER/M.KOMINFO/04/2008 on tariff determination for basic telephony services through fixed networks. The tariff covers basic telephony, roaming and multimedia services. The tariff for basic telephony services includes activation fees, monthly fees, usage fees and value-added service fees. Ceiling tariffs for retail cellular services differ between operators due to the use of different calculation methods. Based on the new regulation, the tariff value of basic telephony services through fixed networks and SMS as an additional facility must be calculated by the operator using a cost-based formula with the calculation results stated as ceiling tariffs. The Government is expected to change the fixed telecommunications tariff formulations in the near future. The Government regulates the tariff formulations for Leased Circuit businesses through MOCIT Regulation No. 03/PER/M.KOMINFO/1/2007. Consumer Protection Under the Telecommunications Law, each operator must meet certain service levels. In the event of losses caused by a telecommunication operators fault or negligence, the aggrieved party may file claims for damages against the telecommunications operator. MOCIT Regulations on service level standards can be found in: (i) MOCIT Regulation No. 11/PER/M.KOMINFO/09/2008 dated April 21, 2008 on the Service Level for Basic Telephony Service in Local Fixed Network, (ii) MOCIT Regulation No. 12/PER/M. KOMINFO/09/2008 dated April 21, 2008 on the Service Level for Basic Telephony Service in the Cellular Mobile Network, and (iii) MOCIT Regulation No. 13/PER/M.KOMINFO/4/2008 on the Service Level for Basic Telephony Service in Fixed Networks with Limited Mobility. Public Telephone Based on our fixed telecommunications license for basic telephony service, we have an obligation to provide public telephone lines consisting of 3.0% of the installed network capacity for fixed telecommunications networks that we build.
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Universal Service Obligations Under the Telecommunications Law, all telecommunications network and service operators are bound by Universal Service Obligations (USO), which require participation by all operators in the provision of telecommunications facilities and infrastructure in MOCIT USO-designated areas. The USO is a measure intended to provide telecommunication access and/or services to areas that previously lacked access or service. Through Government Regulation No. 28/2005 and MOCIT Regulation No. 15 PER/M.KOMINFO/9/2005, the Government announced regulations establishing the mechanism for USO payments and changing the USO tariff from Rp750 for each successful international outgoing or incoming call to 0.75% of an amount equal to gross revenues less interconnection expenses paid to other telecommunication carriers and bad debts. By Government Regulation No. 7/2009, the Government increased this USO tariff from 0.75% to 1.25%. In March 2004, the MOCIT promulgated Decree No. KM 34 year 2004, which included specifications for USO implementation program zones, technical requirements, operation, financing and monitoring (KM 34/2004). KM 34/2004 has been replaced with MOCIT Regulation No. 11/PER/M.KOMINFO/4/2007, which, in turn, has been amended by MOCIT Regulation No. 38/PER/M.KOMINFO/09/2007, which regulates the procedure for utilizing USO funds to develop network and telecommunication services in areas with no telecommunication network. In 2008, the Government promulgated MOCIT Regulation No. 32/PER/M.KOMINFO/10/2008 (as amended by MOCIT Regulation No. 03/PER/M.KOMINFO/02/2010), which replaced MOCIT Regulation No. 11/PER/M.KOMINFO/4/2007. According to this decree, a telecommunication network provider which has won tender to provide telecommunication services in areas with no telecommunication network (a USO Zone) will use the funds collected through the USO tariff to provide telecommunication access and services, including telephony service, SMS and internet access. While providing such telecommunication service in USO Zones, a telecommunications provider has the right to: (i) use technology, (ii) enter into interconnection arrangement with other telecommunication providers, and (iii) use a frequency spectrum of 2.390-2.400 MHz. Interconnection Arrangements In accordance with the express prohibitions in the Telecommunications Law on activities that may create monopolistic practices and unfair business competition, the Telecommunications Law requires network providers to allow users on one network to access users or services on other networks by paying fees agreed upon by each network operator. The Telecommunications Operations Regulation provides that interconnection charges between two or more network operators shall be transparent, mutually agreed on and fair. On February 8, 2006, through MOCIT Regulation No. 8/PER/M.KOMINFO/02/2006, the Government issued new interconnection provisions setting out a cost-based interconnection regime, which replaced the previous revenue-sharing interconnection regime. As required under this regulation, the Government set a formula as guidance for calculating the interconnection cost for every operator. The results of the calculation are evaluated and used by the Government as a reference point. Operators must include the result of the governments formula in all RIO proposals, together with the proposals for call scenarios, traffic routing, point of interconnection, procedure for requesting and providing interconnection, and other matters. RIO proposals must also disclose the type of interconnection services and tariffs charged for each service offered. Interconnection access providers must implement a queuing system on a First-in-First-Serve basis. Additionally, the interconnection mechanism must also be transparent and without any discrimination. Dominant IDD telecommunications operators, such as us, and non-dominant operators submitted RIOs in September 2006. The RIOs of dominant operators were approved by the Government in October 2006 and the implementation of the new regime began in January 2007 through bilateral agreements among operators. Based on current regulations, RIOs can be amended every year. On April 11, 2008, the Government approved RIO proposals from dominant operators to replace the previous RIOs.
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The Governments National Fundamental Technical Plan sets out technical requirements for routing plans, numbering, and technical aspects for interconnection of the networks of telecommunications operators, which allows all network operators to interconnect directly without rather than through the PSTN. Fee Regime Under the Telecommunications Law, in conjunction with other regulations, each telecommunications operator is required to pay the Government a license concession fee, a frequency fee and a satellite orbit fee, as applicable. The concession license fee for each telecommunications operator is approximately 0.5% of gross revenues, consisting of revenues from leasing of networks, interconnection charges, activation of new customers, usage charges, roaming charges and SIM card charges. In addition to these fees, the Government requires all telecommunications operators to pay a USO tariff equal to 1.25% of gross revenues less interconnection expenses and provisions for bad debt for each fiscal year, payable in equal quarterly installments. The frequency fee for CDMA 800 MHz, GSM 900 MHz, DCS 1800 MHz and 3G 2100 MHz is based on its bandwidth allocated frequency. In addition, certain users must pre-pay a one-time satellite orbital connection fee while their satellites are in operation. Prepaid Cellular Subscriber Registration On October 28, 2005, the Government began requiring telecommunications operators to register prepaid cellular subscribers. The regulations specified that such registration process must be completed no later than April 28, 2006, which deadline was later extended to September 28, 2006. We instituted procedures in order to complete the required registration at the initial point of sale and finalized the mandatory registrations by the deadline through the cancellation of 1.3 million unregistered accounts. As stated in MOCIT Regulation No. 23//M.KOMINFO/10/2005 on Registration of Telecommunication Service Customers, all operators have an ongoing duty to register their new prepaid cellular subscribers. Satellite Regulation The international satellite industry is highly regulated. In addition to domestic licensing and regulation in Indonesia, both the in-orbit placement and operation of our satellites are subject to registration with the Radio Regulation Bureau. Following the World Radiocommunication Conference, which took place from October 22, 2007 to November 16, 2007, some of Indonesias satellite characteristics at orbital slots 113E and 150.5E have been reinstated by the International Telecommunication Union. To facilitate utilization of the 150.5E orbital slot, the DGPT promulgated Decree No. 79/ DIRJEN/2009 on March 12, 2009, which created a working group consisting of the DGPT, Telkom and us. In conjunction, on March 16, 2009, the MOCIT issued Letter No. 110/M. KOMINFO/03/2009 agreeing to work with us and Telkom to facilitate prompt utilization of the orbital slot. Frequency of Fixed Wireless Access-CDMA Through MOCIT Decree No. 181/2006, the Government reallocated 800 MHz frequency to FWA operators as part of a frequency clearance for 3G services (IMT-2000) to Bakrie Telecom, Telkom, Mobile-8, and us. We had previously been granted 5 MHz in uplink and downlink in the following frequencies: uplink frequency 1880-1885 MHz and downlink 1960-1965 MHz in Jakarta, Banten and West Java and uplink and downlink frequency 830-835 MHz and downlink 875-880 MHz in other parts of Indonesia. According to the new regulation, we have been granted 2x1.23 MHz in frequency (uplink 842.055843.285 MHz and downlink 887.055-888.285 MHz) in Jakarta, Banten and West Java and (uplink 843.285-844.515 MHz and downlink 888.285-889.515) nationwide. The migration of the frequency was successfully implemented as of December 31, 2007. Tower Sharing Obligation On March 17, 2008, the MOCIT issued MOCIT Regulation No. 02/PER/M. KOMINFO/3/2008 on the Guidelines on Construction and Utilization of Sharing Telecommunication Towers (Tower Decree). Under the Tower Decree, the construction of telecommunications towers requires permits from the relevant governmental institution, while the local government determines the placement and location at which telecommunications towers can be constructed. In addition, telecommunications providers that own telecommunication towers and tower owners are obligated to allow other
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telecommunication operators to utilize their telecommunication towers (other than the tower used for its main network), without any discrimination. Moreover, on March 30, 2009 the Minister of Home Affairs, the Minister of Public Works, the MOCIT and the Head of the Indonesia Investment Coordinating Board promulgated the Joint Regulation No. 19/PER/M. KOMINFO/03/2009 on the Guidelines on Construction and Utilization of Sharing Telecommunication Towers. (the Joint Regulation) requires a tower construction permit for every tower built and used for telecommunications services demonstrating compliance with certain technical specifications. However, through the enactment of this Joint Regulation, the Tower Decree prevails as long as any provision contemplated therein is not contrary with the provisions regulated under the Joint Regulation. Other than the Joint Regulation and the Tower Decree, several regional authorities have implemented regulations limiting the number and location of telecommunication towers and require operators to share in the utilization of telecommunications towers. On September 9, 2009, parliament passed Act No. 28 Year 2009 regarding local and regional taxes which took effect on January 1, 2010 and which imposes a new kind of tax that may add regulatory costs to the operation of our towers. The new tax is limited to a maximum of 2% of the tax objects selling value, which refers to the resale value of the tower determined by the relevant tax authorities. The implementation of the new tax will be largely influenced by regional government policies.
Item 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes thereto as of December 31, 2008, 2009 and 2010. The audited consolidated financial statements have been prepared in accordance with IFRS. Certain amounts (including percentage amounts) have been rounded for convenience. This discussion contains forward-looking statements that reflect our current views with respect to future events and our future financial performance. These statements involve risks and uncertainties, and our actual results may differ materially from those anticipated in these forward-looking statements as a result of particular factors such as those set forth under ForwardLooking Statements and Item 3. Key InformationRisk Factors and elsewhere in this report.
A. OPERATING RESULTS
We are a fully integrated Indonesian telecommunications network and service provider and provide a full complement of national and international telecommunications services in Indonesia. As of December 31, 2010, we were the second-largest cellular operator in Indonesia in terms of number of cellular subscribers. We provide MIDI services to Indonesian and regional corporate and retail customers as well as international long-distance services in Indonesia.
Factors Affecting our Results of Operations and Financial Condition

Our results of operations and financial condition have been affected and will continue to be affected by a number of factors, including the following: Cellular Subscriber Base and Usage Patterns Our number of cellular subscribers and their usage of our cellular services directly affects our cellular operating revenues as well as our operating expenses, including interconnection expenses and depreciation and amortization expenses. In order to meet increasing demand for our services, we may be required to expand our cellular network coverage and capacity, which requires additional capital expenditures. Increases in our capital expenditures affects our cash flows, interest expense and depreciation expense. We are the second-largest cellular provider in Indonesia, as measured by the number of cellular subscribers, with 44.3 million subscribers (including wireless broadband subscribers) as of December 31, 2010.
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In 2009, we implemented a strategy to minimize lower-value calling card type subscribers, whom we believed were short-term subscribers and were not likely to recharge their SIM cards. Pursuant to this strategy, we identified the prepaid subscribers who did not reload their starter packs after we significantly reduced the benefits (such as activation bonuses and on-net preloads) available to such subscribers. We believe this strategy contributed significantly to the decline in our subscriber base during 2009. Due to such strategy, during the first nine months of 2009, we removed 6.8 million such subscribers. Our total subscribers declined by approximately 9.7% from December 31, 2008, but our cellular operating revenues declined by only 0.9% for the year ended December 31, 2009 compared to the same period in 2008. Starting in the third quarter of 2009, we began seeing signs of stabilization in our subscriber base and we added 4.4 million subscribers, net of subscriber disconnections, in the fourth quarter of 2009. Our total subscribers increased by approximately 34.3%, from 33.0 million in 2009 to 44.3 million in 2010. Competition We face intense competition in all of our business segments. Among other things, such competition affects the tariffs we are able to charge for our services, demand for and usage of our services and our operating margins and results of operations. The cellular services business in Indonesia has become increasingly competitive, as demonstrated by the aggressive subscriber acquisition programs of Indonesian cellular operators in recent years. Competition in the cellular communications industry has historically been based on network coverage, technical quality, price, the availability of data services and special features, and the quality and responsiveness of customer service. Commencing in 2007, competition became more focused on pricing as many operators, including ourselves, began to offer significant promotional discounts to attract subscribers, which we believe to have resulted in high customer churn rates. The high Indonesian customer churn rate can be attributed to the high price sensitivity of subscribers, especially prepaid users and the low switching costs for postpaid subscribers, due to limited contractual lock-ins. Beginning in late 2009, we believe that the market focus on pricing as the key determinant in customers product selection has declined and that subscribers are again focused on the historical drivers of network coverage, technical quality, price, the availability of data services and special features. Based on our internal estimates, the three major providers of wireless services in Indonesia, Telkomsel, us and XL, accounted for almost 77% of the wireless subscriber base in Indonesia in 2010. We compete with Telkomsel and XL primarily on the basis of network coverage, quality or service and price. We believe that the size of our subscriber base provides us with a significant competitive advantage over the smaller cellular providers, since we have a larger base of on net subscribers and we are able to provide more attractive pricing for on net calls, since we do not pay any interconnection charges to third parties. Competition in our MIDI services has also continued to increase. During the last few years, competition among data communications service providers has intensified principally due to the issuance of new licenses after the deregulation of the Indonesian telecommunications industry. In addition, our satellite operations, which primarily consist of leasing transponders to broadcasters and telecommunications operators of VSAT, cellular and IDD services and ISPs, face competition from foreign and domestic service providers serving the same customer base. We are no longer the only authorized provider of traditional IDD (i.e., non-VoIP) call services in Indonesia. The Government may issue more licenses for IDD services to other telecommunications operators, which will increase competition in our fixed telecommunications operations. We expect competition in our three business segments to continue to be intense. Competition has had, and is expected to have, an impact on our results of operations and financial condition. Tariff and Pricing Levels Under existing regulations, the MOCIT establishes a tariff formula that determines the amounts that operators may charge for cellular and fixed telecommunications services. However, the MOCIT allows cellular and fixed telecommunications operators,
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including us, to offer promotional packages that offer prices lower than the ceiling tariff determined in accordance with the tariff formula. We currently price our cellular services under a variety of ongoing promotional programs intended to attract new subscribers, stimulate demand and improve our competitive position. Any changes in our pricing structure, either as a result of Government tariff policies or in response to competition, could affect our revenues, operating results and financial condition. The Indonesian Economy We believe that the growth in the Indonesian telecommunications industry has been driven in part by recent growth of the Indonesian economy, and that demand for such services should continue, as the Indonesian economy continues to develop and modernize. Our performance and the quality and growth of our customer base and service offerings are necessarily dependent on the health of the overall Indonesian economy. Capital Expenditures The delivery of telecommunications services is capital intensive. In order to be competitive, we must continually expand, modernize and update our technology, which involves substantial capital investment. In order to address the demand associated with the substantial increase in subscribers and in network usage during 2008 through 2010, we had to substantially increase our capital expenditures, in particular to expand the capacity of our network. For the years ended December 31, 2008, 2009 and 2010, our actual consolidated capital expenditures totaled Rp12,341.9 billion, Rp11,584.5 billion and Rp5,515.0 billion (US$613.4 million), respectively. During 2011, we intend to allocate US$794.5 million for new capital expenditures, which, taken together with estimated actual capital expenditures expended for 2011 for capital expenditure commitments in prior periods, will result in approximately US$1,053.8 million total actual capital expenditures for 2011, which we intend to use for the development of fixed assets in our cellular, fixed data and fixed telecommunications business lines. See Capital Expenditures. Historically, we have funded our capital expenditures through internal resources and cash flow from operations, as well as debt financings through bank loans and the capital markets. We expect to continue to finance our capital expenditures through such sources. We face liquidity risk if certain events occur, including but not limited to, slower than expected growth in the Indonesian economy, downgrading of our debt ratings or deterioration of our financial performance or financial ratios. If we cannot raise the amounts needed to support our planned capital expenditures for 2011, we may be unable to improve or expand our cellular telecommunications infrastructure or update our other technology to the extent necessary to remain competitive in the Indonesian telecommunications market, which would affect our financial condition, results of operations and prospects. In addition, unexpected changes in technology, demand for increased network capacity from our subscribers and responses to the operations and product innovation of our competitors may require us to increase our capital expenditures, which could affect our revenues, operating results and financial condition. Foreign Exchange Volatility The Indonesian rupiah has appreciated considerably over the last decade from its low point of approximately Rp17,000 per U.S. dollar during the Asian financial crisis. During the period between January 1, 2008 through December 31, 2010, the Indonesian rupiah/U.S. dollar exchange rate ranged from a low of Rp12,400 per U.S. dollar to a high of Rp8,888 per U.S. dollar, and, during the year 2010, the Indonesian rupiah/U.S. dollar exchange rate ranged from a low of Rp9,413 per U.S. dollar to a high of Rp8,888 per U.S. dollar. The prevailing Bank Indonesia exchange rate was Rp8,991per U.S. dollar on December 31, 2010. While a substantial portion of our operating revenues is denominated in Indonesian rupiah, a portion of our operating revenues is U.S. dollar-denominated. In addition, a substantial portion of our borrowings, capital expenditures and operating expenses, including interest payments on our Guaranteed Notes due 2020 and ING/DBS Syndicated Loan Facility, are denominated in currencies other than Indonesian rupiah, principally the U.S. dollar. As of December 31, 2010, 43.4% of our borrowings were denominated in Indonesian rupiah, with the balance in U.S. dollars. A depreciation in the value of the Indonesian rupiah against the U.S. dollar affects our financial condition and results of operations because,
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among other things, the Indonesia rupiah value of expenses payable in U.S. dollars will increase by the same factor, thereby requiring us to convert more Indonesian rupiah to pay our U.S. dollar obligations. Conversely, an appreciation in the value of the Indonesian rupiah against the U.S. dollar affects our financial condition and results of operations because, among other things, it causes a decrease in revenue from foreign carriers for inbound international calls, roaming by foreign carriers subscribers in Indonesia and operating revenues from our MIDI services and satellite operations. For the year ended December 31, 2008, we recorded a loss on foreign exchange-net of Rp885.7 billion; for the year ended December 31, 2009, we recorded a gain on foreign exchange-net of Rp1,656.4 billion; and for the year ended December 31, 2010, we recorded a gain on foreign exchange-net of Rp492.4 billion. In addition, certain of our monetary assets and liabilities are subject to foreign currency exposure. These monetary assets primarily consist of cash, cash equivalents and accounts receivable from foreign telecommunications carriers, as well as our foreign currency-denominated accounts receivable. Our monetary liabilities subject to foreign currency exposure consist of procurements payable, loans payable and bonds payable which were incurred for capital expenditure-related liabilities. The level of our net monetary assets is influenced by the extent to which incoming calls exceed outgoing calls in our IDD business and our foreign currency denominated source of revenues. In an effort to manage our foreign currency exposure and lower our overall funding costs, we entered into several foreign currency swap contracts. We cannot assure you that we will be able to manage our exchange rate risk successfully in the future or that we will not continue to be adversely affected by our exposure to exchange rate risk. Our exposure to foreign exchange fluctuations, particularly as against the U.S. dollar, may increase if we incur additional U.S. dollar-denominated debt to finance our capital expenditure plans. In February and March 2009, we obtained consents to amendments to certain of our debt instruments and agreements in order to provide additional flexibility in our debt to equity, debt to EBITDA and EBITDA to interest payment ratio maintenance covenants. While we believe that such amendments will provide us with sufficient cushion in the event of volatility in the Indonesian rupiah / U.S. dollar exchange rates, we cannot assure you that further and more intense volatility than that experienced in the past 12 months will not occur, which could cause us to breach our financial covenants. See Principal Indebtedness.
Overview of Operations
Operating Revenue We generate operating revenues primarily by providing cellular, MIDI and fixed telecommunications (principally international long-distance) services. The following table sets forth the breakdown of our total operating revenues and the percentage contribution of each of our services to our total operating revenues for each of the periods indicated:
For the year ended December 31, 2008 (Restated) Rp Cellular services MIDI services Fixed telecommunications Total operating revenues 14,460.8 2,733.4 2,021.8 19,216.0 % 75.3 14.2 10.5 100.0 2009 (Restated) Rp 14,331.3 2,712.6 1,803.0 18,846.9 % 76.0 14.4 9.6 100.0 Rp 15,867.1 2,488.1 1,293.2 19,648.4 (Rp in billions, except percentages) 80.8 12.7 6.5 100.0 2010 %
The principal drivers of our operating revenues for all of our services are our subscriber base, usage levels and the rates for services. Usage levels for our services are affected by several factors, including continued growth in demand for telecommunications services in Indonesia, the continued development of the Indonesian economy, and competition. Cellular Services. We derive our cellular services operating revenues from charges for cellular usage, value-added features, monthly subscriptions, sales of wireless broadband modems and cellular handsets, and connection fees, as well as
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interconnection charges from other telecommunications providers and tower leasing fees. In the fourth quarter of 2008, we began recording sales of wireless broadband modems and usage of wireless broadband data communications as cellular services operating revenues. Such revenue was previously recorded under MIDI services operating revenues. The following table sets forth the components of our cellular services operating revenues for the periods indicated:
For the year ended December 31, 2008 (Restated) Rp Usage charges Value-added services Interconnection revenues Tower leasing Monthly subscription charges Sale of Blackberry handsets and modems Others Up front discount and customer loyalty program Total cellular services operating revenues 8,492.8 5,052.6 1,833.8 66.3 82.5 136.2 (1,203.4) 14,460.8 % 58.7 35.0 12.6 0.5 0.6 0.9 -8.3 100.0% Rp 7,085.7 5,999.0 1,709.2 62.4 184.2 206.5 171.4 (1,087.1) 14,331.3 2009 (Restated) % 49.4 41.9 11.9 0.4 1.3 1.4 1.2 -7.5 100.0% Rp 7,944.0 7,039.2 1,252.7 252.0 200.5 35.0 177.3 (1,033.6) 15,867.1 US$ 883.6 782.9 139.3 28.0 22.3 3.9 19.7 -114.9 1,764.8 (Rp in billions, US$ in millions, except percentages) 50.1 44.4 7.9 1.6 1.3 0.2 1.1 -6.6 100.0% 2010 %
A substantial proportion of our cellular subscribers, approximately 97.5% as of December 31, 2010, are prepaid subscribers. We offer a variety of value-added services to our prepaid subscribers, which have increased cellular services operating revenues from value-added services, particularly SMS and value-added SMS, which allows subscribers to access a variety of information, such as politics, sports and business news. Revenues from value-added services (including SMS) represented 35.0%, 41.9% and 44.4% of our cellular services operating revenues for the years ended December 31, 2008, 2009 and 2010, respectively. We expect the revenues derived from SMS and other value-added services to continue to increase, which we believe will be primarily driven by our wireless broadband services, the popularity of social networking sites and the development of other popular online content. We recognize cellular revenues as follows: cellular revenues arising from airtime and roaming calls are recognized based on the duration of successful calls made through our cellular network; for post-paid subscribers, monthly service fees are recognized as the service is rendered; for prepaid subscribers, the activation component of starter package sales is deferred and recognized as revenue over the expected average period of the customer relationship. Sales of initial/reload vouchers are recorded as deferred revenue and 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 the duration 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 service providers; 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. MIDI Services. Our MIDI services operating revenues consist primarily of revenues from (i) Internet services provided by us, Indosat Mega Media (IM2) and PT Aplikanusa Lintasarta (Lintasarta), (ii) IP VPN services, high-speed leased lines and frame relay services provided by us and Lintasarta, (iii) digital data network services provided by Lintasarta, (iv) satellite services, and (v) World link and Direct link.
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We deferred installation service revenues for Internet services, frame net, World link and Direct line services, upon the completion of the installation or connection of equipment, and recognized as revenue over the expected customer relationship. We recognize revenues from monthly service fees and other MIDI services as the services are rendered. Revenues from usage charges for Internet services 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. We record satellite revenues on a straight-line basis over the lease period for the transponder. Monthly rent for satellite transponder capacity is based primarily on leased capacity. A substantial portion of our MIDI services operating revenues is denominated in U.S. dollars and is thus affected by fluctuations in the Indonesian rupiah/U.S. dollar exchange rate. Our MIDI services operating revenues have also been affected recently by a number of other factors, including competition from domestic and international providers, declining tariffs and a migration from legacy services to IP-based services. We expect such trends to continue but believe that the effects on our operating revenues will be offset by increased volume of services leased by our corporate customers and increased demand for our customized services, as well as the operation of our new Palapa-D satellite. Fixed Telecommunications Services. Fixed telecommunications services include international long-distance, fixed wireless access services, and fixed line services. International long-distance services, which are comprised of our 001 and 008 IDD services, Flatcall 01016 as well as operator-assisted and value-added services, represented 76.8% of our operating revenues from fixed telecommunications services for the year ended December 31, 2010, and fixed wireless access and fixed line services represented the balance. International Long-distance Services. Our international long-distance services operating revenues have two primary sources, incoming call revenues and outgoing call revenues. We have negotiated volume commitments and accounting rates with foreign telecommunications operators or have implemented a market termination rate-based pricing system, and receive net settlement payments from such carriers. Net settlement payments and accounting rates are generally denominated and paid in currencies other than the Indonesian rupiah, principally the U.S. dollar; accordingly, incoming call revenues are affected by fluctuations in exchange rates between the Indonesian rupiah and other currencies. Fixed Wireless Access Services. As of December 31, 2010, we had 550,130 fixed wireless access subscribers in 82 cities in Indonesia. By the end of 2010, we expanded our fixed wireless access services to several additional cities in order to create capacity for approximately four million fixed wireless access subscribers. As a result, we expect fixed wireless services to become a more important source of fixed telecommunications services operating revenues in future periods. Fixed wireless access revenues arising from usage charges are recognized based on the duration of successful calls made through our fixed network. For postpaid subscribers, monthly service fees are recognized as the service is provided. For prepaid subscribers, the activation component of starter package sales is deferred and recognized as revenue over the estimated life of the customer relationship Sale of initial or reload vouchers is recorded as unearned income and recognized as income upon usage of the airtime or upon expiration of the airtime. Fixed Line Services. We currently have local and domestic long-distance coverage of 82 major cities in Indonesia. Revenues from fixed line installations are recognized as revenue over the estimated life of customer relationship. Revenues from usage charges are recognized based on the duration of successful calls made through our fixed network. Operating Expenses Our principal operating expenses include cost of services, depreciation and amortization, personnel expenses, marketing expenses and general and administration expenses. Certain of our expenses are denominated in U.S. dollars or currencies other than the Indonesian rupiah. Such expenses may include those for international interconnection settlements, certain maintenance agreements and consultancy fees.
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Costs of Services. Costs of services expenses include interconnection expenses, radio frequency fee, maintenance, utilities, rents, leased circuits, the cost of SIM cards and pulse reload vouchers, USO, Blackberry access fee, installation and concession fee. Depreciation and Amortization. We use the straight-line depreciation method for our property, facilities and equipment over their estimated useful lives. A significant portion of our depreciation expenses relate to our cellular services assets. As we continue to expand and enhance the coverage, capacity and quality of our networks, we expect expenses for depreciation to increase. Marketing. Marketing expenses primarily include exhibition, promotion and advertisement expenses associated with our marketing programs. Personnel. Personnel expense primarily include salaries, incentives and other employee benefits, bonuses, employee income tax, post-retirement healthcare benefits, medical expense and outsourcing. General and Administration. General and administration expenses primarily include rent, professional fees, utilities, provision for impairment of receivables, transportation and office. Other Income (Expense) The major components of our other income (expense) are interest income, gain (loss) on foreign exchangenet, financing cost, gain (loss) on change in the fair value of derivativesnet. Foreign exchange gain or loss has typically been affected by the amount of non-Indonesian rupiah-denominated debt outstanding, accounts receivable from overseas international carriers and non-Indonesian rupiah-denominated cash and cash equivalents. We currently hedge a portion of our ING/DBS Syndicated Loan Facility. See Item 11: Quantitative and Qualitative Disclosure About Market Risk. Financing cost includes interest on loans, bank charges and loss on redemption of our Guaranteed Notes due 2010 and 2012. Taxation 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 realization of such benefits is probable. 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. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period 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. Changes in the carrying amount of deferred tax assets and liabilities due to a change in tax rates are credited or charged to current period operations, except to the extent that they relate to items previously charged or credited to stockholders equity. 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. Net Income Our net income for the years ended December 31, 2008, 2009 and 2010 is not necessarily commensurate to our operating revenues and operating income during such periods, in part due to large fluctuations in several non-operating items, which have impacted our net income over such periods. Such non-operating items include, among others, fluctuations in income tax deferred, gain or loss on foreign exchange net, and gain or loss on change in the fair value of derivatives net.
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Results of Operations
The following table sets forth selected comprehensive income data expressed as a percentage of total operating revenues for the periods indicated:
For the years ended December 31, 2008 (Restated) Operating revenues: Cellular MIDI Fixed telecommunications Total operating revenues Operating expenses: Cost of services Depreciation and amortization Personnel Marketing General and administration Total operating expenses Net Profit: Operating income Other expense-net Profit before income tax Income tax expense-net Profit attributable to Owners of the Company Profit attributable to Non-controlling interest 24.6% (11.3)% 13.3% (2.6)% 10.6% 0.1% 17.1% (3.6)% 13.5% (4.2)% 9.0% 0.3% 17.9% (11.2)% 6.7% (2.1)% 4.2% 0.4% 34.5% 23.8% 8.5% 4.8% 3.8% 75.4% 37.6% 29.6% 7.7% 4.3% 3.7% 82.9% 36.2% 31.4% 7.2% 4.0% 3.3% 82.1% 75.3% 14.2% 10.5% 100.0% 76.0% 14.4% 9.6% 100.0% 80.8% 12.7% 6.5% 100.0% 2009 (Restated) 2010
The following table sets forth our operating revenues from our various business segments for the periods indicated:
For the year ended December 31, 2008 (Restated) Rp Cellular Services Usage charges Value-added services Interconnection revenues Tower leasing Monthly subscription charges Sale of Blackberry handsets and modems Others Up front discount and customer loyalty program Subtotal 8,492.8 5,052.6 1,833.8 66.3 82.5 136.2 (1,203.4) 14,460.8 58.7% 35.0% 12.6% 0.5% 0.6% 0.9% -8.3% 100.0% 7,085.7 5,999.0 1,709.2 62.4 184.2 206.5 171.4 (1,087.1) 14,331.3 49.4% 41.9% 11.9% 0.4% 1.3% 1.4% 1.2% -7.5% 100.0% 7,944.0 7,039.2 1,252.7 252.0 200.5 35.0 177.3 (1,033.6) 15,867.1 883.6 782.9 139.3 28.0 22.3 3.9 19.7 -114.9 1,764.8 50.1% 44.4% 7.9% 1.6% 1.3% 0.2% 1.1% -6.6% 100.0% % 2009 (Restated) Rp % Rp 2010 US$ %
(Rp in billions, US$ in millions, except percentages)
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For the year ended December 31, 2008 (Restated) Rp MIDI IP VPN Internet World link and direct link Frame net Leased line Application services Satellite lease Digital data network MPLS Others Subtotal Fixed Telecommunications International Calls Fixed Wireless Fixed Line Others Subtotal Total 1,650.1 244.3 126.7 0.7 2,021.8 19,216.0 81.6% 12.1% 6.3% 0.0% 100.0% 1,422.2 249.9 129.9 1.0 1,803.0 18,846.9 78.9% 13.9% 7.2% 0.0% 100.0% 993.2 174.1 125.4 0.5 1,293.2 19,648.4 110.5 19.4 13.9 0.0 143.8 2,185.3 76.8% 13.5% 9.7% 0.0% 100.0% 585.6 703.9 456.7 315.8 231.6 118.9 96.3 124.9 25.1 74.6 2,733.4 21.4% 25.8% 16.7% 11.6% 8.5% 4.3% 3.5% 4.6% 0.9% 2.7% 100.0% 566.1 677.4 394.2 276.5 211.1 146.1 113.1 144.6 67.1 116.4 2,712.6 20.9% 25.0% 14.5% 10.2% 7.8% 5.4% 4.2% 5.3% 2.5% 4.2% 100.0% 605.7 519.6 278.8 227.1 189.0 168.2 136.0 94.7 66.6 202.4 2,488.1 67.4 57.8 31.0 25.3 21.0 18.7 15.1 10.5 7.4 22.5 276.7 24.3% 20.9% 11.2% 9.1% 7.6% 6.8% 5.5% 3.8% 2.7% 8.1% 100.0% % 2009 (Restated) Rp % Rp 2010 US$ %
Operating Revenues
Total operating revenues increased from Rp18,846.9 billion in 2009 to Rp19,648.4 billion (US$2,185.3 million), or 4.3%, primarily as a result of an increase in our cellular services revenue. During 2010, operating revenues from cellular services increased by Rp1,535.8 billion, or 10.7%, from Rp14,331.3 billion in 2009. Operating revenues from MIDI services decreased by Rp224.5 billion, or 8.3%, from Rp2,712.6 billion in 2009. Operating revenues from fixed telecommunications services in 2010 decreased by Rp509.8 billion, or 28.3 %, from Rp1,803.0 billion in 2009. Cellular Services. In 2010, we recorded cellular services operating revenues of Rp15,867.1 billion (US$1,764.8 million), an increase of 10.7% from Rp14,331.3 billion in 2009. We believe that the increase was primarily a result of an increase in the number of subscribers. Operating revenues from cellular services represented 80.8 % of our total operating revenues for 2010, which is higher than the percentage for 2009. Usage charges increased by Rp858.3 billion, or 12.1%, from 2009, and represented 50.1% of our total cellular services operating revenues. This increase in usage was primarily due to an increase in the minutes of usage by our subscribers. In 2010, cellular services operating revenues generated by value-added services increased by Rp1,040.2 billion, or 17.3%, compared to 2009. The contribution of value-added services to cellular services operating revenues increased by 2.6% from 41.8% in 2009 to 44.4% in 2010. The increase in operating revenues from value-added services, as well as the increase in the contribution of revenues from value-added services to our overall cellular operating revenues, was driven by an increase in usage of SMS and wireless broadband.
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MIDI Services. In 2010, operating revenues from MIDI services decreased by Rp224.5 billion from Rp2,712.6 billion in 2009 to Rp2,488.1 billion (US$276.7 million) in 2010. IP VPN operating revenues represent the largest component of MIDI services operating revenue. IP VPN operating revenues increased by Rp39.6 billion from Rp566.1 billion in 2009 to Rp605.7 billion in 2010. The reduction in MIDI services operating revenues, including those from Internet services, as well as international and domestic leased line services, was primarily due to increased competition and a decline in prices of our services. Fixed Telecommunications Services. There was a decrease in fixed telecommunications services operating revenues from Rp1,803.0 billion in 2009 to Rp1,293.2 billion (US$143.8 million) in 2010. Operating revenues from international calls and fixed wireless access services represented 76.8% and 13.5%, respectively, of fixed telecommunications services operating revenues in 2010. The remaining 9.7% of fixed telecommunications services operating revenues in 2010 was generated by fixed line and other services. Revenues from international calls decreased from Rp1,422.2 billion in 2009 to Rp993.2 billion (US$110.5 million) in 2010 due to a decrease in outgoing IDD traffic from Indosat and non-Indosat subscribers. The total volume of international calls from our 001 and 008 gateways increased by 6.1 % from 2,060.5 million minutes in 2009 to 2,186.9 million minutes in 2010. Total incoming traffic increased by 10.6% from 1,558.5 million minutes in 2009 to 1,723.9 million minutes in 2010, primarily due to volume commitments from foreign telecommunications operators. Outgoing traffic decreased by 7.8 % from 502.0 million minutes in 2009 to 463.0 million minutes in 2010 due to the decrease in volume commitments from foreign telecommunications operations. Operating Expenses Operating expenses increased by Rp505.3 billion, or 3.2%, from Rp15,621.4 billion in 2009 to Rp16,126.7 billion (US$ 1,793.6 million) in 2010, primarily due to increases in depreciation and amortization expenses and cost of services expenses. This increase was offset in part by decreases in personnel cost, marketing expense and administration and general expenses in the year. Cost of services expenses increased by Rp25.5 billion, or 0.4%, from Rp7,087.9 billion in 2009 to Rp7,113.4 billion (US$791.2 million) in 2010, primarily as a result of increased Government levies on frequency fees, USO and concession fees. The increase can also be attributed to rental payments for additional BTSs, increases in interconnection cost and increase in maintenance relating to increase in our fixed assets. Depreciation and amortization expenses increased by 10.6% from Rp5,571.6 billion in 2009 to Rp6,162.8 billion (US$685.4 million), primarily as a result of the continued growth of our fixed asset base, including our new Palapa-D satellite. The total cost of our property and equipment increased from Rp74,818.5 billion in 2009 to Rp78,101.2 billion (US$8,686.6 million) in 2010. Personnel expense decreased by Rp40.4 billion, or 2.8%, from Rp1,451.6 billion in 2009 to Rp1,411.2 billion (US$157.0 million) in 2010, primarily due to a decrease in the post-employment benefits, of salary continuation before retirement (MPP) benefit and offsetted with the increase in the salaries and bonuses. Marketing expenses decreased by Rp37.7 billion, or 4.6%, from Rp816.9 billion in 2009 to Rp779.2 billion (US$86.7 million) in 2010, primarily due to a decrease in advertising, promotion and exhibition expenses, in line with the targeted marketing strategy and efficiency program we have adopted. General and administration expenses decreased by Rp33.4 billion, or 4.8%, from Rp693.4 billion in 2009 to Rp 660.0 billion (US$73.4 million) in 2010, primarily due to a decrease in provision for impairment of receivables, rental cost, professional fee and office supplies expenses, as we continued to implement our efficiency program, designed to minimize non operational costs.
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Operating Income As a result of the above factors, operating income increased by Rp296.2 billion, or 9.2%, from Rp3,225.5 billion in 2009 to Rp3,521.7 billion (US$ 391.7 million) in 2010. Other Expenses-Net Other expenses-net increased by Rp1,515.1 billion, from Rp 681.3 billion in 2009 to Rp2,196.4 billion (US$244.3 million) in 2010, primarily due to a lower gain on foreign exchange, driven by the smaller appreciation of the Indonesian rupiah against the U.S. dollar compared to the previous year. Gain on foreign exchange-net of Rp1,656.4 billion in 2009 decreased to Rp492.4 billion (US$54.8 million) in 2010. The exchange rate decreased from Rp9,400: US$1 as of December 31, 2009 to Rp8,991:US$1 as of December 31, 2010, compared to the decrease from Rp10,950:US$1 as of December 31, 2008 to Rp9,400:US$1 as of December 31, 2009. Loss on change in fair value of derivatives-net decreased by Rp 38.1 billion from Rp486.9 billion in 2009 to Rp448.8 billion (US$49.9 million) in 2010 due to the appreciation of the Indonesian rupiah against the U.S. dollar. We recorded an increase in interest income to Rp143.4 billion (US$15.9 million) in 2010, which represented an increase of Rp4.4 billion, or 3.2%, over 2009, due to our higher average cash balance. Others-net decreased by Rp5.0 billion, from Rp116.8 billion in 2009 to Rp111.8 billion (US$12.4 million) in 2010 primarily due to an increase in submarine cable restoration revenue and gain on sale of property and equipment. Income Tax Expense-Net We recorded income tax expensenet of Rp422.4 billion (US$47.0 million) in 2010 compared to Rp783.9 billion in 2009. The decrease in income tax expense-net was primarily due to the lower in income before tax related to lower gain on foreign exchange and higher financing cost. Net Profit Our net profit decreased by Rp857.4 billion, or 48.7%, from Rp1,760.3 billion in 2009 to Rp902.9 billion (US$100.4 million) due to the foregoing factors.
Total operating revenues decreased marginally from Rp19,216.0 billion in 2008 to Rp18,846.9 billion in 2009, or 1.9%, primarily as a result of a decrease in our cellular services revenue. During 2009, operating revenues from cellular services decreased by Rp129.5 billion, or 0.9%, from Rp14,460.8 billion in 2008 to Rp14,331.3 in 2009. Operating revenues from MIDI services decreased by Rp20.8 billion, or 0.8%, from Rp2,733.4 billion in 2008 to Rp2,712.6 in 2009. Operating revenues from fixed telecommunications services in 2009 decreased marginally by Rp218.8 billion, or 10.8%, from Rp2,021.8 billion in 2008 to Rp1,803.0 in 2009. Cellular Services. In 2009, we recorded cellular services operating revenues of Rp14,331.3 billion, a decrease of 0.9% from Rp14,460.8 billion in 2008. We believe that the decrease was primarily a result of our value strategy, which started in 2009, to minimize lower-value calling card type subscribers. Removing calling-card type subscribers resulted in a decline of less than 1.6% in cellular operating revenues. In addition, we believe that the reduction of our cellular services operating revenues also resulted from the decline of our ARPU from Rp38,639 in 2008 to Rp37,664 in 2009. Operating revenues from cellular services represented 76% of our total operating revenues for 2009, which is slightly the same percentage 75.3% for 2008. Usage charges decreased by Rp1,407.1 billion, or 16.6%, from 2008, and represented 49.4% of our total cellular services operating revenues. This decrease in usage was primarily due to the decrease in our subscriber base, which was partially offset by an increase in our revenues from value-added features.
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In 2009, cellular services operating revenues generated by value-added services increased by Rp946.4 billion, or 18.7%, compared to 2008. The contribution of value-added services to cellular services operating revenues increased by 6.9% from 35.0% in 2008 to 41.9% in 2009. The increase in operating revenues from value-added services, as well as the increase in the contribution of revenues from value-added services to our overall cellular operating revenues, was driven by an increase in usage of our wireless broadband services. MIDI Services. In 2009, operating revenues from MIDI services remained relatively constant, with Rp2,733.4 billion in 2008 and Rp2,712.6 billion in 2009. Internet operating revenues continued to represent the largest component of MIDI services operating revenue, although there was a decrease in Internet operating revenues of Rp26.5 billion in 2009. The reduction in operating revenues from Internet services, as well as international and domestic leased line services, was primarily due to increased competition and a decline in prices of our services. Fixed Telecommunications Services. There was a decrease in fixed telecommunications services operating revenues from Rp2,021.8 billion in 2008 to Rp1,803.0 billion in 2009. Operating revenues from international calls and fixed wireless access services represented 78.9% and 13.9%, respectively, of fixed telecommunications services operating revenues in 2009. The remaining 7.2% of fixed telecommunications services operating revenues in 2009 was generated by fixed line and other services. Revenues from international calls decreased from Rp1,650.1 billion in 2008 to Rp1,422.2 billion in 2009 due to a decrease in outgoing IDD traffic from non-Indosat subscribers. The total volume of international calls from our 001 and 008 gateways increased by 0.2% from 2,056.4 million minutes in 2008 to 2,060.5 million minutes in 2009. Total incoming traffic decreased by 1.5%, with 1,582.4 million minutes in 2008 and 1,558.5 million minutes in 2009, primarily due to a decrease in volume commitments from foreign telecommunications operators. Outgoing traffic increased by 5.9% from 474.0 million minutes in 2008 to 502.0 million minutes in 2009 primarily due to increased user traffic from our subscribers, such as those using the Flatcall 01016 service. Operating Expenses Operating expenses increased by Rp1,133.6 billion, or 7.8%, from Rp14,487.8 billion in 2008 to Rp15,621.4 billion in 2009, primarily due to increases in depreciation and amortization expenses and cost of services expenses, which are our two biggest operating expenses. This increase was offset in part by decreases in personnel expense, marketing expenses and general and administration expenses in the year. Cost of services expenses increased by Rp460.1 billion, or 6.9%, from Rp6,627.8 billion in 2008 to Rp7,087.9 billion in 2009, primarily as a result of increased Government levies on frequency fees, our annual 3G license fee payment, including the fees for added spectrum in 2009, USOs and concession fees. The increase can also be attributed to rental payments for additional BTSs, increases in the cost of modems and handsets driven by higher BlackBerry sales, and increases in expenses relating to our leased line, Internet and transponder leasing operations. Depreciation and amortization expenses increased by 22.0% from Rp4,565.4 billion in 2008 to Rp5,571.6 billion in 2009, primarily as a result of the continued growth of our fixed asset base, including our new Palapa-D satellite, as well as the accelerated depreciation of unutilized elements of our cellular network. Our property and equipment acquisition cost increased from Rp63,478.4 billion in 2008 to Rp74,818.5 billion in 2009. Personnel expenses decreased by Rp187.4 billion, or 11.4%, from Rp1,639.0 billion in 2008 to Rp1,451.6 billion in 2009, primarily due to a decrease in the effective personnel income tax rate, as well as decreases in bonuses, incentives and other employee benefits, outsourcing expenses and post-retirement healthcare benefits. Marketing expenses decreased by Rp101.2 billion, or 11.0%, from Rp918.1 billion in 2008 to Rp816.9 billion in 2009, primarily due to a decrease in advertising, promotion and exhibition expenses, in line with the targeted marketing strategy and efficiency program we have adopted.
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General and administration expenses decreased by Rp44.0 billion, or 6.0%, from Rp737.4 billion in 2008 to Rp693.4 billion in 2009 primarily due to decreases in transportation costs, training, education and research costs, professional fees, office services expenses and catering costs, as we continued to implement our efficiency program, designed to minimize nonoperational costs. Operating Income As a result of the above factors, operating income decreased by Rp1,502.7 billion, or 31.8%, from Rp4,728.2 billion in 2008 to Rp3,225.5 billion in 2009. Other Expenses-Net Other expenses-net decreased by Rp1,491.6 billion, from Rp2,172.9 billion in 2008 to Rp681.3 billion in 2009, primarily due to increase in gains on foreign exchange, driven by the appreciation of the Indonesian rupiah against the U.S. dollar. From a loss on foreign exchange-net Rp885.7 billion in 2008, we recorded a gain on foreign exchange-net of Rp1,656.4 billion in 2009. We recorded a gain on change in fair value of derivative-net of Rp136.6 billion in 2008 and a loss on change in fair value of derivatives-net of Rp486.9 billion in 2009 due to the appreciation of the Indonesian rupiah against the U.S. dollar. We recorded a decrease in interest income to Rp139.0 billion in 2009, which represented a decrease of Rp321.1 billion, or 69.8%, over 2008, due to the lower average cash balance we maintained. Others-net increased by Rp91.2 billion, from Rp25.6 billion in 2008 to Rp116.8 billion in 2009 primarily due to an increase in damage losses caused by more natural calamities, such as earthquakes, that occurred in Indonesia in 2009 compared to 2008 in which the insurance company decreased the claimable amount for the insured damaged assets as more restrictions were imposed on the amended agreements we filed, several assessment letters on tax under payment (SKPKB) from Directorate General Tax on June 8, 2009 for Satelindos corporate income tax and income tax article 4(2), 21 and 23 for fiscal years 2002 and 2003 and Satelindos tax audit for VAT fiscal year 2002 and 2003. Income Tax Expense-Net We recorded income tax expensenet of Rp485.3 billion in 2008 compared to Rp783.9 billion in 2009. The increase in income tax expense-net was primarily due to the adjustment of income tax benefit deferred due to changes in the income tax rate in 2008. Net Profit Our net profit decreased by Rp309.7 billion, or 15.0%, from Rp2,070.0 billion in 2008 to Rp1,760.3 billion in 2009 due to the foregoing factors.
B. LIQUIDITY AND CAPITAL RESOURCES

Our liquidity requirements have historically arisen from the need to finance investments and capital expenditures related to the expansion of our telecommunications business. Our telecommunications business requires substantial capital to construct and expand mobile and data network infrastructure and to fund operations, particularly during the network development stage. Although we have substantial existing network infrastructure, we expect to incur additional capital expenditures in order to focus cellular network development in areas that we anticipate to be high-growth areas, as well as to enhance the quality and coverage of our existing network. We believe our current cash and cash equivalents, cash flow from operations and available sources of financing will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and planned capital expenditures,
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for the foreseeable future. Nonetheless, if global or Indonesian economic conditions worsen, competition or product substitution accelerates beyond current expectations or the value of the Indonesian rupiah depreciates significantly against the U.S. dollar, our net cash flow from operating activities may decrease and the amount of required capital expenditures in Indonesian rupiah terms may increase, any of which may negatively impact our liquidity.
Cash Flows
The following table sets forth certain information regarding our historical cash flows:
For the years ended December 31, 2008 Rp Net Cash Flows: Provided by operating activities Used in investing activities Provided by (used in) financing activities 6,513.3 (10,286.9) 1,458.5 4,051.2 (10,670.7) 3,724.7 6,839.0 (5,970.7) (1,629.7) 760.6 (664.1) (181.2) 2009 Rp Rp (Rp in billions, US$ in millions) 2010 US$
Net Cash Provided by Operating Activities Net cash provided by operating activities amounted to Rp6,513.3 billion, Rp4,051.2 billion and Rp6,839.0 billion (US$760.6 million) for 2008, 2009 and 2010, respectively. In 2010, net cash provided by operating activities increased primarily due to receipt from customers. Net Cash Used in Investing Activities Net cash used in investing activities amounted to Rp10,286.9 billion, Rp10,670.7 billion and Rp5,970.7 billion (US$664.1 million) for 2008, 2009 and 2010, respectively. Net cash used in investing activities for 2008, 2009 and 2010 has been driven primarily by acquisitions of property and equipment, totaling Rp10,307.9 billion, Rp10,684.7 billion and Rp6,495.1 billion (US$722.4 million), respectively, as we expanded our network coverage and capacity during those years. The property and equipment purchased consisted primarily of exchange and network assets, subscribers apparatus and other equipment and buildings and building and leasehold improvements. Net Cash Provided by (Used In) Financing Activities Net cash provided by (used in) financing activities amounted to Rp1,458.5 billion, Rp3,724.7 billion and Rp1,629.7 billion (US$181.2 million) in 2008, 2009 and 2010, respectively. Net cash used in financing activities in 2010 related primarily to repayment of long-term debts and bonds payable which was partially offset by proceeds from bonds payable. Principal Indebtedness The following table shows our outstanding borrowings as of December 31, 2008, 2009 and 2010:
As of December 31 2008 Rp Loans payable (net of unamortized issuance costs and unamortized consent fees, and current maturities) Bonds payable (net of unamortized issuance costs, unamortized discount, unamortized consent fees, and current maturities) Current maturities of loans payable Current maturities of bonds payable 10,812.2 10,315.6 572.5 56.4 2009 Rp 12,715.5 8,472.2 1,440.2 2,840.7 Rp 7,666.8 12,114.1 3,184.2 1,098.1 2010 US$ 852.7 1,347.4 354.1 122.1
(Rp in billions, US$ in millions)
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Corporate Data
The decrease in loans payable (net of unamortized issuance cost, unamortized consent fee and current maturities) to Rp7,666.8 billion (US$852.7 million) as of December 31, 2010, from Rp12,715.5 billion as of December 31, 2009 was primarily due to the early repayment of our facilities with BCA Bank, Mandiri and Bank DBS Indonesia. The increase in bonds payable (net of unamortized issuance cost, unamortized discount, unamortized consent fees and current maturities) from Rp8,472.2 billion as of December 31, 2009 to Rp12,114.1 billion (US$1,347.4 million) as of December 31, 2010 was primarily due to the issuance of our Guaranteed Notes due 2020. Certain of our debt instruments (other than the Guaranteed Notes due 2020) obligate us to maintain a specified maximum ratio of debt (or loans) to equity, or the debt to equity ratio, which, prior to February 2009, was 1.75 to 1.0, or 175%. As a result of amendments we requested to such instruments and agreements, and agreed with our lenders and the trustee for bondholders in February and March 2009, the debt to equity ratio is now 2.50 to 1.0, or 250%. We also requested and were granted consents to amendments to certain defined terms in the debt to equity ratios so that the definition is uniform across all such instruments and agreements. The Guaranteed Notes due 2020 do not contain a debt to equity ratio requirement. Our debt increased 30.5% from Rp16,692.2 billion as of December 31, 2007 to Rp21,756.7 billion as of December 31, 2008 primarily due to (i) an increase in the issuance of new debt in 2008 to support the increase in capital expenditures in 2008 compared to 2007 and (ii) the accounting impact of the depreciation of the Indonesian rupiah against the U.S. dollar. The U.S. dollar to Indonesian rupiah exchange rate fell from US$1.00 to Rp10,950 as of December 31, 2008 to US$1.00 to Rp9,400 as of December 31, 2009. Because a portion of our liabilities are U.S. dollar-denominated, we were exposed to fluctuations in the Indonesian rupiah. Depreciation in the Indonesian rupiah and an increase in foreign exchange volatility exposed us to short-term accounting adjustments which impacted our financial ratios. To help address the impact of such currency fluctuations going forward, in 2009, we amended the debt to equity ratio covenants in all of our applicable debt instruments and agreements to increase the ratio from 1.75 to 2.50, in order to provide us with additional cushion in the event of adverse foreign exchange movements. We also amended the debt to equity ratio covenants in order to better reflect the effect of our hedging policies on this ratio, and amended the definitions of Debt and Equity in such debt instruments and agreements in order to provide additional headroom under these line items. The Guaranteed Notes due 2020 do not contain a debt to equity requirement. As part of the amendments approved in 2009, we obtained consents to the following amendments to defined terms in certain of our applicable debt instruments and agreements: (i) excluding non-cash items, including foreign exchange gains or losses, from the definition of EBITDA; (ii) excluding interest-bearing procurement payables from the definition of Debt unless their maturities are in excess of six months from the invoice date; and (iii) including in Equity (a) minority interests, for entities the debt of which is 100% consolidated by us, and (b) subordinated shareholder loans. While we believe that the foregoing amendments will provide us with sufficient cushion in the event of volatility in the U.S. dollarIndonesian rupiah exchange rates, we cannot assure you that further and more intense volatility than that experienced in the past 12 months will not occur, which could cause us to breach our financial covenants. Set forth below are calculations of our historical financial ratios that are contained in our financial covenants under Indonesian GAAP as required by our debt agreements. The historical financial ratios as of December 31, 2008 are calculated based on the amended definitions of Debt (also defined as Loan in certain translations of our debt instruments and agreements), Equity and EBITDA in our various debt instruments and agreements as if such defined terms applied as of such dates.
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As of and for the years ended December 31, Ratio Required Financial Position and Comprehensive Income Data: Current maturities from: Loans payable Bonds payable Loans payablenet of current maturities: Related party Third parties Bonds payablenet of current maturities Unamortized issuance cost, consent solicitation fees and discounts Total Debt(1) Total Assets Total Liabilities Total Equity(2) Operating Income Depreciation and Amortization EBITDA(3) Interest Expense(4) Financial Ratios: Debt to Equity ratio(5) Debt to EBITDA ratio(6) EBITDA to Interest Expense ratio(7)
(1)
2008 Rp
2009 Rp Rp
2010 US$
572.5 56.4 1,596.2 9,216.0 10,315.6 312.3 22,069.0 51,693.3 33,994.8 17,698.5 4,733.3 4,555.9 9,289.2 1,776.5 <2.50x <3.50x >3.00x 1.25x 2.38x 5.23x
1,440.2 2,840.7 2,192.5 10,528.8 8,472.2 338.5 25,812.9 55,041.5 36,753.2 18,288.3 3,213.0 5,561.4 8,774.4 1,808.6 1.41x 2.94x 4.85x
3,184.2 1,098.1 997.0 6,669.8 12,114.1 336.1 24,399.3 52,818.2 34,581.7 18,236.5 3,473.9 6,151.9 9,625.8 2,080.3 1.34x 2.53x 4.63x
354.1 122.1 110.9 741.8 1,347.4 37.4 2,713.7 5,874.6 3,846.3 2,028.3 386.4 684.2 1,070.6 231.3
(2) (3)
We define total debt as total loans payable and bonds payable (current and non-current maturities), unamortized issuance cost (loans, bonds and notes), unamortized consent solicitation fees (loans and bonds) and unamortized discounts (loans and notes). According to the amended definition, Debt means, with respect to any person on any date of determination (without duplication): (a) the principal of and premium (if any) in respect of debt of such person for money borrowed and debt evidenced by notes, debentures, bonds or other similar instruments for the payment of which such person is responsible or liable which in any such case, bears interest or on which interest accrues; and (b) all obligations of such person in relation to procurement payables constituting accounts payable to such persons suppliers which bear interest or on which interest accrues and payment for such accounts payable is due more than six (6) months after the relevant invoice date, but, in relation to any member of the Company or its subsidiaries (together the Group), or the Group, deducting all indebtedness advanced by any (direct or indirect) shareholder of the Company to such member of the Group which is subordinated to any indebtedness falling under paragraph (a) or (b) above. We define equity as total stockholders equity and minority interest. According to the amended definition, Equity means total assets less total liabilities, where total liabilities exclude all indebtedness advanced by any (direct or indirect) shareholder of the Company to any member of the Group which is subordinated to any Debt. We have defined EBITDA as earnings before interest, amortization of goodwill, non-operating income and expense, income tax expense, depreciation and minority interest in net income of subsidiaries as reported in the consolidated financial statements prepared under Indonesian GAAP. EBITDA is not a standard measure under either Indonesian GAAP or IFRS. As the telecommunications business is capital intensive, capital expenditure requirements and levels of debt and interest expenses may have a significant impact on the net income of companies with similar operating results. Therefore, we believe that EBITDA provides a useful reflection of our operating results and that net income is the most directly comparable financial measure to EBITDA as an indicator of our operating performance. You should not consider our definition of EBITDA in isolation or as an indicator of operating performance, liquidity or any other standard measure under either Indonesian GAAP or IFRS, or other companies definition of EBITDA. Our definition of EBITDA does not account for taxes and other non-operating cash expenses. Funds depicted by this measure may not be available for debt service due to covenant restrictions, capital expenditure requirements and other commitments. According to the amended definition, EBITDA means, for any period, an amount equal to the sum of operating income (calculated before finance costs, taxes, nonoperating income or expenses and extraordinary and exceptional items) plus depreciation and amortization and, in the case of any testing or calculation of the ratio of aggregate Debt of the Group, to EBITDA of the Group after giving pro forma effect to any material acquisition or disposal of assets or businesses as if such acquisition or disposal had occurred on the first day of such period. The following table reconciles our net income under Indonesian GAAP to our definition of EBITDA for the periods indicated:
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For the years ended December 31, 2008 Rp EBITDA under Indonesian GAAP Adjustments: Amortization of goodwill Interest income Financing cost (including interest expense) Gain (loss) on change in fair value of derivativesnet Othersnet Gain (loss) on foreign exchangenet Income tax expensenet Depreciation and amortization Minority interest in net income of subsidiaries Net income under Indonesian GAAP (227.3) 460.1 (1,858.3) 136.6 (33.6) (885.7) (419.8) (4,555.9) (26.8) 1,878.5 (235.4) 139.0 (1,873.0) (517.7) (150.3) 1,656.4 (677.3) (5,561.4) (56.5) 1,498.2 (226.4) 143.4 (2,271.6) (418.1) (111.8) 492.4 (357.8) (6,151.9) (76.8) 647.2 (25.2) 15.9 (252.7) (46.5) (12.4) 54.8 (39.8) (684.2) (8.5) 72.0 9,289.2 2009 Rp 8,774.4 Rp 9,625.8 2010 US$ 1,070.6
(Rp in billions, US$ in millions)
The following table reconciles our EBITDA under Indonesian GAAP to IFRS for the periods indicated:
For the years ended December 31, 2008 Rp EBITDA under Indonesian GAAP Dealer commissions Deferred connection fees EBITDA under IFRS*
* (4) (5)
2009 Rp 8,774.4 22.7 8,797.1 Rp 9,625.8 46.9 11.8 9,684.5
2010 US$ 1,070.6 5.2 1.3 1,077.1
(Rp in billions, US$ in millions) 9,289.2 4.4 9,293.6
See Item 3: Key InformationSelected Financial and Other Data for reconciliation of our EBITDA under IFRS to our profit attributable to owners of the Company under IFRS. Interest Expense means, for any period, interest expense on Debt. Using IFRS results, Total Debt would be Rp22,069.0 billion, Rp25,807.1 billion and Rp24,399.3 billion as of December 31, 2008, 2009 and 2010, respectively, and Total Equity would be Rp17,779.7 billion, Rp18,574.9 billion and Rp18,702.0 billion as of December 31, 2008, 2009 and 2010, respectively, resulting in a Debt to Equity ratio of 124%, 139% and 130% as of December 31, 2008, 2009, and 2010, respectively. Using IFRS results, Total Debt would be Rp22,069.0 billion, Rp25,807.1 billion and Rp24,399.3 billion as of December 31, 2008, 2009 and 2010, respectively, and EBITDA would be Rp9,293.6 billion, Rp8,797.1 billion and Rp9,684.5 billion for the year ended December 31, 2008, 2009 and 2010, respectively, resulting in a Debt to EBITDA ratio of 237%, 293 % and 252% as of December 31, 2008, 2009 and 2010, respectively. Using IFRS results, EBITDA would be Rp9,293.6 billion, Rp8,797.1 billion and Rp9,684.5 billion for the year ended December 31, 2008, 2009 and 2010, respectively, and Interest Expense would be Rp1,776.5 billion, Rp1,808.6 billion and Rp2,080.3 billion for the year ended December 31, 2008, 2009 and 2010, respectively, resulting in an EBITDA to Interest Expense ratio of 523%, 486% and 466% as of December 31, 2008, 2009, and 2010 respectively.
(6)
(7)
From time to time, we may repurchase a portion of our debt securities through open-market transactions based on general market conditions.
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The following table summarizes our primary long-term indebtedness and bonds payable as of December 31, 2008, 2009 and 2010.
As of December 31, 2008 Rp Bonds Payable: Guaranteed Notes Due 2020net of unamortized discount and unamortized notes issuance cost Fifth Indosat Bondsnet of unamortized bonds issuance cost Guaranteed Notes Due 2010net of unamortized notes issuance cost Seventh Indosat Bondsnet of unamortized bonds issuance cost Sixth Indosat Bondsnet of unamortized bonds issuance cost Guaranteed Notes Due 2012net of unamortized notes discount and unamortized notes issuance cost Fourth Indosat Bondsnet of unamortized bonds issuance cost Third Indosat Bondsnet of unamortized bonds issuance cost Indosat Sukuk Ijarah IIInet of unamortized bonds issuance cost Indosat Sukuk Ijarah IInet of unamortized bonds issuance cost Indosat Syariah Ijarah Bondsnet of unamortized bonds issuance cost Second Indosat Bonds Indosat Sukuk Ijarah IVnet of unamortized bonds issuance cost Limited Bonds II issued by Lintasarta(1) Limited Bonds I issued by Lintasarta(2) Total bonds payable Less current maturities Bonds Payable: Non-current portion Loans payable: Related Partynet of unamortized debt issuance cost Third partiesnet of unamortized bonds issuance cost Total loans payable Less current maturities Loans payable: Non-current portion
(1) (2) After elimination of Limited Bonds II amounting to Rp35.0 billion issued to the Company. After elimination of Limited Bonds I amounting to Rp9.6 billion issued to the Company.
2009 Rp Rp
2010 US$
(Rp in billions, US$ in millions) 2,593.1 2,563.5 1,075.7 1,185.3 810.5 637.3 567.8 399.0 283.4 200.0 31.1 25.3 10,372.0 56.4 10,315.6 1,796.2 9,588.5 11,384.7 572.5 10,812.2 2,587.2 2,202.7 1,293.8 1,073.0 1,018.8 811.0 637.9 566.4 398.1 283.6 199.4 199.0 25.0 17.0 11,312.9 2,840.7 8,472.2 2,592.4 11,563.3 14,155.7 1,440.2 12,715.5 5,749.6 2,589.0 1,294.6 1,074.6 813.6 567.4 398.5 284.5 199.3 199.1 25.0 17.0 13,212.2 1,098.1 12,114.1 1,297,1 9,553.9 10,851.0 3,184.2 7,666.8 90.5 63.1 44.3 31.6 22.2 22.1 2.8 1.9 1,469.5 122.1 1,347.4 144.2 1,062.6 1,206.8 354.1 852.7 639.5 288.0 144.0 119.5
Indosat Bonds
The specific terms of each of our Second Indosat Bonds, Third Indosat Bonds, Fourth Indosat Bonds, Fifth Indosat Bonds, Sixth Indosat Bonds and Seventh Indosat Bonds (the Indosat Bonds), are discussed below. The Indosat Bonds are not secured by any specific assets or guaranteed by other parties and rank pari passu with our other unsecured debt. We agreed to certain covenants in connection with the issuance of the Indosat Bonds, including but not limited to agreeing to maintain: equity capital of at least Rp5,000.0 billion; a ratio of total debt to EBITDA of less than 3.5 to 1.00, as reported in each annual consolidated financial report; a debt to equity ratio of 2.5 to 1, as reported in each quarterly consolidated financial report; and a ratio of EBITDA to interest expense, as reported in each annual consolidated financial report of at least 3.0 to 1.
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On March 24, 2009, we held meetings with holders of our Indonesian rupiah-denominated bonds, including holders of our Indosat Bonds, and obtained consents to amend the definitions of Debt EBITDA, to include new definitions for Equity and Group and to change the ratio of Debt to Equity from 1.75 to 1 to 2.5 to 1 in the trustee agreement governing these bonds, pursuant to the terms of the deed of amendment for the Second, Third, Fourth, Fifth and Sixth Indosat Bonds. Second Indosat Bonds. On November 6, 2002, we issued our Indosat Bonds II (the Second Indosat Bonds), with fixed and/or floating rates, the only outstanding series of which are the Series B bonds. The Series B bonds, with an original face value of Rp200.0 billion, bear interest at a fixed rate of 16.0% per annum and are payable quarterly for 30 years beginning February 6, 2003. We have the right to redeem the Series B bonds, in whole but not in part, on each of the 5th, 10th, 15th, 20th and 25th anniversaries of the issuance of the Series B bonds at a price equal to 101% of the Series B bonds nominal value. Holders of the Series B bonds have a put right that allows such holders to demand early repayment from us at a price equal to 100% of the Series B bonds nominal value at (i) any time, if the rating of such bonds is reduced to id AA- or lower or (ii) upon the occurrence of any of the 15th, 20th and 25th anniversaries of the issuance of the Series B bonds. The Series B bonds mature on November 6, 2032. Third Indosat Bonds. On October 22, 2003, we issued our Indosat Bonds III (the Third Indosat Bonds), the only outstanding series of which are the Series B bonds. The Series B bonds, which will mature on October 22, 2010 and have a total face value of Rp640.0 billion, bear interest at a fixed rate of 12.875% per annum. Interest on the Third Indosat Bonds is paid on a quarterly basis. We have the right to make early payment for all of the Series B bonds on the fourth and sixth anniversaries of the bonds at a price equal to 100% of the bonds nominal value. After the first anniversary of the issuance of the bonds, we have the right to buy back part or all of the bonds at the market price. On October 22, 2010, we paid in full the series of the Third Indosat Bonds amounting to Rp 640.0 billion. Fourth Indosat Bonds. On June 21, 2005, we issued our Indosat Bonds IV (the Fourth Indosat Bonds). The Fourth Indosat Bonds have a total face value of Rp815.0 billion and will mature in June 21, 2011. The Fourth Indosat Bonds bear interest at a fixed rate of 12.0% per annum, payable on a quarterly basis. We have the right to prepay all of the bonds on the fourth anniversary of the bonds at a price equal to 100% of the bonds nominal value. After the first anniversary of the issuance of the bonds, we have the right to buy back part or all of the bonds at the market price. Fifth Indosat Bonds. On May 29, 2007, we issued our Indosat Bonds V (the Fifth Indosat Bonds), in two series with a total face value of Rp2,600.0 billion. The Series A bonds, which have a face value of Rp1,230.0 billion, will mature on May 29, 2014 and the Series B bonds, which have a face value of Rp1,370.0 billion, will mature on May 29, 2017. The Series A bonds bear interest at a fixed rate of 10.20% per annum and the Series B bonds bear interest at a fixed rate of 10.65% per annum. After the first anniversary of the issuance of the bonds, we have the right to buy back part or all of the bonds at the market price, either temporarily or for the purpose of early settlement. Sixth Indosat Bonds. On April 9, 2008, we issued our Indosat Bonds VI (the Sixth Indosat Bonds), in two series with a total face value of Rp1,080.0 billion. The Series A bonds, which have a face value of Rp760.0 billion, will mature on April 9, 2013 and the Series B bonds, which have a face value of Rp320.0 billion will mature on April 9, 2015. The Series A bonds bear interest at a fixed rate of 10.25% per annum and the Series B bonds bear fixed interest rate of 10.80% per annum. After the first anniversary of the issuance of the bonds, we have the right to buy back part or all of the bonds at market price, either temporarily or for the purpose of early settlement. Seventh Indosat Bonds. On December 8, 2009, we issued our Indosat Bonds VII (the Seventh Indosat Bonds), in two series with a total face value of Rp1,300.0 billion. The Series A bonds, which have a face value of Rp700.0 billion, will mature on December 8, 2014 and the Series B bonds, which have a face value of Rp600.0 billion, will mature on December 8, 2016. The Series A bonds bear interest at a fixed rate of 11.25% per annum and the Series B bonds bear interest at a fixed rate of 11.75% per annum. After the first anniversary of the issuance of the bonds, we have the right to buy back part or all of the bonds at market price, either temporarily or for the purpose of early settlement.
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Guaranteed Notes due 2010 and Guaranteed Notes 2012

In October 2003, our finance subsidiary, Indosat Finance Company B.V. (Indosat Finance), issued the Guaranteed Notes due 2010. The Guaranteed Notes due 2010 have a total face value of US$300.0 million and mature on November 5, 2010. The Guaranteed Notes due 2010 bear interest at a fixed rate of 7.75% per annum payable in semi-annual installments due on May 5 and November 5 of each year, commencing May 5, 2004. On June 22, 2005, our finance subsidiary, Indosat International Finance Company B.V. (Indosat International), issued the Guaranteed Notes due 2012. The Guaranteed Notes due 2012 have a total face value of US$250.0 million which was issued at 99.3% of their principal amount and mature on June 22, 2012. The Guaranteed Notes due 2012 bear interest at a 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. On May 12, 2010, we, together with Indosat Finance and Indosat International, announced the commencement by Indosat Finance and Indosat International of cash tender offers to purchase for cash any and all of Indosat Finances outstanding Guaranteed Notes due 2010 and Indosat Internationals outstanding Guaranteed Notes due 2012. In addition to its offer to purchase the 2010 Notes, Indosat Finance also solicited, as one proposal, consents to certain proposed amendments to the amended and restated indenture, dated as of January 25, 2006 (the 2010 Indenture), which would shorten the notice period for optional redemption of the Guaranteed Notes due 2010, and to the release of Indosat International as a guarantor under the 2010 Indenture. On August 2, 2010, Indosat Finance paid a total of US$174.7 million for the Guaranteed Notes 2010 purchased pursuant to the cash tender offer, with a total principal amount of US$167.8 million (for notes which were tendered early) and US$0.1 million (for notes tendered after the early tender date) at price equal to 102.1875% (for notes which were tendered early) and 101.9375% (for notes tendered after the early tender date), respectively, of the principal amount purchased, plus the accrued and unpaid interest up to settlement date and other additional expenses. On August 10, 2010, Indosat Finance paid a total of US$69.5 million for the purchase of the remaining portion of the 2010 Notes which were redeemed, with a total principal amount of US$66.9 million at a price equal to 101.9375% of principal amount called, plus the accrued and unpaid interest up to settlement date and other additional expenses. On August 2, 2010, Indosat International paid a total of US$58.6 million for the 2012 Notes purchased pursuant to the cash tender offer with a total principal amount of US$55.8 million (for notes which were tendered early) and US$0.2 million (for notes tendered after the early tender date) at a price equal to 103.8125% (for notes which were tendered early) and 103.5625% (for notes tendered after the early tender date), respectively, of the principal amount purchased, plus the accrued and unpaid interest up to settlement date and other additional expenses. On September 2, 2010, Indosat International paid a total of US$56.0 million for the purchase of the remaining portion of the 2010 Notes which were redeemed with a total principal amount of US$53.4 million at a price equal to 103.5625% of principal amount called, plus the accrued and unpaid interest up to settlement date and other additional expenses.
Guaranteed Notes Due 2020

On July 29, 2010 we, through Indosat Palapa Company B.V. (Indosat Palapa) issued our guaranteed Notes 2020 with a total face value of US$650.0 million. The notes were issued at 99.478% of their principal amount and mature on July 29, 2020. The notes bear interest at the fixed rate of 7.375% per annum payable in semi-annual installment due on January 29 and July 29 of each year, commencing January 29, 2011. The notes will be redeemable at the option of Indosat Palapa, in while or in part, at any time on or after July 29, 2015 at prices equal to 103.6875%, 102.4583%, 101.2292% and 100% of the principal amount during the 12-month period commencing July 29, 2015, 2016, 2017 and 2018 and thereafter, respectively, plus accrued and unpaid interest and additional amounts, if any. In addition, prior to July 29, 2013, Indosat Palapa 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 us at a price equal to 107.375% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any. The notes are also redeemable at option of Indosat Palapa or us, in whole but not in part, at
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any time, at a price equal to 100% of principal amount thereof, plus any accrued and unpaid interest to (but not including) the redemption date any additional amounts, in the event of certain changes effecting withholding taxes in Indonesia and the Netherlands. Upon a change in control of Indosat (including sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all of our assets), holders of the notes have the right to require Indosat Palapa to repurchase all or any part of such holders notes at a purchase price equal to 101% of principal amount thereof, plus accrued and unpaid interest and additional amounts, if any, to the purchase date. The net proceeds, after deducting the underwriting fees and offering expenses, were received on July 29, 2010 and used (i) to fund the offers to purchase the outstanding Guaranteed Notes Due 2010 and Guaranteed Notes due 2012 and any consent solicitation relating to, or redemption of, such notes and (ii) to refinance part of our other existing indebtedness . The notes are unconditionally and irrevocably guaranteed by Indosat. Based on the notes indenture, we are required to comply with certain conditions, such as maintaining certain financial ratios.
Export Credit Facility

On May 12, 2006, we entered into a term facility agreement with Finnish Export Credit Ltd as the original lender, and The Royal Bank of Scotland, N.V. (formerly known as ABN Amro Bank, N.V.) as the facility agent, for an export credit facility (the Export Credit Facility) in the aggregate principal amount of US$38.0 million. The Export Credit Facility tenor is 60 months from the date of the agreement and payments must be made in ten equal installments distributed evenly over the life of the facility. The Export Credit Facility has an interest rate of 4.15% per annum, which was calculated with reference to the commercial interest reference rate for U.S. dollars. Once amounts under the Export Credit Facility have been drawn down and repaid, such amounts do not become available for borrowing on a revolving basis. The Export Credit Facility contains certain financial covenants. During 2009 and 2010, we paid installments on this facility in the amount of US$7.6 million and US$7.6 million, respectively.
Syariah Ijarah Bonds (Sukuk Ijarah)

The specific terms of each of our First Syariah Ijarah Bonds, Second Syariah Ijarah Bonds, Third Syariah Ijarah Bonds and Fourth Syariah Ijarah Bonds (the Syariah Ijarah Bonds), are discussed below. The Syariah Ijarah Bonds are not secured by any specific assets or guaranteed by other parties and rank pari passu with our other unsecured debt. In connection with the issuance of the Syariah Ijarah Bonds, we agreed to maintain certain covenants which are similar to the covenants contained in our Indosat Bonds. In addition, we are also prohibited from performing activities which contravene Syariah principles. Aside from these prohibitions, there are no material differences in the covenants between the Syariah Ijarah Bonds and the Indosat Bonds. On March 24, 2009, we held meetings with holders of our Indonesian rupiahdenominated bonds, including holders of our Syariah Ijarah Bonds, and obtained consents to amend to the definitions of Debt and EBITDA, to add new definitions for Equity and Group and to change the ratio of Debt to Equity from 1.75 to 1 to 2.5 to 1 in the trustee agreement governing these bonds. First Syariah Ijarah Bonds. On June 21, 2005, we issued our Sukuk Ijarah Indosat I (the First Syariah Ijarah Bonds), which contain terms customary for Islamic financing facilities, with Bank Rakyat Indonesia acting as trustee. The First Syariah Ijarah Bonds have a total face value of Rp285.0 billion and mature on June 21, 2011. Holders of the First Syariah Ijarah Bonds receive an Ijarah installment fee, payable on a quarterly basis. The total Ijarah installment fee expected to be paid to the holders of the First Syariah Ijarah Bonds is Rp34.2 billion per annum. We have the right to make early payment for all of the First Syariah Ijarah Bonds on the fourth anniversary of the First Syariah Ijarah Bonds at a price equal to 100% of the bonds nominal value. After the first anniversary of the issuance of the First Syariah Ijarah Bonds, we have the right to buy back part or all of the First Syariah Ijarah Bonds at the market price, either temporarily or for the purpose of early settlement. Second Syariah Ijarah Bonds. On May 29, 2007, we issued our Sukuk Ijarah Indosat II (the Second Syariah Ijarah Bonds), which contain terms customary for Islamic financing facilities, with Bank Rakyat Indonesia acting as trustee. The Second
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Syariah Ijarah Bonds have a total face value of up to Rp400.0 billion and mature in May 29, 2014. Holders of the Second Syariah Ijarah Bonds receive an Ijarah installment fee, payable on a quarterly basis. The total Ijarah installment fee to be paid to the holders of the Second Syariah Ijarah Bonds is Rp40.8 billion per annum. After the first anniversary of issuance of the Second Syariah Ijarah Bonds, we have the right to buyback part or all of such bonds at the then-prevailing market price. Third Syariah Ijarah Bonds. On April 9, 2008, we issued our Sukuk Ijarah Indosat III (the Third Syariah Ijarah Bonds), which contain terms customary for Islamic financing facilities, with Bank Rakyat Indonesia acting as trustee. The Third Syariah Ijarah Bonds have a total face value of up to Rp570.0 billion and mature in April 9, 2013. Holders of the Third Syariah Ijarah Bonds receive an Ijarah installment fee, payable on a quarterly basis. The total Ijarah installment fee expected to be paid to the holders of the Third Syariah Ijarah Bonds is Rp58.4 billion per annum. After the first anniversary of the issuance of the Third Syariah Ijarah Bonds, we have the right to buyback part or all of such bonds at the then-prevailing market price. Fourth Syariah Ijarah Bonds. On December 8, 2009, we issued our Sukuk Ijarah Indosat IV (the Fourth Syariah Ijarah Bonds), which contain terms customary for Islamic financing facilities, with Bank Rakyat Indonesia acting as trustee. The Fourth Syariah Ijarah Bonds have a total face value of Rp200.0 billion. The Series A Syariah Ijarah Bonds, which have a face value of Rp28.0 billion, will mature on December 8, 2014 and the Series B Syariah Ijarah Bonds, which have a face value of Rp172.0 billion, will mature on December 8, 2016. Holders of the Fourth Syariah Ijarah Bonds receive an Ijarah installment fee, payable on a quarterly basis. The total Ijarah installment fee expected to be paid to the holders of the Fourth Syariah Ijarah Bonds is Rp3.2 billion per annum for the Series A Fourth Syariah Ijarah Bonds and Rp20.2 billion per annum for the Series B Fourth Syariah Ijarah Bonds. After the first anniversary of the issuance of the Fourth Syariah Ijarah Bonds, we have the right to buyback part or all of such bonds at the then-prevailing market price.
Goldman Sachs International Loan Facility

On May 30, 2007, we received from Goldman Sachs International (GSI) a loan amounting to Rp434.3 billion, which was received in U.S. dollars amounting to US$50.0 million, for the purchase of telecommunications equipment. The loan will mature on May 30, 2013. The loan bears interest at a fixed annual rate of 8.75%, which is payable quarterly every February 28, May 30, August 30 and November 30, commencing August 30, 2007, up to May 30, 2012. The loan agreement provides an option for GSI to convert the loan into a U.S. dollar loan of US$50.0 million on May 30, 2012 (the Conversion Option). The fair value of the Conversion Option is presented as part of long-term debt. If GSI exercises such option, starting May 30, 2012, the loan will bear interest at the fixed annual rate of 6.45% on the principal amount of US$50.0 million. The principal amount in U.S. dollars and interest thereon will be due on May 30, 2013. We are required to notify GSI regarding of certain events which can result in loan termination, such as (i) certain changes affecting withholding taxes in the United Kingdom or Indonesia, (ii) default under our Guaranteed Notes due 2012, (iii) default under any notes issued or guaranteed by us where the settlement is in U.S. dollars or default under any notes issued or guaranteed by us where the settlement is in Indonesian rupiah, (iv) redemption, purchase or cancellation of the Guaranteed Notes due 2012 and there being no other U.S. dollar indebtedness outstanding upon such redemption, purchaser or cancellation and (v) a change of control. On June 24, 2008, GSI waived its rights to terminate the loan as a result of the change of control triggered by Qtels acquisition of a 40.81% interest in our issued and outstanding share capital in June 2008.
Bank Central Asia Loan Facilities

On August 28, 2007, we obtained a five-year Rp1,600.0 billion unsecured credit facility from Bank Central Asia (BCA) for the repayment of our Syndicated Loan Facility II and the purchase of telecommunications equipment. The loan bears (i) fixed annual interest rates for the first two years (9.75% on the first year and 10.5% on the second year) and (ii) floating interest rates for the remaining years based on the prevailing annual rate of three-month JIBOR plus 1.5% per annum; all interest is payable quarterly. On September 20, 2007, we obtained an additional credit facility of Rp400.0 billion from BCA. As a result, the aggregate principal amount under our credit facility with BCA is Rp2,000.0 billion. The repayment of the loan
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drawdowns will be made annually, as follows: (a) 10.0% of the total loan drawdowns in the first and second years after the first drawdown; (b) 15.0% of the total loan drawdowns in the third and fourth years after the first drawdown; and (c) 50.0% of the total loan drawdowns in the fifth year after the first drawdown. On September 27, October 26 and December 27, 2007, we made the first, second and third loan drawdowns totaling Rp2,000.0 billion. Under the loan agreement, we have agreed to certain covenants, including maintenance covenants, which are similar to the covenants contained in the Indosat Bonds. On September 27, 2008 and September 25, 2009, we paid the first and second semi-annual installment amounting to Rp200.0 billion each. On September 27, 2010, we paid the third annual installment amount to Rp 300.0 billion. On September 17, 2008, we entered into a three-year unsecured credit facility agreement with BCA amounting to Rp500.0 billion for the purchase of, and/or the refinancing of debt incurred to purchase, telecommunications equipment. The loan bears interest at 3-month JIBOR plus 2.25% per annum. The repayment of the loan drawdowns will be made annually, as follows: (a) 20% of the total loan drawdowns in the first year, (b) 30% of the total loan drawdowns in the second year, and (c) 50% of the total loan drawdowns in the third year. On March 16, 2009, we made the loan drawdown amounting to Rp500.0 billion. Voluntary early repayment (in whole or for any part of the loan) is permitted with a penalty of 1% of the prepaid amount. Based on the loan agreement, we are required to comply with certain covenants, such as maintaining certain financial ratios. On March 16, 2010, we paid the first annual installment amounting to Rp100.0 billion. Voluntary early repayment (whole or any part of the loan) is permitted with a penalty of 1% of the prepaid amount. On October 19, 2010, we made an early repayment of this credit facility amounting to Rp400.0 billion. On February 12, 2009, we amended our five-year and three-year BCA credit facility agreements, based on the consent letter received on February 6, 2009, to change the definitions of EBITDA, to insert definitions for Debt, Equity, and Group and to change the ratio of Debt to Equity from 1.75 to 1 to 2.5 to 1 in the loan agreement governing this loan facility. On June 8, 2009, we entered into a five-year unsecured credit facility agreement with BCA amounting to Rp1,000.0 billion for the procurement of, and/or the refinancing of debt incurred to purchase, telecommunications equipment. The loan bears interest at 3-month JIBOR plus 4.00% per annum. The repayment of the loan drawdowns will be made annually, as follows: (a) 10% of the total loan drawdowns in the first and second years, (b) 15% of the total loan drawdowns in the third and fourth years, and (c) 50% of the total loan drawdowns in the fifth year. On June 25, 2009, we made the loan drawdown amounting to Rp1,000.0 billion. On June 25, 2010, we paid the first annual installment amounting to Rp100.0 billion. Voluntary early repayment (in whole or for any part of the loan) is permitted, subject to a 1% penalty of the prepaid amount, except for prepayment to refinance this credit facility. Based on the loan agreement, we are required to comply with certain covenants, such as maintaining certain financial ratios. On April 28, 2010, we received a letter from BCA regarding the change of interest rate from 3-month JIBOR plus 4.00% per annum to 3-month JIBOR plus 2.25% per annum, effective on June 25, 2010. On October 19, 2010, we made an early repayment of this credit facility amounting to Rp900.0 billion. On February 10, 2011, the Company entered into a Time Loan Revolving facility agreement with BCA covering a maximum amount of Rp1,000.0 billion to fund the Companys capital expenditure and/or for general corporate purposes. This facility will be available from February 10, 2011 to February 10, 2014 and drawdowns bear interest at 1-month JIBOR plus 1.4% per annum. We have not drawn on this facility as of April 20, 2011.
Bank Mandiri Loan Facilities

On September 18, 2007, we obtained a five-year unsecured credit facility from Bank Mandiri amounting to Rp2,000.0 billion for the purchase of telecommunications equipment. The loan bears interest at (i) fixed annual rates for the first two years (9.75% on the first year and 10.5% on the second year), and (ii) floating rates for the remaining years based on the prevailing annual rate of three-month JIBOR plus 1.5% per annum; all interest is payable quarterly. The repayment of the loan drawdowns will be made annually, as follows: (a) 10.0% of the total loan drawdowns in the first and second years after the first drawdown; (b) 15.0% of the total loan drawdowns in the third and fourth years after the first drawdown; and (c) 50.0% of the total loan drawdowns in the fifth year after the signing date of the agreement. On September 27 and December 27,
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2007, we made the first and second loan drawdowns totaling Rp2,000.0 billion. Based on the loan agreement, we have agreed to certain covenants, including maintaining certain financial ratios. On September 27, 2008 and September 25, 2009, we paid the first and second semi-annual installment amounting to Rp200.0 billion each. On March 23, 2009, we entered into an agreement with Bank Mandiri to amend the definitions of EBITDA, to insert new definitions for Debt, Equity, and Group and to change the ratio of Debt to Equity in the loan agreement governing this loan facility. On September 27, 2010, we paid the third annual installment amounting to Rp300.0 billion under this facility. On July 28, 2009, we entered into a five-year unsecured credit facility agreement with Mandiri amounting to Rp1,000.0 billion for general corporate purposes. The loan bears interest at an average rate of 3-month JIBOR plus 4.00% per annum. On July 31, 2009, the Company drew down Rp1,000.0 billion from this credit facility. The repayment of the loan drawdowns will be made annually, as follows: (a) 10% of the total loan drawdowns in the first and second years from the first drawdown, (b) 15% of the total loan drawdowns in the third and fourth years from the first drawdown, and (c) 50% of the total loan drawdowns in the fifth year after the signing of the agreement. Voluntary early repayment (in whole or for any part of the loan) is permitted, subject to a 2% penalty of the prepaid amount. Based on the loan agreement, we are required to comply with certain covenants, such as maintaining certain financial ratios. On May 20, 2010, we received a letter from Mandiri regarding the change of interest rate from average 3-month JIBOR plus 4.00% per annum to average 3-month JIBOR plus 2.25% per annum, effective on May 31, 2010. On July 30, 2010, we paid the first annual installment amounting to Rp100.0 billion. On November 15, 2010, we made an early repayment of this credit facility amounting to Rp900.0 billion.
Bank DBS Indonesia Loan Facility

On November 1, 2007, we obtained a five-year credit facility from Bank DBS Indonesia for Rp500.0 billion for the purchase of telecommunications equipment. The loan bears interest at (i) fixed annual rates for the first two years (9.7% on the first year and 10.4% on the second year), and (ii) floating rates for the remaining years based on the prevailing annual interest rate of three-month certificates of Bank Indonesia plus 1.5% per annum; all interest is payable quarterly. The repayment of the loan drawdowns will be made annually, as follows: (a) 10.0% of the total loan drawdowns in the first and second years after the first drawdown; (b) 15.0% of the total loan drawdowns in the third and fourth years after the first drawdown; and (c) 50.0% of the total loan drawdowns in the fifth year after the first drawdown. Based on the loan agreement, we have agreed to certain covenants, including maintaining certain financial ratios. On January 31, 2008, we drew down Rp500.0 billion from the facility. On March 25, 2009, we entered into an agreement with Bank DBS Indonesia to insert new definitions for Debt, EBITDA, Equity, and Group and to change the ratio of Debt to Equity in the loan agreement governing this loan facility. On January 30, 2009, we paid the first annual installment amounting to Rp50.0 billion, On March 25, 2009, the Company amended the credit facility agreement based on the consent letter received on February 27, 2009. The amendment included changes in the definition of certain terms and the financial ratios required to be maintained. On February 1, 2010, we paid the second annual installment amounting to Rp50.0 billion. On October 30, 2010, we made an early repayment of this credit facility amounting to Rp400.0 billion.
HSBC
On November 27, 2007, we signed two unsecured facility agreements with HSBC France and one unsecured facility agreement with The Hongkong and Shanghai Banking Corporation Limited, Jakarta Branch (HSBC Jakarta) to finance our new telecommunications satellite. These combined export credit and commercial financing facilities consist of the following: a 12-year term facility agreement amounting to US$157.2 million to finance the payment of 85.0% of the French Content under the Palapa-D satellite contract, plus 100% of the COFACE Premium, as such terms are defined in the facility agreement. The loan bears fixed annual interest at a fixed rate of 5.69% per annum, which is payable semiannually. On March 29, 2010, September 29, 2010, and March 29, 2011, we paid the first, second and third semi-annual installments amounting to US$7.9 million each; a 12-year term facility agreement amounting to US$44.2 million to finance the payment of 85.0% of the amounts payable under the Launch Service Contract (as defined in the term facility agreement) with respect to our Palapa D Satellite. The loan bears floating interest rate based on U.S. dollars at LIBOR plus 0.35% per annum, which is payable semi-annually. On March 29, 2010, September 29, 2010 and March 29, 2011, we paid the first, second and third semiannual installments amounting to US$2.2 million each; and
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a nine-year Commercial Facility Agreement amounting to US$27.0 million to finance the construction and launch of the satellite and the payment of the premium associated with the medium-long term buyer credit insurance policy issued in connection with the Sinosure Facility. The loan bears floating interest rate based on U.S. dollars at LIBOR plus 1.45% per annum, which is payable semi-annually. On November 27, 2009 we paid the first semi-annual installment amounting to US$1.4 million. On May 27 and November 29, 2010, we paid the second and third semi-annual installments, respectively, amounting to US$1.4 million each. The facilities contain certain financial covenants. On March 18, 2009, we entered into agreements with HSBC France and HSBC Jakarta to amend the definitions of Debt, EBITDA, and Equity and the ratio of Debt to Equity in our COFACE Term Facility Agreement, Sinosure Term Facility Agreement and Commercial Facility Agreement, as applicable. According to the agreement, we are required to maintain: (i) equity capital in excess of Rp5,000.0 billion, (ii) a debt to equity ratio not to exceed 2.5:1, (iii) an EBITDA to interest ratio not to be less than 2.5:1, and (iv) a Debt to EBITDA ratio not to exceed 3.5:1. In addition, on December 4, 2009, we entered into a Corporate Facility Agreement with HSBC to finance short term working capital needs. The facility consists of a combined limit in the amount of US$30.0 million and a revolving loan in the amount of US$30.0 million. We have not drawn on this facility as of December 31, 2010.
ING/DBS Syndicated Loan Facility

On June 12, 2008, we entered into a US$450.0 million syndicated loan facility with 13 banks and financial institutions, with ING Bank N.V., Singapore Branch and DBS Bank Ltd. serving as arrangers. The amount of interest to be paid on the outstanding amount of the loan will be the aggregate of (i) the applicable margin of 1.85% per annum for non-Indonesian lenders or 1.90% per annum for lenders resident in Indonesia and (ii) LIBOR. The repayment of the loan drawdowns will be made in semi-annual installments commencing June 12, 2011. On February 24, 2009, we entered into an agreement with the majority lenders to amend the definitions of Debt, EBITDA, and Equity and the ratio of Debt to Equity in our ING/DBS Syndicated Loan Facility. Pursuant to the terms of the ING/DBS Syndicated Loan Facility agreement, as amended by the deed of amendment, we have agreed to certain covenants, including but not limited to the following maintenance covenants: a ratio of total debt to EBITDA of less than 3.5 to 1; a total debt to equity ratio of 2.5 to 1; and a ratio of EBITDA to interest expense, as reported as at the end of each financial year and as at the end of each of first three quarters of our financial year, of at least 2.5 to 1. The repayment of the loan drawdowns will be made semi-annually, as follows: (a)25% of the total loan drawdowns in the third year after the signing date of the agreement (first repayment date), (b) 24% of the total loan drawdowns on the sixth month after the first repayment date, (c) 8% each of the total loan drawdowns on the 12th and 18th months after the first repayment date, and (d) 35% of the total loan drawdowns on the 24th month after the first repayment date. On September 26 and October 30, 2008, the Company received the first and second drawdowns from this credit facility totaling US$450.0 million. As of December 31, 2010, the outstanding balance owed on this facility totaled US$450.0 million.
AB Svensk Exportkredit (SEK) Loan Facility Guaranteed by Export Kredit Namnden (EKN)
On August 18, 2009, we obtained credit facilities from SEK, guaranteed by EKN, an export credit agency of the Kingdom of Sweden, for the maximum total amount of US$315,000,000 to be used for the purchase of Ericsson telecommunication equipment, with The Hongkong and Shanghai Banking Corporation Limited (HSBC), Hong Kong and The Royal Bank of Scotland N.V. (formerly known as ABN AMRO Bank N.V.), Hong Kong Branch as the original lenders and arrangers, while HSBC Bank PLC, London, United Kingdom acted as the facility agent and EKN agent. On September 2, 2009, the original lenders transferred such rights and obligations to SEK, pursuant to the terms of the agreement. The credit facilities consist of facilities A, B and C with maximum amounts of US$100.0 million, US$155.0 million and US$60.0 million, respectively. Facility A bears interest at LIBOR plus 0.25% per annum, together with SEK funding costs and
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an EKN premium margin. Facility B and Facility C bear interest at 0.05% per annum plus 2.60% per annum plus the EKN Premium Margin. The repayment of each of facilities A, B and C shall be made in fourteen installments starting six months after May 31, 2009, February 28, 2010 and November 30, 2010, respectively. Based on the agreement, we are required to comply with certain covenants, such as maintaining certain financial ratios, which are substantially the same as the covenants under the ING/DBS Syndicated Loan Facility. In addition, we are required to maintain a minimum consolidated equity of at least Rp5,000.0 billion. As of March 31, 2011, we have already drawn US$100.0 million, US$155.0 million and US$60.0 from facilities A, B and C, respectively. On November 30, 2009, May 27, 2010 and November 30, 2010, the Company paid the first, second and third semi-annual installments, respectively, for Facility A amounting to US$7.1 million each. On August 28, 2010 and February 28, 2011, the Company paid the first and second semi-annual installment for Facility B amounting to US$11.1 million each.
Lintasarta
Lintasartas long-term debt comprises of certain investment credit facilities from CIMB Niaga Tbk, formerly PT Bank Niaga Tbk and unsecured limited bonds. As of December 31, 2010, the investment credit facility from CIMB Niaga totaled Rp94.9 billion, and the outstanding bonds totaled Rp42.0 billion. Investment Credit Facility V. On July 10, 2007, Lintasarta obtained a credit facility from CIMB Niaga amounting to Rp50.0 billion for the purchase of telecommunications equipment, computers and other supporting facilities. The loan bears interest at the prevailing annual rate for one-month certificates of Bank Indonesia plus 2.25% per annum. We commenced quarterly repayment of the principal on October 10, 2008 in the amount of Rp5.0 billion. Such repayments are payable each quarter until January 10, 2011. Investment Credit Facility VI. On February 24, 2009, Lintasarta obtained a credit facility from CIMB Niaga amounting to Rp75.0 billion for the purchase of telecommunications equipment, computers and other supporting facilities. The loan bears interest at the annual rate of 14.5%, subject to change by CIMB Niaga based on the market condition. We commenced quarterly repayments of the principal on May 24, 2010 in the amount of Rp7.5 billion. Such repayments are payable each quarter until August 24, 2012. As of December 31, 2010, Lintasarta has fully drawn this credit facility. Limited Bonds I. On June 2, 2003, Lintasarta agreed with its stockholders to issue limited bonds to stockholders totaling Rp40.0 billion, including our portion of Rp9.6 billion. Such limited bonds are unsecured and had an initial maturity date of June 2, 2006. The bonds bear interest at the fixed rate of 16.0% per annum for the first year and floating interest rates for the following years based on the average three-month time deposit rates of PT Bank Mandiri (Persero) Tbk, PT Bank Negara Indonesia (Persero) Tbk, PT Bank Rakyat Indonesia (Persero) Tbk and PT Bank Tabungan Negara (Persero) plus a 3.0% margin, with a maximum rate of 19.0% per annum and a minimum rate of 11.0% per annum. Interest is payable quarterly from September 2, 2003. On June 14, 2006, Lintasarta agreed with the holders to extend the maturity date from June 2, 2006 to June 2, 2009 and the nominal value of the limited bonds became Rp34.9 billion, including our portion of Rp9.6 billion. On June 2, 2009, Lintasarta repaid a portion of the limited bonds amounting to Rp8,303 million. On August 25, 2009, the agreement governing the Limited Bonds I was amended to amend the face value of the bonds to become Rp26.6 billion, extend the maturity date to June 2, 2012 and to amend the floating interest rate to be based on JIBOR + 4%, not to exceed 19%, with a minimum floating interest rate of 12.75%. Limited Bonds II. On June 14, 2006, Lintasarta entered into an agreement with its stockholders for the former to issue Limited Bonds II amounting to Rp66.2 billion. The limited bonds represent unsecured bonds which were originally set to mature on June 14, 2009 and bore interest at the floating rates determined using the average 3 month rupiah time deposit rates with PT Bank Mandiri (Persero) Tbk, PT Bank Negara Indonesia (Persero) Tbk, PT Bank Rakyat Indonesia (Persero) Tbk and PT Bank Tabungan Negara (Persero) plus a fixed premium of 3.0%. The maximum limit of the floating rates was 19.0% per annum and the minimum limit was 11.0% per annum. The interest is payable on a quarterly basis starting September 14, 2006. The proceeds of the limited bonds were used for capital expenditure to expand Lintasartas telecommunications peripherals.
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On July 17, 2006, Lintasarta obtained approval from CIMB Niaga on the issuance of the limited bonds. On June 14, 2009, Lintasarta paid a portion of the Limited Bonds amounting to Rp6.2 billion. Based on the Minutes of the Joint Meeting of Lintasartas Boards of Commissioners and Directors held on May 20, 2009, the representatives of Lintasartas stockholders agreed to extend the maturity date of the remaining Limited Bonds II of Rp60.0 billion to June 14, 2012 and to increase the minimum limit of the floating interest rates 12.75%. On August 25, 2009, the Limited Bonds II agreement, after being amended to accommodate the changes in maturity date and minimum limit of floating interest rates, was finalized.
Dividend Practice
Capital Resources
We believe that our cash flow from operations and drawings from our existing credit facilities will provide sufficient financing for our anticipated capital expenditures, anticipated debt repayment and interest obligations and other operating needs under our current business plan. However, we face liquidity risks if certain events occur, including but not limited to, slower than expected growth in the Indonesian economy, downgrading of our debt ratings or deterioration of our financial performance or financial ratios. In the event we cannot finance our planned capital expenditures with internally generated cash flows, we may seek other external sources of funding. Our ability to raise additional debt financing will be subject to certain covenants in our existing indebtedness. We cannot assure you that we will be able to obtain suitable financing arrangements (including vendor or other third-party financing) for our planned capital expenditures. In the event that we are unable to find such additional external funding sources, we may elect to reduce our planned capital expenditures. Such reduction in capital expenditures may have an adverse effect on our operating performance and our financial condition.
Capital Expenditures
Historical Capital Expenditures From January 1, 2008 through December 31, 2010, we had capital expenditures totaling Rp29,441.4 billion (US$2,972.9 million). With these funds, we primarily purchased equipment and services from foreign suppliers in connection with the development of our cellular network. We had capital expenditures of Rp5,515.0 billion (US$613.4 million) during the year ended December 31, 2010, with such investment predominantly focused on expansion of our cellular coverage through the addition of 1,755 base transceiver stations. Capital Expenditures for 2011 Under our capital expenditure program for our various businesses, our planned capital expenditures are less than the amounts spent in each of 2008 and 2009 but slightly more than 2010, as instead focus on optimizing and enhancing the capacity and quality of our existing cellular, fixed and MIDI network and telecommunications infrastructure. For the years ended December 31, 2008, 2009 and 2010, our actual consolidated capital expenditures totaled Rp12,341.9 billion, Rp11,584.5 billion and Rp5,515.0 billion (US$613.4 million), respectively. During 2011, we intend to allocate US$794.5 million for new capital expenditures, which, taken together with estimated actual capital expenditures expended for 2011 for capital expenditure commitments in prior periods, will result in approximately US$1,053.8 million total actual capital expenditures for 2011. We intend to allocate our capital expenditures for 2011 as follows: Cellular network investment: We plan to apply a large majority of our capital expenditures to finance the continued enhancement and expansion of the capacity and coverage of our cellular network.
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Other investment: We plan to invest the remainder of our capital expenditures budget in non-cellular network areas, including the fixed-access network, as we increase network access for our corporate customers and continue to provide them with voice, long-distance and MIDI services and make improvements to our backbone. The foregoing amounts represent our budgeted investment plans; actual expenditures on a cash basis will vary depending on several factors, including the method of financing and timing of completion of delivery of equipment and services purchased. Historically, expenditure on a cash basis trails budgeted expense by approximately at least 20.0% of our budget. The foregoing capital expenditure plan is based on our understanding of current market and regulatory conditions and we may amend our plans in response to changes in such conditions. In particular, depending on the regulatory framework for other wireless services, we may decide to increase our investment in fixed wireless access networks and services, either through increased capital expenditures, reallocation of our existing planned expenditures, through revenue-sharing schemes or a combination of the foregoing. Revenue-sharing schemes would include partnerships with private investors under which such investors would finance construction of a project in exchange for revenues from the project, similar to a build-operatetransfer structure.
Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with IFRS. References to IFRS include the application of International Financial Reporting Standards, International Accounting Standards (IAS), Interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and its predecessor the former Standards Interpretation Committee (SIC). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the 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. Management bases its estimates and assumptions on historical experience and other factors that are believed to be reasonable under the circumstances. We continually evaluate such estimates and assumptions. Actual results could differ from those estimates under different assumptions or actual conditions. We believe that, of our significant accounting policies, the following may involve a higher degree of judgment or complexity. Goodwill and Other Intangible Assets The consolidated financial statements and results of operations reflect acquired businesses after the completion of the respective acquisition. We account for the acquired businesses using the purchase method of accounting which requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair market values of the acquirees identifiable assets and liabilities at the acquisition date. Any excess in the purchase price over the estimated fair market values of the net assets acquired is recorded as goodwill in the consolidated statements of financial position. These business acquisitions have resulted in goodwill and intangible assets, which are subject to periodic impairment test and amortization, respectively. Thus, the numerous judgments made in estimating the fair market value to be assigned to the acquirees assets and liabilities can materially affect our financial performance. Estimated Useful Lives and Impairment of Property and Equipment We estimate the useful lives of our property and equipment and intangible assets based on expected asset utilization as anchored on business plans and strategies that also consider expected future technological developments and market behavior. The estimation of the useful lives of property and equipment is based on our collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives are reviewed at least each financial year-end and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limitations on the use of the assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in the factors mentioned above.
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The amounts and timing of recorded expenses for any period will be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the our property and equipment will increase the recorded operating expenses and decrease non-current assets. Estimation of Pension Cost and Other Employee Benefits The determination of our obligation and cost for pension and other employee benefits is dependent on the selection of certain assumptions used by actuary in calculating such amounts. Those assumptions include, among other things, discount rates, expected returns on plan assets and rates of compensation increases. Actual results that differ from our assumptions are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceed 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. While we believe that their assumptions are reasonable and appropriate, significant differences in our actual experience or significant changes in their assumptions may materially affect the costs and obligations of pension and other employee benefits. Realizability of Deferred Income Tax Assets We review the carrying amounts of deferred income tax assets at the end of each reporting period and reduce these to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. Our assessment on the recognition of deferred income tax assets on deductible temporary differences is based on the level and timing of forecasted taxable income of the subsequent reporting periods. This forecast is based on our past results and future expectations on revenues and expenses as well as future tax planning strategies. Estimating Allowance for Impairment Losses on Receivables We estimate the allowance for impairment losses related to their trade receivables that are specifically identified as doubtful for collection. The level of allowance is evaluated by management on the basis of factors that affect the collectability of the accounts. In these cases, we use judgment based on the best available facts and circumstances, including but not limited to, the length of our relationship with the customers and the customers credit status based on third-party credit reports and known market factors, to record specific reserves for customers against amounts due in order to reduce our receivables to amounts that they expect to collect. These specific reserves are re-evaluated and adjusted as additional information received affect the amounts estimated. In addition to specific allowance against individually significant receivables, we also assess a collective impairment allowance against credit exposure of their customers which are grouped based on common credit characteristic, which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when the receivables were originally granted to customers. This collective allowance is based on historical loss experience using various factors such as historical performance of the customers within the collective group, deterioration in the markets in which the customers operate, and identified structural weaknesses or deterioration in the cash flows of customers. Determination of Fair Values of Financial Assets and Financial Liabilities We carry certain financial assets and liabilities at fair values, which require extensive use of accounting estimates and judgments for the fair values of financial assets and liabilities. While significant components of fair value measurement are determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates and volatility rates), the amount of changes in fair value will differ if we utilize a different valuation methodology. Any change in fair value of these financial assets will directly affect our consolidated statements of financial position, statements of comprehensive income and or consolidated statements of changes in equity.
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New Accounting Standards and Interpretations to Existing Standards Effective Subsequent to December 31, 2011 Please see Note 2Summary of Significant Accounting Policies to the accompanying consolidated financial statements in Item 19 for a discussion of new accounting standards that will become effective subsequent to December 31, 2010 and their anticipated impact on our consolidated financial statements for the current and future periods.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

For the three years ended December 31, 2008, 2009 and 2010, we did not conduct significant research and development activities.
D. TREND INFORMATION
Please refer to the introductory discussion to Operating and Financial Review and ProspectsOperating Results above for a detailed discussion of significant trends impacting our operating results and financial condition. See also Item 3: Key InformationRisk Factors for more information regarding why reported financial information may not necessarily be indicative of future operating results. In January 2011, the Company introduced an organizational restructuring which forms part of our transformation program that began in 2009 to increase the Companys productivity and improve our longer-term operating results. The Company is offering special compensation packages to employees who meet certain criteria as determined by the Company and who opt to end their employment relationship with the Company as part of such organizational restructuring under the VSS Program. IAS 37 on the Provisions, Contingent Liabilities and Contingent Assets requires us to disclose the total number of employees who participate in the program and the compensation paid; however, we have not disclosed this information in this annual report as it could lead to a precipitate presumption on the outcome of the program since the Company is still currently offering the program to its employees.
E. OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2010, we had no off-balance sheet arrangements that were reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

As of December 31, 2010, we had contractual obligations in the amount of US$1,635.3 million in US$ denominated contracts and Rp12,133.9 billion in Indonesian rupiah-denominated contracts. The US$ denominated contractual obligations require payments totaling US$373.6 million in 2011, US$365.5 million from 2012 to 2013 and US$121.2 million from 2014 to 2015 and US$775.0 million from 2016 and thereafter. The Indonesian rupiah-denominated contractual obligations require payments totaling Rp2,304.1 billion in 2011, Rp3,918.0 billion from 2012 to 2013, Rp2,678.0 billion from 2014 to 2015 and Rp3,233.8 billion from 2016 and thereafter.
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Payments due by the period December 31, Total Rp

Contractual obligations: Loans payable(1) Bonds payable(1) Purchase obligations Other non-current liabilities and other non-current financial liabilities Total contractual cash obligations
(1)
2011 US$ Rp
2012-2013
2014-2015 US$
US$ Rp US$ Rp (Rp in billions, US$ in millions)

283.6 90.0 2,456.8 1,372.0 89.2 356.8 8.7 2,678.0
2016 and thereafter Rp US$
3,091.7 7,492.0 569.2 981.0
886.6 650.0 90.0 8.7
634.9 1,100.0 569.2
121.2
2,342.0 891.8
125.0 650.0
12,133.9
1,635.3
2,304.1
373.6
3,918.0
365.5
2,678.0
121.2
3,233.8
775.0
These amounts exclude the related contractual interest obligations and have been calculated under the assumption that the options related to any loans and bonds payable are not exercised.
Item 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Directors and Senior Management
In accordance with Indonesian law, we have a Board of Commissioners and a Board of Directors. The two boards are separate, and no individual may be a member of both boards. Board of Commissioners Our Board of Commissioners consists of ten members, one of whom is designated the President Commissioner. The members of the Board of Commissioners are elected and dismissed by shareholders resolutions at a general meeting of shareholders, provided that one member of the Board of Commissioners shall be nominated by the holder of the one Series A share. In accordance with regulations of the Indonesian Capital Market and Financial Institution Supervisory Agency, or BAPEPAM-LK, and Indonesia Stock Exchange rules, four commissioners have been designated as Independent Commissioners: George Thia Peng Heok, Alexander Rusli, Soeprapto S.IP and Chris Kanter. As of April 20, 2011, our Board of Commissioners consisted of ten members as listed below: Name
Abdulla Mohammed S.A. Al Thani Dr. Nasser Mohammed Marafih Parikesit Suprapto Richard Farnsworth Seney Rachmat Gobel Rionald Silaban George Thia Peng Heok Alexander Rusli Soeprapto S.IP Chris Kanter
Age
51 50 59 56 48 45 62 40 64 58
Commissioner Since
2008 2008 2011 2009 2008 2008 2008 2010 2005 2010
Position
President Commissioner Commissioner Commissioner Commissioner Commissioner Commissioner Independent Commissioner Independent Commissioner Independent Commissioner Independent Commissioner
Set forth below is a short biography of each of our Commissioners. Sheikh Abdulla Mohammed S.A Al Thani has been the President Commissioner since August 2008. Sheikh Abdulla is currently the Chairman of the Board of Directors of Qtel. In his capacity as Chairman, he has helped enhance Qtels corporate governance system to ensure Qtel is directed and controlled in line with international practices, thereby reinforcing both corporate accountability and the sustained creation of shareholder whealth. Sheikh Abdulla has also overseen the
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restructuring and regional expansion of Qtel. After Qtels acquisition of Kuwait-based Wataniya, in what was considered at that time to be the largest telecommunications deal in the Arab world, Sheikh Abdulla was appointed Chairman of Wataniya. Sheikh Abdulla previously held several high profile positions in Qatar including Chief of the Royal Court (Amiri Diwan) from 2000 to 2005. He also served as a member of the Qatari Planning Council from 2001 to 2004. A certified pilot instructor by way of the British Royal Air Force, Sheikh Abdulla has an extensive background in both the military and in aviation. He completed his studies at the Senior Army War College, Carlisle Barracks in the United States of America. Dr. Nasser Mohammed Marafih has been a Commissioner at Indosat since August 2008 and is the Chairman of the Remuneration and Budget Committee. He began his career at Qatar Telecom (Qtel) in 1992 as an expert advisor from the University of Qatar and was subsequently appointed in 1994 as the Director of Strategic Planning and Development and finally to his current role as Chief Executive Officer in 2002. In this capacity, Dr Marafih has participated in a number of highlevel government committees and is a member of the Board of Directors of a number of Qtel subsidiaries. He also sits on the Board of Directors of the GSM Association. Dr. Marafih helped guide Qtel through its transformation into a global company and he played a key role in Qtels major acquisition. Dr. Marafih served as a lecturer and assistant professor in the Electrical Engineering Department of the University of Qatar. Dr. Marafih holds a Bachelor of Science in Electrical engineering, a Master of Science and a Ph.D. in Communication Engineering, all from George Washington University in the United States. has been a member of the Institute of Electrical and Electronics Engineers Inc. for over ten years. Parikesit Suprapto has been a Commissioner since February 2011. He currently serves as Deputy Minister of State-Owned Enterprises for Services but has previously held various positions, including as Deputy Minister of State-Owned Enterprises for Banking and Financial Industry from 2008 to 2010, Expert Advisor on Small Enterprises for the Minister for State-Owned Enterprises from 2006 to 2008, Assistant to the Deputy Minister of State Owned Enterprises in Restructuring and Privatization of Financial and Construction Industry from 2002 to 2005 and Director of the Restructuring and Privatization of the Directorate General State-Owned Enterprise of the Ministry of Finance from 2001 to 2002. Mr. Suprapto received a Bachelors degree in Corporate Economy from Sekolah Tinggi Manajemen Industri, Jakarta in 1980, a Masters Degree in Economic Development from Indiana University in the United States in 1990 and a Doctoral Degree in Economic Development from the University of Notre Dame in the United States in 1995. Richard Farnsworth Seney has been a Commissioner since June 2009. Mr. Seney has served as Chief Operating Officer of Qtel International (QI) from 2007 to the present, President and Chief Executive Officer of MCT Corp. (including predecessors) from 1992 to 2007, Executive Vice President and General Manager of MCT Investors, L.P. from 1987 to 2002, and Executive Vice President and Chief Financial Officer of Charisma Communications Corporation from 1985 to 1992. Mr. Seney received a Bachelor degree in Commerce from the University of Virginia McIntire School of Commerce. Rachmat Gobel has been a Commissioner since August 2008. He currently is the Chairman of the Gobel Group of companies that has operations in manufacturing, trading, services, integrated logistics management as well as food and hospitality, including industrial catering. Gobel Group is the Indonesian joint venture partner of Matsushita Electric Industrial Co., Ltd., a global leader in electronics and electrical goods under the brand name of Panasonic. He also serves as Vice Chairman of the Board of Advisors of the Indonesian Chamber of Commerce and Industry (KADIN), the Vice Chairman of the Employers Association of Indonesia (APINDO), the Chairman of the Federation of Electronic & Telematics Association (F.GABEL) and was appointed as a member of the National Innovation Committee by President Susilo Bambang Yuhoyono. Mr. Gobel graduated with a Bachelor of Science degree in International Trade from Chuo University, Tokyo in 1987 and was awarded an Honorary Doctorate Degree from Takushoku University, Tokyo, Japan in 2002. In 2009, he received the prestigious Distinguished Engineering Award in Manufacturing Technology from the Agency for the Assessment and Application of Technology (BPPT). Mr. Gobel is also actively involved in numerous social activities, including the Indonesian Olympic Committee and the Indonesian Red Cross.
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Rionald Silaban has been a Commissioner since June 2008 and was appointed as a member of the Risk Management Committee in the same year. He currently serves as a Director of the Center for Policy Analysis and Harmonization of the Ministry of Finance in Indonesia. In the past he held several positions including as the Director of Fiscal Risk Management of the Ministry of Finance from 2006 to 2008, Senior Advisor at the World Bank in Washington D.C., U.S. from 2004 to 2006, Division Head in Secretariat General of the Ministry of Finance from 2002 to 2004, Head of the Assets Monitoring Division of the Indonesian Banking Restructuring Agency from 2000 to 2002, Division Head for Financial Service of the Legal Bureau of the Ministry of Finance from 1998 to 2000, Deputy Director for Privatization of Directorate General State-Owned Enterprise of the Ministry of Finance from 1997 to 1998, Head of Section of the Legal Bureau of the Ministry of Finance from 1994 to 1997 and Head of Secretariat for Privatization Committee of Ministry of Finance from 1994 to 1997. Mr. Silaban received a law degree from the University of Indonesia in 1989 and a LL.M. degree from the Georgetown University Law Center, Washington D.C. in the United States, in 1993. George Thia Peng Heok has been an Independent Commissioner and Chairman of the Audit Committee since June 2008. Mr. Thia currently serves as Director/Consultant in Asiainc Private Limited. In the past he has held several positions including as Consultant/Director, Strategic Advisory Private Limited from 2003 to 2006, Executive Chairman, MediaStream Limited from 1999 to 2003, Director/Consultant, Phoenix Capital Private Limited from 1995 to 1998, Executive Chairman, Asia Matrix Limited from 1993 to 1995, Managing Director, Lum Chang Securities Private Limited from 1991 to 1993, Managing Director, Sun Hung Kai Securities Private Limited from 1989 to 1991, Managing Director, Merrill Lynch International Bank Limited from 1987 to 1989, Executive Director/Partner, Kay Hian Private Limited from 1985 to 1987 and Managing Director, Morgan Grenfell (Asia) Limited from 1975 to 1985. Mr. Thia is a Certified Public Accountant and a Fellow Member of both the Chartered Association of Certified Accountants (United Kingdom) and the Singapore Institute of Directors. Alexander Rusli has been an Independent Commissioner since January 2010 and currently serves as member of our Remuneration Committee. Mr. Rusli currently is a commissioner of PT Krakatau Steel (Persero), the 100% state-owned company that produces carbon-steel products. He was formerly Expert Advisor to the Minister for State-Owned Enterprises, with oversight of 140 State-owned enterprises and more than 500 subsidiaries. Prior to such time, he was an Expert Advisor to the Minister of Communications and Information Technology, where he was involved in the formulation of policy and regulation and in overseeing the national state ICT infrastructure projects, a position he held under two cabinet ministers. Mr. Rusli has also acted as a Principal Consultant for Pricewaterhouse Coopers. He holds a Doctor of Philosophy, Information Systems, Curtin University of Technology, Australia. Soeprapto S.IP has been an Independent Commissioner and a member of the Audit Committee since June 2005. In the past, Mr. Soeprapto has held several positions, including as Assistant Personnel to the Army Chief of Staff of the Republic of Indonesia from 2000 to 2001, and currently serves as Commissioner of PT Sawit Kaltim Lestari from 2010. Mr. Soeprapto earned a degree in Political Science from the Terbuka University, Jakarta and participant of the Regular Course (KRA 29) in 1996 at the Indonesian National Resiliance Institute (LEMHANAS). Chris Kanter has been Independent Commissioner since January 2010. Mr. Kanter currently serves as Chairman and Founder of Sigma Sembada Group, a major turnkey contractor with transportation and logistics arms. He had been Vice President for Investment, Telecommunication, Information-Technology, Transportation and Tourism of the Indonesian Chamber of Commerce and Industry (KADIN Indonesia) from 1994 to 2010. He has recently been reappointed for a further five year term to 2015 as Vice Chairman Board Advisor. He has also recently appointed as Vice Chairman of APINDO (Indonesia Employer Association) and Chairman of the Board of Founders of the Swiss German University. Mr. Kanter has also held a number of roles in the Indonesian Government and has been closely involved with The Policy Package for Improving Investment Climate in Indonesia and also served as member of the Consultative Congress (MPR) of the Republic of Indonesia from 1998 to 2002 and recently appointed by the President of the Republic of Indonesia as member of the National Economic Council (KEN) reporting directly to the President. Mr. Kanter is a graduate of the Faculty of Engineering, Trisakti University, Indonesia.
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The term of each of the Commissioners concludes at the close of the fourth annual general meeting of shareholders after the date of appointment, expiring in 2012 for the current Commissioners. A Commissioner may be removed prior to the expiration of his term of office at a general meeting of the shareholders. The Commissioners business address is Jalan Medan Merdeka Barat 21, Jakarta, 10110, Republic of Indonesia. Board of Directors Our Board of Directors is responsible for our overall management and day-to-day operations under the supervision of the Board of Commissioners. The Board of Directors consists of at least three members, including one President Director. The members of the Board of Directors are elected and dismissed by shareholders resolutions at a general meeting of shareholders, provided that one member of the Board of Directors shall be nominated by the holder of the one Series A share. As of April 20, 2011, our Board of Directors consisted of five members as listed below:
Name Harry Sasongko Tirtotjondro Fadzri Sentosa Peter Wladyslaw Kuncewicz Stephen Edward Hobbs* Hans Christiaan Moritz* Laszlo Imre Barta Age 51 47 57 60 57 42 Director Since 2009 2007 2009 2009 2011 2010 Position President Director & Chief Executive Officer Director & Chief Wholesale and Infrastructure Officer Director & Chief Financial Officer Director & Chief Technology Officer Director & Chief Technology Officer Director & Chief Commercial Officer
Pursuant to the Extraordinary General Meeting of Shareholders convened on February 8, 2011, the Shareholders have discharged Stephen Edward Hobbs as of April 30, 2011 and appointed Hans Christiaan Moritz as his replacement beginning on May 1, 2011.
Set forth below is a short biography of each of our Directors: Harry Sasongko Tirtotjondro has been the President Director and Chief Executive Officer since August 2009. Mr. Sasongko has previously held the positions of President Director and Chief Executive Officer of GE Consumer Finance from 2005 to 2009, where he was recognized as one of Indonesias top 10 best CEOs in 2008 by the SWA Magazine & Synovate awards. From 1998 to 2005, he was a member of the Lippo Group, where he served as Managing Director of the Matahari Retail & Lippo Bank. He was formerly the Managing Director of the Consumer Banking of PT Bank Tiara Asia from 1995 to 1998, and was Director of PT Citicorp Finance and Citibank, N.A. in 1998. Mr. Sasongko earned a Bachelor in Civil Engineering degree from Bandung Institute of Technology Indonesia, a Master of Science degree from the Ohio State University in the United States, and is a Chartered Financial Consultant (ChFC), obtained from the Singapore College of Insurance / American College in the United States. Fadzri Sentosa has been a Director since June 2007 and a Director and Chief Wholesale and Infrastructure Officer since June 2009. Currently, Mr. Sentosa is a member of the Board of Commissioners of PT Aplikanusa Lintasarta. Mr. Sentosa has previously held various positions with us, including as member of the Board of Commissioners of PT Indosat Mega Media from 2005 to 2009, Group Head of National Card and Channel Management from 2006 to 2007, Senior Vice President of Commerce, Jabotabek Region from 2005 to 2006 and Senior Vice President of Cellular Sales from 2003 to 2004, member of the Board of Directors of Satelindo in 2003 and a member of the Board of Director of IM3 from 2002 to 2003. Mr. Sentosa received a Master degree in International Business Management from the University of Technology, Sydney in 2001 and a Bachelor degree in Telecommunications Engineering from the Bandung Institute of Technology in 1986. Peter Wladyslaw Kuncewicz has been a Director and Chief Financial Officer since September 2009. Mr. Kuncewicz has 30 years experience in finance across multiple international markets, 10 of them in the telecommunications sector. From 2006 to 2009, Mr. Kuncewicz was the Chief Financial Officer of Telenor Pakistan, the No. 2 player in an active market of five players in Pakistan. From 1998 to 2006, he was the Chief Financial Officer of Star Foods SA, an FMCG Company, and from 1996 to
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1997, he was the Finance Director at United Biscuits Poland. He also worked in finance procurement and IT roles at Batelco, Bahrain from 1996 to 1998. He received a Bachelor degree in Biology from the University of Sussex, England, and a Master of Science degree in Business Planning and Finance from University of Salford, England. He is also a member of the Chartered Institute of Management Accountants of the United Kingdom. Hans Christiaan Moritz was appointed as Director and Chief Technology Officer in February 2011 and assume his duties as of May 1, 2011. Mr. Moritz has 22 years experience in the Mobile Telecom industry and has previously held various positions, including Head Corporate Project Officer at Vodafone India from 2009 to 2011, Group Operations Director Africa/Chief Technology Officer at Zain from 2006 to 2009, Chief Technology Officer at Zain Uganda from 2004 to 2006, Chief Operating Officer at KPN Internet, from 2003 to 2004, General Manager of the Business Unit Broadband Network at KPN Telecom from 2001 to 2003, Chief Operating Officer at BASE and from 1998 to 2000, Operations Director Asia (based in Indonesia) at KPN Asia from 1994 to 1997. Mr. Moritz received a Master degree in Mathematics in 1986 and various Bachelor degrees, i.e Electronics in 1978, Feedback and Control Systems in 1984 and Water Management in 1984. Laszlo Imre Barta has been a Director and Chief Commercial Officer since May 1, 2010. He was formerly the Deputy Chief Marketing Officer of Grameenphone in Bangladesh. He spent more than four years at Grameenphone in Bangladesh, during which time he developed and led the rollout of the business market strategy, established and led the SME department, and served as Sales Director. Prior to being seconded to Grameenphone by the Telenor Group, Mr. Barta was at Pannon GSM in Hungary, where he headed the Corporate Clients department. Before Pannon, Mr. Barta was with Ericsson Hungary where he led the sale of handsets and accessories to local Hungarian mobile operators. He joined Ericsson from Philip Morris, where he started his career in Sales. Mr. Barta received a Postgraduate Award in Management Studies from the Szamalk Open Business School, Budapest in 2004 and has degrees in Accounting and Landscape Architecture & Engineering from Hungarian universities. Stephen Edward Hobbs has been a Director and Chief Technology Officer since June 2009. Mr. Hobbs has assumed the role of CTO for Asiacell in Iraq for the first nine months of its operation, following its CPA license award between 2003 and 2004. Mr. Hobbs has been previously engaged in independent consulting practice, supporting key clients such as Virgin Management, United Kingdom, C&W, United Kingdom, Wataniya Telecom (Kuwait) and Sapient (United Kingdom/United States), supporting the areas of technology, development and strategy. Mr. Hobbs has experience as Chief Engineer of C&W Mobile, CTO Asia, CTO Global Mobile, Vice President Mobile and ASP services (C&W Global) until 2001, as a pioneer in small antenna satellite systems and an expert in security programs in wireless environments. He has over three decades of international management experience in the telecommunications and technology industries across Europe and Asia. Mr. Hobbs was a Petty Officer Radio Electrician (Royal Navy) at Cable & Wireless Telecommunication. The Directors terms of appointment end at the close of the fifth annual general meeting after the date of their appointment. At a general meeting of shareholders, the shareholders may remove any Director before the expiration of his term of office. A Directors term of office will automatically terminate upon bankruptcy, if he is put under custody by court order, upon his resignation or death or in the event that the Director is prohibited by law from holding such position. In the event any member of the Board of Directors resigns, a written notice of such resignation must be submitted by the resigning Director to us, for the attention of the Board of Commissioners and Board of Directors. We are required to convene a general meeting of shareholders to resolve such resignation within 60 days after we receive the resignation letter. Within 45 days after a vacancy is created on the Board of Directors that causes the number of members of the Board of Directors to be less than the minimum required number of Directors as stipulated in our Articles of Association, a general meeting of shareholders must be convened to fill the vacancy. A member of the Board of Directors may not assume a concurrent position, which may cause a conflict of interest, directly or indirectly, with our interests. A member of the Board of Directors may assume a concurrent position that does not cause a conflict of interest, subject to the approval of the Board of Commissioners and notification to a general meeting of shareholders. Should the President Director want to assume a concurrent position of this type, the approval of a general meeting of shareholders is also required. The business address of the Board of Directors is Jalan Medan Merdeka Barat 21, Jakarta, 10110, Republic of Indonesia.
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None of our Commissioners or Directors has a service contract with us, nor are any such contracts proposed or under consideration. There is no family relationship between or among any of the Commissioners or Directors listed above. Compensation of Commissioners and Directors For their services, our Commissioners and Directors are entitled to remuneration, which is determined by the annual general meeting of shareholders. The net amount of remuneration paid to our Commissioners and Directors for the year ended December 31, 2010, including basic compensation and short and long-term incentives, was Rp39.5 billion (US$4.4 million). The remuneration of our Directors is determined by the Board of Commissioners, pursuant to a delegation of authority by the shareholders in a general meeting. In making its determination, the Board of Commissioners must consider any recommendations provided by our Remuneration Committee and must report the determination to our shareholders at the annual general meeting of shareholders. Since 2006, semi-annual incentives were eliminated and we introduced a Restricted Share Unit plan as a long-term incentive for Commissioners and an Economic Profit Sharing Plan for Directors which is divided into cash bonus payment as short-term incentive and Restricted Share Unit Plan as long-term incentive. Pension, Retirement and Other Benefits We and Lintasarta have defined benefit and contribution pension plans that cover substantially all of our qualified permanent employees. PT Asuransi Jiwasraya, a state-owned life insurance company, manages the plans and the amount of pension benefits to be paid upon retirement is based on the employees most recent basic salary and their number of years of service. For the year ended December 31, 2010, we, Lintasarta and IM2 incurred a total expense of Rp193.1 billion for pension, postretirement benefits (i.e., benefits under Labor Law 13) and post-retirement healthcare for our employees. As of December 31, 2010, we and Lintasarta also recognized total prepaid pension costs of Rp113.3 billion, while we, Lintasarta and IM2 recognized total accrued liability of post-retirement benefits and post-retirement healthcare of Rp844.8 billion. For more information about our pension plan, including the total amount set aside to provide pension, retirement or similar benefits, see Note 17 and Note 24 to our audited consolidated financial statements. Board Practices Our Board of Commissioners acts as our overall supervisory and monitoring body with principal functions including reviewing our development plan, monitoring the performance of our work plan and reviewing and approving our budget. It is required to perform its duties, authorities and responsibilities in accordance with the provisions of our Articles of Association and resolutions of the shareholders general meeting. Decisions above certain monetary thresholds must be referred by our Board of Directors to our Board of Commissioners or shareholders for their review and approval. In carrying out its supervisory activities, the Board of Commissioners represents the interests of our Company. Meetings of our Board of Commissioners must be held at least once every three months, or when deemed necessary by the President Commissioner or upon request of at least one-third of the total members of the Board of Commissioners. A meeting of the Commissioners may make lawful and binding decisions only if a majority of the Commissioners are present or represented. At any meeting each Commissioner is entitled to one vote and, in addition, may cast one vote for each Commissioner he is representing. A Commissioner may be represented at a meeting of the Commissioners only by another Commissioner appointed pursuant to a power of attorney. Except as otherwise provided in our Articles of Association, resolutions of the Board of Commissioners must be adopted by deliberation and consensus. If no agreement is reached through this method, resolutions must be passed by a simple majority of the Commissioners. In the event of a tie vote, the proposal is deemed rejected unless the matter concerns an individual, in which case the President Commissioner may cast the deciding vote. The Board of Commissioners may adopt lawful and binding decisions without convening a meeting of the Commissioners if all of the members of the Board of Commissioners approve and sign the decision. Our Board of Directors is generally responsible for managing our business in accordance with applicable laws, our Articles of Association and the policies and directives issued by the general meeting of shareholders and the Board of Commissioners.
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The President Director alone has the authority to represent and act on behalf of the Board of Directors and us. However, if the President Director is absent or unavailable, then one of the Directors designated by the President Commissioner shall have such authority to represent the Directors. The Board of Directors must obtain written approval from the Board of Commissioners to: (i) purchase and/or sell shares of other companies in the capital markets; (ii) enter into, commit to enter into, amend and/or terminate a license agreement or cooperation, joint venture, management and similar agreement with other enterprises or parties; (iii) purchase, dispose, sell, pledge or encumber all or part of the business, title to or the fixed or other assets of the Company (including any interest therein); (iv) cease to collect and write-off accounts receivable from the books as well as supplies of goods; (v) bind the Company as guarantor (borg or avalist) or in any other way in which the Company becomes liable to another partys debt obligation, whether by an agreement to take over another partys debt, an agreement to grant financing to another party to purchase goods or services, or by the purchase of shares, capital participation, advance payment or loan to pay in full another partys debt; (vi) accept or grant or commit to grant medium/long-term loans and accept or grant non-operational shortterm loans (except for granting loans to a subsidiary and/or employees of the Company which have been approved pursuant to applicable internal procedures); (vii) conduct the expenditure of capital goods in 1 (one) transaction or an inter-related transaction with a nominal value higher than the permitted value determined by the Board of Commissioners from time to time; (viii) issue bonds or other securities than can be converted into shares; (ix) propose the issuance of new shares of the Company; (x) provide an indemnity to or otherwise guarantee the obligation of any person; (xi) determine and/or change the Companys management structure; (xii) make a new business plan or change the business plan; (xiii) change the accounting, financial, or tax practice and system of the Company or its subsidiary; (xiv) change the Companys name; (xv) approve the financial statement provided to the shareholders in the GMS; (xvi) determine the annual budget of the Company and the annual budget of a subsidiary; (xvii) carry out capital participation or dispose capital participation of the Company in other enterprises that are not carried out through the capital markets; (xviii) establish a subsidiary or approve the relinquishment or the reduction of its interest, whether directly or indirectly, in each of the subsidiaries, or take over the shares in any company or relinquish any shares in any company; (xix) take any corporate action or investments related to any subsidiary of the Company; (xx) use any right of the shareholders in a Companys subsidiary, or any other company in which the Company has a share participation; (xxi) approve the payment of any bonus or similar payment to the Companys employees or change the remuneration structureof employees; (xxii) undertake a merger, consolidation, acquisition or separation, each as defined under the law No. 40 of 2007 on Limited Liability (as amended from time to time); (xxiii) establish or change the Companys asset liability management policy; (xxiv) establish or change standing delegations among members of the Board of Directors relating to signing authority limits for expenditures, assets purchases and sales, loans and other commitments; and (xxv) engage in any other material transaction or matters as may be determined by the Board of Commissioners from time to time having a value of the lower of 5.0% (five percent) or more of total revenue or 2.5% (two and half percent) or more of our non-current assets on a consolidated basis as set out in our audited consolidated financial statements. The Board of Commissioners shall be obligated to determine thresholds in respect of the actions referenced to in (i) to (viii), (x) and (xxi) above and shall be entitled to change such thresholds from time to time. In the event actions are taken within the applicable threshold, then the approval from the Board of Commissioners is not required. In granting a written approval for the actions above, the Board of Commissioners must observe prevailing capital markets regulations. Meetings of the Board of Directors are convened when called by the President Director, or when requested by more than one-third of the total members of the Board of Directors. A meeting of the Directors is valid and entitled to adopt binding decisions only if a majority of the Directors are present or represented. A Director may be represented at a meeting of the Board of Directors only by another Director appointed pursuant to a power of attorney issued for that particular purpose. At any meeting of the Board of Directors each Director is entitled to one vote and, in addition, one vote for each other Director he is representing. Resolutions of the Board of Directors must be adopted by deliberation and consensus. If no agreement is reached by deliberation and consensus, the resolutions must be passed by a majority vote, and, in the event of a tie vote, the President Director has a deciding vote. The Board of Directors may adopt valid and binding resolutions without convening a meeting of the Directors if all of the Directors approve and sign the resolutions in writing.
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Individual Directors are charged with specific responsibilities. In the event that a vacancy occurs in the Board of Directors, so long as the position remains vacant, one of the other Directors will be nominated by the Board of Commissioners to perform the work of the absentee Director. If, for any reason, we cease to have any Directors, the Board of Commissioners is to assume the ongoing obligations of the Board of Directors and must convene a general meeting of shareholders to elect a new Board of Directors within 45 days. Our Articles of Association provide that if there is a conflict between our interests and those of a Director, then with the approval of the Board of Commissioners, we shall be represented by another member of the Board of Directors. If all Directors have a conflict, we shall be represented by the Board of Commissioners or one Commissioner designated by the President Commissioner. If the entire Board of Commissioners has a conflict, the shareholders may appoint one or more persons to represent us at the general meeting of shareholders. Audit Committee In accordance with BAPEPAM-LK, Indonesia Stock Exchange and New York Stock Exchange regulations, we have formed an independent Audit Committee, consisting of five persons and chaired by one of the Independent Commissioners. The duties of the Audit Committee include providing professional, independent advice to the Board of Commissioners and identifying matters that require the attention of the Board of Commissioners, including a review of the following: our financial information (including financial reports and projections); the independence and objectivity of our public accountant; the adequacy of our public accountants audits that all material risks have been considered; the adequacy of our internal controls; our compliance as a listed company with the prevailing capital markets regulations and other regulations related to our business and our internal auditors duties. The Audit Committee also examines and reports complaints to the Board of Commissioners, maintains the confidentiality of documents, data and information relating to us, conducts an audit of any alleged mistake in the resolutions of a Board of Directors meeting or deviations in the implementation of the resolutions of such meeting and maintains the Audit Committee charter. On June 5, 2008, George Thia Peng Heok was appointed as Chairman of the Audit Committee. On January 29, 2010, Chris Kanter was elected to our Audit Committee. As of December 31, 2010, the members of our Audit Committee were George Thia Peng Heok (Chairman), Soeprapto S.IP, Chris Kanter, Kanaka Puradiredja and Unggul Saut Marupa Tampubolon. BAPEPAM-LK regulations require at least two outside persons to serve as members of the Audit Committee: Kanaka Puradiredja and Unggul Saut Marupa Tampubolon serve as the independent outside members of our Audit Committee. We have posted the written charter of the Audit Committee on our website at www.indosat.com, where it is publicly available. Such charter is reviewed annually and a revised charter has been approved by our Board of Commissioners. Remuneration Committee Our Remuneration Committee is responsible for providing recommendations to our Board of Commissioners regarding remuneration, bonuses and other benefits for members of our Board of Commissioners and Board of Directors as well as employees, including the structure, terms and issuance of stock options. On January 29, 2010, Alexander Rusli was elected to our Remuneration Committee. As of December 31, 2010, the members of our Remuneration Committee were Dr. Nasser Mohammed Marafih (Chairman), Alexander Rusli and Soeprapto S.IP. We have posted the written charter of the Remuneration Committee on our website at www.indosat.com, where it is publicly available. Risk Management Committee On October 26, 2005, we established a Risk Management Committee, which reports to our Board of Commissioners. Our Risk Management Committee evaluates potential risks regarding our business and provides recommendations to our Board of Commissioners regarding our policies regarding risk assessment and risk management, including making recommendations for improvements to our existing procedures as necessary. As of December 31, 2010, the members of our Risk Management Committee were Rachmat Gobel (Chairman), George Thia Peng Heok, Jarman and Rionald Silaban. Following the Companys Extraordinary General Meeting of Shareholders, as of February 8, 2011, the members of our Risk Management Committee
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are Rachmat Gobel (Chairman), George Thia Peng Heok, and Rionald Silaban. We have posted the written charter of the Risk Management Committee on our website at www.indosat.com, where it is publicly available. Budget Committee Our Budget Committee assists the Board of Commissioners in performing the Boards supervisory and advisory duties by reviewing and giving its recommendations to the Board in relation to the Companys strategic plans, the annual work plan and budget (which includes the capital expenditure plan). As of December 31, 2010, the members of our Budget Committee were Dr. Nasser Mohammed Marafih (Chairman), George Thia Peng Heok, Richard Farnsworth Seney and Jarman. Following the Companys Extraordinary General Meeting of Shareholders, as of February 8, 2011, the members of our Budget Committee are Dr. Nasser Mohammed Marafih (Chairman), George Thia Peng Heok and Richard Farnsworth Seney.
Employees
As of December 31, 2010, on a consolidated basis, we employed 6,694 employees, 4,838 of whom were permanent employees and 1,856 of whom were non-permanent employees. As of December 31, 2010, excluding seconded employees, our subsidiaries employed approximately 1.005 permanent employees. As of December 31, 2010, our permanent employees included 787 managerial-level employees (employees with the rank of manager or higher) and 3,046 non-managerial employees, compared to 735 managerial-level employees and 3,152 non-managerial employees as of December 31, 2009, and 772 managerial and 3,221 non-managerial employees as of December 31, 2008. Our turnover rate for employees during 2010 was 2.37% per annum. As a result, as of December 31, 2010, our employees had worked for us for an average of 13.07 years. In January 2011, the Company introduced an organizational restructuring which forms part of our transformation program that began in 2009 to increase the Companys productivity and improve our longer-term operating results. The Company is offering special compensation packages to employees who meet certain criteria as determined by the Company and who opt to end their employment relationship with the Company as part of such organizational restructuring under the VSS Program. IAS 37 on the Provisions, Contingent Liabilities and Contingent Assets requires us to disclose the total number of employees who participate in the program and the compensation paid; however, we have not disclosed this information in this annual report as it could lead to a precipitate presumption on the outcome of the program since the Company is still currently offering the program to its employees. We provide a number of benefits to our employees, including a pension plan, medical benefits, life insurance, income tax allowances and access to a cooperative established by the employees. On August 25, 1999, our employees established a union called the Serikat Pekerja Indosat, or SPI (Union). On September 15, 2006, our management and SPI signed a collective labor agreement covering general terms of employment, including working hours, payroll, employee development and competency, occupational safety and health, employees welfare, social allowances, employees code of conduct and mechanisms for handling disputes. This collective labor agreement was renewed on December 31, 2010. We believe we maintain a good relationship with the union. As stipulated by Article 7.3 of the collective labor agreement, we conduct meetings with the union at least once every 3 months. Some of our employees are entitled to a pension under a defined benefit plan, pursuant to which they receive both a lump sum payment and a monthly benefit through an insurance program managed by PT Asuransi Jiwasraya (Persero), a stateowned insurance company. As of December 31, 2010, we insured 2,343 permanent employees through a fully-funded pension program. In this program, an employee who resigns at 56 years of age will receive a pension benefit. In addition, we established a defined contribution pension plan for our employees in May 2001. Following the merger of Satelindo and IM3 into Indosat, we combined the defined contribution plans established for our legacy subsidiaries employees with our plan. Under the defined contribution plan, employees contribute 10.0% to 13.33% of their base salaries to the plan. We then make a contribution to the plan equivalent to 50% of each employees contribution.
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Our employees have also established a cooperative, Koperasi Pegawai Indosat (Kopindosat). Kopindosat provides various benefits, such as consumer loans, principally to our employees, and car and equipment rental, principally to us. The management of Kopindosat is elected by our employees every three years at a members meeting. Kopindosat has a minority stake in some of our affiliates. We have also temporarily seconded several of our employees to support Kopindosat and its subsidiaries in conducting their business, as well as to provide job training for its employees.
Share Ownership
One of our directors beneficially owns less than one percent of our common stock and his beneficial share ownership in us has been recorded in our special register.
Item 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

As of December 31, 2010, our issued and fully paid capital was divided into 1 Series A share and 5,433,933,499 Series B shares, each with a par value of Rp100. The Government, through the Ministry of State-Owned Enterprises, owns the 1 Series A share and has special voting rights, and owns 776,624,999 Series B shares representing 14.29% of our shares. Qtel Asia owns 3,031,528,000 Series B shares and 500,528,600 Series B shares underlying our American Depositary Shares, or a total of 3,532,056,600 Series B shares representing 65% of our shares. SKAGEN AS owns 7,000,000 Series B shares and 270,824,400 Series B shares underlying our American Depositary Shares, or a total of 277,824,400 Series B shares representing 5.11% of our shares. As of December 31, 2010, 82,868,450 of our ordinary shares underlying our American Depositary Shares, representing in aggregate approximately 1.52% of our outstanding shares, and 764,559,050 Series B shares representing 14.07% of our shares were held by the public. Because many of our Series B shares and American Depositary Shares were held by brokers and other institutions on behalf of security holders in street name, we believe that the number of beneficial holders of our ordinary shares is higher. The following table sets forth information as of December 31, 2010 regarding (i) persons known to us to own more than 5.0% of our common stock (whether directly or beneficially through American Depositary Shares) and (ii) the total amount of any class of our common stock owned by individual members of the Board of Commissioners and the Board of Directors:
Number ofShares Held Percentageof Total Outstanding Shares of Class
Title of class
Name
Series A Series B Series B Series B Series B

* (1)
Government Qtel Asia(1) Government SKAGEN AS Fadzri Sentosa
1 3,532,056,600 776,624,999 277,824,400 *
100.00% 65.00 14.29 5.11 *
Less than 1.0% Qtel Asia is wholly owned by Qtel.
The Government Prior to our initial public offering in 1994, the Government owned 100% of our outstanding common stock. As of the beginning of 2002, the Government owned 65.0% of our outstanding common stock. By virtue of its common stock ownership, the Government had retained control over us and had the power to elect all of our Board of Commissioners and our Board of Directors and to determine the outcome of substantially all actions requiring the approval of our shareholders. In addition, pension plans, insurance funds and other Indonesian investors owned or controlled, directly or indirectly, by the Government, purchased shares of common stock in the initial public offering.
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On May 16, 2002, the Government sold 8.1% of our outstanding common stock through an accelerated global tender, reducing the Governments shareholding to 56.9%. On December 20, 2002, the Government sold 41.9% of our outstanding common stock to ICLM (described below), further reducing the Governments shareholding to 15.0%. Although Governments ownership has been reduced, the Government retains a significant degree of control over us through the 1 Series A share. As the holder of the 1 Series A share, the Government has special voting rights. The material rights and restrictions which are applicable to our common stock are also applicable to the 1 Series A share, except that the Government may not transfer the Series A share. In addition, through the Series A share, the Government has veto rights with respect to: (i) increases in our share capital without pre-emptive rights; (ii) mergers, consolidations, acquisitions and demerger involving us; (iii) dissolution, liquidation and bankruptcy; (iv) amendments to our Articles of Association related to our purposes and objectives and the Series A holders veto rights. ICLM and Qtel Asia On December 15, 2002, ICLM, which, at the time was a subsidiary of STT, entered into a share purchase agreement and a shareholders agreement with the Government, acting through the Ministry of State-Owned Enterprises in its capacity as our shareholder. STT is 100% owned by ST Telemedia, which is indirectly owned by Temasek Holdings (Private) Limited. Pursuant to the share purchase agreement, the Government sold to ICLM 434,250,000 Series B Shares representing 41.9% of the total outstanding Series B Shares. After consummation of this sale and purchase, the Government held 155,324,999 Series B Shares, representing 15.0% of the total outstanding Series B Shares. As of May 4, 2006, ICLM owned 2,171,250,000 (39.96%) of our Series B shares, the Government owned 1 Series A share and 776,624,999 of our Series B shares (14.29%) and ICLS, an affiliate of ICLM, owned 46,340,000 (0.85%) of our Series B shares. On January 17, 2007, ICLM notified us regarding the intention of Qtel to make an equity investment of approximately 25.0% in AMH which, at the time, was wholly owned by STT, which we understand closed on March 1, 2007. Upon the closing of the transaction, STT effectively controlled approximately 75.0% of AMH, which directly owns ICLM and ICLS. On June 22, 2008, following negotiations with ST Telemedia, Qtel purchased all of the issued and outstanding shares of capital stock of each of ICLM and ICLS. Pursuant to the share purchase agreement, Qtel, through its subsidiary Qatar South East Asia Holding S.P.C., acquired all of the capital stock of ICLM and ICLS from AMH, which is 75.0% indirectly owned by STT and 25.0% indirectly owned by Qtel. Following this acquisition, pursuant to Indonesian law requirements, Qtel conducted a mandatory tender offer to acquire up to 24.19% of our outstanding Series B Shares (including Series B Shares underlying ADSs) and now owns 65.0% of our shares. On June 4, 2009, ICLM sold its 39.96% ownership in Indosat to ICLS and, pursuant thereto, ICLS became the legal owner of 3,532,056,600 shares representing 65.0% of our shares. On September 11, 2009, ICLS changed its name to Qatar Telecom (Qtel Asia) Pte. Ltd. Qtel is 68%-owned by the Qatar government. Qtel provides significant financial expertise, procurement, legal, operational, network build and maintenance, marketing, human resources, business development and technical support to us. Qtel has management representation in us and actively participates in business strategy formulation. We intend to take advantage of synergies existing and created by membership in the Qtel group of companies, thereby enhancing our position in the Indonesian telecommunications market. Skagen AS In September 2010, we were informed by SKAGEN AS, a Norwegian investment company with eleven mutual funds under management, that through certain purchases of our ADSs, it owns more than 5% of our shares. As of December 31, 2010, SKAGEN AS owns approximately 5.11% of our shares.
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Related Party Transactions

We are a party to certain agreements and engage in transactions with a number of entities that are related to us, including joint venture companies, cooperatives and foundations, as well as our controlling shareholders, the Government and Qtel Asia, and entities that are related to or owned or controlled by the Government and Qtel Asia. The most significant of these transactions include cash and cash equivalents in the amount of Rp1,615.6 billion deposited in state-owned banks as of December 31, 2010 operating revenues from Telkom amounting to Rp587.4 billion and cost of services to the Ministry of Communication and Information Technology amounting to Rp1,939.4 billion. For further information on interest rate in relation to our outstanding loans, see Item 5: Operating and Financial Review and ProspectsPrincipal Indebtedness. In addition, we are a party to various agreements with other state-owned entities such as insurance companies, banks and various suppliers. For a discussion of some of significant transactions entered into with related parties, see Note 25 of our consolidated financial statements included elsewhere in this annual report.
Item 8: FINANCIAL INFORMATION Consolidated Financial Statement and Other Financial Information
See Item 17: Financial Statements for our audited consolidated financial statements filed as part of this annual report. There has not been any significant change since the date of our audited financial statements.
Legal Proceedings
From time to time, we are involved in legal proceedings concerning matters arising in connection with the conduct of our business. We are not currently involved in, and have not recently been involved in, any legal or arbitration proceedings that we believe would be likely to have a material effect on our financial condition or results of operations other than as disclosed in this annual report. On May 5, 2004, we received the Supreme Courts verdict No. 1610K/PDT/2003 in favor of Primer Koperasi Pegawai Kantor Menteri Negara Kebudayaan dan Pariwisata (known as Primkopparseni), regarding a disputed foreign currency exchange transaction. The courts judgment required us to pay Rp13.7 billion plus 6.0% interest per annum from February 16, 1998 until the final settlement date and on December 22, 2004, we satisfied the judgment through payment of Rp19.3 billion to the Central Jakarta District Court. Furthermore, in January 2005, we filed a motion for reconsideration against the Supreme Courts verdict. As of April 20, 2011, the Supreme Court has not issued a verdict for the reconsideration. In order to recover the amount we paid to Primkopparseni, we initiated a new action in the Central Jakarta District Court asserting that the Primkopparseni members meeting at which the members decided to proceed with the dispute against us was invalid. On January 19, 2005, the Central Jakarta District Court held that such members meeting was unlawful, but did not require Primkopparseni to compensate us, prompting us and Primkopparseni to file an appeal of that decision with the Jakarta High Court on February 1, 2005. The Jakarta High Court through its decision No. 483 / PDT / 2005 / PT.DKI decided in our favor by ruling that such meeting was unlawful, but, on the other hand, did not require Primkopparseni to compensate us. We and Primkopparseni appealed to the Supreme Court to ask for compensation for the costs of legal fees and injury to our brand name, but the Supreme Court declined our appeal on August 13, 2008 through its decision No. 229/K/PDT/2008. Since we did not take any further legal action with respect to the Supreme Courts decision, this case is now final and binding. Based on Qtels Schedule TO dated as of January 20, 2009 and filed with the SEC on January 20, 2009, on November 19, 2007, the KPPU, decided that Temasek Holdings, Pte. Ltd., a company incorporated under the laws of Singapore (Temasek), jointly with Singapore Technologies Telemedia Pte. Ltd. (ST Telemedia), STT, Asia Mobile Holding Company Pte. Ltd. (AMHC), AMH, ICLM, ICLS, Singapore Telecommunications Ltd., a company incorporated under the laws of Singapore (SingTel), and Singapore Telecom Mobile Pte. Ltd., a company incorporated under the laws of Singapore (SingTel Mobile), were in violation of the Indonesian competition laws and ordered Temasek, jointly with the STT, AMHC,
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AMH, ICLM, ICLS and SingTel (the Temasek Affiliated Entities), to divest their share ownership in either Telkomsel or Indosat within two years, effective from the date the judgment became legally enforceable. Indonesian competition laws state that business agents are prohibited from owning majority shares in a number of similar companies which conduct business in the same market if such ownership results in one or a group of business agents controlling over 50.0% of the market share of one kind of good or service. Temasek and other relevant parties filed an appeal against the KPPUs judgment in the Central Jakarta District Court. In a Decision and Order dated May 9, 2008, the Central Jakarta District Court upheld and corrected the ruling by the KPPU, and ordered Temasek and the Temasek Affiliated Entities to divest their holdings in either Telkomsel or Indosat within twelve months after the Central Jakarta District Court judgment became legally enforceable. The decision of the Central Jakarta District Court was appealed to the Supreme Court. On September 10, 2008, the Supreme Court rejected the appeal and corrected the Central Jakarta District Courts decision as follows, among others: (1) declaring that Temasek, jointly with the Temasek Affiliated Entities was in violation of Article 27 point (a) of Law No. 5 of 1999; (2) ordering Temasek, jointly with the Temasek Affiliated Entities, to terminate their cross-ownership of shares in Telkomsel and Indosat by transferring its shares in either Telkomsel or Indosat, within twelve months from the date the decree became legally enforceable; or reduce 50.0% of its share ownerships in each of Telkomsel and Indosat by no later than twelve months from the date the courts decision is legally enforceable; and (3) ordering Temasek, jointly with the Temasek Affiliated Entities, to determine the company that they will relinquish their shares from and to relinquish the voting rights and the rights to appoint the directors and commissioners in either Telkomsel or Indosat until the relinquishment of all of their shares or the reduction of 50.0% of their shares in each of Telkomsel and Indosat as stipulated in point (2) above. On June 22, 2008, Qtel acquired all of the Temasek Affiliated Entities 40.81% share ownership in Indosat. Temasek and the STT, AMHC, AMH, SingTei and ICLM as well as ICLS filed a motion for reconsideration, but based on the Supreme Courts official website, the motion for the reconsideration wa rejected under the decision No. Reg. 128 PK/PDT.SUS/2009 dated May 5, 2010. Therefore, Temasek and the STT, AMHC, AMH, SingTei and ICLM as well as ICLS are obliged to pay the fine in amount of Rp15 billion to KPPU. A series of class action lawsuits were also filed against us and Telkomsel in the District Court of Bekasi, the Central Jakarta District Court and the Tangerang District Court relating to Temasek Holdings prior cross ownership of shares in Indosat and Telkomsel, which is alleged to have caused high price fixing of telecommunications services that harmed to the public. On October 31, 2007, a group of consumers of cellular telephones in Indonesia filed suit in the District Court of Bekasi demanding, among other remedies, Rp1,231.7 billion in compensation for losses allegedly suffered. We are also a defendant in a similar class action suit filed in the Tangerang District Court on December 19, 2007 (the Tangerang Class Action). The plaintiffs represent our customers and the customers of Telkomsel and XL throughout Indonesia who used the Simpati, Mentari, Kartu As, IM3, Kartu Halo, Matrix, Jempol, Xplor, and Bebas services and are demanding compensation amounting to Rp30,808.7 billion, among other remedies. On April 22, 2008, we received notification that we, Temasek Holdings, ST Telemedia, STT, AMH, ICLM, ICLS, SingTel, SingTel Mobile, Telkomsel, Telkom and the Ministry of State-Owned Enterprises, were defendants in another class action filed in the Central Jakarta District Court (the Central Jakarta Class Action). The plaintiffs represent customers of Telkomsel, Indosat and XL and have asserted allegations similar to that of the Tangerang Class Action. The plaintiffs are demanding compensation amounting to Rp30,808.7 billion, among other remedies. In July 2008, we were notified that the class action in the Bekasi District Court was revoked by the plaintiffs and the class action in the Central Jakarta District Court was merged with the Tangerang Class Action. The class action suit in the Tangerang District Court was postponed by the judges pending resolution of an appeal to the Supreme Court by the plaintiffs from the class action filed in Central Jakarta District Court. On March 27, 2009, we were informed that the Supreme Court issued a decision on January 21, 2009 revoking the Central Jakarta District Court decision and ordering the Central Jakarta District Court to continue with the class action. On December 22, 2009, Indosat submitted a proposal in the mediation process asserting that no evidence of customers loss has been presented during STTs ownership. At the same time, Indosat is preparing a claim of inadequacy of representation as well as a response to the lawsuit. On January 5, 2010 the defendants were given the right to provide arguments regarding the legal standing of the class representation under the Class Action Lawsuit Procedure. On January 27, 2010, the Judges ruled that that the Central Jakarta Class Action lawsuit was unacceptable and ordered the plaintiffs and defendants to stop the case because (i) the plaintiffs refused to prove their legal standing and (ii) two members of the plaintiffs class did not qualify to stand as class representatives. The period for appeal having lapsed on March 18, 2010, the decision of the Central Jakarta District Court dated January 27, 2010 is now final and binding.
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On March 22, 2010, the trial of the Tangerang Class Action continued, but the plaintiffs failed to appear. On May 3, 2010, the Company submitted a demurrer and on May 24, 2010, the judges ruled that the class action filed with the Tangerang District Court was unacceptable because the plaintiffs were not serious in filing the lawsuit and the plaintiffs failed to prove their legal standing for qualification as class representatives. Since the time limit to file an appeal lapsed on July 21, 2010, the decision of the Tangerang District Court dated May 24, 2010 is final and binding. In addition to the above, we have received a letter from the KPPU, No. 398 / AK / KTPP / XI / 2007, dated November 15, 2007 relating to the possible breach of Article 5 of Law No. 5 / 1999 through price-fixing of SMS by telecommunications operators (case number 26 / KPPU-L / 2007). On June 18, 2008, the KPPU determined that only Telkom, Telkomsel, XL, Bakrie Telecom, Mobile-8 and Smart Telecom have jointly breached Article 5 of Law No. 5 / 1999. Telkomsel appealed this ruling to the South Jakarta District Court while Mobile-8 appealed this ruling to the Central Jakarta District Court where XL, Telkomsel, Indosat, Telkom, Hutchison, Bakrie Telecom, Smart Telecom, PT Natrindo Telepon Seluler were summoned to appear as co-defendants. During tax audits and assessments of our tax payments for 2004 and 2005 by the Tax Office for State-Owned Enterprises (the Tax Office), on December 4, 2006 and March 27, 2007, respectively, we were notified that our withholding tax for interest paid on intercompany loans for Indosat Finance Company B.V. and Indosat International Finance Company B.V. relating to our US$300.0 million principal amount Guaranteed Notes 2010 and US$250.0 million principal amount Guaranteed Notes 2012, respectively, should be 20.0%, rather than 10.0%. Based on advice from our tax advisors and our understanding of Indonesian law, we believe that our original calculations of withholding tax are accurate and submitted objection letters to the Tax Office regarding these assessments. On February 18, 2008 and June 4, 2008, we received Decision Letters from the Directorate General of Taxation rejecting our objections to our assessed tax payments for 2004 and 2005 in the amount of Rp60,493 million and Rp82,126 million, respectively. On May 14, 2008, the Company submitted an appeal letter to the Tax Court concerning the Companys objection to the correction of the income tax article 26 for fiscal year 2004. On May 25, 2010, the Company received the Decision Letter from the Tax Court which declined the Companys objection to the correction of the 2004 income tax article 26. The Company charged the tax correction to current operations, which was presented as part of Other Income (Expenses)OthersNet. We are also currently disputing an assessment of tax overpayment for fiscal year 2005 with the Tax Office. On March 27, 2007, we received an assessment letter for tax overpayment, indicating that the Directorate General of Taxation approved the refund of an overpayment of 2005 corporate income tax amounting to Rp135,766 million, which amount is lower than the amount of Rp176,645 million that we recognize. We filed an objection with the Tax Office on June 22, 2007 and claimed for the difference amounting to Rp40,879 million. On May 27, 2008, we received a Decision Letter from the Directorate General of Taxation which partially accepted our objection, but only for the amount of Rp2,725 million. On August 21, 2008, the Company submitted an appeal letter to the Tax Court concerning the Companys remaining objection on the 2005 corporate income tax. On October 29, 2010, the Company received the Decision Letter from the Tax Court which accepted the Companys objection to the correction of the 2005 corporate income tax amounting to Rp38,155 million, which was offset against the underpayment of the Companys 2008 and 2009 income tax article 26 based on Tax Collection Letters (STPs) received by the Company on September 17, 2010. On December 24, 2008, we received the Decision Letter from the Directorate General of Taxation which increased the overpayment amount by Rp84,650 million in the assessment letter on tax overpayment for fiscal year 2004, which amount was lower than the amount stated in an earlier Decision Letter received on July 4, 2008. On January 21, 2009, we filed suit objecting to the discrepancy in the amount of tax overpayment during fiscal year 2004. With respect thereto, on November 17, 2009 the Tax Court revoked the Directorate General of Taxations assessment letter No. KEP-539/WPJ.19/BD.05/2008, dated December 24, 2008. On March 17, 2010, the Directorate General of Taxation issued a decision favorable to the Company, informing it that the tax overpayment for fiscal year 2004 should be Rp126,403 million instead of Rp84,650 million, which would entitle the Company to get a refund of the difference, amounting to Rp41,753 million. The Company then subsequently received the payment of such tax refund amounting to Rp41,753 million from Directorate General of Taxation on April 13, 2010.
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On June 8, 2009, the Company received the assessment letter on tax underpayment (SKPKB) from the DGT for Satelindos corporate income tax for fiscal year 2002 amounting to Rp105,809 million (including penalties and interest) . The Company accepted a part of the correction of the 2002 corporate income tax amounting to Rp2,646 million which was charged to current operations in 2009. Under Indonesian Tax Law, a taxpayer is required to pay the tax underpayment amount as stated in the SKPKB within one month from the date of the SKPKB. The taxpayer can reclaim the tax paid through an objection or appeal process. On August 28, 2009, the Company submitted an objection letter to the Tax Office regarding the remaining correction on Satelindos 2002 corporate income tax. On July 15, 2010, the Company received the Decision Letter No.KEP-357/WPJ.19/BD.05/2010 from the DGT declining the Companys objection to the correction on Satelindos corporate income tax for fiscal year 2002. On October 14, 2010, the Company submitted an appeal letter to the Tax Court concerning the Companys objection to the correction on Satelindos corporate income tax for fiscal year 2002. As of April 20, 2011, the Company has not received any decision from the Tax Court on such appeal. On June 8, 2009, the Company also received SKPKBs from the DGT for Satelindos 2002 and 2003 income tax article 26 amounting to Rp51,546 million and Rp40,307 million (including penalties and interests), respectively. On August 27, 2009, the Company submitted an objection letter to the Tax Office for the correction of the Satelindos 2002 and 2003 income tax article 26. On July 16, 2010, the Company received the Decision Letters No.KEP-367/WPJ.19/BD.05/2010 and KEP368/WPJ.19/BD.05/2010 from the DGT declining the Companys objection to the correction of the Satelindos 2002 and 2003 income tax article 26. On October 12, 2010, the Company submitted appeal letters to the Tax Court concerning the Companys objection to the correction of Satelindos 2002 and 2003 income tax article 26. As of April 20, 2011, the Company has not received any decision from the Tax Court on such appeal. On September 7, 2009, the Company received the Decision Letter No.KEP-335/WPJ.19/BD.05/2009 from the DGT which declined the Companys objection to the remaining corrections of the 2006 corporate income tax. On December 2, 2009, the Company submitted an appeal letter to the Tax Court regarding the remaining corrections of the Companys 2006 corporate income tax. As of April 20, 2011, the Company has not received any decision from the Tax Court on such appeal. On September 17, 2010, the Company received STPs from the DGT for the underpayment of the Companys 2008 and 2009 income tax article 26 totalling Rp80,018 million (including interest). On October 13, 2010, the Company submitted cancellation letters to the Tax Office regarding such STPs. Subsequently, on November 16, 2010, the Company was required to pay a certain portion of these STPs by using the approved tax refund claim for on the Companys corporate Income Tax for fiscal year 2005 amounting to Rp38,155 million. On January 7, 2011, the Company paid the remaining amount of Rp41,863 million. We are not involved in any other material cases, including civil, criminal, bankruptcy, state administration cases or arbitration cases in the Indonesian National Board of Arbitration or labor cases in Industrial Relation Court which may materially affect our performance.
Dividend Policy
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Item 9: THE OFFER AND LISTING Offer and Listing Details

The table below sets forth, for periods indicated, the reported high and low quoted prices for our common stock on the Jakarta Stock Exchange, or the JSX, and the Indonesian Stock Exchange, or the IDX. All reported prices prior to December 3, 2007 are from the JSX and all reported prices after December 3, 2007 are from the IDX, following its commencement of operation:
Price per Share High Low (in Rp) Calendar Year 2006 2007 2008 2009 2010 Financial Quarter First Quarter 2009 Second Quarter 2009 Third Quarter 2009 Fourth Quarter 2009 First Quarter 2010 Second Quarter 2010 Third Quarter 2010 Fourth Quarter 2010 Month October 2010 November 2010 December 2010 January 2011 February 2011 March 2011 April 2011 (through April 20, 2011) 6,750 9,900 8,750 5,950 6,300 5,900 5,950 5,700 5,700 6,200 6,150 5,500 6,300 6,300 6,100 5,850 5,650 5,050 5,300 5,450 4,050 5,600 3,950 4,200 4,400 4,200 4,850 5,050 4,600 4,700 4,775 4,400 5,100 5,600 5,400 5,100 4,875 4,800 4,975 5,250
The table below sets forth, for the periods indicated, the reported high and low quoted prices of the ADSs on the New York Stock Exchange, or the NYSE.
Price per ADS High Low (in US$) Calendar Year 2006 2007 2008 2009 2010 38 71/128 51 13/16 47 1/64 30 47/128 35 37/64 21 13/16 30 13/64 16 16 189/256 24 7/32
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Price per ADS High Low (in US$) Financial Quarter First Quarter 2009 Second Quarter 2009 Third Quarter 2009 Fourth Quarter 2009 First Quarter 2010 Second Quarter 2010 Third Quarter 2010 Fourth Quarter 2010 Month October 2010 November 2010 December 2010 January 2011 February 2011 March 2011 April 2011 (through April 20, 2011) 26 1/4 26 83/128 28 45/128 30 47/128 33 123/128 34 3/16 30 59/128 35 37/64 35 37/64 33 91/128 32 1/4 31 1/64 28 41/128 30 33/128 31 5/64 16 95/128 20 127/128 24 37/128 24 9/32 25 97/256 25 31/32 24 7/32 28 1/64 30 29/32 30 39/128 28 1/64 27 9/64 27 3/64 27 37/64 30 5/64
Markets
Our common stock is listed on the IDX. The IDX is the principal non-U.S. trading market for our common stock. In addition, our ADSs, each representing 50 shares of our common stock, are listed on the NYSE. After the stock split, which became effective on March 10, 2004, each ADS represents 50 Series B shares (as compared to the ten Series B shares previously represented thereby).
The Indonesian Securities Market

On November 30, 2007, the Jakarta Stock Exchange and the Surabaya Stock Exchange merged to become the IDX. The IDX began operation on December 3, 2007 and in 2007, had a market capitalization of Rp2,539.041 billion, in which Rp1,982 billion of it came from equities, Rp79,065 billion and US$105 million came from corporate bonds and Rp477 trillion came from the government bonds. Overview of the IDX There are currently two daily trading sessions for regular and negotiable markets from Monday to Thursday, 9:30 a.m. to 12:00 noon, and 1:30 p.m. to 4:00 p.m. There are two trading sessions for regular and negotiable market on Friday, from 9:30 a.m. to 11:30 a.m. and from 2:00 p.m. to 4:00 p.m. There is only one cash market trading session from Monday to Thursday, 9.30 a.m to 12.00 noon and Friday, 9.30 a.m to 11.30 a.m. Trading on the IDX is based on an order-driven market system. Investors must contact brokerage companies, or IDX members, that will execute their orders through the IDX trading system. Trading on the IDX can only be done by IDX members who are registered as members of the Indonesian Clearing and Guarantee Corporation, or KPEI. A brokerage company may also buy and sell securities for its own account. No limitation of share ownership by foreign investors or foreign institutions exists through direct placement or through trading on the IDX, except for banking institutions, which may only be 99.0% foreign owned. Trading is divided into three market segments: regular market, negotiable market, and cash market. The regular market is the mechanism for trading stock in standard lots on a continuous auction market during exchange hours. With respect to the trading of stock, a round lot consists of 500 shares. The price movements are limited as follows: (i) if the share price is below Rp200, then the price moves in increments of Rp1 with the aggregate daily price movement limited to Rp10; (ii) if the share price is equal to Rp200 or more, but less than Rp500, then the price moves in increments of Rp5 with the aggregate
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daily price movement limited to Rp50; (iii) if the share price is equal to Rp500 or more, but less than Rp2,000, then the price moves in increments of Rp10 with the aggregate daily price movement limited to Rp100; (iv) if the share price is equal to Rp2,000 or more, but less than Rp5,000, then the price moves in increments of Rp25 with the aggregate daily price movement limited to Rp250; and (v) if the share price is equal to or exceeds Rp5,000, then the price moves in increments of Rp50 with the aggregate daily price movement limited to Rp500. Orders are processed by computers that carry out matching processes of the outstanding bids and asks according to price and time priority. Price priority gives priority to buying orders at a lower price or selling orders at a higher price. If buying or selling orders are placed at the same price, priority is given to the buying or selling order placed first (time priority). Trades in the negotiated market can be completed without using the round lot system and price step rule. IDX members can advertise selling or buying orders through the IDX trading system and amend their order by negotiating with another member. The ultimate price is based on agreement, but it is recommended to be based on the stock price on the regular market. Transactions on the IDX regular market and non-regular market are required to be settled no later than the third trading day after the transactions. In case of a default by an exchange member on settlement upon the due date, they are liable to pay 125.0% of the highest price of the same securities or the same trading day. The IDX board of directors may cancel a transaction if proof exists of fraud, manipulation or the use of insider information. The board of directors may also suspend trading if there are indications of bogus transactions or jacking up of share prices, misleading information, use of insider information, counterfeit securities or securities blocked from trading, or other important events. IDX members may charge fees for their services based on an agreement with their clients. When conducting stock transactions on the IDX, exchange members are required to pay a transaction fee equal to 0.03% of the cumulative transaction value for each month plus an additional 0.01% for cash and regular market transactions guaranteed by KPEI (subject to a minimum transaction fee of Rp2,000,000). The commissions and transaction fees do not include the 10.0% value-added tax and the 0.1% transaction tax levied on the cumulative value of the sales of the shares. The Indonesian capital markets are generally less liquid than those in countries with more developed capital markets. This illiquidity is especially pronounced for large blocks of securities. Also, prices in the Indonesian capital markets are typically more volatile than in such other markets. Accordingly, we cannot assure you that a holder of common stock will be able to dispose of common stock at prices or at times at which such holder would be able to do so in more liquid markets or at all. Further, we cannot assure you that a holder of common stock will be able to dispose of common stock at or above such holders purchase price. Trading on the NYSE The Bank of New York serves as depositary, or the Depositary, with respect to our ADSs, which are traded on the NYSE. After the stock split, which became effective on March 10, 2004, each ADS represents 50 shares of our common stock (as compared to the ten Series B shares previously represented thereby). As of December 31, 2010, 17,084,429 ADSs, representing 15.72% of our common stock, were outstanding in the United States and there were 50 registered owners of our ADSs.
Item 10: ADDITIONAL INFORMATION Description of Articles of Association and Capital Stock
As of December 31, 2010, the authorized capital of Indosat is Rp2,000,000,000,000, divided into 20,000,000,000 shares consisting of one Series A share and 19,999,999,999 Series B shares, each share of par value Rp100. Of the
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authorized capital, 5,433,933,500 shares were subscribed to and fully paid up in cash, consisting of one Series A share and 5,433,933,499 Series B shares, or with a total nominal value of Rp543,393,350,000 by: a. the Republic of Indonesia, one Series A share and 776,624,999 Series B shares with a total nominal value of Rp77,662,500,000; b. Qtel Asia, 3,532,056,600 Series B shares with a total value of Rp353,205,660,000; and c. the Public, 1,125,251,900 Series B shares with a total nominal value of Rp112,525,190,000. On March 8, 2004, we held an Extraordinary General Meeting of Shareholders which approved the split of nominal value of Series A share and Series B shares from Rp500 to Rp100 per share, which increased our authorized shares to 20,000,000,000 shares and our issued shares to 5,177,500,000 shares. After the stock split, the authorized capital of Indosat is Rp2,000,000,000,000 divided into 20,000,000,000 shares consisting of one Series A share and 19,999,999,999 Series B shares, each share of par value Rp100. Of our authorized capital, 5,177,500,000 shares were subscribed to and fully paid up in cash, consisting of one Series A share and 5,177,499,999 Series B shares, or with a total nominal value of Rp517,750,000,000 by: a. the Republic of Indonesia, one Series A share and 776,624,999 Series B shares with a total nominal value of Rp77,662,499,900; b. ICLM, 2,171,250,000 Series B shares with a total value of Rp217,125,000,000; and c. the Public, 2,229,625,000 Series B shares with a total nominal value of Rp222,962,500,000. The amendment to the Articles of Association of Indosat, necessitated by the stock split, has been reported to and accepted by the Minister of Justice and Human Rights of Indonesia under number C-05582 HT.01.04.TH.2004, dated March 8, 2004. Such amendment has been registered in the Central Jakarta Company Register Office under number 0540 / RUB.09.05 / III / 2004, dated March 9, 2004. On October 20, 2004, the Ministry of Justice and Human Rights of Indonesia changed its name to the Ministry of Law and Human Rights of Indonesia. On January 28, 2010, Indosat convened an Extraordinary General Meeting of Shareholders to approve, among others, an amendment to Article 3 of Indosats Articles of Association, covering its purposes and objective. Such amendment was required in compliance with Rule of Bapepam dan LK No. IX.J.1. Our Articles of Association, or the Articles, state that any transaction involving a conflict of interest as defined in prevailing capital market regulations should obtain the approval of the independent shareholders in a general meeting of shareholders especially convened for such purpose. Each Director receives an annual bonus as well as other incentives in the event we surpass certain financial and operating targets, the amounts of which are determined by our Board of Commissioners and reported at our annual general meeting of shareholders. Bonuses are budgeted annually and are based on the recommendation of our Board of Directors, whose recommendation must be approved by our Board of Commissioners prior to submission to our shareholders. Each Commissioner is granted a monthly honorarium and certain other allowances, the amounts of which are determined by our shareholders at our annual general meeting of shareholders. Our Board of Directors are responsible for leading and managing us in accordance with our objectives and purposes as well as to control, preserve and manage our assets. To complete these responsibilities, our Board of Directors are authorized to cause us to borrow such sums as required from time to time subject to the limitations set forth in the Articles. The borrowing powers of our Board of Directors may only be varied through an amendment to the Articles. The Articles do not contain any requirement for the Directors to retire by a specified age or to own any or a specified number of our common shares. Common Stock The following is a summary of the material rights and restrictions related to the common stock of Indosat based upon applicable provisions of Indonesian law and provisions of our Articles of Association, which were amended on January 28,
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2010 and approved by the Minister of Law and Human Rights of Indonesia on February 25, 2010. This description does not purport to be complete and is qualified by reference to the Articles of Association and the laws of Indonesia relating to companies, which may in certain instances differ from provisions contained in the Articles of Association. All of the shares of common stock are registered shares and are issued in the name of the owner of the common stock registered in the register of shareholders of Indosat. The Board of Directors keep a register of shareholders of Indosat, and Indosat must treat the person whose name is entered in such register of shareholders as the only person entitled to exercise any rights conferred by law with respect to such common stock. All transfers of common stock must be evidenced by an instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee or based on other letters, which give satisfactory evidence of such transfer in the opinion of the Board of Directors. Transfers of common stock take effect only after the transfer is registered in the register of shareholders. The transferor of any common stock will be treated as the owner of such common stock until the name of the transferee has been entered in the register of shareholders. The holders of common stock are entitled to pre-emptive rights if Indosat issues common stock, convertible bonds, warrants or similar securities. Such pre-emptive rights may be transferred or assigned to third parties subject to the restrictions set forth in the stipulations in the Articles, prevailing capital markets regulations and Indonesian law. Any rights issue shall be first approved by Indosats general meeting of shareholders and an announcement of such a plan shall be made by the Board of Directors in two daily newspapers (one in the English language and one in the Indonesian language). If the holders of common stock do not exercise their pre-emptive rights within the period fixed by the Board of the Directors in accordance with the relevant regulations, the Board of Directors may issue such common stock, convertible bonds, warrants or similar securities to third parties at a price and on terms at least the same as that offered previously to the existing shareholders and as determined by the Board of Directors. Indosats authorized capital stock may be increased or decreased only by a resolution of an extraordinary general meeting of shareholders and an amendment of the Articles. Any such Amendment will be effective only after it receives approval from the Minister of Law and Human Rights of Indonesia. As an exception to the above provisions, Indosat, with the approval of a general meeting of shareholders at which the holder of the Series A share attends and approves the resolution, may issue new shares without conducting a limited public offer to shareholders. This issuance may be done provided that this issue is made for a specified number of shares and such shares are issued within a specified period of time in compliance with the Indonesian capital market regulations or under any exemption Indosat may receive therefrom, and the said shares may be sold by Indosat to any person at a price and upon such conditions as may be determined by the Board of Directors, provided that the price is not lower than par value. There are no limitations on the rights of foreign investors to own our common stock if such stock is acquired through capital markets. These provisions also apply mutatis mutandis in the event Indosat issues convertible bonds and/or warrants and/or other similar securities, provided that any new share issued resulting from convertible bonds and/or warrants and/or other similar securities shall be for a specified number of shares and within a specified period of time in compliance with the Indonesian capital market regulations or any exemption as Indosat may receive therefrom. Series A Share The material rights and restrictions which are applicable to the common stock are also applicable to the one Series A share, except that the Government may not transfer the Series A share and it has veto rights with respect to: (i) amendment to the objective and purposes of the Company; (ii) increase of capital without pre-emptive rights; (iii) merger, consolidation, acquisition and demerger; and (iv) amendment to the provisions regarding the rights of A share as stipulated in the Articles of Association; and (v) dissolution, bankruptcy and liquidation of the Company.
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Purpose and Duration Pursuant to Article 3 of our Articles of Association, as amended on January 28, 2010, in order to comply with the Capital Market and Financial Institution Supervisory Board (Badan Pengawas Pasar Modal dan Lembaga Keuangan/Bapepam dan LK) Rule No. IX.J.1 on guidelines of articles of association of a company who conduct public offering on equity securities and public companies, Indosats purposes, objectives and business activities are as follows: 1. The purposes and objectives of the Company are to provide telecommunications networks, telecommunication services as well as information technology and/or convergence technology services. 2. In order to achieve the abovementioned purposes and objectives, the Company may carry out activities including the main business as follows: a. To provide telecommunication networks, telecommunication services as well as information technology and/or convergence technology services, including but not limited to provision of basic telephony services, multimedia services, internet telephony services, network access point services, internet services, mobile telecommunication networks and fixed telecommunication networks; and b. To engage in the payment transaction and money transfer service through telecommunication networks as well as information technology and/or convergence technology. 3. In order to achieve the abovementioned purposes and objectives and in order to support the main business of the Company as mentioned above, the Company can conduct supporting business activities, as follows: a. To plan, to procure, to modify, to build, to provide, to develop and to operate, to lease, to rent, to maintain infrastructure/facilities including resources to support the Company business in providing telecommunication networks, telecommunication services as well as information technology and/or convergence technology services; b. To conduct business and operating activities (including development, marketing and sales of telecommunication networks, telecommunication services as well as information technology and/or convergence technology services by the Company), including research, customer services, education and courses both domestic and overseas; and c. To conduct other activities necessary to support and/or related with the provision of telecommunication networks, telecommunication services as well as information technology and/or convergence technology services including but not limited to electronic transactions and provision of hardware, software, content as well as telecommunication managed services. We were established on November 10, 1967 with no time limit on our establishment. Voting Rights Each share of common stock entitles the registered holder thereof to one vote at any general meeting of shareholders of Indosat. Shareholders appoint members of the Board of Directors for a period commencing from the date of the general meeting of shareholders that appointed them and ending at the closing of the 5th annual general meeting of shareholders subsequent to the date of their appointment. An annual general meeting of shareholders must be held, at the latest, on June 30 of each year. At such annual general meeting, the Directors must (i) report on the affairs and management of Indosat and the results for the most recent financial year; (ii) submit the audited balance sheet and audited profit and loss statement for such financial year to the meeting for approval; (iii) determine the plan for use of profit and the amount of dividend for such financial year; (iv) submit a request for the appointment of a public accountant; and (v) submit all other matters to be addressed at the meeting. In addition, the Board of Commissioners should also report their supervisory activities during the proceeding fiscal year as stipulated in the annual report. All materials described in (i) through (v) will be made available at Indosat for inspection by shareholders from the date of the invitation for the annual general meeting of shareholders until the date of the annual general meeting of shareholders. Proposals duly submitted by shareholders representing at least 10.0% of Indosats subscribed shares may be included in the agenda of such meeting, provided that such proposals are received by the Board of Directors at least 21 days prior to such meeting.
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The Board of Directors or the Board of Commissioners may convene an extraordinary general meeting of shareholders and must convene such a meeting upon receipt of written notice from a shareholder or shareholders representing at least 10.0% of the subscribed shares of Indosat. Upon receipt of such written notice, within 22 days of the date such written notice is accepted, the Board of Directors shall discuss, resolve, and if the Board of Directors have resolved to convene such extraordinary meeting of shareholders, the Board of Directors shall announce notice of the extraordinary meeting of shareholders at the latest 14 days prior to the invitation of the extraordinary meeting of shareholders without counting the announcement date and the invitation date. No later than 14 days prior to the extraordinary meeting of shareholders, without counting the invitation date and the meeting date, the Board of Directors shall announce invitation to the extraordinary meeting of shareholders. If the Directors fail to provide notice of such a meeting, the shareholders concerned can re-submit their notice to the Board of Commissioners. Upon receipt of such notice, within 22 days of the date such notice is accepted, the Board of Commissioners shall discuss, resolve, and if the Board of Commissioners have resolved to convene such extraordinary meeting of shareholders, the Board of Commissioners shall announce notice to the extraordinary meeting of shareholders at the latest 14 days (excluding notification date and invitation date) prior to the invitation of the extraordinary meeting of shareholders. No later than 14 days prior to the extraordinary meeting of shareholders, without counting the invitation date and the meeting date, the Board of Commissioners shall announce invitation to the extraordinary meeting of shareholders. If the Board of Commissioners fails to make notice of the extraordinary meeting of shareholders within 22 days as of the receipt of such request, the shareholders concerned may call such meeting at the expense of Indosat after obtaining approval from the Chairman of District Court. Announcement of a general meeting is given to shareholders at least 14 days (excluding notification date and invitation date) prior to the notice for the general meeting by an advertisement in at least two daily newspapers (one in the Indonesian language and one in the English language), one of which has a wide circulation in Indonesia. Notice must be given by placement of advertisement in at least two daily newspapers, one of which is in the Indonesian language and has a wide circulation in Indonesia and one of which is in the English language at least 14 days before the date of the annual general meeting or extraordinary general meeting, excluding the date of the notice and the date of the meeting. If all shareholders are present and/or represented, notice requirements may be waived and the general meeting of shareholders may adopt binding resolutions. Generally, the quorum for a general meeting of shareholders requires shareholders representing more than 50.0% of the issued shares of common stock to be represented in person or by a power of attorney at such meeting. Shareholders may be represented at a general meeting of shareholders by a person holding a power of attorney, but no Commissioner, Director or employee of Indosat may act in such capacity. Unless otherwise provided in the Articles, and subject to the special voting rights of the Special Share, resolutions in order to be adopted must receive the affirmative vote of the holders of more than 50.0% of the shares of common stock which are present and being voted at the meeting (simple majority votes). Fiscal Year and Accounts Our fiscal year commences on January 1 and ends on December 31. No later than 90 days from the closing of the fiscal year, the Board of Directors must submit the balance sheet, profit and loss account and other financial statements audited by a public accountant to the Board of Commissioners, who must review these statements and report on this review to the general meeting of shareholders. Copies of such documents must be available at the head office of Indosat from the date of notice for the annual general meeting of shareholders up to the date of closing of the annual general meeting of shareholders. The annual general meeting of shareholders will consider and decide whether or not the balance sheet and profit and loss account of Indosat is approved. Such approval fully discharges the Board of Directors and the Board of Commissioners from
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their responsibilities during the fiscal year concerned to the extent that such actions are reflected in such balance sheet and profit and loss account. Utilization of Profit and Dividends The profit of Indosat, as determined by the annual general meeting of shareholders, after deduction of corporate tax, must be used as a reserve fund, for dividends and for other purposes, the percentage of which must be determined annually by a general meeting of shareholders. Dividends are paid in accordance with a resolution adopted at a general meeting of shareholders, upon the recommendation of the Board of Directors, which resolution also determines the time and manner of payment of the dividends. All shares of common stock which are fully paid and outstanding at the time a dividend or other distribution is declared are entitled to share equally in such dividends or other distribution. Dividends are payable to the persons whose names are entered in the register of shareholders of Indosat, on a business day determined by the general meeting of shareholders at which the resolution for the distribution of dividends is adopted. The Board of Directors and the Board of Commissioners may, by resolutions of both, declare interim dividends if the financial condition of Indosat so permits, provided that such interim dividends are offset against the dividends to be declared at the subsequent annual general meeting. Dividends unclaimed after five years from the date of which they are payable cease to be payable and are to be credited to the reserve fund of Indosat. Notices concerning dividends and interim dividends must be announced in a at least two daily newspapers in the Indonesian language with wide or national circulation in Indonesia, in one daily newspaper in the English language and on the stock exchange where the shares are listed. If the profit and loss account in one fiscal year shows a loss which cannot be covered by the reserve fund referred to below, the loss remains recorded as such in the profit and loss account and for the succeeding years Indosat is deemed not to have made a profit if the loss recorded as such in the profit and loss account has not been fully covered. To cover future losses, a reserve fund may be created and the amount of the reserve fund will be determined by a general meeting of shareholders. The reserve fund may be used for capital outlays or other purposes as determined at the annual general meeting of shareholders. However, it must only be used for the benefit of Indosat. Any profits earned from such reserve fund shall be entered in the profit and loss account of Indosat. Liquidation In the event that we go into liquidation, the Board of Directors will act as liquidator if required by the prevailing regulations. The balance of any liquidation account which is set up, after payment of all our debts and obligations, will be used to pay all of our shares. If possible, payment on these shares shall be made at a price written on the share certificates. The remaining balance of the liquidation account shall be distributed according to resolutions of the general meeting of shareholders. Amendments to the Articles of Association Amendments to our Articles of Association may be made only by a resolution of an extraordinary general meeting of shareholders attended by at least two-thirds of the shareholders and approved by more than two-thirds of the shareholders with voting rights, provided that (i) increases in our share capital without pre-emptive rights, (ii) merger, consolidation, acquisition and demerger involving us, (iii) dissolution and liquidation, (iv) amendments to the Articles of Association related to our purposes and objectives and the Series A holders veto rights can be affected only if the meeting is attended and the action approved by the holder of the Series A share. A resolution regarding a reduction of the authorized or subscribed capital must be published by the Board of Directors in at least two daily newspapers, one of which is in the Indonesian language having a national circulation, and the other in
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the English language, for the benefit of creditors within the period at the latest of seven days after the date of the general meeting of shareholders. In case a quorum for the extraordinary general meeting is not reached, within ten to twenty-one days from the original extraordinary general meeting a second meeting may be held to decide on matters which were not resolved at the first meeting. The second meeting can result in a valid and binding decision if attended by at least three-fifths of the shareholders and be approved by more than half of the shareholders with voting rights. Amendments related to a reduction of capital only become effective upon the approval of the Ministry of Law and Human Rights of Indonesia.
Transactions with Affiliates

It is the policy of Indosat not to enter into transaction with affiliates unless the terms thereof are no less favorable to Indosat than those which could be obtained by Indosat on an arms length basis from an unaffiliated third party. Under BAPEPAM-LK regulations and Article 19 of our Articles of Association, any transaction in which there is a conflict of interest (as defined below) must be approved by a majority of the shareholders of common stock who do not have a conflict of interest in the proposed transaction, unless the conflict existed before Indosat was listed and was fully disclosed in the offering documents. A conflict of interest is defined in BAPEPAM-LK Rule No. IX.E.1 to mean the difference between Indosats interests, on the one hand, and the personal economic interests of the members of our Board of Commissioners, Board of Directors or our majority shareholders (a holder of 20.0% or more of our issued shares) of Indosat in one transaction which may impose losses on us . A conflict of interest also exists under BAPEPAM-LK rules when members of the Board of Commissioners, Board of Directors or a controlling shareholder of Indosat is involved in a transaction in which their personal interests may be in conflict with the interest of Indosat, unless otherwise excepted by BAPEPAM-LK regulations. We expect, in light of the substantial presence which enterprises owned or controlled by the Government or Qtel Asia or one of their affiliates have in Indonesia, that it may be desirable, in connection with the development and growth of our business, for us to enter into joint ventures or other arrangements or transactions with such enterprise from time to time. Under such circumstances, we may seek to consult BAPEPAM-LK in determining whether the proposed joint venture, arrangement or transaction would require a vote of disinterested shareholders under the terms of the BAPEPAM-LK rule. If BAPEPAM-LK were of the view that the proposed joint venture, arrangement or transaction would not require a vote of disinterested shareholders under its rule, we would proceed without seeking disinterested shareholder approval. If, however, BAPEPAM-LK were to take the position that the proposal would require a vote of disinterested shareholders under its rule, we would either seek to obtain the requisite disinterested shareholder approval or abandon the proposal.
Material Contracts
On July 30, 2007, we entered into a cooperation agreement with Telkomsel to set up network interconnection between our fixed local telecommunications network and Telkomsels cellular mobile network. Pursuant to this agreement, we and Telkomsel agreed to enable each partys customers to make local, long-distance and international calls between our fixed local telecommunications network and Telkomsels cellular mobile network. We amended this agreement through the first amendment No. Telkomsel: AMD.2283/LG.05/PD-00/XII/2007No Indosat: 029/C00-CC0/LG/07 dated December 2007, the second amendment No. Telkomsel: AMD.339/LG.05/PD-00/III/2008No. Indosat: 004/C00-CC0/LGL/08 dated March 3, 2008 and the third amendment No.Telkomsel: 1762/LG.05/PD-00/XI/2010 and No. Indosat: 011/C00-C0AA/LGL/10 dated November 1, 2010. On December 18, 2007, we entered into an interconnection agreement with Telkom to set up network interconnection between our cellular wireless network and Telkoms fixed telecommunications network. Under this agreement, we and Telkom agreed to open prefixes and access codes belonging to the other party, which enable each partys customers to make interconnection calls of various types between our cellular wireless network and Telkoms fixed telecommunications network. The agreement sets forth the interconnection tariffs for providing interconnection services based upon a cost-based regime and is valid for two years, but can be extended or terminated based upon mutual agreement of the parties. We amended this agreement as stipulated in first amendment No. Telkom 47/HK.820/DCI-A1000000/2008No. Indosat 021/C00-CC0/ LGL/2008 dated March 31, 2008 and second amendment No. Telkom 123/HK.820/DCI-A1000000/2009No. Indosat007/
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C00-C0A/LGL/2009 dated December 30, 2009 and the third amendment as stipulated in the form of mutual office minutes No. Telkom Tel.024/YN.000/DCI-A1050000/2011No. Indosat 003/C00-C0H/LGL/2011dated January 31, 2011. On December 18, 2007, we entered into an interconnection agreement with Telkom to set up network interconnection between our fixed telecommunications network and Telkoms fixed telecommunications network. Under this agreement, we and Telkom agreed to open prefixes and access codes belonging to the other party which enable each partys customers to make local, long-distance and international calls between our fixed telecommunications network and Telkoms fixed telecommunications network. The agreement sets forth the interconnection tariffs for providing interconnection services based upon a cost-based regime and is valid for two years, but can be extended or terminated based upon mutual agreement of the parties. We amended this agreement through the first amendment No Telkom 48/HK.820/DCIA1000000/2008No Indosat 020/C00-CC0/LGL/2008 dated March 31, 2008, the second Amendment No Telkom 125/ HK.820/DCI-A1000000/2009No Indosat 006/C00-COA/LGL/2009 dated December 30, 2009 and the third amendment as stipulated in the form of mutual office minutes No Telkom Tel.025/YN.000/DCI-A1050000/2011No Indosat 002/C00-C0H/ LGL/2011 dated January 31, 2011. On December 19, 2007, we entered into a cooperation agreement with Telkomsel to set up network interconnection between our cellular mobile network and Telkomsels cellular mobile network. Pursuant to this agreement, we and Telkomsel agreed to enable each partys customers to make or receive interconnection calls of various types between our cellular mobile network and Telkomsels cellular mobile network. The agreement is automatically renewed every two years but can be unilaterally terminated by either party upon three months written notice. We amended the agreement through the first amendment No Telkomsel: AMD.233/LG.05/PD-00/II/2008 and No. Indosat: 003/C00-CC0/LGL/08 dated February 18, 2008 and through the second amendment No. Telkomsel: 1392/LG.05/PD-00/IX/2010 and No. Indosat: 009/C00-C0AA/LGL/10 dated September 7, 2010. On November 25, 2009, we entered into two trustee agreements with PT Bank Rakyat Indonesia (Persero) Tbk, as trustee, in connection with our Seventh Indosat Bonds and our Fourth Syariah Ijarah Bonds. The Seventh Indosat Bonds were issued on December 8, 2009 and have total face value of Rp1,300.0 billion. The Fourth Syariah Ijarah Bonds were issued on December 8, 2009 and have a total face value of Rp200.0 billion. On September 17, 2008 and on June 8, 2009, we entered into a three-year unsecured credit facility agreement and a fiveyear unsecured credit facility agreement with BCA, amounting to Rp500 billion and Rp1,000 billion, respectively. On July 28, 2009, we entered into a five-year unsecured credit facility agreement with Mandiri amounting to Rp1,000 billion and on August 18, 2009, we obtained an export credit facility from EKN totaling US$315.0 million. On March 24, 2009, we held meetings with holders of our Series B Second Indosat Bonds, Third Indosat Bonds, Fourth Indosat Bonds, Fifth Indosat Bonds, Sixth Indosat Bonds, First Syariah Ijarah Bonds, Second Syariah Ijarah Bonds and Third Syariah Ijarah Bonds, and obtained consents to, among other things, amendments to the definitions of Debt, EBITDA, and Equity and to change the ratio of Debt to Equity from 1.75 to 1 to 2.5 to 1 in the trustee agreements to these bonds. On July 29, 2010 we, through Indosat Palapa Company B.V. (Indosat Palapa) issued guaranteed Notes 2020 with a total face value of US$650.0 million. The notes were issued at 99.478% of their principal amount and mature on July 29, 2020. The notes bear interest at the fixed rate of 7.375% per annum payable in semi-annual installment due on January 29 and July 29 of each year, commencing January 29, 2011. On February 10, 2011, we entered into a three-year unsecured time loan revolving facility agreement with BCA, amounting to Rp1,000 billion. For further information on these agreements, see Item 5: Operating and Financial Review and Prospects Principal Indebtedness.
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Tower Lease Agreements To comply with the Minister of Communication and Information Regulation No. 02/PER/M.KOMINFO/2008 in conjunction with The Joint Decree of Minister of Communication and Information, Minister of Internal Affairs, Minister of Public Work and Head of Coordination Investment Board concerning Guidelines For Construction And Utilization Of Joint Telecommunication Towers, we have entered into tower lease agreements with several tenants, as follows: On January 29, 2010 we entered into a tower lease agreement with PT Hutchison CP Telecommunications (HCPT), pursuant to which HCPT intends to lease the towers of Indosat at basic service (without civil, mechanical and electrical components). The term of this agreement is 12 years and can be extended for a minimum of six years thereafter, unless HCPT intends to terminate the agreement with prior written notice submitted within one month before the end of the agreement. On April 15, 2010 we entered into a tower lease agreement with PT Natrindo Telepon Seluler (NTS), pursuant to which NTS intends to lease the towers of Indosat at basic service (without civil, mechanical and electrical components). The term of this agreement is 10 years and can be extended automatically for the same period of the initial term, unless NTS intends to terminate the agreement with prior written notice submitted within 90 days before the end of the agreement. On May 24, 2010 we entered into a tower lease agreement with PT XL Axiata (XL), pursuant to which XL intends to lease towers of Indosat at basic service (without civil, mechanical and electrical components). The term of this agreement is 10 years and can be extended for a minimum of five years unless XL intends to terminate the agreement with prior written notice submitted within 120 days before the end of the agreement. On June 3, 2010 we entered into a tower lease agreement with PT Berca Global Access (BERCA), pursuant to which BERCA intends to lease the towers of Indosat at basic service (without civil, mechanical and electrical components). The term of this agreement is 10 years and can be extended for a minimum of six years unless BERCA intends to terminate the agreement with prior written notice submitted within one month before the end of the agreement. On February 4, 2011, we entered into a tower lease agreement with PT Daya Mitra Telekomunikasi (Mitratel), pursuant to which Mitratel intends to lease the towers of Indosat at basic service (without civil, mechanical and electrical components) and reserves the right to re-lease it to PT Telekomunikasi Indonesia Tbk Group with full services (including civil, mechanical and electrical components). The term of this agreement shall be 10 years period and can be extended for a minimum of five years based on mutual consent of the parties. On February 10, 2011, we entered into a memorandum of agreement with PT First Media Tbk (FM), pursuant to which FM leased Indosats tower with full services (including civil, mechanical and electrical components). The term of this memorandum of agreement is five years and can be extended for a minimum of five years period based on mutual consent of the parties.
Exchange Controls
See Item 3: Key InformationForeign Exchange included elsewhere in this annual report.
Taxation
The following summary contains a description of the principal Indonesian and U.S. federal tax consequences of the purchase, ownership and disposition of ADSs or shares of common stock. This summary does not purport to be a competitive description of all of the tax considerations that may be relevant to a decision to purchase, own or dispose of ADSs or shares of common stock. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS ABOUT THE INDONESIAN AND U.S. FEDERAL, STATE AND LOCAL TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR SHARES OF COMMON STOCK.
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Indonesian Taxation The following is a summary of the principal Indonesian tax consequences of the ownership and disposition of common stock or ADSs to a non-resident individual or non-resident entity that holds common stock or ADSs (a Non-Indonesian Holder). As used in the preceding sentence, a non-resident individual is a foreign national individual who is not physically present in Indonesia for 183 days or more during any twelve-month period or present for any period with the intent to reside in Indonesia, during which period such non-resident individual receives income in respect of the ownership or disposition of common stock or ADSs, and a non-resident entity is a corporation or a non-corporate body that is established, domiciled or organized under the laws of a jurisdiction other than Indonesia and does not have a fixed place of business or otherwise conducts business or carries out activities through a permanent establishment in Indonesia during an Indonesian tax year in which such non-Indonesian entity receives income in respect of the ownership or disposition of common stock or ADSs. In determining the residency of an individual or entity, consideration will be given to the provisions of any applicable double taxation treaty to which Indonesia is a party. Dividends. Dividends declared by us out of retained earnings and distributed to a Non-Indonesian Holder in respect of common stock or ADSs are subject to Indonesian withholding tax, currently at the rate of 20.0%, on the amount of the distribution (in the case of cash dividends) or on the shareholders proportional share of the value of the distribution. A lower rate provided under double taxation treaties may be applicable provided the recipient is the beneficial owner of the dividend and has provided to us (with a copy to the Indonesian Office of Tax Services where we are registered) a certificate of tax domicile issued by the competent authority, or its designee, of the jurisdiction where the Non-Indonesian Holder is domiciled. Indonesia has concluded double taxation treaties with over 50 countries, including Australia, Belgium, Canada, France, Germany, Japan, Malaysia, The Netherlands, Singapore, Sweden, Switzerland, the United Kingdom and the United States of America. Under the U.S.-Indonesia tax treaty, the withholding tax on dividends is generally, in the absence of a 20.0% voting interest, reduced to 15.0%. Capital Gains. The sale or transfer of common stock listed on an Indonesian stock exchange is subject to tax at the rate of 0.1% of the value of the transaction. The broker handling the transaction is obligated to withhold such tax. The holding, sale or transfer of founder shares listed on an Indonesian stock exchange may, under current Indonesian tax regulations, be subject to an additional 0.5% final income tax. Subject to the promulgation of implementing regulations (which have not been issued to date), the estimated net income received or accrued from the sale of movable assets in Indonesia, which may include common stock not listed on an Indonesian stock exchange or ADSs, by a Non-Indonesian holder (with the exception of the sale of assets under Article 4 paragraph (2) of the Indonesian income tax law) may be subject to Indonesian withholding tax at the rate of 20.0%. However, this provision in the income tax law is not currently applied in practice. It is expected that, if and when further implementing regulations are issued in respect to this provision in the income tax law, in practice this withholding tax will (i) only be applied if common stock not listed on an Indonesian stock exchange is purchased and paid for by an Indonesian resident subject to tax or by a permanent establishment in Indonesia of a non-resident entity or individual and (ii) not affect the net proceeds from any sale or transfer of ADSs through a regular trade on the NYSE by a Non-Indonesian Holder. In cases where a purchaser or Indonesian broker will be required under Indonesian tax laws to withhold tax on payment of the purchase price for common stock or ADSs, that payment may be exempt from Indonesian withholding or other Indonesian income tax under applicable double taxation treaties to which Indonesia is a party (including the U.S.-Indonesia double taxation treaty). However, current Indonesian tax regulations do not provide specific procedures for removing the purchasers or Indonesian brokers obligation to withhold tax from the proceeds of such sale. To take advantage of the double taxation treaty relief, Non-Indonesian Holders may have to seek a refund from the Indonesian Tax Office by making a specific application accompanied by a Certificate of Domicile issued by the competent tax authority, or its designee, of the jurisdiction in which the Non-Indonesian Holder is domiciled.
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Stamp Duty. Transactions in common stock in Indonesia are subject to stamp duty payable at the rate of Rp6,000 on transactions with a value of more than Rp1,000,000 and Rp3,000 on transactions with a value of between Rp250,000 to Rp1,000,000. Transactions with a value of less than Rp250,000 are not subject to stamp duty. U.S. Federal Income Taxation The following discussion addresses the principal U.S. federal income tax consequences to a U.S. Holder, as defined below, of owning ADSs or shares of common stock. The description below is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations promulgated thereunder, the income tax convention between the United States and Indonesia and judicial and administrative interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly retroactively. The tax treatment of a holder of ADSs or shares of common stock may vary depending upon the holders particular situation. Certain holders (including, but not limited to, insurance companies, taxexempt organizations, financial institutions, persons subject to the alternative minimum tax, broker-dealers, persons that have a functional currency other than the U.S. dollar, persons that received ADSs or shares of common stock as compensation for services, persons owning, directly or indirectly, 10.0% or more of our voting shares, and persons who hold ADSs or shares of common stock as part of a hedge, straddle or conversion transaction within the meaning of Sections 1221, 1092 and 1258 of the Code and the Treasury Regulations thereunder) may be subject to special rules not discussed below. Except as discussed below with regard to persons who are not U.S. Holders, the following summary is limited to U.S. Holders who will hold ADSs or shares of common stock as capital assets within the meaning of Section 1221 of the Code. The discussion below does not address the effect of any state or local tax law on a holder of ADSs or shares of common stock. As used herein, the term U.S. Holder means a holder of ADSs or shares of common stock that is for U.S. federal income tax purposes (i) a citizen or resident of the United States; (ii) a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; (iii) an estate whose income is subject to U.S. taxation regardless of its source; (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust; or (v) a holder whose income in respect of the ADSs or shares of common stock is subject to U.S. federal income tax on a net income basis. If a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes holds ADSs or shares of common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A U.S. Holder that is a partner in a partnership holding ADSs or shares of common stock is urged to consult its own tax advisor. The summary below does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular holder of ADSs or shares of common stock in light of the holders particular circumstances and income tax situation. Prospective holders should consult their own tax advisors as to the specific tax consequences to them of the purchase, ownership and disposition of ADSs or shares of common stock, including the application and the effect of state, local, foreign and other tax laws and the possible effects of changes in United States or other tax laws. Taxation of Distributions. Subject to the discussion under Passive Foreign Investment Company Status below, for U.S. federal income tax purposes, the amount of a distribution with respect to ADSs or shares of common stock (including any withholding tax deemed to be imposed with respect to such distributions) will be treated as a dividend taxable as ordinary income on the date of receipt by the Depositary or the holder, respectively, to the extent of our current and accumulated earnings and profits as determined for U.S. federal income tax purposes. Distributions, if any, in excess of such current and accumulated earnings and profits will first constitute a non-taxable return of capital to the extent thereof, and then as a capital gain realized on the disposition of the ADSs or shares of common stock. The portion of any distribution treated as a non-taxable return of capital will reduce such holders adjusted tax basis in such ADSs or shares of common stock. Such
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capital gain will be long-term if the ADSs or shares of common stock have been held longer than one year. U.S. Holders will not be eligible for the dividends received deduction otherwise allowed under the Code for distributions to domestic corporations in respect of distributions on the ADSs or common stock. For taxable years beginning before January 1, 2013, qualified dividend income received by an individual is subject to federal income taxation at rates lower than those applicable to other types of ordinary income. Based upon our existing and anticipated future operations and current assets, we believe that we are a qualified foreign corporation and that our dividends paid to U.S. Holders who are individuals will be eligible to be treated as qualified dividend income provided that applicable holding period requirements with respect to the ADSs or common stock and other applicable requirements are satisfied by such U.S. Holders. Dividends paid by a foreign corporation that is classified as a passive foreign investment company, or PFIC, are not qualified dividend income. See Passive Foreign Investment Company Status below. If a distribution is paid in any currency other than U.S. dollars, the amount of the distribution will be translated into U.S. dollars at the spot rate on the date the distribution is received (which for holders of ADSs, would be the date such dividend is received by the Depositary), regardless of whether the distributions are in fact converted into U.S. dollars on that date. Any gain or loss in respect of such non-U.S. currency arising from exchange rate fluctuations after that date will be ordinary income or loss. Taxation of Capital Gains and Losses. Subject to the discussion under Passive Foreign Investment Company Status below, a U.S. Holder will generally recognize a taxable gain or loss on the sale, exchange or other disposition of ADSs or shares of common stock in an amount equal to the difference between the amount realized on the sale, exchange or other disposition and such holders adjusted tax basis in such ADSs or shares of common stock. This will result in a long-term or short-term capital gain or loss, depending on whether the ADSs or shares of common stock have been held for more than one year. For non-corporate U.S. Holders, the U.S. income tax rate applicable to the net long-term capital gain recognized for a year upon a sale, exchange or other disposition of ADSs or shares of common stock is currently 15.0% for taxable years beginning before January 1, 2013. Deposit and withdrawal of common stock in exchange for ADSs by a U.S. Holder will not result in a realization of gain or loss for U.S. federal income tax purposes. Passive Foreign Investment Company Status. Special U.S. federal income tax rules apply to a U.S. Holder that holds an equity interest in a PFIC. In general, a foreign corporation will constitute a PFIC for any taxable year for United States federal income tax purposes if 75.0% or more of its gross income for such taxable year consists of passive income (generally, interest, dividend, rents, royalties and net gain from the disposition of assets that give rise to such income) or 50.0% or more of its average assets held during such taxable year consist of assets that produce or are held for the production of passive income. Based upon our existing and anticipated future operations and current assets, we believe that we are not, and anticipate that we will not become in the foreseeable future, a PFIC. If we are not operated in the manner currently anticipated, however, we may be considered a PFIC for the current or for a subsequent year depending upon our actual activities. Furthermore, because PFIC status is determined on a year-by-year basis and depends upon the composition of a companys income and assets and the market value of its assets from time to time, there can be no assurance that we will not be considered a PFIC for any taxable year. If we are a PFIC for any taxable year during which a U.S. Holder holds ADSs or shares of common stock, such U.S. Holder will be subject to special tax rules with respect to any excess distribution received and any gain realized from a sale or other disposition, including a pledge, of ADSs or shares of common stock. Distributions received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or such U.S. Holders holding period for ADSs or shares of common stock will be treated as excess distributions. Under these special tax rules: (a) the excess distribution or gain will be allocated rateably over such U.S. Holders holding period for ADSs or shares
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of common stock, (b) the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and (c) the amount allocated to each other year will generate an additional tax that is due for the current taxable year and that is equal to the total, for each such other year, of (i) the amount allocated to such year multiplied by the highest tax rate in effect for such year and (ii) an amount equal to the interest charge that would have been imposed for underpaying that amount of tax for such year. An election may be available to avoid these adverse tax consequences if certain conditions are met and the U.S. Holder elects to annually mark-to-market the ADSs or shares of common stock. Furthermore, although a PFIC shareholder may mitigate the rules described above by electing to treat a PFIC as a qualified electing fund under Section 1295 of the Code, this option is not available to U.S. Holders because we do not intend to comply with the requirements necessary to permit a U.S. Holder to make this election. U.S. Holders are advised to consult their tax advisors concerning the U.S. federal income tax consequences of holding the ADSs or shares of common stock and of making the mark-to-market election if we are considered a PFIC in any taxable year. A U.S. Holder who owns ADSs or shares of common stock during any year that we are a PFIC must file with the Internal Revenue Service, or IRS, Form 8621. Foreign Tax Credit Considerations. For United States federal income tax purposes, U.S. Holders will be treated as having received the amount of any Indonesian tax withheld upon the payment of a dividend and as then having paid over the withheld taxes to Indonesia. As a result of this rule, the amount of dividend included in a U.S. Holders gross income may be greater than the amount of cash actually received (or receivable) by the U.S. Holder. Subject to the limitations and conditions set forth in the Code, U.S. Holders may elect to claim a credit against their U.S. federal income tax liability for Indonesian tax withheld from dividends or Indonesian tax imposed on capital gains, if any, or, if they do not elect to credit any foreign tax for the taxable year, they may deduct such tax. For purposes of the foreign tax credit limitation, dividends and capital gains will, depending on a U.S. Holders particular circumstances, generally constitute passive or general income. Furthermore, dividends will generally constitute foreign source income and currency gains and capital gains will generally constitute U.S. source income. Capital loss will generally be allocated against U.S. source income. Because capital gains will generally constitute U.S. source income, as a result of the U.S. foreign tax credit limitation, any Indonesian or other foreign tax imposed upon capital gains in respect of ADSs or shares of common stock may not be currently creditable unless a U.S. Holder had other foreign source income for the year in the appropriate foreign tax credit limitation basket or an election to treat such gain as foreign source income is available. Investors are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances. Non-U.S. Holders. Except for the possible imposition of U.S. backup withholding tax (see U.S. Backup Withholding and Information Reporting), payments of any dividend on an ADS or share of common stock to a holder who is not a U.S. Holder (a non-U.S. Holder) will not be subject to U.S. federal income tax and gain from the sale, redemption or other disposition of an ADS or a shares of common stock, provided that: a. the non-U.S. Holder shall not be or have been engaged in a trade or business in the United States; b. there is no present or former connection between such non-U.S. Holder and the United States, including, without limitation, such non-U.S. Holders status as a former citizen thereof or former resident thereof; and c. in the case of a gain from the sale, redemption or other disposition of an ADS or share of common stock by an individual, the non-U.S. Holder is not present in the United States for 183 days or more in the taxable year of the sale or certain other conditions are met.
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If dividends, gain or income with respect to an ADS or share of common stock of a non-U.S. Holder is effectively connected with the conduct of such trade or business (or attributable to a permanent establishment in the United States, in the case of a holder who is a resident of a country which has an income tax treaty with the United States), the non-U.S. Holder may be subject to U.S. income taxes on such dividend, gain or income at the statutory rates provided for U.S. Holders after deduction of deductible expenses allocable to such effectively connected income. In addition, if such a non-U.S. Holder is a foreign corporation, it may be subject to a branch profits tax currently equal to 30.0% of its effectively connected earnings and profits for the taxable year, as adjusted for certain items, unless a lower rate applies under a United States income tax treaty with the non-U.S. Holders country of residence. For this purpose, dividends, gain or income in respect of an ADS or share of common stock will be included in earnings and profits subject to the branch profits tax if the dividend, gain or income is effectively connected with the conduct of the United States trade or business of the non-U.S. Holder. U.S. Backup Withholding and Information Reporting. Payments made by a U.S. paying agent or other U.S. intermediary broker in respect of ADSs or shares of common stock may be subject to information reporting to the IRS and to a backup withholding tax. Backup withholding will not apply, however, (i) to a holder who furnishes a correct taxpayer identification number and makes any other required certification or (ii) to a holder who is otherwise exempt from backup withholding. Any amounts withheld under the backup withholding rules from a payment to a holder will be allowed as a refund or a credit against such holders U.S. federal income tax, provided that the holder has complied with applicable reporting obligations. Information with Respect to Foreign Financial Assets. Under recently enacted legislation, individuals that own specified foreign financial assets with an aggregate value in excess of $50,000 in taxable years beginning after March 18, 2010 will generally be required to file an information report with respect to such assets with their tax returns. Specified foreign financial assets include any financial accounts maintained by certain foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued by nonUS persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties and (iii) interests in foreign entities. U.S. holders that are individuals are urged to consult their tax advisors regarding the application of this legislation to their ownership of ADSs or shares of common stock.
Item 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosure about Market Risk
We are exposed to market risks primarily from changes in interest rates, changes in foreign currency exchange rates, and equity price risk on the value of our long-term investments. To manage our foreign exchange and interest rate risks, we have entered into interest rate swap contracts, cross currency swap contracts and other transactions aimed at reducing and/or managing the adverse impact of changes in foreign exchange and interest rates on our operating results and cash flows. We enter into such transactions to minimize risk without engaging in speculative practices. We account for these instruments as transactions not designated as hedges, wherein changes in the fair value are charged or credited directly as expenses or income for the relevant year. We also convert surplus Indonesian rupiah funds to U.S. dollars on a regular basis in amounts necessary to meet our U.S. dollar expenses.
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Interest Rate Sensitivity

As of December 31, 2010, most of our debt outstanding was at fixed rates. The following table provides information regarding our financial instruments that are sensitive to changes in interest rates. For long-term debt and bonds payable, the table presents principal cash flows and related interest rates by expected maturity dates. The information presented in the table has been determined based on the following assumptions: (i) variable interest rates in time deposits denominated in U.S. dollar and Indonesian rupiah are based on the available interest rate in 2010; (ii) interest rates for long-term deposits denominated in Indonesian rupiah are based on one-month Certificate of Bank Indonesia and three month JIBOR on December 2010 plus a margin; and (iii) interest rates for long-term debts in U.S. dollars are based on provisions in the various agreements. However, we cannot assure you that such assumptions will be correct for future periods. Such assumptions and the information described in the table may be influenced by a number of factors, including increases in interest rates in Indonesia resulting from continued tight liquidity and other monetary and macroeconomic factors affecting Indonesia.
Outstanding Balance as at December 31, 2010 Interest Rate Foreign Currency (in US$ million) Assets Variable rate Time deposits and deposits on call Rp USD Total Assets Liabilities Loans payable Fixed rate Rp Principal Interest USD Principal Interest Fixed rates, ranging from 4.15% p.a. 5.69% p.a. 295.3 2,654.8 374.6 124.1 340.4 106.8 395.0 90.3 340.4 73.8 340.4 57.3 864.0 85.1 2,654.8 537.4 Fixed rate of 8.75% p.a. 434.3 38.0 38.0 434.3 19.0 434.3 95.0 2.5% 10.00% 0.05% 4.75% 94.2 94.2 945.2 846.6 1,791.8 945.2 846.6 1,791.8 945.2 846.6 1,791.8 Rupiah Equivalent (in Rp billion) 2011 2012 Expected Maturity Date as of December 31 2013 2014 (in Rp billion) 2015 2016 and thereafter Total
Variable rate Rp Principal Interest Floating rate of 3-month JIBOR + 1.5% 2.25% 2,657.4 634.9 210.0 2,022.5 125.7 2,657.4 335.7
USD Principal Interest Floating rates of 6-month LIBOR + 0.35% 2.87% 591.3 5,316.7 94.9 2,175.0 61.8 852.0 51.7 1,620.7 30.0 204.7 22.4 204.7 19.9 259.6 280.7 5,316.7
Bonds payable
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Outstanding Balance as at December 31, 2010 Interest Rate Foreign Currency (in US$ million) Fixed rate Rp Principal Interest Fixed rates, ranging from 10.2% p.a. 16.0%p.a. 7,450.0 1,100.0 753.7 687.7 Rupiah Equivalent (in Rp billion) 2011 2012
Expected Maturity Date as of December 31 2013 2014 (in Rp billion) 2015 2016 and thereafter Total
1,330.0 619.5
2,358.0 468.2
320.0 285.9
2,342.0 853.4
7,450.0 3,668.4
USD Principal Interest Variable rate Rp Principal Interest Maximum of 19% p.a. and Minimum of 12.75% p.a. 42.0 5.4 42.0 2.6 42.0 8.0 7.38% 650.0 5,844.1 431.0 431.0 431.0 431.0 431.0 2,155.0 5,844.1 4,310.0 5,844.1
Total Liabilities Net Cash Flows
1,536.6 (1,442.4)
24,399.3
5,941.6
4,710.5
4,991.5
3,906.1
1,661.7
12,423.1 (12,423.1)
33,634.5 (31,842.7)
(22,607.5) (4,149.8) (4,710.5) (4,991.5) (3,906.1) (1,661.7)
In addition, as of December 31, 2010, we held U.S. dollar-denominated and Indonesian rupiah-denominated deposits, which also have exposure to interest rate fluctuations. Exchange Rate Sensitivity Our exposure to exchange rate fluctuations results primarily from U.S. dollar long-term debt obligations, bonds payable and accounts receivable and payable. Our accounts payable are primarily foreign currency net settlement payments to foreign telecommunications operators, while most of our accounts receivable are Indonesian rupiah-denominated payments from domestic operators. During the period between January 1, 2008 through December 31, 2010, the Indonesian rupiah/U.S. dollar exchange rate ranged from a low of Rp12,151 per U.S. dollar to a high of Rp8,924 per U.S. dollar, and, during 2010, ranged from a low of Rp9,365 per U.S. dollar to a high of Rp8,888 per U.S. dollar. On December 31, 2010, the prevailing Bank Indonesia exchange rate was Rp8,991 per U.S. dollar. As a result, we recorded a loss on foreign exchange-net of Rp885.7 billion in 2008, a gain of Rp1,656.4 billion in 2009 and a gain of Rp492.4 billion (US$54.8 million) in 2010. The following table provides information about our financial instruments by functional currency and presents such information in Indonesian rupiah equivalents, which is our reporting currency. The table summarizes information on instruments and transactions that are sensitive to foreign exchange rates, including term deposits, accounts payable and receivable, and our financial instruments including term deposits, account receivable and account payable, and their long term debt. The table presents principal cash flows by expected maturity dates. The information presented in the table has been determined based on assumptions that the exchange rate for U.S. dollars is based on the Indonesian Central Bank Rate on December 31, 2010 of Rp8,991 per US$1.00. However, we cannot assure you that such assumptions will be correct for future periods. Such assumptions and the information described in the table may be influenced by a number of factors, including a further depreciation of the Indonesian rupiah in future periods.
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Expected Maturity Date as of December 31, Foreign Currency (in US$ million) Assets Cash and cash equivalents(1) US$ denominated Accounts receivable US$ denominated Derivative assets US$ denominated Other current financial assets US$ denominated Due from related parties US$ denominated Other non-current financial assets US$ denominated Total Assets Liabilities: Accounts payablerade US$ denominated Procurement payable US$ denominated Accrued expenses US$ denominated Deposits from customers US$ denominated Derivative liabilities US$ denominated Other current financial liabilities US$ denominated Other current liabilities US$ denominated Loans payable including current maturities US$ denominated Bonds payable including current maturities US$ denominated Other non-current liabilities US$ denominated Total Liabilities Net Cash Flows
(1)
2011
2012
2013
2014 (in Rp billion)
2015
2016 and thereafter
Total
111.8 116.1 7.7 1.7 0.1
1,005.1 1,043.6 69.3 15.4
1.1
1,005.1 1,043.6 69.3 15.4 1.1
1.4 238.8
2,133.4
12.8 13.9
12.8 2,147.3
32.8 246.6 46.3 1.5 23.9
294.8 2,217.3 416.0 13.3 215.4
294.8 2,217.3 416.0 13.3 215.4
0.1 6.1
0.6 55.0
0.6 55.0
886.6
2,549.6
1,192.4
2,015.7
545.1
545.1
1,123.5
7,971.4
650.0 8.7 1,902.6 (1,663.8)
5,762.0 (3,628.6)
78.5 1,270.9 (1,257.0)
2,015.7 (2,015.7)
545.1 (545.1)
545.1 (545.1)
5,844.2 6,967.7 (6,967.7)
5,844.2 78.5 17,106.5 (14,959.2)
Cash and cash equivalents consist of cash on hand, cash in banks and time deposits.
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Equity Price Risk Our long-term investments consist primarily of minority investments in the equity of private Indonesian companies and equity of foreign companies. With respect to the Indonesian companies in which we have investments, the financial performance of such companies may be adversely affected by economic conditions in Indonesia. Foreign Currency Swap Contracts As of December 31, 2010, we maintained foreign currency swap contracts that we entered between 2005 and 2008. From 2008 to 2009, we settled the remainder of our structured currency forward contracts with three separate international financial institutions. As of December 31, 2010, we had hedging facilities amounting to US$275.0 million, representing 17.9% of our U.S. dollar-denominated bonds and loans as of December 31, 2010. As of December 31, 2010, we have outstanding foreign currency contracts under which we agreed to pay Indonesian rupiah in exchange for the counterpartys obligation to pay U.S. dollars, based upon agreed spot rates. However, in the event that the Indonesian rupiah appreciates against the U.S. dollar, we would recognize losses on such transactions, which could have a material and adverse effect on our financial condition. Interest Rate Swap Contracts As of December 31, 2010, we maintained interest rate swap contracts that we entered into between 2008 to 2009 with respect to US$478.3 million in aggregate in which we agreed to make fixed interest rate payments in exchange for a sixmonth U.S. dollar LIBOR-linked floating rate plus either 0.35%, 1.45% or 1.85% per annum in order to hedge the interest rate risks on our HSBC Sinosure and HSBC Commercial satellite financing agreements and our ING/DBS Syndicated Loan, respectively.
Item 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Fees and Charges Our American Depositary Shares (ADS) Holders May Have to Pay The Bank of New York Mellon, the depositary of our ADS program, charges the following to any party depositing or withdrawing ordinary shares or any party surrendering ADRs or to whom ADRs are issued, whichever applicable, pursuant to the deposit agreement with the depositary: (1) taxes and other governmental charges, (2) registration fees as may from time to time be in effect for the registration of transfers of shares, (3) cable, telex and facsimile transmission expenses as are expressly provided in the deposit agreement to be at the expense of persons depositing shares or owners, (4) expenses incurred by the depositary in the conversion of foreign currency pursuant to the deposit agreement, (5) a fee not in excess of $5.00 per 100 ADSs (or portion thereof) for the execution and delivery of ADSs and the surrender of ADSs and, (6) a fee for the distribution of proceeds of sales of securities or rights pursuant to the deposit agreement, respectively, in an amount equal to the fee for the issuance of ADSs referred to above which would have been charged as a result of the deposit by owners of shares received in exercise of rights distributed to them pursuant to the deposit agreement, respectively, but which securities or rights are instead sold by the depositary and the net proceeds distributed. Under the deposit agreement, the depositary collects such fees by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. Fees to be made by the Depositary to Us The depositary has agreed to reimburse certain of our expenses related to our ADS program and incurred by us in connection with the program. The depositary reimbursed to us, or paid amounts on our behalf to third parties, or waived its fees and expenses, in the gross amount of US$222,697.21 for the year ended December 31, 2010.
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The table below sets forth the types of expenses that the depositary has agreed to reimburse, and the invoices relating to the year ended December 31, 2010 that were reimbursed:
Type of Fees Printing costs New York Stock Exchange Listing Fee Costs related to ADS program Total Amount ($) 0.00 54,083.96 49,363.26 103,447.22
The depositary has also agreed to waive fees for standard costs associated with the administration of the ADS program and has paid certain expenses directly to third parties on our behalf. The table below sets forth those expenses that the depositary has waived or paid directly to third parties relating to the year ended December 31, 2010:
Type of Fees Mailing, printing and service fees and expenses Meeting-related expenses Fees and expenses related to the administration of the ADS program Total Amount ($) 0.00 4,116.16 115,133.83 119,249.99
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PART II Item 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Following the Asian financial crisis and the related devaluation of the Indonesian rupiah against the U.S. dollar in late 1997, Satelindo defaulted on its debt obligations in 1998. Satelindo restructured its debt obligations in 2000. Immediately prior to the restructuring, Satelindo had a total principal amount of indebtedness of US$530.5 million, of which US$519.1 million was restructured. As of December 31, 2010, neither we nor our subsidiaries had a material default relating to our outstanding indebtedness.
Item 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
Item 15: CONTROLS AND PROCEDURES Disclosure Controls and Procedures

As of December 31, 2010, or the Evaluation Date, our management, including our President Director and Finance Director, carried out an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Exchange Act. Based on that evaluation, we concluded that, as of the Evaluation Date, our disclosure controls and procedures were sufficient to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our President Director and Finance Director, as appropriate, to allow timely decisions regarding required disclosure.
Managements Annual Report on Internal Control Over Financial Reporting

As required by section 404 of the Sarbanes-Oxley Act of 2002, our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our system of internal control over financial reporting was designed to provide reasonable assurance to our management and Audit Committee of the reliability of our financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles. Our Board of Directors conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2010 based on the framework in Internal ControlIntegrated Framework, which is issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of our Board of Directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the companys assets that could have a material effect on the financial statements. Based on this criteria, our management concluded that, as of December 31, 2010, our internal control over financial reporting was effective. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of the controls and procedures which may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions.
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Purwantono, Suherman & Surja, a member firm of Ernst & Young Global Limited, the independent registered public accounting firm, has audited our consolidated financial statements included in this annual report and has issued an attestation report on internal control over financial reporting as of December 31, 2010. This attestation report is set forth on page 3 of our consolidated financial statements attached hereto.
Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A: AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Commissioners has determined that each of George Thia Peng Heok and Kanaka Puradiredja constitute an audit committee financial expert, as defined in Item 16A of Form 20-F, and that such person is also independent, as defined in Rule 10A-3 under the Exchange Act. For more information about George Thia Peng Heok, see Item 6. Directors, Senior Management and EmployeesDirectors and Senior ManagementBoard of Commissioners.
Item 16B: CODE OF ETHICS

We have adopted a Code of Ethics that applies to all employees, including our Board of Directors. We have posted this Code of Ethics on our website at www.indosat.com, where it is publicly available. We have issued a Guide to the implementation of PT Indosat Tbks Code of Ethics on November 20, 2010 as a reiteration of the Board of Directors Decree No.002/DIREKSI/2007 on the Code of Ethics.
Item 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table contains a summary of the fees paid to Purwantono, Sarwoko & Sandjaja, the Indonesian member firm of Ernst & Young Global, our independent external auditors for the years ended December 31, 2008 and 2009 and the fees paid to Purwantono, Suherman & Surja, the Indonesian member firm of Ernst & Young Global, our independent external auditors for the years ended December 31, 2010:
2008 Audit fees(1) Audit-related fees(2) Tax fees
(3)
2009 (in US$) 2,330,298 1,279,708 3,610,006
2010 2,287,934 1,543,584 3,831,518
1,963,307 953,962 2,917,269
All other fees(4) Total Fees

(1)
(2) (3) (4)
Audit fees represent fees for professional services provided for the financial audit of our financial statements and of our subsidiaries, PT Indosat Mega Media, PT Aplikanusa Lintasarta, PT Starone Mitra Telekomunikasi and PT Artajasa Pembayaran Elektronis and our internal control audit and attestation services in compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Audit-related fees in 2008, 2009 and 2010 primarily consist of fees for performing limited reviews of our interim financial information including those of our subsidiaries and for performing services in connection with our bond issuances in 2008, 2009 and 2010. Tax fees represent fees for professional services related to tax compliance and tax planning / advisory consultation. All other fees represent professional services provided for services not directly supporting financial statement audits.
These professional services are covered within the scope of audit services as defined by the Commissions regulations. In June 2004, the Audit Committee adopted a policy pursuant to which all audit and non-audit services must be preapproved by the Audit Committee. Under no circumstances may our principal external auditors provide services that are prohibited by the Sarbanes-Oxley Act of 2002 or rules issued thereunder. Non-prohibited audit-related services may be provided to us, subject to such pre-approval process and prohibitions. The pre-approval policy relates to all services provided by our principal external auditor and does not include any pre-set fee limits that do not require pre-approval or any de minimis exception.
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Item 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
In accordance with Indonesian law, we have a two-tier board structure, consisting of a Board of Commissioners and a Board of Directors. The executive management functions are carried out by our Board of Directors, while our Board of Commissioners is principally responsible for supervising our Board of Directors in the operation and management of us and to give advice to our Board of Directors. Under Indonesia Stock Exchange rules, our Audit Committee must consist of at least three members, one of whom must be an independent commissioner and concurrently the chairman of the Audit Committee, while the other two members must be external independent parties of whom at least one such party shall have accounting and/or finance expertise. Our Audit Committee is composed of five members and is chaired by one of our Independent Commissioners. Members of our Audit Committee are appointed and dismissed by our Board of Commissioners. New listing rules adopted pursuant to Rule 10A-3 under the Exchange Act require a foreign private issuer with securities listed on the NYSE to have an audit committee comprised of independent directors. The rules became effective on July 31, 2005. Under Rule 10A-3(c)(3), foreign private issuers are exempt from such independence requirements if (i) the home country government or stock exchange requires the company to have an audit committee; (ii) the audit committee is separate from the board of directors or has members from both inside and outside the board of directors; (iii) the audit committee members are not elected by the management and no executive officer of the company is a member of the audit committee; (iv) the home country government or stock exchange has requirements for an audit committee independent from the management of the company; and (v) the audit committee is responsible for the appointment, retention and oversight of the work of external auditors. We rely on the general exemption under Rule 10A-3(c)(3) of the Exchange Act with respect to the composition of our Audit Committee as set forth in our Section 303A.11 website disclosure, which is made publicly available on our website, www.indosat.com. We believe our reliance on the exemption would not materially or adversely affect the ability of our Audit Committee to act independently. We also believe the intent of such provisions are meant to ensure that the Audit Committee is independent from influence by management and would provide a forum separate from management in which auditors and other interested parties can candidly discuss concerns. The Indonesia Stock Exchange rules require that each member of the Audit Committee be independent. The rules also require that at least two of the members of the Audit Committee be external independent members, which means that they must be independent of not only the Board of Directors but also the Board of Commissioners and us as a whole. Accordingly, we believe the standard established by the Indonesia Stock Exchange rules are at least equally effective in ensuring the ability of our Audit Committee to act independently.
Item 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
Item 16F: CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT

There were no changes in or disagreements with our accountants on any matter of accounting principle, practice or financial disclosure during the last two fiscal years.
Item 16G: CORPORATE GOVERNANCE

We are incorporated under the laws of the Republic of Indonesia and the principal trading market for our ordinary shares is the IDX. Our ordinary shares are registered with the U.S. Securities and Exchange Commission and are listed on the NYSE. As such, we are subject to certain corporate governance requirements. Our home country requirements for corporate governance are embodied primarily in Law No. 40 of 2007 on Limited Liability Companies, Law No. 8 of 1995 on Capital Markets, the Regulations of the Indonesian Capital Market and Financial Institution Supervisory Board, or the BAPEPAM-LK Regulations, and the rules issued by the Indonesian stock exchanges,
415
namely the IDX. In addition to these statutory requirements, our Articles of Association incorporate provisions directing certain corporate governance practices. However, many of the corporate governance rules contained in the NYSE Listed Company Manual, or the NYSE listing standards, are not required for foreign private issuers and we are permitted to follow our home country corporate governance practices in lieu of most corporate governance standards contained in the NYSE listing standards. Although we have complied voluntarily with most of the corporate governance rules contained in the NYSE listing standards, there are certain important differences between our corporate governance standards and those standards applicable to U.S. companies listed on the NYSE which are described below. Audit Committee The NYSE listing standards require NYSE-listed companies to maintain an audit committee comprised of at least three members satisfying the requirements for independence set forth in Section 303A.02. Pursuant to BAPEPAM-LK Regulations, public companies in Indonesia must maintain audit committees comprised of at least one independent commissioner and two members from outside the company. Our Audit Committee consists of five members, three of whom are Independent Commissioners and two of whom are independent outsiders, as required by BAPEPAM-LK Regulations. Unlike the requirements set forth in the NYSE listing standards, our Audit Committee does not have direct responsibility for the appointment, retention and compensation of our external auditor. Our Audit Committee can only recommend the appointment of the external auditor to the Board of Commissioners, and the Board of Commissioners decision is subject to shareholder approval as required by Indonesian law. A copy of our Audit Committees written charter can be found on our website at www.indosat.com. Composition of Board of Directors; Nominating Committee The NYSE listing standards require that the board of directors of an NYSE-listed company consist of a majority of independent directors and that a nominating committee be established. We have a dual board structure, with a separate Board of Directors and Board of Commissioners, separating the powers of management (exercised by the Board of Directors) from those of supervision (exercised by the Board of Commissioners). As such, when the NYSE listing standards apply corporate governance principles to the directors of a NYSE-listed company, we evaluate our practices with reference to our Commissioners. As required by BAPEPAM-LK Regulations and IDX rules, our ten-member Board of Commissioners maintains a minimum of at least three independent members. Further, we do not have a nominating committee. At meetings of our shareholders, our shareholders nominate and elect persons to our Board of Commissioners.
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Pursuant to the NYSE listing standards, directors of NYSE-listed companies must meet at regularly-scheduled executive sessions without management. Neither the BAPEPAM-LK Regulations nor IDX rules require us to hold such executive sessions where the Board of Commissioners meets without any Directors present. In the past, our Board of Commissioners, which is entirely composed of non-management persons, has met in executive session periodically, in addition to the customary presentation of information by our Board of Directors to the Board of Commissioners. In early 2005, we instituted procedures by which our Board of Commissioners started meeting in executive sessions at the end of each regularly-scheduled meeting, which currently occur at least on a quarterly basis. Compensation Committee The NYSE listing standards require NYSE-listed companies to maintain a compensation committee composed entirely of independent directors with a written charter addressing the committees performance and responsibilities as well as requiring an annual performance evaluation. Our Remuneration Committee currently has three members from our Board of Commissioners and has the responsibilities contained in the NYSE listing standards. However, only one commissioner of the three committee members is independent and its written charter does not provide for an annual performance evaluation of the Remuneration Committee. A copy of our Remuneration Committees written charter can be found on our website at www.indosat.com.
Item 17: FINANCIAL STATEMENTS

The financial statements listed in Item 19(a) of this annual report, together with the reports of our independent auditors thereon, are filed as part of this annual report.
Item 18: FINANCIAL STATEMENTS

Not applicable. See Item 17.
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INTERNATIONAL FINANCIAL REPORTING STANDARD (IFRS)
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PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM JANUARY 1, 2009 AND DECEMBER 31, 2009 AND 2010 AND YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
Table of Contents Page Report of Independent Registered Public Accounting Firm Consolidated Statements of Financial Position Consolidated Statements of Comprehensive Income. Consolidated Statements of Changes in Stockholders Equity.. Consolidated Statements of Cash Flows.. Notes to Consolidated Financial Statements 1-4 5-6 7-9 10 - 11 12 - 120
***************************
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION January 1, 2009 and December 31, 2009 and 2010 (Expressed in millions of rupiah, except share data)
December 31, Notes January 1, 2009 (Restated)* Rp ASSETS CURRENT ASSETS Cash and cash equivalents Short-term investments - net of allowance for decline in value of Rp25,395 as of January 1, 2009 and December 31, 2009 and 2010 Accounts receivable Trade - net of allowance for impairment of Rp496,163 as of January 1, 2009, Rp461,810 as of December 31, 2009 and Rp496,110 as of December 31, 2010 Others - net of allowance for impairment of Rp18,867 as of January 1, 2009, Rp16,544 as of December 31, 2009 and Rp15,281 as of December 31, 2010 Inventories - net of allowance for obsolescence of Rp3,368 as of January 1, 2009, Rp10,769 as of December 31, 2009 and Rp13,961 as of December 31, 2010 Derivative assets Advances Taxes receivable Prepaid expenses Other current assets Other current financial assets Total Current Assets 2f8,4,16 25,31 2009 (Restated)* Rp 2010 Rp
5,737,866
2,835,999
2,075,270
2f8,16 2d,2f,5,3b 16,25,31
1,340,706
1,385,125
1,548,426
16,914
564,859
10,031
2f20 2f8,2f15 16,28,31 29f 6,12 2f19,2f21,9, 24,25 2f5 2f8,16,31
241,991 656,594 39,151 247,185 1,019,073 347,516 44,777 9,691,773
112,260 224,004 35,173 396,581 1,125,091 424,623 35,173 7,138,888
105,885 69,334 67,273 479,786 1,527,254 222,476 53,119 6,158,854
* Certain amounts shown here do not correspond to the 2009 financial statements and reflect reclassifications and adjustments made as detailed in
Notes 2d and 2g, respectively.
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued) January 1, 2009 and December 31, 2009 and 2010 (Expressed in millions of rupiah, except share data)
December 31, Notes January 1, 2009 (Restated)* Rp NON-CURRENT ASSETS Due from related parties - net of allowance for impairment of Rp2,419 as of January 1, 2009, Rp1,182 as of December 31, 2009 and Rp646 as of December 31, 2010 Deferred tax assets - net Investments in associated companies - net of allowance for decline in value of Rp56,586 as of January 1, 2009 and December 31, 2009 and Rp56,300 as of December 31, 2010 Other long-term investments - net of allowance for decline in value of Rp99,977 as of January 1, 2009 and December 31, 2009 and 2010 Property and equipment - net Goodwill and other intangible assets - net Long term prepaid rentals - net of current portion Long-term prepaid licenses - net of current portion Long-term advances Long-term prepaid pension - net of current portion Long-term receivables Other non-current financial assets Other non-current assets Total Non-current Assets TOTAL ASSETS 2009 (Restated)* Rp 2010 Rp
2f8,16,25,31 2f6,3b,12
42,496 70,744
7,215 87,999
8,421 95,018
2f3,2f22
700
422
2f8,16 2f16,2f17,2f18, 2f22,2g,7 2f1,2f2,2f22, 3b,8 2d,9 2f19,2f21 10 2f7,3b,24,25 2d,2f8 2d,2f8,16 2d,2f21,25
2,730 38,333,613 2,060,709 632,566 199,289 456,093 169,986 67,081 72,800 61,899 42,170,706 51,862,479
2,730 44,358,138 2,042,817 735,185 463,549 294,391 147,380 50,767 100,004 5,518 48,296,115 55,435,003
2,730 43,489,401 2,063,177 750,472 397,708 216,643 111,344 45,911 77,675 8,341 47,266,841 53,425,695
December 31, Notes January 1, 2009 (Restated)* Rp LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES Accounts payable - trade Procurement payable Taxes payable Accrued expenses Unearned income Deposits from customers Derivative liabilities Current maturities of: Loans payable Bonds payable Other current liabilities Other current financial liabilities Total Current Liabilities NON-CURRENT LIABILITIES Due to related parties Deferred tax liabilities - net Loans payable - net of current maturities Bonds payable - net of current maturities Employee benefit obligations Other non-current liabilities Other non-current financial liabilities Total Non-current Liabilities TOTAL LIABILITIES 2f9,16,25,31 2f9,11,16, 25,31 2f6,12 2f9,13,16,24,25,31 2f5 31 2f9,2f15, 16,28,31 2f9,14,16,31 2f9,15,16,31 2d,24,25,31 2f9,16,31 608,754 6,446,357 111,169 1,445,238 867,456 32,121 315,866 572,469 56,442 232,821 31,022 10,719,715 537,476 5,289,782 61,948 1,525,561 962,975 22,463 174,540 1,440,259 2,840,662 167,937 43,721 13,067,324 645,505 3,644,467 23,789 1,710,885 1,106,914 50,279 215,403 3,184,147 1,098,131 207,268 23,127 11,909,915 2009 (Restated)* Rp 2010 Rp
2f9,16,25,31 2f6,2g,12 2f9,14, 16,25,31 2f9,15,16,31 2d,17 2d,25,31 2d,2f9,16,31
14,699 1,348,746 10,812,160 10,315,616 695,687 130,661 45,511 23,363,080 34,082,795
13,764 1,651,818 12,715,492 8,472,175 825,714 113,807 23,792,770 36,860,094
22,099 1,951,306 7,666,804 12,114,104 872,407 187,097 22,813,817 34,723,732
December 31, Notes January 1, 2009 (Restated)* Rp EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY 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 5,433,933,499 B shares Premium on capital stock Retained earnings Appropriated Unappropriated Other components of equity Total Equity Attributable to Owners of the Company Non-controlling Interests TOTAL STOCKHOLDERS EQUITY TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 2g 2009 (Restated)* Rp 2010 Rp
18 18 2g 2b,2f3,2f4
543,393 1,546,587 100,678 14,885,383 417,395 17,493,436 286,248 17,779,684 51,862,479
543,393 1,546,587 119,464 15,631,240 406,473 18,247,157 327,752 18,574,909 55,435,003
543,393 1,546,587 134,446 15,691,773 401,377 18,317,576 384,387 18,701,963 53,425,695
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah, except share data)
Notes 2008 (Restated)* Rp OPERATING REVENUES Cellular Multimedia, Data Communication, Internet (MIDI) Fixed telecommunication Total Operating Revenues OPERATING EXPENSES Cost of services Depreciation and amortization Personnel Marketing General and administration Total Operating Expenses OPERATING INCOME OTHER INCOME (EXPENSES) Gain (loss) on foreign exchange - net Interest income Financing cost Gain (loss) on change in fair value of derivatives - net Others - net Other Expenses - Net PROFIT BEFORE INCOME TAX INCOME TAX BENEFIT (EXPENSE) Current Deferred Income Tax Expense - Net PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Differences in foreign currency translation Income tax effect Differences in foreign currency translation - net of tax Difference in transaction of equity changes in associated company Income tax effect Difference in transaction of equity changes in associated company - net of tax 12 9,485 (2,371) 7,114 389 (97) 292 (14,563) 3,641 (10,922) (6,795 ) 1,699 (5,096 ) 2f6,3b,12 2g 2f5 2f4,2f11,5 2f5.2,25 23,25 2f11,2f15,28 12 2f5.4 2d,20,25 2f2,2f16,7, 8 2f7,21,24,25 22,25 2f5,3b,19, 25,30 2d 2d 2009 (Restated)* Rp 2010 Rp
14,460,806 2,733,412 2,021,753 19,215,971 6,627,804 4,565,370 1,638,993 918,124 737,432 14,487,723 4,728,248
14,331,235 2,712,632 1,803,039 18,846,906 7,087,850 5,571,600 1,451,560 816,934 693,437 15,621,381 3,225,525
15,867,091 2,488,110 1,293,177 19,648,378 7,113,410 6,162,851 1,411,244 779,192 659,987 16,126,684 3,521,694
(885,729) 460,089 (1,858,294) 136,603 (25,597) (2,172,928) 2,555,320 (587,642) 102,302 (485,340) 2,069,980
1,656,407 138,951 (1,872,967) (486,916) (116,821) (681,346) 2,544,179 (494,490) (289,459) (783,949) 1,760,230
492,401 143,402 (2,271,628 ) (448,831 ) (111,830 ) (2,196,486 ) 1,325,208 (128,171 ) (294,167 ) (422,338 ) 902,870
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (continued) Years Ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah, except share data)
2008 (Restated)* Rp OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX NET COMPREHENSIVE INCOME PROFIT FOR THE YEAR ATTRIBUTABLE TO: Owners of the Company Non-controlling interests Total OTHER COMPREHENSIVE INCOME - NET OF TAX ATTRIBUTABLE TO: Owners of the Company Non-controlling interests Total NET COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company Non-controlling interests Total BASIC AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY BASIC AND DILUTED EARNINGS PER AMERICAN DEPOSITARY SHARE (ADS) (50 B SHARES PER ADS) ATTRIBUTABLE TO OWNERS OF THE COMPANY 2f4 7,406 2,077,386 2,043,775 26,205 2,069,980 2009 (Restated)* Rp (10,922) 1,749,308 1,703,898 56,332 1,760,230
Notes
2010 Rp (5,096) 897,774 824,637 78,233 902,870
7,406 7,406
(10,922) (10,922)
(5,096) (5,096)
2,051,181 26,205 2,077,386
1,692,976 56,332 1,749,308
819,541 78,233 897,774
2f25,18,26
376.11
313.57
151.76
2f25,18,26
18,805.67
15,678.31
7,587.85
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY Years Ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah)
Attributable to the Owners of the Company
Retained Earnings Appropriated Total 16,426,768 36,523 16,463,291 2,037,753 6,022 7,406 2,051,181 80,258 80,258 2,043,775 6,022 2,037,753 13,883,064 36,523 13,846,541 Unappropriated Noncontrolling Interests 294,794 444 295,238 25,998 207 26,205 Net Equity 16,721,562 36,967 16,758,529 2,063,751 6,229 7,406 2,077,386
Description 1,546,587 1,546,587 292 7,114 292 7,114 403,812 6,177 403,812 6,177
Notes
Capital Stock Issued and Fully Paid Premium on Capital Stock Difference in Foreign Currency Translation** Difference in Transactions of Equity Changes in Associated Companies/ Subsidiaries*
Balance as of January 1, 2008, as previously reported Accounting policy change
543,393
2g
Balance as of January 1, 2008, as restated
543,393
Profit for the year, as previously reported Accounting policy change
2g
Other comprehensive income Total comprehensive income for the year, as restated
Resolution during the Annual Stockholders General Meeting on June 5, 2008 Declaration of cash dividend Appropriation for reserve fund 1,546,587 404,104 13,291 100,678 20,420
27 (1,021,036) (20,420) 14,885,383 (1,021,036) 17,493,436 (35,195) 286,248 (1,021,036) (35,195) 17,779,684
Changes in non-controlling interest
Balance as of December 31, 2008, as restated
543,393
*This reserve includes difference in foreign currency translation resulting from reduction in tax rates. **This reserve arose from the translation of the financial statements of Indosat Finance 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 taxes.
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (continued) Years Ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah)
Retained Earnings Appropriated 100,678 100,678 13,094 1,703,898 1,690,804 14,885,383 42,545 14,842,838 Unappropriated Total 17,450,891 42,545 17,493,436 1,690,804 13,094 (10,922) 1,692,976 Noncontrolling Interests 285,597 651 286,248 56,194 138 56,332 Net Equity 17,736,488 43,196 17,779,684 1,746,998 13,232 (10,922) 1,749,308
Description 1,546,587 1,546,587 (10,922) (10,922) 404,104 13,291 404,104 13,291
Notes
Capital Stock Issued and Fully Paid Premium on Capital Stock Difference in Foreign Currency Translation**
Difference in Transactions of Equity Changes in Associated Companies/ Subsidiaries*
Balance as of January 1, 2009, as previously reported
543,393
Accounting policy change
2g
543,393
Balance as of January 1, 2009, as restated Profit for the year, as previously reported Accounting policy change
2g
Other comprehensive income
Net comprehensive income, as restated
Resolution during the Annual Stockholders General Meeting on June 19, 2009 Declaration of cash dividend Appropriation for reserve fund 1,546,587 404,104 2,369 18,786 119,464
27 (939,255) (18,786) 15,631,240 (939,255) 18,247,157 (14,828) 327,752 (939,255) (14,828) 18,574,909
Changes in non-controlling interest Balance as of December 31, 2009, as restated
543,393
*This reserve includes difference in foreign currency translation resulting from reduction in tax rates. **This reserve arose from the translation of the financial statements of Indosat Finance 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 taxes.
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (continued) Years Ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah)
Retained Earnings Appropriated Total 18,191,518 55,639 18,247,157 824,637 (5,096) 819,541 119,464 119,464 824,637 824,637 15,631,240 55,639 15,575,601 Unappropriated Noncontrolling Interests 326,963 789 327,752 78,233 78,233 Net Equity 18,518,481 56,428 18,574,909 902,870 (5,096) 897,774
Description 1,546,587 1,546,587 (5,096) (5,096) 404,104 2,369 404,104 2,369
Notes
Capital Stock Issued and Fully Paid Premium on Capital Stock Difference in Foreign Currency Translation** Difference in Transactions of Equity Changes in Associated Companies/ Subsidiaries*
Balance as of January 1, 2010, as previously reported
543,393
Accounting policy change
2g
Balance as of January 1, 2010, as restated
543,393
Profit for the year
Other comprehensive income
Net comprehensive income
Resolution during the Annual Stockholders General Meeting on June 22, 2010 Declaration of cash dividend Appropriation for reserve fund 1,546,587 404,104 (2,727) 134,446 14,982
27 (749,122) (14,982) 15,691,773 (749,122) 18,317,576 (21,598) 384,387 (749,122) (21,598) 18,701,963
Changes in non-controlling interest Balance as of December 31, 2010
543,393
*This reserve includes difference in foreign currency translation resulting from reduction in tax rates. **This reserve arose from the translation of the financial statements of Indosat Finance B.V. and Indosat International Finance Company B.V. from euro, and Indosat Singapore Pte. Ltd. and Indosat Palapa B.V. from U.S. dollar to rupiah, net of applicable taxes.
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah)
Notes
2008 Rp
2009 Rp
2010 Rp
CASH FLOWS FROM OPERATING ACTIVITIES Cash received from: Customers Interest income Refund of taxes Settlement from derivative contract Cash paid to/for: Suppliers and others Financing cost Employees Income taxes Interest rate swap contracts Swap cost from cross currency swap contracts Settlement from derivative contract Long-term prepaid licenses Net Cash Provided by Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds of Palapa D-Satellite insurance claim Cash dividend received from other long-term investment Proceeds from sale of property and equipment Acquisitions of property and equipment Acquisition of intangible assets Proceeds from sale of short-term investment Purchase of investment in an associated company Net Cash Used in Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bonds payable Proceeds from long-term loans Settlement from derivative contract Decrease (increase) in restricted cash and cash equivalents Repayment of long-term loans Repayment of bonds payable Cash dividend paid by the Company Swap cost from cross currency swap contract Cash dividend paid by subsidiaries to non-controlling interest Net Cash Provided by (Used in) Financing Activities
6 28a
18,336,914 460,020 271,321 58,375 (7,992,693) (1,776,934) (1,708,174) (897,161) (2,432) (235,971) 6,513,265
18,415,890 146,826 84,650 (10,116,183) (1,730,149) (1,359,817) (878,137) (47,715) (125,748) (338,408) 4,051,209
19,678,609 145,067 41,753 (9,061,007 ) (2,175,997 ) (1,310,556 ) (215,874 ) (117,231 ) (121,449 ) (24,431 ) 6,838,884
28v-ai 28a,c-o 28c,28k 2f19
26,348
26,774 2,253 (10,684,690) (15,044) (10,670,707)
537,657 19,281 7,741 (6,495,146 ) (40,052 ) (194 ) (5,970,713 )
7 7 8
1,131 (10,307,932) (6,952) 1,250 (700) (10,286,855)
15 14 28b 14 15 27 28b
1,650,000 5,126,570 109,099 4,200 (506,220) (3,828,827) (1,021,037) (64,009) (11,326) 1,458,450
1,500,000 3,892,786 (18,206) (632,814) (14,453) (939,255) (54,116) (9,291) 3,724,651
5,851,301 1,092,059 59,925 2,846 (4,098,277 ) (3,720,815 ) (749,122 ) (46,136 ) (21,436 ) (1,629,655 )
10
PT INDOSAT Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Years Ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah)
Notes
2008 Rp
2009 Rp (2,894,847) 5,737,866 (7,020) -
2010 Rp (761,484 ) 2,835,999 755
NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS OF LIQUIDATED SUBSIDIARY* CASH AND CASH EQUIVALENTS OF ACQUIRED SUBSIDIARY 1b
(2,315,140) 8,053,006 -
CASH AND CASH EQUIVALENTS AT END OF YEAR DETAILS OF CASH AND CASH EQUIVALENTS: Time deposits with original maturities of three months or less and deposits on call Cash on hand and in banks Cash and cash equivalents as stated in the consolidated statements of financial position SUPPLEMENTAL CASH FLOW INFORMATION: Transactions not affecting cash flows: Acquisitions of property and equipment credited to: Long-term advances Long-term loans payable Procurement payables Other non-current liabilities
5,737,866
2,835,999
2,075,270
5,469,039 268,827 5,737,866
2,611,529 224,470 2,835,999
1,791,783 283,487 2,075,270
190,906 1,516,354 274,248 45,511
161,702 723,112 -
77,748 -
* PT Satelindo Multi Media (SMM) was liquidated on June 23, 2009.
11
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 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 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 by American Cable and Radio Corporation, an International Telephone & Telegraph subsidiary, to the Government of the Republic of Indonesia (the Government) 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) to 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 Companys Articles of Association has been amended from time to time. The latest amendment was covered by notarial deed No. 123 dated January 28, 2010 of Aulia Taufani, S.H., (as a substitute notary of Sutjipto, S.H.) as approved in the Stockholders Extraordinary General Meeting held on January 28, 2010, in order to comply with the Indonesian Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) Rule No. IX.J.1 dated May 14, 2008 on the Principles of Articles of Association of Limited Liability Companies that Conduct Public Offering of Equity Securities and Public Companies and Rule No. IX.E.1 on Affiliate Transactions and Certain Conflict of Interests Transactions. The latest amendment of the Companys Articles of Association has been approved by and reported to the Ministry of Law and Human Rights of the Republic of Indonesia based on its letters No. AHU-09555.AH.01.02 Year 2010 dated February 22, 2010 and No. AHU-AH.01.10-04964 dated February 25, 2010. The amendments relate to, among others, the changes in the Companys purposes, objectives and business activities, appointment of acting President Director if the incumbent President Director is unavailable and definition of conflict of interests. According to article 3 of its Articles of Association, the Companys purposes and objectives are to provide telecommunications networks, telecommunications services as well as information technology and/or convergence technology services by carrying out the following main business activities: a. To provide telecommunications networks, telecommunications services as well as information technology and/or convergence technology services, including but not limited to providing basic telephony services, multimedia services, internet telephony services for public use, interconnection internet services, internet access services, mobile telecommunications networks and fixed telecommunications networks; and b. To engage in payment transactions and money transfer services through telecommunications networks as well as information technology and/or convergence technology. The Company can provide supporting business activities in order to achieve the purposes and objectives, and to support its main businesses, as follows: a. To plan, to procure, to modify, to build, to provide, to develop, to operate, to lease, to rent, and to maintain infrastructures/facilities including resources to support the Companys business in providing telecommunications networks, telecommunications services as well as information technology and/or convergence technology services;
12
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 1. GENERAL (continued) a. Companys Establishment (continued) b. To conduct business and operating activities (including development, marketing and sales of telecommunications networks, telecommunications services as well as information technology and/or convergence technology services by the Company), including research, customer services, education and courses (both domestic and overseas); and c. To conduct other activities necessary to support and/or related to the provision of telecommunications networks, telecommunications services as well as information technology and/or convergence technology services including but not limited to electronic transactions and provision of hardware, software, content as well as telecommunications-managed services.
The consolidated financial statements of the Company and its subsidiaries (collectively referred to hereafter as the Companies) as of January 1, 2009 and December 31, 2009 and 2010 and for each of the three years in the period ended December 31, 2010 were approved and authorized for issue by the Board of Directors on April 20, 2011, as reviewed and recommended for approval by the Audit Committee. b. Structure of the Companys Subsidiaries As of January 1, 2009 and December 31, 2009 and 2010, the Company has direct and indirect ownership in the following subsidiaries:
Start of Commercial Operations 2010 2010 2003 2005 2005 2001 2006 1989 2008 2000 1999 Percentage of Ownership (%)
January 1, 2009 December 31, 2009 December 31, 2010
Name of Subsidiary Indosat Palapa Company B.V. (IPBV) (2) Indosat Mentari Finance Company B.V. (IMBV) (2) Indosat Finance Company B.V. (IFB) (3) Indosat International Finance Company B.V. (IIFB) (4) Indosat Singapore Pte. Ltd. (ISPL) PT Indosat Mega Media (IMM) PT Starone Mitra Telekomunikasi (SMT) PT Aplikanusa Lintasarta (Lintasarta) PT Lintas media Danawa (LMD) PT Artajasa Pembayaran Elektronis (APE) (Note 2b) PT Satelindo Multi Media (SMM) (1)
Location Amsterdam Amsterdam Amsterdam Amsterdam Singapore Jakarta Semarang Jakarta Jakarta Jakarta Jakarta
Principal Activity Finance Finance Finance Finance Telecommunication Multimedia Telecommunication Data Communication Information and Communication Services Telecommunication Telecommunication
100.00 100.00 100.00 99.85 72.54 72.36 39.80 99.60
100.00 100.00 100.00 99.85 72.54 72.36 39.80 -
100.00 100.00 100.00 100.00 100.00 99.85 72.54 72.36 50.65 39.80 -
13
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 1. GENERAL (continued) b. Structure of the Companys Subsidiaries (continued)
January 1, 2009 (Restated)
Total Assets (Before Eliminations)

December 31, 2009 (Restated) December 31, 2010
Name of Subsidiary IPBV IMBV (2) IFB (3) IIFB (4) ISPL IMM SMT Lintasarta LMD APE SMM (1)
(1) (2) (2)
2,637,074 1,235,816 21,167 735,632 147,814 1,326,762 133,241 10,690
2,261,226 1,044,174 28,779 738,371 139,833 1,407,461 179,681 -
5,966,764 5,946,885 21,876 9,635 54,353 814,652 155,277 1,739,049 2,671 221,297 -
(3) (4)
Liquidated on June 23, 2009 IPBV and IMBV were incorporated in Amsterdam on April 28, 2010 to engage in treasury activities, to lend and borrow money, whether in the form of securities or otherwise, to finance enterprises and companies, to grant security in respect of their obligation or those of their group companies and third parties. Based on an IFB shareholders resolution dated November 6, 2008, IFB decided to refund capital injection amounting to EUR99,996. The Company received such refund in February 2009. Based on an IIFB shareholders resolution dated November 6, 2008, IIFB decided to refund capital injection amounting to EUR1,124,064. The Company received such refund in February 2009.
c. 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, PT Satelit Palapa Indonesia (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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies applied consistently in the preparation of the consolidated financial statements for the years ended December 31, 2008, 2009 and 2010 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 and derivative financial instruments and available-for-sale financial assets which are stated at fair 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 consolidated financial statements are presented in Indonesian rupiah, which is the Companys functional and reporting currency.
14
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) b. Principles of Consolidation The consolidated financial statements include the Companys accounts and those of its subsidiaries (Note 1b). In accordance with IAS 27 (Revised 2008), the Company prepares and presents the consolidated financial statements for a group of entities under its control. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. Control also exists when the parent owns half or less of the voting power of an entity when there is: a) power over more than half of the voting rights by virtue of an agreement with other investors; b) power to govern the financial and operating policies of the entity under a statute or an agreement; c) power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body; or d) power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body. The consolidated financial statements also include the accounts of APE (Lintasartas subsidiary). The accounts of APE in 2008, 2009 and 2010 were consolidated because its financial and operating policies were controlled by Lintasarta. The accounts of IPBV, IMBV, IFB, IIFB, and ISPL were translated into rupiah amounts at the middle rates of exchange prevailing at balance sheet date for balance sheet accounts and the average rates during the year for profit or loss accounts. The resulting differences arising from the translations of the financial statements of IPBV, IMBV, IFB, IIFB, and ISPL are presented as part of Other Components of Equity under the Stockholders Equity section of the consolidated balance sheets. Non-controlling interest in subsidiaries represents the minority stockholders proportionate share in the equity (including net income) of the subsidiaries which are not wholly-owned. Intergroup balances, transactions, income and expenses are eliminated in full on consolidation. c. Statement of Compliance The consolidated financial statements of the Companies have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
15
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) d. Reclassifications Certain accounts were reclassified to allow their comparison with 2010 accounts. The following items discuss the significant reclassifications in the consolidated financial statements:
For the year ended December 31, 2008: As Previously Reported Operating revenues cellular Operating revenues - fixed telecommunications As of January 1, 2009: As Previously Reported Long-term receivables Other non-current assets Other non-current liabilities Other non-current financial liabilities As Reclassified Other non-current financial assets Long-term prepaid rentals - net of current portion Employee benefit obligations - net of current portion Other non-current liabilities Amount 14,443* 632,566* 695,687* 6,667* As Reclassified Operating expenses cost of services Operating revenues cellular Amount 267,542* 7,811*
As of and for the year ended December 31, 2009: As Previously Reported Accounts receivable - others Long-term receivables Other non-current assets Other non-current liabilities As Reclassified Accounts receivable trade - third parties Other non-current financial assets Long-term prepaid rentals - net of current portion Employee benefit obligations - net of current portion Other current liabilities Other non-current liabilities Operating expenses cost of services Operating revenues cellular Amount 28,428* 15,844* 735,185* 825,714* 3,112* 6,546* 217,421* 154,140*
Other non-current financial liabilities Operating revenues cellular Operating revenues - fixed telecommunications
* Refer to Note 2g.
e. Adoption of New and Revised Accounting Standards New and amended standards and interpretations The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRIC interpretations for financial statements beginning on or after January 1, 2010: 16
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) e. Adoption of New and Revised Accounting Standards (continued) New and amended standards and interpretations (continued) IFRS 2 Share-based Payment: Group Cash-settled, Share-based Payment Transactions for financial statements beginning on or after January 1, 2010 IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) for financial statements beginning on or after 1 July 2009, including consequential amendments to IFRS 2, IFRS 5, IFRS 7, IAS 7,IAS 21, IAS 28, IAS 31 and IAS 39 IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items effective July 1, 2009 IFRIC 17 Distributions of Non-cash Assets to Owners for financial statements beginning on or after July 1, 2009 Improvements to IFRSs (May 2008) Improvements to IFRSs (April 2009)
The adoption of the standards or interpretations is described below: IFRS 2 Share-based Payment (Revised) The IASB issued an amendment to IFRS 2 that clarified the scope and the accounting for group cash-settled share-based payment transactions. It did not have an impact on the financial position or performance of the Companies. IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) IFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs and future reported results. IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3 (Revised) and IAS 27 (Amended) affect acquisitions or loss of control of subsidiaries and transactions with non-controlling interests after January 1, 2010. The change in accounting policy was applied prospectively and had no material impact on earnings per share. IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The Companies have concluded that the amendment will have no impact on the financial position or performance of the Companies, as the Companies have not entered into any such hedges.
17
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) e. Adoption of New and Revised Accounting Standards (continued) New and amended standards and interpretations (continued) IFRIC 17 Distribution of Non-cash Assets to Owners This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. The interpretation has no effect on either the financial position or performance of the Companies. Improvements to IFRSs In May 2008 and April 2009, the IASB issued omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Companies, except for The amendment on IAS 17 Leases as disclosed in Note 2g. Issued in May 2008 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: clarifies that when a subsidiary is classified as held for sale, all its assets and liabilities are classified as held for sale, even when the entity remains a non-controlling interest after the sale transaction. The amendment is applied prospectively and has no impact on the financial position nor financial performance of the Companies. Issued in April 2009 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: clarifies that the disclosures required in respect of non-current assets and disposal groups classified as held for sale or discontinued operations are only those set out in IFRS 5. The disclosure requirements of other IFRSs only apply if specifically required for such non-current assets or discontinued operations. This amendment did not have an impact on the financial position or performance of the Companies. IFRS 8 Operating Segments: clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker. As the Companies chief operating decision maker does review segment assets and liabilities, the Companies have continued to disclose this information in Note 32. IAS 7 Statement of Cash Flows: states that only expenditure that results in recognizing an asset can be classified as a cash flow from investing activities. IAS 36 Impairment of Assets: the amendment clarifies that the largest unit permitted for allocating goodwill, acquired in a business combination, is the operating segment as defined in IFRS 8 before aggregation for reporting purposes. The amendment has no impact on the Companies as the annual impairment test is performed before aggregation. Other amendments resulting from Improvements to IFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Companies: Issued in April 2009 IFRS 2 Share-based Payment IAS 1 Presentation of Financial Statements IAS 34 Interim Financial Reporting IAS 38 Intangible Assets IAS 39 Financial Instruments: Recognition and Measurement IFRIC 9 Reassessment of Embedded Derivatives IFRIC 16 Hedge of a Net Investment in a Foreign Operation 18
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) e. Adoption of New and Revised Accounting Standards (continued) Standards and Interpretations in issue not yet adopted Standards issued but not yet effective up to the date of issuance of the Companies financial statements are listed below. This listing is of standards and interpretations issued, which the Companies reasonably expect to be applicable at a future date. The Companies intend to adopt those standards when they become effective. IAS 24 Related Party Disclosures (Amendment) The amended standard is effective for annual periods beginning on or after January 1, 2011. It clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government-related entities. The Companies do not expect any impact on their financial position or performance. Early adoption is permitted for either the partial exemption for government-related entities or for the entire standard. IAS 32 Financial Instruments: Presentation Classification of Rights Issues (Amendment) The amendment to IAS 32 is effective for annual periods beginning on or after February 1, 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entitys non-derivative equity instruments, or to acquire a fixed number of the entitys own equity instruments for a fixed amount in any currency. This amendment will have no impact on the Companies after initial application. IFRS 9 Financial Instruments: Classification and Measurement IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after January 1, 2013. In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge accounting and derecognition. The completion of this project is expected in early 2011. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Companies financial assets. The Companies will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. IFRIC 14 Prepayments of a minimum funding requirement (Amendment) The amendment to IFRIC 14 is effective for annual periods beginning on or after January 1, 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is deemed to have no impact on the financial statements of the Companies. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 19 is effective for annual periods beginning on or after July 1, 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Companies. Improvements to IFRSs (issued in May 2010) The IASB issued Improvements to IFRSs, an omnibus of amendments to its IFRS standards. The amendments have not been adopted as they become effective for annual periods on or after either July 1, 2010 or January 1, 2011. The amendments listed below, are considered to have a reasonable possible impact on the Companies: 19
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) e. Adoption of New and Revised Accounting Standards (continued) Standards and Interpretations in issue not yet adopted (continued) IFRS 3 Business Combinations IFRS 7 Financial Instruments: Disclosures IAS 1 Presentation of Financial Statements IAS 27 Consolidated and Separate Financial Statements IFRIC 13 Customer Loyalty Programmes
The Companies, however, expect no impact from the adoption of the amendments on their financial position or performance. f. Significant Accounting Policies and Practices f1. Business combinations and goodwill Business combinations from January 1, 2010 Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquirees identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the Companies acquires a business, they assess the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirers previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity. Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Companies cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying 20
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f1. Business combinations and goodwill (continued) Business combinations from January 1, 2010 (continued) carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Business combinations prior to January 1, 2010 In comparison to the above-mentioned requirements, the following differences applied: Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The noncontrolling interest (formerly known as minority interest) was measured at the proportionate share of the acquirees identifiable net assets. Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did not affect previously recognized goodwill. When the Companies acquired a business, embedded derivatives separated from the host contract by the acquire were not reassessed on acquisition unless the business combination resulted in a change in the terms of the contract that significantly modified the cash flows that otherwise would have been required under the contract. Contingent consideration was recognized if, and only if, the Companies had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognized as part of goodwill. f2. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses, if any. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated statements of comprehensive income in the expense category consistent with the function of the intangible assets. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. 21
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f2. Intangible assets (continued) 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 - Post-paid Spectrum license Brand 6 5 5 8
Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the consolidated statements of comprehensive income in the year in which the expenditure is incurred. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statements of comprehensive income when the asset is derecognized. f3. Investments in associated companies The Companys investment in its associate is accounted for using the equity method. An associate is an entity in which the Company has significant influence. Under the equity method, the investment in the associate is carried in the consolidated statements of financial position at cost plus post acquisition changes in the Companys share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment. The consolidated statements of comprehensive income reflect the share of the results of operations of the associate. Where there has been a change recognized directly in the equity of the associate, the Company recognizes its share of any changes and discloses this, when applicable, in the consolidated statements of changes in equity. Unrealized gains and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate. The share of profit of an associate is shown on the face of the consolidated statements of comprehensive income. This is the profit attributable to equity holders of the associate and therefore is profit after tax and non-controlling interests in the subsidiaries of the associate. The financial statements of the associate are prepared for the same reporting period as the Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Company. After application of the equity method, the Company determines whether it is necessary to recognize an additional impairment loss on the Companys investment in its associate. The Company determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount in the share of profit of an associate in the consolidated statements of comprehensive income. 22
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f3. Investments in associated companies (continued) Upon loss of significant influence over the associate, the Company measures and recognizes any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognized in profit or loss. f4. Foreign currency translation Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate of exchange prevailing at the end of the reporting period. All differences are taken to the statements of comprehensive income, except for foreign exchange differences that qualify as capitalizable borrowing costs for qualifying properties under construction and installation. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The functional currency and presentation currency of IPBV, IMBV, IFB and IIFB are in Euro, while ISP is in U.S. dollar. As at the end of the reporting period, the assets and liabilities of these subsidiaries are translated into the presentation currency of the Company at the spot rate which is the exchange rate prevailing at the end of the reporting period and their statement of comprehensive income is translated at the average rate during the period. The resulting differences arising from the translations of the financial statements of IPBV, IMBV, IFB, IIFB and ISP are included in other comprehensive income and presented as part of Difference in Foreign Currency Translation in the consolidated statements of changes in stockholders equity. f5. Revenue recognition and expense recognition f5.1 Service Revenues Cellular Cellular revenues arising from airtime and roaming calls are recognized based on the duration of successful calls made through the Companys cellular network. For post-paid subscribers, monthly service fees are recognized as the service is rendered. For prepaid subscribers, the activation component of starter package sales is deferred and recognized as revenue over the expected average period of the customer relationship. Sales of initial/reload vouchers are recorded as deferred revenue and 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 the duration 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 service providers.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f5. Revenue recognition and expense recognition (continued) f5.1 Service Revenues (continued) Cellular (continued) Customer Loyalty Program The Company operates a customer loyalty program called Poin Plus Plus, which allows customers to accumulate points for every reload and payment by the Companys prepaid and post-paid subscribers, respectively. The points can then be redeemed for free telecommunication and non-telecommunication products, subject to a minimum number of points being obtained. Customer loyalty credits are accounted for as a separate component of the sales transaction in which they are granted. The consideration received at the time of reload and payment by the Companys prepaid and post-paid subscribers, respectively, is allocated between the cellular products sold and the points issued, with the consideration allocated to the points equal to their fair value. Fair value of the points issued is deferred and recognized as revenue when the points are redeemed or when the redemption period expires. Dealer Commissions Consideration in the form of sales discount given by the Company to a dealer is recognized as a reduction of revenue. If the Company receives, or will receive, an identifiable benefit in exchange for a consideration given by the Company to a dealer, and the fair value of such benefit can be reasonably estimated, the consideration will be recorded as a marketing expense. Tower Leasing Revenue from tower leasing is recognized on the straight-line basis over the lease term based on the amount stated in the agreement between the Company and the lessee. Based on the Companys assessment on the current tower leasing arrangements, the leasing transactions are classified as operating leases. MIDI Internet Revenues arising from installation service are deferred and recognized over the expected average period of the customer relationship. Revenues from monthly service fees are recognized as the services are rendered. 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. Frame Net, World Link and Direct Link Revenues arising from installation service are deferred and recognized over the expected average period of the customer relationship. Revenues from monthly service fees are recognized as the services are rendered. Satellite Operating Lease Revenues are recognized on the straight-line basis over the lease term.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f5. Revenue recognition and expense recognition (continued) f5.1 Service Revenues (continued) MIDI (continued) Other MIDI services 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 year and had been reported on a net basis up to December 31, 2009, after allocations to overseas international carriers. In addition, starting January 1, 2010, the Company has decided to reclassify the portion of incoming calls revenue that belongs to the Companys cellular segment. The Company believes that this change will bring the Companys revenue presentation to be aligned more closely with the Companys profit or loss performance and to provide reliable and more relevant information to shareholders and users of the accounts. To improve the comparability of the consolidated financial statements, the Company made accounts reclassification in the consolidated financial statements for the year ended December 31, 2009 (Note 2d). Fixed Wireless Fixed wireless revenues arising from usage charges are recognized based on the duration of successful calls made through the Companys fixed network. For post-paid subscribers, monthly service fees are recognized as the services are rendered. For prepaid subscribers, the activation component of starter package sales is deferred and recognized as revenue over the expected average period life of the customer relationship. Sale of initial/reload vouchers is recorded as deferred revenue and recognized as income upon usage of the airtime or upon expiration of the airtime. Fixed Line Revenues from fixed line installations are deferred and recognized as revenue over the expected average period of the customer relationship. 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 telecommunications carriers are recognized monthly on the basis of the actual recorded traffic for the month.
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PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f5. Revenue recognition and expense recognition (continued) f5.2 Interest Income Interest income is recognized as it accrues on a time proportion basis taking into account the principal amount outstanding and the effective interest rate. Majority of interest income represents interest earned from cash and cash equivalents. f5.3 Dividends Dividend income is recognized when the Companys right to receive the payment is established. f5.4 Expenses Expenses are recognized when incurred. f6. Income tax Current income tax Current income tax assets and liabilities for the current year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Companies operate and generate taxable income. Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of comprehensive income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred tax Deferred tax is provided using the balance sheet liability method on all temporary differences at the end of the reporting year between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences except: (1) where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss and (2) in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is possible that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences and carryforward of unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward of unused tax losses can be utilized except: (1) where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss and (2) in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. 26
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f6. Income tax (continued) The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. 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 reporting date. Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Sales tax Revenues, expenses and assets are recognized net of the amount of sales tax. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statements of financial position. f7. Pensions and other post-employment benefits Funded Plans The Companies have defined benefit pension plans which require contributions to be made to separately administered funds. 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 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 are recognized on a straight-line basis over the expected average remaining working lives of the employees. The past service costs are recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits have already vested, immediately following the introduction of or changes to a pension plan, past service costs are recognized immediately. Actuarial gains or losses and past service costs from other long-term employee benefits are recognized immediately in the current years consolidated statement of income. The defined benefit asset or liability comprises the present value of the defined benefit obligation (using a discount rate based on government bonds), less past service costs and actuarial gains and losses not yet recognized and less the fair value of plan assets out of which the obligations are to be settled. Plan assets are assets that are held by qualifying insurance 27
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f7. Pensions and other post-employment benefits (continued) insurance policies. Fair value is based on market price information and in the case of quoted securities, it is the published bid price. The value of any defined benefit asset recognized is restricted to the sum of any past service costs and actuarial gains and losses not yet recognized and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. Unfunded Plans The Companies also provide other post-employment benefits to their employees, such as benefits under Labor Law No.13/2003 (Labor Law) and post-retirement healthcare benefits. These benefits are unfunded. The accounting treatment for the unfunded plans is the same as that of the funded plans above. f8. Financial assets Initial recognition Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Companies determine the classification of their financial assets at initial recognition. All financial assets are recognized initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Companies commit to purchase or sell the assets. The Companies financial assets include cash and cash equivalents, trade and other receivables, due from related parties, quoted and unquoted financial instruments, derivative financial instruments and other current and non-current financial assets. Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchase in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Derivative assets are also classified as held for trading unless they are designated as effective hedging instruments. 28
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f8. Financial assets (continued) Subsequent measurement (continued) Financial assets at fair value through profit and loss are carried in the consolidated statements of financial position at fair value with changes in fair value recognized in the statements of comprehensive income. Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not carried at fair value. These embedded derivatives are measured at fair value with changes in fair value recognized in the consolidated statements of comprehensive income. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in the consolidated statements of comprehensive income. The losses arising from impairment are recognized in the consolidated statements of comprehensive income. The Companies cash and cash equivalents, trade and other receivables, due from related parties, other current financial assets and other non-current assets are included in this category. Time deposits with original maturities of three months or less at the time of placement are considered as Cash Equivalents. Cash in banks and time deposits which are pledged as collateral for long-term debts and bank guarantees and time deposits with original maturities of more than three months are not classified as part of Cash and Cash Equivalents. These are presented as part of either Other Current Financial Assets or Other Non-current Financial Assets. Held-to-maturity (HTM) investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as HTM when the Companies have the positive intention and ability to hold them to maturity. After initial measurement, HTM investments are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in the consolidated statements of comprehensive income. The losses arising from impairment are recognized in the consolidated statements of comprehensive income. The Companies did not have any held-to-maturity investments during the years ended December 31, 2008, 2009 and 2010. 29
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f8. Financial assets (continued) Subsequent measurement (continued) Available-for-sale (AFS) financial assets AFS financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial measurement, AFS financial assets are measured at fair value with unrealized gains or losses recognized in other comprehensive income until the investment is derecognized. At which time, the cumulative gain or loss is recognized or determined to be impaired, and the cumulative loss is reclassified from equity to profit or loss. The Companies have the following investments classified as AFS: 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 fair value.
f9.
Financial liabilities Initial recognition Financial liabilities within the scope of IAS 39 are categorized as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Companies determine the classification of their financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, inclusive of directly attributable transaction costs. The Companies financial liabilities include trade payables, accrued expenses, procurement payable, loans and bonds payable, due to related parties, derivative financial instruments, other current and non-current financial liabilities. Subsequent measurement The measurement of financial liabilities depends on their classification as follows: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling or repurchase in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in the consolidated statements of comprehensive income. 30
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f9. Financial liabilities (continued) Subsequent measurement (continued) Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the consolidated statements of comprehensive income when the liabilities are derecognized as well as through the EIR amortization process. f10. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. f11. Fair value of financial instruments The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include using recent arms length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis or other valuation models. Credit risk adjustment The Company adjusts the price in the more advantageous market to reflect any differences in counterparty credit risk between instruments traded in that market and the ones being valued for financial asset positions. In determining the fair value of financial liability positions, the Company's own credit risk associated with the instrument is taken into account. f12. Amortized cost of financial instruments Amortized cost is computed using the effective interest rate method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate. f13. Impairment of financial assets The Companies assess at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. 31
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f13. Impairment of financial assets (continued) Financial assets carried at amortized cost For loans and receivables carried at amortized cost, the Companies first assess whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Companies determine that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, they include the asset in a group of financial assets with similar credit risk characteristics and collectively assess them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. If a loan receivable has a variable interest rate, the discount rate for measuring impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statements of comprehensive income. Interest income continues to be accrued on the reduced carrying amount based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Loans and receivables, together with the associated allowance, are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Companies. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is recognized in profit or loss. AFS financial assets In the case of equity investments classified as an AFS financial asset, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is objective evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss - is reclassified from equity to profit or loss. Impairment losses on equity investments are not reversed through the profit or loss; increases in their fair value after impairment are recognized in other comprehensive income. In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of Interest income account in the consolidated statements
32
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f13. Impairment of financial assets (continued) of comprehensive income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss. f14. Derecognition of financial assets and liabilities Financial assets A financial asset (or where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: (1) the rights to receive cash flows from the asset have expired; or (2) the Companies have transferred their rights to receive cash flows from the asset or have assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Companies have transferred substantially all the risks and rewards of the asset, or (b) the Companies have neither transferred nor retained substantially all the risks and rewards of the asset, but have transferred control of the asset. Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss. f15. Derivative financial instruments The Company enters into and engages in cross currency swap, interest rate swap, currency forward and other permitted instruments, if considered necessary, for the purpose of managing its foreign exchange and interest rate exposures emanating from the Companys loans and bonds payable in foreign currencies. These derivative financial instruments do not meet the criteria for hedge accounting and are initially recognized at fair value on the date the derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting are taken directly to the profit or loss. Derivative assets and liabilities are presented under current assets and liabilities, respectively. Embedded derivative is presented with the host contract on the consolidated statements of financial position which represents an appropriate 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 or income, and settlement of derivative instruments are charged or credited to Gain (Loss) on Change in Fair Value of Derivatives - Net, which is presented under Other Income (Expenses) in the consolidated statements of comprehensive income.
33
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f16. Property and equipment Property and equipment are stated at cost (which includes capitalization of certain borrowing costs incurred during the construction phase), less accumulated depreciation, amortization and impairment in value. Depreciation and amortization of property and equipment is computed using the straight-line method based on the estimated useful lives of the assets. Property and equipment acquired in exchange for a non-monetary asset or for a combination of monetary and non-monetary assets are measured at fair values unless: (i) the exchange transaction lacks commercial substance, or (ii) the fair value of neither the assets received nor the assets given up can be measured reliably. The acquired assets are measured this way even if the Companies cannot immediately derecognize the assets given up. If the acquired assets cannot be reliably measured at fair value, their value is measured at the carrying amount of the assets given up. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in profit or loss in the year the asset is derecognized. The estimated useful lives of the assets are as follows: Landrights Exchange and network assets Subscribers apparatus and other equipment Buildings and building & leasehold improvements Years 50 3 to 15 3 to 15 20 and 3 to 15
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. The cost of maintenance and repairs is charged to income as incurred. Significant renewals and betterments which enhance the asset condition on its initial performance, are capitalized. When properties are retired or otherwise disposed of, their costs and the related accumulated depreciation are derecognized from the accounts, and any resulting gains or losses are recognized in profit or loss for the year. Properties under construction and installation are stated at cost. This includes cost of construction, equipment, capitalizable borrowing costs and other direct costs. Property under construction is not depreciated until such time that the relevant asset is completed and available for its intended use. The residual values, useful lives and methods of depreciation and amortization of property and equipment are reviewed and adjusted prospectively, if appropriate, at each financial year end.
34
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f17. Borrowing costs Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalization of borrowing costs commences when the activities necessary to prepare the asset for its intended use are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the asset is available for its intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, as well as exchange differences arising from foreign currency borrowings used to finance these projects, to the extent that they are regarded as an adjustment to interest costs (estimated quarterly by capping the exchange differences taken as borrowing costs at the amount of borrowing costs on the functional currency equivalent borrowings). f18. Asset retirement obligations The Companies are legally required under various lease agreements to dismantle the installation in leased sites and restore such sites to their original condition at the end of the lease contract term. The amount of asset retirement obligations is accreted, and such accretion is recognized as interest expense. f19. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. The Companies, as lessees, classify a lease as a finance lease if it transfers to them substantially all the risks and rewards incidental to ownership. All other leases are classified as operating leases. A finance lease gives rise to a depreciation expense for the asset, as well as an interest expense for each year. Finance charges are charged directly to current operations. The depreciation policy for leased assets which is based on straight-line method is consistent with that for depreciable assets that are directly owned. Leased assets are depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term, if there is no reasonable certainty that the Companies will obtain ownership of the leased asset at the end of the lease term. In 2006, the Company was granted a license to use 2.1 GHz radio frequency spectrum by the Ministry of Communications and Information and Technology (MOCIT). The upfront fee is recorded as Long-term Prepaid License for the non-current portion and Prepaid Expenses for the current portion, and amortized over the 10-year license term using the straight-line method.
35
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f19. Leases (continued) In 2009, the Company received additional 3G license and IMM was granted an operating license for Packet Switched local telecommunication network using 2.3 GHz radio frequency spectrum of Broadband Wireless Access (BWA). The Company and IMM were obliged to, among others, pay upfront fee and annual radio frequency fee over the next 10 years (Note 29h). Management believes, as supported by written confirmation from the DGPT, that the 3G and BWA licenses may be returned at any time without any financial obligation to pay the remaining outstanding annual radio frequency fees (i.e., the license arrangement does not transfer substantially all the risks and rewards incidental to ownership). Accordingly, the Company and IMM recognize the annual radio frequency fee as operating lease expense amortized using the straight-line method over the term of the rights to operate the 3G and BWA licenses. Management evaluates its plan to continue to use the licenses on an annual basis. f20. Inventories Inventories, which mainly consist of SIM cards, broadband modems, starter packs and pulse reload vouchers and cellular handsets, are valued at the lower of cost or net realizable value. Cost is determined using the weighted-average method. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. f21. Prepaid expenses Prepaid expenses, which mainly consist of frequency fee, rentals, upfront fee of 3G and BWA licenses and insurance are expensed as the related asset is utilized. The non-current portions of prepaid rentals and upfront fee of 3G and BWA licenses are shown as part of Long-term Prepaid Rentals - Net of Current Portion and Long-term Prepaid Licenses - Net of Current Portion, respectively. f22. Impairment of non-financial assets Property and equipment The Companies assess at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists or when annual impairment testing for an asset is required, the Companies make an estimate of the assets recoverable amount. An assets recoverable amount is the higher of such assets or cash-generating units fair value less costs to sell or its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent from those of other assets or groups of assets in which case it is determined for the cash-generating unit to which the asset belongs. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining the fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses of continuing 36
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f22. Impairment of non-financial assets (continued) Property and equipment (continued) continuing operations are recognized in the consolidated statements of comprehensive income. For assets, excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Companies make an estimate of the recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the assets recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset is increased to its recoverable amount. The increase cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statements of comprehensive income. After such reversal, the depreciation and amortization charges are adjusted in future years to allocate the assets revised carrying amount, less any residual value, on a systematic basis over its remaining economic useful life. The following criteria are also applied in assessing impairment of specific assets: Goodwill and other intangible assets Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating unit or group of cash-generating units to which the goodwill relates. Where the recoverable amount of the cash-generating unit or group of cash-generating units is less than the carrying amount of the cash-generating unit or group of cash-generating units to which goodwill has been allocated, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level, as appropriate. The amount of impairment is calculated as being the difference between the recoverable amount of the intangible asset and its carrying amount and is recognized in the consolidated statements of comprehensive income. Impairment losses relating to intangible assets can be reversed in future periods. Investments in associates The Companies determine at each balance sheet date whether there is any objective evidence that their investments in associates are impaired. If this is the case, the Companies calculate the amount of impairment as the difference between the recoverable amount of the investments in associates and its carrying amount. The amount of impairment loss should be recognized in the consolidated statements of comprehensive income.
37
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Significant Accounting Policies and Practices (continued) f23. Provisions Provisions are recognized when the Companies have a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. When the Companies expect some or all of provisions to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss net of any reimbursement. f24. Operating segment An operating segment is a component of entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are reviewed regularly by the entity's chief operating decision maker (Board of Directors) to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. f25. Basic and diluted earnings per share/ADS Basic earnings per share is computed by dividing net income for the year attributable to ordinary owners of the Company by the weighted-average number of ordinary shares outstanding during the year (Note 26). Basic earnings per ADS is computed by multiplying basic earnings per share by 50, which is equal to the number of shares per ADS. Diluted earnings per share is computed by dividing net income for the year attributable to ordinary owners of the Company (after adjusting profit or loss effect related to dilutive potential ordinary shares) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all potentially dilutive ordinary shares. g. Accounting Policy Change IAS 17 Leases Before January 1, 2010, under IFRS as issued by IASB, the costs to acquire the landrights as well as other expenses associated with the acquisition are capitalized as prepaid landrights lease, and are amortized over the period of the right to use the land obtained from the Government which ranges from 20 to 30 years. Based on IAS 17 amendment (as part of the Improvements Project), starting January 1, 2010, the Companies classify land leases as finance leases and present them in the financial statements as property and equipment. The Companies adopted a retrospective application of this amendment and amortize land leases over 50 years (i.e., over the initial lease term of 30 years plus one extension of 20 years).
38
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) g. Accounting Policy Change (continued) IAS 17 Leases (continued) As a result of the accounting policy change, the following adjustments were made to the financial statements: For the year ended December 31, 2008:
December 31, 2008 (Previously Reported) OPERATING EXPENSES Cost of services Depreciation and amortization INCOME TAX BENEFIT (EXPENSE) Deferred NET COMPREHENSIVE INCOME ATRIBUTABLE TO: Non-controlling interests 6,375,987 4,555,891 102,319 December 31, 2008 (Restated) 6,627,804 4,565,370 102,302
Increase (Decrease) (15,725) 267,542* 9,479 (17)
25,998
207
26,205
As of January 1, 2009:
January 1, 2009 (Previously Reported) ASSETS Property and equipment - net Prepaid landrights lease LIABILITIES Deferred tax liabilities - net STOCKHOLDERS EQUITY Retained earnings Unappropriated Non-controlling interest
* Refer to Note 2d.
Increase (Decrease) 428,889 (386,622) (929)
January 1, 2009 (Restated) 38,333,613 1,348,746
37,904,724 386,622 1,349,675
14,842,838 285,597
42,545 651
14,885,383 286,248
39
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) g. Accounting Policy Change (continued) IAS 17 Leases (continued) As of and for the year ended December 31, 2009:
December 31, 2009 (Previously Reported) ASSETS Property and equipment - net Prepaid landrights lease LIABILITIES Deferred tax liabilities - net STOCKHOLDERS EQUITY Retained earnings Unappropriated Non-controlling interest OPERATING EXPENSE Cost of services Depreciation and amortization INCOME TAX BENEFIT (EXPENSE) Deferred NET COMPREHENSIVE INCOME ATRIBUTABLE TO: Non-controlling interests
* Refer to Note 2d.
Increase (Decrease) 435,796 (377,868) 1,500
December 31, 2009 (Restated) 44,358,138 1,651,818
43,922,342 377,868 1,650,318
15,575,601 326,963 6,896,300 5,561,390 (287,030)
55,639 789 (25,871) 217,421* 10,210 (2,429)
15,631,240 327,752 7,087,850 5,571,600 (289,459)
56,194
138
56,332
The effect on earnings per share related to the restatement in 2008 and 2009 was less than Rp1.10 and Rp2.50, respectively. The effect on earnings per ADS related to the restatement in 2008 and 2009 was less than Rp55.50 and Rp120.50, respectively.
40
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 3. MANAGEMENTS USE OF JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the Companies consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. a. Judgments In the process of applying the Companys accounting policies, management has made the following judgments, apart from those including estimations and assumptions, which have the most significant effect on the amounts recognized in the consolidated financial statements: Determination of functional currency The functional currencies of the entities under the Company are the currency of the primary economic environment in which each entity operates. It is the currency that mainly influences the revenue and cost of rendering services. Leases The Companies have various lease agreements as lessors in respect of certain properties and equipment. The Companies evaluate whether significant risks and rewards of ownership of the leased properties are transferred to the lessee or retained by the Companies based on IAS 17, Leases, which requires the Companies to make judgments and estimates of transfer of risks and rewards of ownership of leased properties. b. Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Determination of fair values of financial assets and financial liabilities Where the fair value of financial assets and financial liabilities recorded in the statements of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
41
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 3. MANAGEMENTS USE OF JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued) b. Estimates and Assumptions (continued) Estimating useful lives of property and equipment and intangible assets The Companies estimate the useful lives of their property and equipment and intangible assets based on expected asset utilization as anchored on business plans and strategies that also consider expected future technological developments and market behavior. The estimation of the useful lives of property and equipment is based on the Companies collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives are reviewed at least each financial year-end and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limitations on the use of the assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in the factors mentioned above. The amounts and timing of recorded expenses for any period will be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the Companies property and equipment will increase the recorded operating expenses and decrease noncurrent assets. Goodwill and intangible assets The consolidated financial statements and results of operations reflect acquired businesses after the completion of the respective acquisition. The Company accounts for the acquired businesses using the acquisition method starting January 1, 2010 and purchase method for prior year acquisitions, which requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair market values of the acquirees identifiable assets and liabilities at the acquisition date. Any excess in the purchase price over the estimated fair market values of the net assets acquired is recorded as goodwill in the consolidated statements of financial position. Thus, the numerous judgments made in estimating the fair market value to be assigned to the acquirees assets and liabilities can materially affect the Companys financial performance. Realizability of deferred income tax assets The Companies review the carrying amounts of deferred income tax assets at the end of each reporting date and reduce these to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. The Companies assessment on the recognition of deferred income tax assets on deductible temporary differences is based on the level and timing of forecasted taxable income of the subsequent reporting periods. This forecast is based on the Companies past results and future expectations on revenues and expenses as well as future tax planning strategies. However, there is no assurance that sufficient taxable income will be generated to allow all or part of deferred income tax assets to be utilized.
42
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 3. MANAGEMENTS USE OF JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued) b. Estimates and Assumptions (continued) Estimating allowance for impairment of receivables If there is an objective evidence that an impairment loss has been incurred in trade receivables, the Companies estimate the allowance for impairment losses related to their trade receivables that are specifically identified as doubtful for collection. The level of allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts. In these cases, the Companies use judgment based on the best available facts and circumstances, including but not limited to, the length of the Companies relationship with the customers and the customers credit status based on third-party credit reports and known market factors, to record specific reserves for customers against amounts due in order to reduce the Companies receivables to amounts that they expect to collect. These specific reserves are re-evaluated and adjusted as additional information received affect the amounts estimated. In addition to specific allowance against individually significant receivables, the Companies also assess a collective impairment allowance against credit exposure of their customers which are grouped based on common credit characteristics, which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when the receivables were originally granted to customers. This collective allowance is based on historical loss experience using various factors such as historical performance of the customers within the collective group, deterioration in the markets in which the customers operate, and identified structural weaknesses or deterioration in the cash flows of customers. Estimation of pension cost and other employee benefits The cost of defined benefit plan and present value of the pension obligation are determined using the projected-unit-credit method. Actuarial valuation includes making various assumptions which consist, among other things, discount rates, expected rates of return on plan assets, rates of compensation increases and mortality rates. Actual results that differ from the Companies assumptions are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting year exceed 10% of the higher of the present value of defined benefit obligation and the fair value of plan assets at that date. Due to complexity of valuation, the underlying assumptions and their long-term nature, a defined benefit obligation is highly sensitive to changes in assumptions. While the Companies believe that their assumptions are reasonable and appropriate, significant differences in the Companies actual experience or significant changes in their assumptions may materially affect the costs and obligations of pension and other long-term employee benefits. All assumptions are reviewed at each reporting date. Asset retirement obligations Asset retirement obligations are recognized in the year in which they are incurred if a reasonable estimate of fair value can be made. This requires an estimation of the cost to restore/dismantle on a per location basis and is based on the best estimate of the expenditure required to settle the obligation at the future restoration/dismantlement date, discounted using a pre-tax rate that reflects the current market assessment of the time value of money and, where appropriate, the risk specific to the liability.
43
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 3. MANAGEMENTS USE OF JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued) b. Estimates and Assumptions (continued) Revenue recognition The Companys revenue recognition policies require the use of estimates and assumptions that may affect the reported amounts of revenues and receivables. The Companys agreements with domestic and foreign carriers for inbound and outbound traffic subject to settlements require traffic reconciliations before actual settlement is done, which may not be the actual volume of traffic as measured by Company. Initial recognition of revenues is based on observed traffic adjusted by normal experience adjustments, which historically are not material to the consolidated statements of comprehensive income. Differences between the amounts initially recognized and the actual settlements are taken up in the account upon reconciliation. However, there is no assurance that the use of such estimates will not result in material adjustments in future periods. The Companies recognize revenues from installation and activation related fees and the corresponding costs over the expected average periods of customer relationship for cellular, MIDI and fixed telecommunication services. The Companies estimate the expected average period of customer relationship based on the most recent churn-rate analysis. Uncertain tax exposure In certain circumstances, the Companies may not be able to determine the exact amount of their current or future tax liabilities due to ongoing investigations by, or negotiations with, the taxation authority. Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. In determining the amount to be recognized in respect of an uncertain tax liability, the Companies apply similar considerations as they would use in determining the amount of a provision to be recognized in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The Companies make an analysis of all tax positions related to income taxes to determine if a tax liability for unrecognized tax benefit should be recognized. As of December 31, 2010, the Company is subject to tax audit for tax year 2009. The Companies record interest and penalties for the underpayment of income tax, if any, in income tax expense account in the consolidated financial statements.
44
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (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: January 1, 2009 Cash on hand (including US$10 on January 1, 2009 and US$12 on December 31, 2010) Cash in banks Related parties (Note 25) (including US$328 on January 1, 2009, US$4,365 on December 31,2009 and US$4,726 on December 31, 2010) Third parties (including US$16,905 on January 1, 2009, US$9,759 on December 31, 2009 and US$12,885 on December 31, 2010) 1,626 December 31, 2009 1,581 2010 1,792
31,509 235,692 268,827
91,783 131,106 224,470
116,107 165,588 283,487
Time deposits and deposits on call Related parties (Note 25) (including US$309,079 on January 1, 2009, US$265 on December 31, 2009 and US$81,705 on December 31, 2010) Third parties (including US$43,925 on January 1, 2009, US$22,725 on December 31, 2009 and US$12,454 on December 31, 2010)
4,505,596
1,976,259
1,499,544
963,443 5,469,039
635,270 2,611,529 2,835,999
292,239 1,791,783 2,075,270
Total
5,737,866
Time deposits and deposits on call denominated in rupiah earned interest at annual rates ranging from 1.25% to 14.00% on January 1, 2009, from 2.50% to 14.50% in 2009 and from 2.50% to 10.00% in 2010, while those denominated in U.S. dollar earned interest at annual rates ranging from 0.002% to 6.00% on January 1, 2009, from 0.001% to 6.00% in 2009 and from 0.05% to 4.75% in 2010. The interest rates on time deposits and deposits on call in related parties are comparable to those offered by third parties.
45
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 5. ACCOUNTS RECEIVABLE - TRADE This account consists of the following: January 1, 2009 Related parties (Note 25) Telkom (including US$271 on January 1, 2009, US$75 on December 31, 2009 and US$55 on December 31, 2010) Others (including US$5,032 on January 1, 2009, US$6,322 on December 31, 2009 and US$7,764 on December 31, 2010) Sub-total Less allowance for impairment Net Third parties Overseas international carriers (including US$81,810 on January 1, 2009, US$98,042 on December 31, 2009 and US$93,755 on December 31, 2010) Local companies (including US$24,987 on January 1, 2009, US$15,291 on December 31, 2009 and US$13,956 on December 31, 2010) Post-paid subscribers from: Cellular Fixed telecommunication Sub-total Less allowance for impairment Net Total December 31, 2009 2010
32,801 112,721 145,522 69,444 76,078
31,724 151,726 183,450 57,538 125,912
56,108 214,038 270,146 47,640 222,506
895,820
921,595
842,954
506,191 249,124 40,212 1,691,347 426,719 1,264,628 1,340,706
463,069 252,008 26,813 1,663,485 404,272 1,259,213 1,385,125
628,224 255,973 47,239 1,774,390 448,470 1,325,920 1,548,426
The aging schedule of the accounts receivable - trade is as follows:

_____
January 1, 2009 Percentage (%) 56.69 7.01 2.32 33.98 100.00 58.23 11.34 15.77 14.66 100.00
December 31, 2009 Amount 121,522 27,207 2,661 32,060 183,450 820,082 287,533 285,407 270,463 1,663,485 Percentage (%) 66.24 14.83 1.45 17.48 100.00 49.30 17.28 17.16 16.26 100.00
December 31, 2010 Amount 201,256 47,973 6,913 14,004 270,146 787,871 279,806 308,808 397,905 1,774,390 Percentage (%) 74.50 17.76 2.56 5.18 100.00 44.40 15.77 17.40 22.43 100.00
Number of Months Outstanding Related parties 0 - 6 months 7 - 12 months 13 - 24 months Over 24 months Total Third parties 0 - 6 months 7 - 12 months 13 - 24 months Over 24 months Total
Amount 82,495 10,199 3,382 49,446

__
145,522 984,794 191,825 266,779 247,949

__
1,691,347
As of January 1, 2009 and December 31, 2009 and 2010, the Companies have no past due and not impaired accounts receivable. 46
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 5. ACCOUNTS RECEIVABLE - TRADE (continued) The movements in the allowance for impairment on accounts receivable - trade are as follows: Total January 1, 2009 Balance at beginning of year Provision (reversal) (Note 22) Write-offs Net effect of foreign exchange adjustment Balance at end of year Individual impairment Collective impairment Total Gross amount of receivables, individually impaired, before deducting any individually assessed impairment allowance 414,484 74,281 (35,134) 42,532 496,163 212,008 284,155 496,163 Related Parties 88,342 (23,514) (2,044) 6,660 69,444 66,503 2,941 69,444 Third Parties 326,142 97,795 (33,090) 35,872 426,719 145,505 281,214 426,719
591,363
70,901
520,462
Total December 31, 2009 Balance at beginning of year Provision (Note 22) Write-offs Net effect of foreign exchange adjustment Deduction due to liquidation of SMM (Note 1b) Balance at end of year Individual impairment Collective impairment Total Gross amount of receivables, individually impaired, before deducting any individually assessed impairment allowance 496,163 98,042 (101,586) (29,560) (1,249 ) 461,810 162,967 298,843 461,810
Related Parties 69,444 6,635 (9,398) (9,143) 57,538 52,137 5,401 57,538
Third Parties 426,719 91,407 (92,188) (20,417) (1,249) 404,272 110,830 293,442 404,272
790,213
63,391
726,822
47
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 5. ACCOUNTS RECEIVABLE - TRADE (continued) Total December 31, 2010 Balance at beginning of year Provision (reversal) - net (Note 22) Write-offs Net effect of foreign exchange adjustment Balance at end of year Individual impairment Collective impairment Total Gross amount of receivables, individually impaired, before deducting any individually assessed impairment allowance 461,810 67,041 (23,586) (9,155) 496,110 182,175 313,935 496,110 Related Parties 57,538 (9,712) (186) 47,640 37,576 10,064 47,640 Third Parties 404,272 76,753 (23,586) (8,969) 448,470 144,599 303,871 448,470
405,926
118,486
287,440
The net effect of foreign exchange adjustment was due to the strengthening or weakening of the rupiah vis--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. Information about the Companies exposure to credit risk is disclosed in Note 31. Management believes the established allowance is sufficient to cover impairment of accounts receivable - trade.
48
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 6. TAXES RECEIVABLE This account consists of claims for tax refund as of January 1, 2009 and December 31, 2009 and 2010 amounting to Rp247,185, Rp396,581 and Rp479,786, respectively, mainly consisting of the Companys corporate income tax for fiscal years 2004, 2005, 2006, 2009 and 2010 and Satelindos corporate income tax for fiscal year 2002. On July 4, 2008, the Company received Decision Letter No. KEP-00080/WPJ.19/KP.0303/2008 (KEP00080) from the Tax Court which accepted the Companys objection to the correction of the 2003 corporate income tax amounting to Rp126,403. On December 24, 2008, the Company received Decision Letter No. KEP-539/WPJ.19/BD.05/2008 from the DGT which increased the overpayment amount by Rp84,650 in the assessment letter on tax overpayment (SKPLB) for fiscal year 2004, which amount is lower than the amount stated in KEP-00080. On January 21, 2009, the Company filed an appeal letter to the Tax Court to increase the SKPLB for fiscal year 2004 as stated in KEP-00080. On February 2, 2009, the Company received the tax refund from the Tax Office amounting to Rp84,650 for the additional tax overpayment of corporate income tax for fiscal year 2004. On December 4, 2009, the Company received from the Tax Court its Decision No. Put.20644/PP/M.II/2009 which granted the request to increase the SKPLB for fiscal year 2004. Furthermore, on December 15, 2009, the DGT issued Decision Letter No. KEP00101/WPJ.19/KP.0303/2009 to implement such Tax Court Decision. On April 13, 2010, the Company received the tax refund from the Tax Office amounting to Rp41,753 for the remaining tax overpayment of corporate income tax for the fiscal year 2004. On August 21, 2008, the Company submitted an appeal letter to the Tax Court concerning the Companys remaining objection to the correction of the 2005 corporate income tax. On October 29, 2010, the Company received the Decision Letter from the Tax Court which accepted the Companys objection to the correction of the 2005 corporate income tax amounting to Rp38,155 (Note 33k), which was offset against the underpayment of the Companys 2008 and 2009 income tax article 26 based on Tax Collection Letters (STPs) received by the Company on September 17, 2010 (Note 29c). On June 8, 2009, the Company received the assessment letter on tax underpayment (SKPKB) from the DGT for Satelindos corporate income tax for fiscal year 2002 amounting to Rp105,809 (including penalties and interest). The Company accepted a part of the correction of the 2002 corporate income tax amounting to Rp2,646 which was charged to current operations in 2009. Under Indonesian Tax Law, a taxpayer is required to pay the tax underpayment amount as stated in the SKPKB within one month from the date of the SKPKB. The taxpayer can reclaim the tax paid through an objection or appeal process. On August 28, 2009, the Company submitted an objection letter to the Tax Office regarding the remaining correction on Satelindos 2002 corporate income tax. On July 15, 2010, the Company received Decision Letter No.KEP-357/WPJ.19/BD.05/2010 from the DGT declining the Companys objection to the correction on Satelindos corporate income tax for fiscal year 2002. On October 14, 2010, the Company submitted an appeal letter to the Tax Court concerning the Companys objection to the correction on Satelindos corporate income tax for fiscal year 2002. As of April 20, 2011, the Company has not yet received any decision from the Tax Court on such appeal. On September 7, 2009, the Company received Decision Letter No.KEP-335/WPJ.19/BD.05/2009 from the DGT which declined the Companys objection to the remaining corrections of the 2006 corporate income tax. On December 2, 2009, the Company submitted an appeal letter to the Tax Court regarding the remaining corrections of the Companys 2006 corporate income tax. As of April 20, 2011, the Company has not yet received any decision from the Tax Court on such appeal.
49
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 7. PROPERTY AND EQUIPMENT The details of property and equipment are as follows:
Exchange and network assets Cost At January 1, 2008 (restated) Additions Derecognitions Reclassifications At December 31, 2008 (restated) Additions Derecognitions Divestment of SMM a subsidiary Reclassifications At December 31, 2009 (restated) Additions Derecognitions Reclassifications At December 31, 2010 Subscribers apparatus and other equipment Buildings and building & leasehold improvements Properties under construction and installation
Landrights
Total
32,414,532 276,929 (17,381) 3,715,632 36,389,712 158,871 (89,448) 14,701,390 51,160,525 364,134 (2,091,220) 7,572,859 57,006,298
3,120,129 138,288 (4,026) 231,418 3,485,809 56,996 (34,507) (6,617) 368,118 3,869,799 51,381 (30,657) 412,498 4,303,021
7,190,475 8,354 2,004,008 9,202,837 18,922 (14,604) (70) 2,369,910 11,576,995 4,088 (70,346) 1,278,139 12,788,876
428,828 7,712 36,569 473,109 31,511 504,620 15,977 20,490 541,087
8,010,903 11,903,668 (5,987,627) 13,926,944 11,334,716 (84,218) (17,470,929) 7,706,513 5,039,357* (9,283,986) 3,461,884
51,164,867 12,334,951 (21,407) 63,478,411 11,569,505 (222,777) (6,687) 74,818,452 5,474,937 (2,192,223) 78,101,166
Accumulated depreciation, amortization and impairment Accumulated depreciation, amortization and impairment at January 1, 2008 2,023,547 15,856,348 (restated) Depreciation and amortization charge for the year 3,336,090 499,939 Derecognitions (17,357) (3,145) Accumulated depreciation, amortization and impairment at December 31, 2008 2,520,341 19,175,081 (restated) Depreciation and amortization charge for the year Derecognitions Divestment of SMM a subsidiary Accumulated depreciation, amortization and impairment at December 31, 2009 (restated) Depreciation and amortization charge for the year Derecognitions Accumulated depreciation, amortization and impairment at December 31, 2010
2,712,199 676,717 -
50,981 9,479 -
20,643,075 4,522,225 (20,502)
3,388,916
60,460
25,144,798
4,156,188 (89,448) -
431,015 (34,359) (5,415)
857,032 (9,637) (70)
10,210 -
5,454,445 (133,444) (5,485)
23,241,821
2,911,582
4,236,241
70,670
30,460,314
4,784,832 (1,932,935)
437,982 (29,838)
950,794 (70,324)
10,940 -
6,184,548 (2,033,097)
26,093,718
3,319,726
5,116,711
81,610
34,611,765
* including additional property and equipment purchased from Lintasarta amounting to Rp71,423 (net of intercompany loss of Rp11,683)
50
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 7. PROPERTY AND EQUIPMENT (continued)
Exchange and network assets Subscribers apparatus and other equipment Buildings and building & leasehold improvements Properties under construction and installation
Net book value At January 1, 2008 (restated) At December 31, 2008 (restated) At December 31, 2009 (restated) At December 31, 2010
Landrights
Total
16,558,184 17,214,631 27,918,704 30,912,580
1,096,582 965,468 958,217 983,295
4,478,276 5,813,921 7,340,754 7,672,165
377,847 412,649 433,950 459,477
8,010,903 13,926,944 7,706,513 3,461,884
30,521,792 38,333,613 44,358,138 43,489,401
Submarine cables (presented as part of exchange and network assets) represent the Companys 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. Depreciation and amortization expense charged to profit or loss amounted to Rp4,522,225, Rp5,454,445 and Rp6,184,548 in 2008, 2009 and 2010, respectively. Management believes that there is no impairment in assets value or recovery of the impairment reserve for the current year. On August 31, 2009, the Company launched its Satellite Palapa-D. The Satellite experienced an under-performance of the launch vehicle during the Satellites placement to its intended orbital position. Consequently, its orbital lifetime has been reduced. The insurance claim for the partial loss of the Satellite has been made and is recorded as a reduction of the cost of the Satellite. The Satellite has been in operation since November 2009 after going through the process of testing and arranging its orbital position in September and October 2009. On January 4 and 19, 2010, the Company collected the Palapa-D Satellite insurance claim amounting to US$58,008 (equivalent to Rp537,657) as a loss compensation for the decrease in the Satellites useful life from 15 years to 10.77 years due to the under-performance of the launch vehicle in the Satellites orbital process. As of December 31, 2010, approximately Rp31,691 of property and equipment are pledged as collateral to credit facilities obtained by Lintasarta (Note 14). As of December 31, 2010, the Companies insured their respective property and equipment (except submarine cables) for US$232,785 and Rp40,306,958 including insurance on the Companys satellite amounting to US$153,000. Management believes that the sum insured is sufficient to cover possible losses arising from fire, explosion, lightning, aircraft damage and other natural disasters. The details of the Companies properties under construction and installation as of January 1, 2009 and December 31, 2009 and 2010 are as follows:
51
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 7. PROPERTY AND EQUIPMENT (continued)
Percentage of Completion January 1, 2009 Exchange and network assets Subscribers apparatus and other equipment Buildings and building & leasehold improvements Total December 31, 2009 Exchange and network assets Subscribers apparatus and other equipment Buildings and building & leasehold improvements Total December 31, 2010 Exchange and network assets Subscribers apparatus and other equipment Buildings and building & leasehold improvements Total 5 - 99 25 - 95 6 - 95 5 - 99 55 - 95 6 - 75 5 - 99 40 - 98 15 - 99 Cost 12,415,087 147,966 1,363,891 13,926,944 6,819,312 120,609 766,592 7,706,513 3,158,581 25,853 277,450 3,461,884 January - December 2011 January - December 2011 January - December 2011 January - September 2010 January - July 2010 January 2010 - December 2011 Estimated Date of Completion January - September 2009 January - June 2009 January 2009 - January 2010
Borrowing costs capitalized to properties under construction and installation for the years ended December 31, 2008, 2009 and 2010 amounted to Rp134,875, Rp181,522 and Rp18,698, respectively. For the years ended December 31, 2008, 2009 and 2010, sales or exchange of certain property and equipment were made as follows:
2008 Rp Exchange of Assets (Note 29b) Carrying amount of assets received Carrying amount of assets given up Sales of Assets Proceeds Net book value Gain (loss) 1,131 (905) 226 2009 Rp 2,253 (5,115) (2,862) 2010 Rp 158,285 (158,285 ) 7,741 (841 ) 6,900
In the above exchange of assets transaction, the fair value of neither the asset received nor the assets given up cannot be measured reliably, hence, the value of the asset received is measured at the carrying amount of the assets given up. 8. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill arose from the acquisition of ownership in Bimagraha and Satelindo in 2001 and 2002, respectively, and from the acquisition of additional ownership in Lintasarta in 2005, in SMT in 2008 and LMD in 2010, respectively. The details of the other intangible assets arising from the acquisition of Satelindo in 2002 are as follows:
Amount Spectrum license Customer base - Post-paid - Prepaid Brand Total 222,922 154,220 73,128 147,178 597,448
52
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 8. GOODWILL AND OTHER INTANGIBLE ASSETS (continued) The changes in the goodwill and other intangible assets account are as follows: Non-integrated Software Cost: At January 1, 2008 Additions At January 1, 2009 Additions At December 31, 2009 Addition s At December 31, 2010 Accumulated Amortization: At January 1, 2008 Amortization At January 1, 2009 Amortization At December 31, 2009 Amortization At December 31, 2010 Net book value: At January 1, 2008 At January 1, 2009 At December 31, 2009 At December 31, 2010 31,485 19,715 20,220 49,677 51,917 27,494 9,097 2,003,776 2,013,500 2,013,500 2,013,500 2,087,178 2,060,709 2,042,817 2,063,177 182,096 18,722 200,818 14,539 215,357 10,595 225,952 545,531 24,423 569,954 18,397 588,351 9,097 597,448 930,862 930,862 930,862 930,862 1,658,489 43,145 1,701,634 32,936 1,734,570 19,692 1,754,262 213,581 6,952 220,533 15,044 235,577 40,052 275,629 597,448 597,448 597,448 597,448 2,934,638 9,724 2,944,362 2,944,362 2,944,362 3,745,667 16,676 3,762,343 15,044 3,777,387 40,052 3,817,439 Other Intangible Assets
Goodwill
Total
Other intangible assets consist of the following:

January 1, 2009 Gross Useful lives (years) Customer base: Post-paid Prepaid Spectrum license Brand Total Carrying Amount Accumulated Amortization Carrying Amount December 31, 2009 Gross Accumulated Amortization Carrying Amount December 31, 2010 Gross Accumulated Amortization
Net
Net
Net
5 6 5 8
154,220 73,128 222,922 147,178 597,448
154,220 73,128 222,922 119,684 569,954
27,494 27,494
154,220 73,128 222,922 147,178 597,448
154,220 73,128 222,922 138,081 588,351
9,097 9,097
154,220 73,128 222,922 147,178 597,448
154,220 73,128 222,922 147,178 597,448
53
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 8. GOODWILL AND OTHER INTANGIBLE ASSETS (continued) Impairment testing of goodwill Goodwill acquired through business combinations has been allocated to Cellular business unit, which is also considered as one of the Companies operating segments. The Company performed its annual impairment testing of goodwill at December 31, 2008, 2009 and 2010. The business enterprise value of the Cellular business unit has been determined based on discounted cash flow and weighted average cost of capital (WACC) covering a five-year period. This projection is based on the Companies long-term plan approved by the Board of Directors, which management believes is reasonable and is managements best estimate of the ranges of economic conditions that will exist over the remaining useful life of the asset. Key assumptions used in fair value less cost to sell (FVLCTS) calculation at December 31, 2010: Discount rates - The Company has chosen to use WACC as a discounted rate for the discounted cash flow. The estimated WACC applied in determining the recoverable amount of the unit is between 12% and 14%. Compounded Annual Growth Rate (CAGR) - The CAGR projection for the 5-year budget period of cellular segment revenue made by management is approximately 12%. This is higher than the historical revenue CAGR of approximately 7% due to tighter competition. The total operating expenses (including depreciation) are projected as a percentage of revenue. Cost to Sell - As the recoverable amount of the Cellular Business is determined using FVLCTS, the estimated cost to sell the business is based on a certain percentage of the equity value. The estimated cost to sell used for this calculation is at approximately 1.5% of the enterprise value. 9. LONG-TERM PREPAID RENTALS - NET OF CURRENT PORTION This account represents mainly the long-term portion of prepaid rentals on sites and towers. 10. LONG-TERM ADVANCES This account represents advances to suppliers and contractors for the purchase and construction/installation 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/installation of the property and equipment has reached a certain percentage of completion. 11. PROCUREMENT PAYABLE This account arose from purchases of capital and operating expenditures procured from the following:
December 31, January 1, 2009 Related parties (Note 25) (including US$505 January 1, 2009, US$631 in 2009 and US$404 in 2010) Third parties (including US$411,796 on January 1, 2009, US$309,520 in 2009 and US$246,211 in 2010) Total 77,718 6,368,639 6,446,357 2009 117,284 5,172,498 5,289,782 2010 68,681 3,575,786 3,644,467
54
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 11. PROCUREMENT PAYABLE (continued) The billed amount of procurement payable amounted to Rp1,266,204, Rp1,478,057 and Rp360,508 as of January 1, 2009 and December 31, 2009 and 2010, respectively. The unbilled amount of procurement payable amounted to Rp5,180,153, Rp3,811,725 and Rp3,283,959 as of January 1, 2009 and December 31, 2009 and 2010, respectively. 12. TAXES PAYABLE This account consists of the following:
December 31, January 1, 2009 Estimated corporate income tax payable, less tax prepayments of Rp500,923 on January 1, 2009, Rp439,147 in 2009 and Rp123,281 in 2010 Income tax article 25 Total 2009 2010
78,800 32,369 111,169
21,826 40,122 61,948
4,890 18,899 23,789
The computation of the income tax expense for the years ended December 31, 2008, 2009 and 2010 is as follows:
December 31, 2009 1,117,916 313,016 147,957 33,517 494,490 2008 Estimated taxable income (tax loss) of the Company Income tax expense - current (at statutory tax rates) Company Subsidiaries Tax correction from previous year paid during the year Total income tax expense - current Income tax expense (benefit) - deferred - effect of temporary differences at enacted maximum tax rates (30% in 2008, 28% or 25% in 2009 and 25% in 2010) Company Depreciation - net Loss on sale of property and equipment - net Amortization of other intangible assets Equity in net income of investees Amortization of 3G licenses Tax loss Write-off of accounts receivable (provision for impairment of receivables) - net Provision for termination, gratuity and compensation benefits of employees Net periodic pension cost Accrual of employee benefits - net Amortization of debt and bonds issuance costs, consent solicitation fees and discount (Notes 14 and 15) Others Net 1,529,795 458,921 120,802 7,919 587,642 2010 (1,142,061) 128,171 128,171
132,066 67,565 50,834 (194) (24,056) (6,574) (458) (38,496) (1,990) (16,950) 161,747
228,846 1,036 58,962 34,073 1,722 15,517 (7,662) (115) (27,818) 548 (1,992) 303,117
423,027 86,055 47,642 42,652 8,751 (285,515 ) (8,685 ) (8,217 ) (4,253 ) (3,820 ) (2,580 ) 4,402 299,459
55
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 12. TAXES PAYABLE (continued)
2008 Subsidiaries Net periodic pension cost Write-off of accounts receivable (provision for impairment of receivables) - net Depreciation - net Accrued expenses Tax loss carryforward Others Net Net income tax expense - deferred Deferred tax expense (benefit) resulting from reduction in tax rate Company Subsidiaries Net Income tax expense - net 542 (985) (8,528) 1,303 13,318 (522) 5,128 166,875
December 31, 2009 1,524 (2,943) (10,549) (506) (1,184) (13,658) 289,459 2010 720 533 (6,073 ) (948 ) 476 (5,292 ) 294,167
(283,047) 13,870 (269,177) 485,340
783,949
422,338
The computation of the estimated income tax payable is as follows:

December 31, 2008 Income tax expense - current Company Subsidiaries Tax correction from previous year Total income tax expense - current Less prepayments of income tax of the Company Article 22 Article 23 Article 25 Total prepayments of income tax of the Company Less prepayments of income tax of Subsidiaries Article 22 Article 23 Article 25 Total prepayments of income tax of Subsidiaries Total prepayments of income tax Estimated income tax payable January 1, 2009 Company Subsidiaries Total estimated income tax payable 32,661 46,139 78,800 2009 21,826 21,826 458,921 120,802 7,919 587,642 99,462 9,053 317,745 426,260 2009 313,016 147,957 33,517 494,490 101,137 7,071 299,289 407,497 2010 128,171 128,171 52,126 6,810 28,795 87,731
1,036 3,214 72,086 76,336 502,596
7,534 3,306 151,693 162,533 570,030 December 31,
1,107 3,696 194,309 199,112 286,843
2010 4,890 4,890
56
January 1, 2009 Claim for tax refund (presented as part of Taxes Receivable) Company Subsidiaries Total claim for tax refund 2009
December 31, 2010
1,673 1,673
94,481 36,402 130,883
87,731 75,831 163,562
The reconciliation between the income tax expense calculated by applying the applicable tax rate of 30% in 2008, 28% in 2009 and 25% in 2010 to the profit before income tax and the income tax expense as shown in the consolidated statements of comprehensive income for the years ended December 31, 2008, 2009 and 2010 is as follows:
December 31, 2009 2,544,179 712,370 2008 Profit before income tax Income tax expense at the applicable tax rate of 30% in 2008, 28% in 2009 and 25% in 2010 Companys equity in Subsidiaries income before income tax and reversal of inter-company consolidation eliminations Tax effect on permanent differences Assessment for income taxes and related penalties Employee benefits Donation Amortization of landrights Interest income already subjected to final tax Others Tax correction from previous year Adjustment due to tax audit and others Net deferred tax benefits resulting from reduction in tax rates Income tax expense - net per consolidated statements of comprehensive income 2,555,320 766,596 2010 1,325,208 331,302
48,539 2,878 19,027 18,632 2,844 (140,563) 9,073 7,919 19,572 (269,177) 485,340
56,265 15,497 15,815 3,577 2,859 (41,764) (5,918) 33,517 (8,269) 783,949
58,384 20,844 16,180 6,037 2,735 (36,200 ) 11,161 11,895 422,338
The tax effects of significant temporary differences between financial and tax reporting of the Company are as follows:
December 31, January 1, 2009 (Restated) Deferred tax assets Tax loss Accrual of employee benefits - net Allowance for impairment of receivables Allowance for decline in value of investment in associated company and other long-term investments Pension cost Allowance for decline in value of short-term investments Others Total 187,587 125,027 39,069 17,775 6,349 10,153 385,960 2009 (Restated) 223,067 109,510 39,069 17,890 6,349 5,242 401,127 2010 285,515 235,104 118,195 39,069 22,143 6,349 4,483 710,858
57
January 1, 2009 (Restated) Deferred tax liabilities Property and equipment Investments in subsidiaries/associated companies -net of amortization of goodwill and other intangible assets Deferred debt and bonds issuance costs, consent solicitation fees and discount Long-term prepaid licenses Difference in transactions of equity changes in associated company Others Total Deferred tax liabilities - net 1,490,947 230,232 2,805 3,089 1,460 5,088 1,733,621 1,347,661
December 31, 2009 (Restated) 1,711,076 308,680 13,106 4,811 1,460 9,132 2,048,265 1,647,138 2010 2,220,158 398,974 10,527 13,562 1,460 11,075 2,655,756 1,944,898
The breakdown by entity of the deferred tax assets and liabilities:

December 31,
January 1, 2009 2009 2010
Deferred Tax Assets Company Subsidiaries Lintasarta IMM APE ISP SMT LMD Total 66,104 4,640 70,744
Deferred Tax Liabilities (Restated) 1,347,661 565 331 189 1,348,746
Deferred Tax Assets 76,475 11,524 87,999
Deferred Tax Liabilities (Restated) 1,647,138 3,070 619 991 1,651,818
Deferred Tax Assets 77,755 17,263 95,018
Deferred Tax Liabilities 1,944,898 4,383 428 1,597 1,951,306
The deferred tax assets of Lintasarta relate mainly to the deferred tax on the temporary difference in the recognition of depreciation of property and equipment. The significant temporary differences on which deferred tax assets have been computed are not deductible for income tax purposes until the accrued employee benefits are paid, the doubtful accounts are written off, the allowance for decline in value of investment in associated company and other long-term investments is realized upon sale of the investments, and the pension cost is paid. The significant deferred tax liabilities relate to the differences in the book and tax bases of property and equipment, investments in subsidiaries/associated companies, debt and bonds issuance costs, consent solicitation fees and discount, and long-term prepaid licenses. The Company provides for deferred tax liabilities and deferred tax assets relating to the book-versustax-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.
58
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 12. TAXES PAYABLE (continued) In September 2008, Law No. 7 Year 1983 regarding Income Tax was revised for the fourth time with the issuance of Law No. 36 Year 2008. The revised Law stipulates change in the corporate tax rates from progressive tax rates to a single rate of 28% for fiscal year 2009 and 25% for fiscal years 2010 onwards. The revised Law was effective on January 1, 2009. The Companies recorded the effects of the changes in tax rates for the year ended December 31, 2008 resulting from the reduction in tax rates as a reduction of income tax expense amounting to Rp269,177 and credits amounting to Rp292 and Rp886, respectively, to Other Components of Equity - Difference in transactions of equity changes in associated companies/subsidiaries and Difference in foreign currency translation, which are presented as part of other comprehensive income in the consolidated statements of comprehensive income. On June 8, 2009, the Company received SKPKB from the DGT for Satelindos 2003 corporate income tax amounting to Rp30,870 (including interest), which was paid to the Tax Office on July 7, 2009 and charged to current operations in 2009. The tax losses carryover of SMT and the Company as of December 31, 2010 can be carried forward through 2015 based on the following schedule: Year of Expiration 2011 2012 2013 2014 2015 Total Amount 14,190 30,205 26,660 31,901 1,192,832 1,295,788
13. ACCRUED EXPENSES This account consists of the following: January 1, 2009 Interest Network repairs and maintenance Employee benefits (Notes 17 and 24) Radio frequency fee Dealer incentive (Note 2f5.1) Marketing Utilities Consultancy fees Universal Service Obligation (USO) Concession fee Link Rental General and administration Blackberry access fee Others (each below Rp20,000) Total 231,640 303,200 122,049 257,671 80,760 161,698 8,202 45,792 38,526 49,227 3,614 21,762 25,829 2,507 92,761 1,445,238 December 31, 2009 228,743 301,857 152,447 240,718 80,778 125,908 94,359 66,218 62,378 2,468 7,204 18,225 25,546 10,340 108,372 1,525,561 2010 339,957 265,428 216,732 195,686 125,836 120,092 85,650 65,288 59,899 38,005 31,111 28,090 27,706 20,679 90,726 1,710,885
59
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 14. LOANS PAYABLE This account consists of the following: January 1, 2009 Related party (Note 25) Mandiri - net of unamortized debt issuance cost and consent solicitation fee of Rp3,858 on January 1, 2009, Rp7,511 in 2009 and Rp2,955 in 2010 Third parties - net of unamortized debt issuance cost and consent solicitation fee of Rp233,736 on January 1, 2009, Rp250,888 in 2009 and Rp189,979 in 2010; and unamortized debt discount of Rp31,844 on January 1, 2009, Rp25,892 in 2009 and Rp19,267 in 2010 Total loans payable Less current maturities (net of unamortized debt issuance cost and consent solicitation fees of Rp373 in 2010): Related party Third parties Total current maturities Long-term portion The loans from third parties consist of the following: Syndicated U.S. Dollar Loan Facility - net of unamortized debt issuance cost and consent solicitation fee of Rp47,276 on January 1, 2009, Rp44,563 in 2009 and Rp27,122 in 2010 AB Svensk Exportkredit, Sweden with Guarantee from Export Kredit Namnden - net of unamortized debt issuance cost of Rp36,909 in 2009 and Rp27,593 in 2010 HSBC France - net of unamortized debt issuance cost and consent solicitation fee of Rp176,408 on January 1, 2009, Rp156,357 in 2009 and Rp129,167 in 2010 BCA - net of unamortized debt issuance on cost and consent solicitation fee of Rp3,858 on January 1, 2009, Rp7,055 in 2009 and Rp2,903 in 2010 Goldman Sachs International Principal, net of unamortized debt discount of Rp31,844 on January 1, 2009, Rp25,892 in 2009 and Rp19,267 in 2010 Foreign Exchange (FX) Conversion Option - net of credit risk adjustment 9-Year Commercial Loan - net of unamortized debt issuance cost and consent solicitation fee of Rp3,962 on January 1, 2009, Rp3,707 in 2009 and Rp2,821 in 2010 60 December 31, 2009 2010
1,796,142
2,592,489
1,297,045
9,588,487 11,384,629
11,563,262 14,155,751
9,553,906 10,850,951
200,000 372,469 572,469 10,812,160
400,000 1,040,259 1,440,259 12,715,492
300,000 2,884,147 3,184,147 7,666,804
4,880,224
4,185,437
4,018,828
1,200,551
1,972,905
1,276,607
1,736,678
1,500,434
1,796,142
3,092,945
1,297,097
402,456 185,768
408,408 97,942
415,033 54,595
292,093
237,733
203,805
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 14. LOANS PAYABLE (continued) January 1, 2009 Investment Credit Facility 6 from CIMB Niaga Finnish Export Credit Ltd. - net of unamortized debt issuance cost and consent solicitation fee of Rp1,463 on January 1, 2009, Rp1,113 in 2009 and Rp373 in 2010 Investment Credit Facility 5 from CIMB Niaga Investment Credit Facility 4 from CIMB Niaga DBS - net of unamortized debt issuance cost and consent solicitation fee of Rp769 on January 1, 2009 and Rp1,184 in 2009 Total Less current maturities Long-term portion -
December 31, 2009 23,772 2010 52,483
206,587 44,933 4,446 499,231 9,588,487 372,469 9,216,018
106,047 24,933 448,816 11,563,262 1,040,259 10,523,003
33,793 4,933 9,553,906 2,884,147 6,669,759
The details of the loans from a related party and third parties are as follows:
Counterparties a. Mandiri* Loan Type Maturity Amount 5-year unsecured September 18, Rp2,000,000 credit facility 1 2012 Loan drawdowns are payable annually Interest Structure Year 1: 9.75% p.a. Year 2: 10.5% p.a. Years 3-5: Average 3-month Jakarta Inter-Bank Offered Rate (JIBOR) + 1.5% p.a. Payable quarterly Average 3-month JIBOR + 4% p.a. Effective May 31, 2010: average 3month JIBOR + 2.25% p.a. Payable quarterly USD London InterBank Offered Rate (LIBOR) + 1.9% p.a. (onshore lenders); USD LIBOR + 1.85% p.a. (offshore lenders) Payable semiannually Early Repayment Without penalty if the repayment is made after the 24th month after the agreement date subject to 7 days prior written notice With penalty of 2% of the prepaid amount for repayment prior to the 24th month after the agreement date Permitted - subject to 2% penalty of the prepaid amount On November 15, 2010, the Company made an early repayment of the remaining loan balance amounting to Rp900,000. Permitted only after the 6th month from the date of loan agreement subject to 15 days prior written notice (in the minimum amount of US$10,000 and in an amount divisible by US$1,000)
b. Mandiri*
5-year unsecured credit facility 2 Loan drawdowns are payable annually
July 28, 2014
Rp1,000,000
c. Syndicated U.S. Dollar Loan Facility - 13 Financial Institutions
5-year unsecured credit facility Loan drawdowns are payable semiannually
June 12, 2013
US$450,000
* a related party (Note 25)
61
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 14. LOANS PAYABLE (continued)
Counterparties d. AB Svensk Exportkredit (SEK), Sweden with Guarantee from Export Kredit Namnden (EKN) Loan Type Credit facilities consisting of Facilities A,B and C with maximum amounts of US$100,000, US$155,000 and US$60,000, respectively Loan drawdowns are payable semiannually Maturity May 31, 2016 for facility A, February 28, 2017 for facility B and November 30, 2017 for facility C Amount US$315,000 Interest Structure Facility A: Margin of 0.25%, LIBOR, SEK Funding Cost of 1.05% and EKN Premium Margin of 1.58% Facility B: Margin of 0.05%, Commercial Interest Reference Rate (CIRR) and EKN Premium Margin of 1.61% Facility C: Margin of 0.05%, CIRR and EKN Premium Margin of 1.61%. 5.69% p.a. Payable semiannually Early repayment Permitted only in proportionate amount for each Facility A, B and C, after the last day of the availability period and on a repayment date subject to 20 days prior written notice In minimum amount of US$5,000 and in an amount divisible by US$500 Any repayment shall satisfy the obligations of loan repayment in inverse chronological order. Permitted with a corresponding proportionate voluntary prepayment under the SINOSURE Facility after the last day of the availability period and on a repayment date subject to 30 days prior written notice In minimum amount of US$10,000 and in an amount divisible by US$1,000 Any repayment shall satisfy the obligations of loan repayment in inverse chronological order. Permitted with a corresponding proportionate voluntary prepayment under the COFACE Facility after the last day of the availability period and on a repayment date subject to 30 days prior written notice In minimum amount of US$10,000 and in an amount divisible by US$1,000 Any repayment shall satisfy the obligations of loan repayment in inverse chronological order. Without penalty if the repayment is made after the 24th month after the agreement date subject to 7 days prior written notice With penalty of 2% of the prepaid amount for repayment prior to the 24th month after the agreement date.
e. HSBC France
12 year - COFACE term facility Payable in twenty semi-annual installments
November 27, 2019
US$157,243
f. HSBC France
12 year SINOSURE term facility Payable in twenty semi-annual installments
November 27, 2019
US$44,200
USD LIBOR + 0.35% p.a. Payable semiannually
g. BCA
August 28, 2012
Rp2,000,000
Year 1: 9.75% p.a. Year 2: 10.5% p.a. Years 3-5: 3month JIBOR + 1.5% p.a. Payable quarterly
62
Counterparties h. BCA Loan Type 3-year unsecured credit facility 2 Loan drawdowns are payable annually Maturity March 16, 2012 Amount Rp500,000 Interest Structure 3-month JIBOR + 2.25% p.a. Early repayment With penalty of 1% of the prepaid amount On October 19, 2010, the Company made an early repayment of the remaining loan balance amounting to Rp400,000. With penalty of 1% of the prepaid amount, except for prepayment to refinance this credit facility On October 19, 2010, the Company made an early repayment of the remaining loan balance amounting to Rp900,000. Certain changes affecting withholding taxes in the United Kingdom or Indonesia. Default under Guaranteed Notes due 2012 Default under the Companys USD Notes and IDR Bonds Redemption, purchase or cancellation of the Guaranteed Notes Due 2012 and there are no USD Indosat Notes outstanding upon such redemption, purchase or cancellation Change of control in the Company. Permitted only on each repayment date after first repayment date subject to 30 days prior written notice In minimum amount of US$5,000 and in an amount divisible by US$1,000 Any prepayment shall satisfy the obligations of loan repayment proportionately.
i. BCA
June 25, 2014 Rp1,000,000
3-month JIBOR + 4% p.a. Effective June 25, 2010: 3month JIBOR +2.25% p.a.
j. Goldman Sachs International (GSI)
k. HSBC Jakarta Branch, CIMB Niaga and Bank of China Limited, Jakarta Branch
May 30, Investment loan 2013 provides an FX Conversion Option for GSI to convert the loan payable into a U.S. dollar loan of US$50,000 on May 30, 2012 (FX Conversion Option). Fair value of FX Conversion Option as of January 1, 2009, December 31, 2009 and 2010 amounting to US$16,965.12, US$10,419.43 and US$6,072.20 (equivalent to Rp185,768, Rp97,942 and Rp54,595), respectively November 27, 9-year unsecured 2016 commercial facility Payable in fifteen semi-annual payments after 24 months from the date of loan agreement. For the 1st five installments: US$1,351.85 each; and US$2,027.78 each for the remaining installments thereafter
Rp434,300
8.75% p.a. Payable quarterly If GSI takes FX Conversion Option, starting May 30, 2012, the loan will bear interest at the fixed annual rate of 6.45% applied on the US$50,000 principal.
US$27,037
USD LIBOR + 1.45% p.a. Payable semiannually
63
Counterparties l. CIMB Niaga Loan Type Investment credit facility 6 obtained by Lintasarta Payable quarterly Maturity June 24, 2012 Amount Rp75,000 Interest Structure 14.5% p.a., subject to change by CIMB Niaga depending on the market condition Early repayment Permitted only on interest payment date subject to 15 days prior written notice. Lintasarta may repay the whole or any part of the loan before the due date only by using the fund from Lintasartas operational activities. Repayment using the fund from loans obtained from other parties is allowed with penalty determined by CIMB Niaga. Permitted only after 60 days of the loan agreement subject to 15 days prior written notice (in the minimum amount of US$10,000 and in an amount divisible by US$1,000). Permitted only on interest payment date subject to 13 days prior written notice. Lintasarta may repay the whole or any part of the loan before the due date only by using the fund from Lintasartas operational activities. Repayment using the fund from loans obtained from other parties is allowed with 1% penalty of the early repaid amount. Without penalty if the repayment is made after the 24th month after the agreement date subject to 15 days prior written notice With penalty of 1% of the prepaid amount for repayment prior to the 24th month after the agreement date On October 30, 2010, the Company made an early repayment of the remaining loan balance amounting to Rp400,000.
m. Finnish Export Credit Ltd.
5-year credit facility Payable semiannually
May 12, 2011
US$38,000
4.15% p.a. Payable semiannually
n. CIMB Niaga
Investment credit facility 5 obtained by Lintasarta Payable quarterly
January 10, 2011
Rp50,000
1-month SBI + 2.25% p.a.
o. DBS
5-year unsecured credit facility Loan drawdowns are payable annually
November 1, 2012
Rp500,000
Year 1: 9.7% Year 2: 10.4% Years 3-5: 3month SBI + 1.5% p.a. Payable quarterly
64
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 14. LOANS PAYABLE (continued) The scheduled principal payments from 2011 to 2015 and thereafter of all the loans payable as of December 31, 2010 are as follows:
Twelve months ending December 31, 2013 434,300 434,300 2014 2011 In rupiah Mandiri* BCA* GSI* CIMB Niaga* Sub-total In U.S. dollar Syndicated U.S. Dollar Loan facility (US$450,000) * SEK, Sweden (US$222,500) * HSBC France (US$181,248.02) * 9-Year Commercial Facility (US$22,981.45) * GSI (US$6,072.20) * FEC (US$3,800) * Sub-total Total 300,000 300,000 34,933 634,933 2012 1,000,000 1,000,000 22,483 2,022,483 2015 and thereafter Total 1,300,000 1,300,000 434,300 57,416 3,091,716
1,982,516 327,529 181,067 24,309 34,166 2,549,587 3,184,520
647,352 327,529 181,067 36,463 1,192,411 3,214,894
1,416,082 327,529 181,067 36,463 54,595 2,015,736 2,450,036
327,529 181,067 36,463 545,059 545,059
690,382 905,333 72,928 1,668,643 1,668,643
4,045,950 2,000,498 1,629,601 206,626 54,595 34,166 7,971,436 11,063,152 (192,934) (19,267) 10,850,951
Less: - unamortized debt issuance costs and consent solicitation fees - unamortized debt discount Net * Refer to previous discussion on early repayment options for each loan.
The amortization of debt issuance costs, consent solicitation fees and debt discount on the loans amounted to Rp15,331 in 2008, Rp35,838 in 2009 and Rp72,091 in 2010 (Note 23). As of January 1, 2009 and December 31, 2009 and 2010, the Companies have complied with all financial ratios required to be maintained under the loan agreements. 15. BONDS PAYABLE This account consists of the following: December 31, January 1, 2009 a) Guaranteed Notes Due 2020 - net of unamortized notes issuance cost of Rp64,885 and discount of Rp29,666 b) Fifth Indosat Bonds in Year 2007 with Fixed Rates - net of unamortized bonds issuance cost and consent solicitation fees of Rp6,948 on January 1, 2009, Rp12,793 in 2009 and Rp11,041 in 2010 c) Seventh Indosat Bonds in Year 2009 with Fixed Rates - net of unamortized bonds issuance cost of Rp6,198 in 2009 and Rp5,362 in 2010 65 2009 2010
5,749,599
2,593,052
2,587,207
2,588,959
1,293,802
1,294,638
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. BONDS PAYABLE (continued) December 31, January 1, 2009 d) Sixth Indosat Bonds in Year 2008 with Fixed Rates - net of unamortized bonds issuance cost and consent solicitation fees of Rp4,256 on January 1, 2009, Rp7,050 in 2009 and Rp5,414 in 2010 e) Fourth Indosat Bonds in Year 2005 with Fixed Rate - net of unamortized bonds issuance cost and consent solicitation fees of Rp4,404 on January 1, 2009, Rp4,050 in 2009 and Rp1,382 in 2010 f) Indosat Sukuk Ijarah III in Year 2008 - net of unamortized bonds issuance cost and consent solicitation fees of Rp2,229 on January 1, 2009, Rp3,601 in 2009 and Rp2,625 in 2010 g) Indosat Sukuk Ijarah II in Year 2007 - net of unamortized bonds issuance cost and consent solicitation fees of Rp1,042 on January 1, 2009, Rp1,872 in 2009 and Rp1,517 in 2010 h) Indosat Syariah Ijarah Bonds in Year 2005 - net of unamortized bonds issuance cost and consent solicitation fees of Rp1,560 on January 1, 2009, Rp1,429 in 2009 and Rp487 in 2010 i) Second Indosat Bonds in Year 2002 with Fixed and Floating Rates - net of unamortized consent solicitation fees of Rp656 in 2009 and Rp652 in 2010 j) Indosat Sukuk Ijarah IV in Year 2009 - net of unamortized bonds issuance cost of Rp982 in 2009 and Rp873 in 2010 k) Limited Bonds II issued by Lintasarta* l) Limited Bonds I issued by Lintasarta** m) Guaranteed Notes Due 2010 - net of unamortized notes issuance cost of Rp6,977 on January 1, 2009 and Rp3,879 in 2009 n) Guaranteed Notes Due 2012 - net of unamortized notes discount of Rp4,129 on January 1, 2009, Rp3,116 in 2009; and unamortized notes issuance cost of Rp8,649 on January 1, 2009 and Rp6,521 in 2009 o) Third Indosat Bonds in Year 2003 with Fixed Rates - net of unamortized bonds issuance cost and consent solicitation fees of Rp2,709 on January 1, 2009 and Rp2,081 in 2009 Total bonds payable Less current maturities (net of unamortized bonds issuance cost and consent solicitation fees totalling Rp5,960 in 2009 and Rp1,869 in 2010) Long-term portion
* **
2009
2010
1,075,744
1,072,950
1,074,586
810,596
810,950
813,618
567,771
566,399
567,375
398,958
398,128
398,483
283,440 200,000 31,150 25,292 2,563,503
283,571 199,344 199,018 25,000 16,989 2,202,743
284,513 199,348 199,127 25,000 16,989 -
1,185,261
1,018,817
637,291 10,372,058 56,442 10,315,616
637,919 11,312,837 2,840,662 8,472,175
13,212,235 1,098,131 12,114,104
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
66
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. BONDS PAYABLE (continued)
Bond a. Guaranteed Notes Due 2020 Nominal Amount US$650,000 Interest 7.375% p.a. Payable semi-annually Maturity July 29, 2020 Remarks The notes are redeemable at the option of IPBV: At any time on or after July 29, 2015. Prior to July 29, 2013, IPBV may redeem up to a maximum of 35% of the original aggregate principal amount. At any time, upon not less than 30 days nor more than 60 days prior notice, at a price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest to (but not including) the redemption date and any additional amounts, in the event of certain changes affecting withholding taxes in Indonesia and the Netherlands. Upon a change in control of IPBV, the holder of the notes has the right to require IPBV to repurchase all or any part of such holders notes. The Company has option to buy back part or all of the bonds, after the 1st anniversary of the bonds, at market price temporarily or as an early settlement. Based on the latest rating report released in October 2010, the bonds have idAA+ (stable outlook) rating from PT Pemeringkat Efek Indonesia (Pefindo). The Company has option to buy back part or all of the bonds, after the 1st anniversary of the bonds, at market price temporarily or as an early settlement. The Company has option to buy back part or all of the bonds, after the 1st anniversary of the bonds, at market price temporarily or as an early settlement. The Company has early settlement option on the 4th anniversary of the bonds at 100% of the bonds nominal value and buy-back option after the 1st anniversary of the bonds at market price temporarily or as an early settlement. The Company has option to buy back part or all of the bonds, after the 1st anniversary of the bonds, at market price.
b. Fifth Indosat Bonds in Year 2007 Series A Rp1,230,000 Series B Rp1,370,000
10.20% p.a. Payable quarterly 10.65% p.a. Payable quarterly
May 29, 2014 May 29, 2017
c. Seventh Indosat Bonds in Year 2009 Series A Rp700,000 Series B Rp600,000
December 8, 2014 December 8, 2016
d. Sixth Indosat Bonds in Year 2008 Series A Rp760,000 Series B e. Fourth Indosat Bonds in Year 2005 with Fixed Rate f. Indosat Sukuk Ijarah III in Year 2008 (Sukuk Ijarah III) Rp320,000 Rp815,000
April 9, 2013 April 9, 2015 June 21, 2011
12% p.a. Payable quarterly
Rp570,000
Bondholders are entitled to annual fixed Ijarah return (Cicilan Imbalan Ijarah) totalling Rp58,425, payable on a quarterly basis starting July 9, 2008 up to April 9, 2013.
April 9, 2013
67
Bond g. Indosat Sukuk Ijarah II in Year 2007 (Sukuk Ijarah II) h. Indosat Syariah Ijarah Bonds in Year 2005 (Syariah Ijarah Bonds) i. Second Indosat Bonds in Year 2002 Series B Nominal Amount Rp400,000 Interest Bondholders are entitled to annual fixed Ijarah return (Cicilan Imbalan Ijarah) totalling Rp40,800, payable on a quarterly basis starting August 29, 2007 up to May 29, 2014. Bondholders are entitled to annual fixed Ijarah return (Cicilan Imbalan Ijarah) totalling Rp34,200, payable on a quarterly basis starting September 21, 2005 up to June 21, 2011. 16% p.a. Payable quarterly Maturity May 29, 2014 Remarks The Company has option to buy back part or all of the bonds, after the 1st anniversary of the bonds, at market price. The Company has early settlement option on the 4th anniversary of the bonds at 100% of the bonds nominal value and buy-back option after the 1st anniversary of the bonds at market price temporarily or as an early settlement. The Company has buy option on the 10th, 15th, 20th and 25th anniversaries of the bonds at 101% of the bonds nominal value and the bondholder has sell option if the rating of the bonds decreases to id AA- or lower or on the 15th, 20th and 25th anniversaries of the bonds.
Rp285,000
June 21, 2011
Rp200,000
November 6, 2032
j. Indosat Sukuk Ijarah IV in Year 2009 (Sukuk Ijarah IV) Series A Rp28,000
Series B
Rp172,000
k.
Limited Bonds II issued by Lintasarta (amended on August 25, 2009) Limited Bonds I issued by Lintasarta (amended on August 25, 2009)
Rp66,150, with the remaining amount of Rp60,000 since June 14, 2009 Rp34,856, with the remaining amount of Rp26,553 since June 2, 2009
l.
Bondholders are entitled to annual fixed ijarah return (Cicilan Imbalan Ijarah) totalling Rp3,150, payable on a quarterly basis starting March 8, 2010 up to December 8, 2014. Bondholders are entitled to annual fixed ijarah return (Cicilan Imbalan Ijarah) totalling Rp20,210, payable on a quarterly basis starting March 8, 2010 up to December 8, 2016. Average 3-month rupiah time deposit rates with Mandiri, BNI, BRI and BTN, plus a fixed premium of 3% (The maximum limit of floating rates was 19% and the minimum limit was 11% p.a. and starting June 14, 2009, the minimum limit increased to 12.75%.) Payable quarterly Average 3-month rupiah time deposit rates with Mandiri, BNI, BRI and BTN, plus a fixed premium of 3% (The maximum limit of floating rates was 19% and the minimum limit was 11% p.a. and starting June 2, 2009, the minimum limit increased to 12.75%.) Payable quarterly
December 8, 2014
The Company has option to buy back part or all of the bonds, after the 1st anniversary of the bonds, at market price. The Company has option to buy back part or all of the bonds, after the 1st anniversary of the bonds, at market price. -
December 8, 2016
June 14, 2009 extended to June 14, 2012
June 2, 2009 extended to June 2, 2012
68
Bond
m. Guaranteed
Notes Due 2010
Nominal Amount US$300,000
Interest 7.75% p.a. Payable semi-annually
Maturity November 5, 2010
Remarks The notes are redeemable at the option of IFB: At any time on or after November 5, 2008. At any time, 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, the holder of the notes has the right to require IFB to repurchase all or any part of such holders notes. On September 19, 2008, IFB paid for the purchased portion of the notes with a total principal amount of US$65,253. On August 2, 2010, IFB paid for the purchased portion of the 2010 Notes under tender offers with total principal amount of US$167,874. On August 10, 2010, IFB paid for the remaining purchased portion of the 2010 Notes which was called with a total principal amount of US$66,873. The notes are redeemable at the option of IIFB: At any time on or after June 22, 2010. At any time, 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, the holder of the notes has the right to require IIFB to repurchase all or any part of such holders notes. On September 19, 2008, IIFB paid for the purchased portion of the notes with a total principal amount of US$140,590. On August 2, 2010, IIFB paid for the purchased portion of the 2012 Notes under tender offers with total principal amounts of US$56,035. On September 2, 2010, IIFB paid for the remaining purchased portion of the 2012 Notes which was called with a total principal amount of US$53,375. The Company has early settlement option on the 6th anniversary of the bonds for Series B bonds at 100% of the bonds nominal value and buy-back option after the 1st anniversary of the bonds at market price temporarily or as an early settlement. On October 22, 2010, the Company paid in full the Series B bonds.
n. Guaranteed Notes Due 2012
US$250,000
7.125% p.a. Payable semi-annually
June 22, 2012
o.
Third Indosat Bonds in Year 2003 Series A Series B Rp1,860,000 Rp640,000 12.5% p.a. Payable quarterly 12.875% p.a. Payable quarterly October 21, 2008 October 22, 2010
69
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 15. BONDS PAYABLE (continued) The scheduled principal payments of all the bonds payable outstanding as of December 31, 2010 are as follows:
Twelve months ending December 31, 2011 In U.S. dollar Guaranteed Notes* Due 2020 (US$650,000) In Rupiah Fifth Indosat Bonds* Seventh Indosat Bonds* Sixth Indosat Bonds* Fourth Indosat Bonds* Sukuk Ijarah III* Sukuk Ijarah II* Syariah Ijarah Bonds* Second Indosat Bonds * Sukuk Ijarah IV* Limited Bonds II Limited Bonds I Sub-total Total 815,000 285,000 1,100,000 1,100,000 25,000 16,989 41,989 41,989 760,000 570,000 1,330,000 1,330,000 1,230,000 700,000 400,000 28,000 2,358,000 2,358,000 1,370,000 600,000 320,000 200,000 172,000 2,662,000 8,506,150 2,600,000 1,300,000 1,080,000 815,000 570,000 400,000 285,000 200,000 200,000 25,000 16,989 7,491,989 13,336,139 2012 2013 2014 2015 and thereafter * Total
5,844,150
5,844,150
Less: - unamortized notes issuance cost - unamortized bonds issuance costs and consent solicitation fees - unamortized notes discount Net * Refer to previous discussion on early repayment options for each bond/note.
(64,885) (29,353) (29,666) 13,212,235
The total amortization of bonds issuance cost, consent solicitation fees, notes issuance cost and discount for the years ended December 31, 2008, 2009 and 2010 amounted to Rp38,210, Rp15,467 and Rp18,025, respectively (Note 23). As of January 1, 2009 and December 31, 2009 and 2010, the Companies have complied with all financial ratios required to be maintained under the Notes Indenture and Trustee Agreements.
70
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. FINANCIAL ASSETS AND LIABILITIES The Companies have various financial assets such as trade and other cash and cash equivalents, accounts receivable, other current financial assets, due from related parties, other non-current financial assets, short-term investments and other long-term investments, which arise directly from the Companies operations. The Companies principal financial liabilities, other than derivatives, consist of trade payables, procurement payable, accrued expenses, deposits from customers, loans and bonds payable, other current financial liabilities, due to related parties and other non-current financial liabilities. The main purpose of these financial liabilities is to finance the Companies operations. The Company also enters into derivative transactions, primarily cross currency swaps and interest rate swaps for the purpose of managing its foreign exchange and interest rate exposures emanating from the Companys loans and bonds payable in foreign currencies. The following table sets forth the Companies financial assets and financial liabilities as of January 1, 2009 and December 31, 2009 and 2010:
December 31, January 1, 2009 Financial Assets Held for trading Derivative assets Loans and receivables Cash and cash equivalents Accounts receivable - trade and others - net Other current financial assets Due from related parties - net Other non-current financial assets Available for sale Short-term investments - net Other long-term investments - net Total Financial Assets 2009 2010
656,594 5,737,866 1,357,620 44,777 42,496 72,800 2,730 7,914,883
224,004 2,835,999 1,949,984 35,173 7,215 100,004 2,730 5,155,109
69,334 2,075,270 1,558,457 53,119 8,421 77,675 2,730 3,845,006
Financial Liabilities Held for trading Derivative liabilities Liabilities at amortized cost Accounts payable - trade Procurement payable Accrued expenses Deposits from customers Loans payable - current maturities Bonds payable - current maturities Other current financial liabilities Due to related parties Loans payable - net of current maturities Bonds payable - net of current maturities Other non-current financial liabilities Total Financial Liabilities
315,866 608,754 6,446,357 1,445,238 32,121 572,469 56,442 31,022 14,699 10,812,160 10,315,616 45,511 30,696,255
174,540 537,476 5,289,782 1,525,561 22,463 1,440,259 2,840,662 43,721 13,764 12,715,492 8,472,175 33,075,895
215,403 645,505 3,644,467 1,710,885 50,279 3,184,147 1,098,131 23,127 22,099 7,666,804 12,114,104 30,374,951
71
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. FINANCIAL ASSETS AND LIABILITIES (continued) The following table sets forth the carrying values and estimated fair values of the Companies financial instruments that are carried in the consolidated statements of financial position:
Carrying Amount December 31, January 1, 2009 Current Financial Assets Cash and cash equivalents Short-term investments - net Accounts receivable - trade and others - net Derivative assets Other current financial assets Total current financial assets Non-current Financial Assets Due from related parties - net Other long-term investments - net Other non-current financial assets Total non-current financial Assets Total Financial Assets Current Financial Liabilities Accounts payable - trade Procurement payable Accrued expenses Deposits from customers Derivative liabilities Loans payable - current portion maturities Bonds payable - current portion maturities Other current financial liabilities Total current financial liabilities Non-current Financial Liabilities Due to related parties Loans payable - net of current maturities Bonds payable - net of current maturities Other non-current financial liabilities Total non-current financial liabilities Total Financial Liabilities 5,737,866 1,357,620 656,594 44,777 7,796,857 42,496 2,730 72,800 118,026 7,914,883 608,754 6,446,357 1,445,238 32,121 315,866 572,469 56,442 31,022 9,508,269 14,699 10,812,160 10,315,616 45,511 21,187,986 30,696,255 2009 2,835,999 1,949,984 224,004 35,173 5,045,160 7,215 2,730 100,004 109,949 5,155,109 537,476 5,289,782 1,525,561 22,463 174,540 1,440,259 2,840,662 43,721 11,874,464 13,764 12,715,492 8,472,175 21,201,431 33,075,895 2010 2,075,270 1,558,457 69,334 53,119 3,756,180 8,421 2,730 77,675 88,826 3,845,006 645,505 3,644,467 1,710,885 50,279 215,403 3,184,147 1,098,131 23,127 10,571,944 22,099 7,666,804 12,114,104 19,803,007 30,374,951 January 1, 2009 5,737,866 1,357,620 656,594 44,777 7,796,857 32,414 2,730 54,129 89,273 7,886,130 608,754 6,446,357 1,445,238 32,121 315,866 567,337 57,251 31,022 9,503,946 11,212 10,826,572 9,806,811 45,511 20,690,106 30,194,052 2009 2,835,999 1,949,984 224,004 35,173 5,045,160 6,263 2,730 81,369 90,362 5,135,522 537,476 5,289,782 1,525,561 22,463 174,540 1,425,325 2,904,566 43,721 11,923,434 11,948 13,281,903 8,495,278 21,789,129 33,712,563 Fair Value December 31, 2010 2,075,270 1,558,457 69,334 53,119 3,756,180 7,176 2,730 73,309 83,215 3,839,395 645,505 3,644,467 1,710,885 50,279 215,403 3,155,634 1,110,737 23,127 10,556,037 18,833 7,510,510 13,228,171 20,757,514 31,313,551
72
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. FINANCIAL ASSETS AND LIABILITIES (continued) Fair Value Measurement The fair values of the financial assets and liabilities are presented at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value: Short-term financial assets and liabilities: Short-term financial instruments with remaining maturities of one year or less (cash and cash equivalents, trade and other accounts receivable, other current financial assets, trade accounts payable, procurement payable, accrued expenses, deposits from customers and other current financial liabilities). These financial instruments approximate their carrying amounts largely due to their short-term maturities. Derivative Financial Instruments Cross currency swap contracts (including bifurcated embedded derivative) These derivatives are measured at their fair values using internal valuation techniques as no quoted market prices exist for such instruments. The principal technique used to value these instruments is the use of discounted cash flows. The key inputs include interest rate yield curves, foreign exchange rates, Credit Default Spread (CDS), and the spot price of the underlying instruments. Interest rate swap contracts These derivatives are measured at their fair values, computed using discounted cash flows based on observable market inputs which include interest rate yield curves and payment dates. Long-term financial assets and liabilities: Long-term fixed-rate and variable-rate financial liabilities (unquoted loans and bonds payable) The fair value of these financial liabilities is determined by discounting future cash flows using applicable rates from observable current market transactions for instruments with similar terms, credit risk and remaining maturities. Other long-term financial assets and liabilities (due from/to related parties, other long-term investments, other non-current financial assets and liabilities) Estimated fair value is based on discounted value of future cash flows adjusted to reflect counterparty risk (for financial assets) and the Companies own credit risk (for financial liabilities) and using risk-free rates for similar instruments. Financial instruments quoted in an active market The fair value of the bonds issued by the Company which are traded in an active market is determined with reference to their quoted market prices. For equity investments classified as available-for-sale, the fair value is determined based on the latest market quotation as published by the Indonesia Stock Exchange as of January 1, 2009 and December 31, 2009 and 2010. 73
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. FINANCIAL ASSETS AND LIABILITIES (continued) Fair Value Hierarchy Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, an entity establishes fair value by using a valuation technique. The objective of using a valuation technique is to establish what the transaction price would have been on the measurement date in an arm's length exchange motivated by normal business considerations. Valuation techniques include using recent arm's length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the entity uses that technique. The chosen valuation technique makes maximum use of market inputs and relies as little as possible on entity-specific inputs. It incorporates all factors that market participants would consider in setting a price and is consistent with accepted economic methodologies for pricing financial instruments. Periodically, the Company calibrates the valuation technique and tests it for validity using prices from any observable current market transactions in the same instrument (i.e., without modification or repackaging) or based on any available observable market data. The Companys fair value hierarchy as of December 31, 2009 and 2010 are as follows:
December 31, 2009 Quoted prices in active markets for identical assets or liabilities (Level 1) Significant and observable inputs, directly or indirectly (Level 2) 224,004 224,004 174,540 97,942 272,482
TOTAL Current Financial Assets Derivative assets Total Financial Assets Current Financial Liabilities Derivative liabilities Embedded derivatives Total Financial Liabilities 224,004 224,004 174,540 97,942 272,482
Significant unobservable inputs (Level 3) -
December 31, 2010 Quoted prices in active markets for identical assets or liabilities (Level 1) Significant and observable inputs, directly or indirectly (Level 2) 69,334 69,334 215,403 54,595 269,998
TOTAL Current Financial Assets Derivative assets Total Financial Assets Current Financial Liabilities Derivative liabilities Embedded derivatives Total Financial Liabilities 69,334 69,334 215,403 54,595 269,998
Significant unobservable inputs (Level 3) -
74
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 16. FINANCIAL ASSETS AND LIABILITIES (continued) During the reporting periods ending December 31, 2009 and 2010, there were no transfers between Level 1 and Level 2 fair value measurements. 17. EMPLOYEE BENEFIT OBLIGATIONS This account consists of the non-current portions of employee benefit obligations as follows:
December 31, January 1, 2009 Post-retirement healthcare (Note 24) Labor Law 13 (Note 24) Service award Accumulated leave benefits Post-retirement benefit of salary continuation before retirement* Total * 474,118 111,174 27,207 741 82,447 695,687 2009 549,007 147,790 31,265 1,391 96,261 825,714 2010 639,271 187,944 43,058 2,134 872,407
Before December 31, 2010, the current portion of salary continuation before retirement included in accrued expenses (Note 13) amounted to Rp1,412 and the non-current portion included in employee benefit obligations amounted to Rp117,773, before deducting benefit payments made during the year amounting to Rp852. On December 31, 2010, the Company and its employees union reached a collective labor agreement (CLA) on the revocation of post-retirement benefit of salary continuation before retirement effective January 1, 2011. This revocation eliminates the Companys legal or constructive obligation on the benefit. Consequently, the Company reversed the outstanding accrual for this benefit as of December 31, 2010 amounting to Rp118,333.
18. CAPITAL STOCK The Companys capital stock ownership details as of January 1, 2009 and December 31, 2009 and 2010 are as follows:
Stockholders January 1, 2009 A Share Government B Shares Indonesia Communications Limited, Mauritius (ICL) Government Stockholders holding more than 5%: Fidelity Entities Goldman Sachs (Asia) L.L.C Noonday (Farallon Entities) SKAGEN Funds (SKAGEN AS) Indonesia Communications Pte. Ltd., Singapore (ICLS) Directors: Raymond Tan Kim Meng Wahyu Wijayadi Wong Heang Tuck Johnny Swandi Sjam Fadzri Sentosa Others (each holding below 5%) Total
Amount
1 2,171,250,000 776,624,999 553,479,050 469,653,300 432,226,800 349,945,317 46,340,000 222,500 152,500 75,000 30,000 10,000 633,924,033 5,433,933,500
217,125 77,662 55,348 46,965 43,223 34,995 4,634 22 15 8 3 1 63,392 543,393
39.96 14.29 10.19 8.64 7.95 6.44 0.85 0.01 0.00 0.00 0.00 0.00 11.67 100.00
75
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 18. CAPITAL STOCK (continued)
Stockholders December 31, 2009 A Share Government B Shares Qatar Telecom (Qtel Asia) Pte. Ltd. (previously ICLS) Government Director: Fadzri Sentosa Others (each holding below 5%) Total
Amount
1 3,532,056,600 776,624,999 10,000 1,125,241,900 5,433,933,500
353,206 77,662 1 112,524 543,393
65.00 14.29 0.00 20.71 100.00
December 31, 2010 A Share Government B Shares Qatar Telecom (Qtel Asia) Pte. Ltd. Government SKAGEN Funds (SKAGEN AS) Director: Fadzri Sentosa Others (each holding below 5%) Total
1 3,532,056,600 776,624,999 277,824,400 10,000 847,417,500 5,433,933,500
353,206 77,662 27,782 1 84,742 543,393
65.00 14.29 5.11 0.00 15.60 100.00
The A share is a special share held by the Government 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, which 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, acquisition and demerger; (iv) amendment to the provisions regarding the rights of A share as stipulated in the Articles of Association; and (v) dissolution, bankruptcy and liquidation of the Company. The A share also has the right to appoint one director and one commissioner of the Company. On June 6, 2008, STT Communications Limited (STTC) entered into a Share Purchase Agreement to sell its 75% ownership in ICL and ICLS to Qtel. The closing process of such sale was made on June 22, 2008 and resulted in Qtels direct ownership in ICL and ICLS. As a result, Qtel has become the ultimate shareholder of the Company and all of STTCs affiliations ceased to be related parties of the Companies. On January 8, 2009, Qtel filed tender offer statements with the United States Securities and Exchange Commission (U.S. SEC) and the BAPEPAM-LK to purchase additional Company shares which became effective on January 16, 2009. Subsequently, as required by the U.S. SEC, on January 20, 2009, the Company filed schedule 14D-9, Solicitation/Recommendation Statement, with the U.S. SEC in response to the Tender Offers made by Qtel in the United States of America and Indonesia through Qtels indirect wholly owned subsidiary, ICLS, to purchase Series B shares (including Series B shares held as ADS, each representing 50 Series B shares) which represent approximately 24.19% of the Companys total issued and outstanding Series B shares. On March 4, 2009, ICLS increased its ownership interest in the Company from 0.85% to 25.04%.
76
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 18. CAPITAL STOCK (continued) On May 29, 2009, ICL entered into a Share Purchase Agreement to sell its 39.96% ownership in the Company to ICLS. The closing process of such sale was made on June 4, 2009; consequently, from this date, ICLS has become the legal owner of 3,532,056,600 B shares representing 65.00% ownership in the Company. On September 11, 2009, ICLS changed its name into Qatar Telecom (Qtel Asia) Pte. Ltd. 19. OPERATING REVENUES This account consists of the following:
2008 (Restated) Cellular Usage charges Value added services Interconnection revenues Tower leasing (Note 29e) Monthly subscription charges Sale of blackberry handsets and modems Others Upfront discount and customer loyalty program (Note 2f5.1) Net MIDI Internet Protocol Virtual Private Network (IP VPN) Internet World link and direct link Frame net Leased line Application services Satellite lease Digital data network Multiprotocol Label Switching (MPLS) Others Sub-total Fixed Telecommunication International Calls Fixed Wireless Fixed Line Others Sub-total Total 8,492,799 5,052,615 1,833,768 66,302 82,476 136,226 (1,203,380) 14,460,806 585,658 703,914 456,692 315,791 231,570 118,895 96,280 124,891 25,161 74,560 2,733,412 1,650,104 244,304 126,660 685 2,021,753 19,215,971 2009 (Restated) 7,085,741 5,998,963 1,709,193 62,365 184,174 206,481 171,382 (1,087,064) 14,331,235 566,105 677,375 394,189 276,477 211,092 146,137 113,060 144,619 67,141 116,437 2,712,632 1,422,268 249,886 129,935 950 1,803,039 18,846,906 2010 7,943,960 7,039,243 1,252,751 251,981 200,519 34,956 177,269 (1,033,588 ) 15,867,091 605,685 519,553 278,788 227,051 189,112 168,196 136,008 94,686 66,579 202,452 2,488,110 993,165 174,157 125,383 472 1,293,177 19,648,378
Operating revenues from related parties amounted to Rp1,790,115, Rp1,474,208 and Rp1,640,591 for the years ended December 31, 2008, 2009 and 2010, respectively. These amounts represent 9.32%, 7.82% and 8.35% of total operating revenues in 2008, 2009 and 2010, respectively (Note 25). The operating revenues from interconnection services are presented on a gross basis (Note 2f5). 77
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 20. OPERATING EXPENSES - COST OF SERVICES This account consists of the following:
2008 (Restated) Interconnection Radio frequency fee Maintenance Utilities Rent Leased circuits Cost of SIM cards and pulse reload vouchers USO Blackberry access fee Installation Concession fee Delivery and transportation Cost of handsets and modems Billing and collection License Others Total 2,242,797 1,025,082 903,244 507,985 361,319 447,319 391,101 123,452 14,099 88,179 170,321 84,825 111,537 49,209 32,504 74,831 6,627,804 2009 (Restated) 1,880,105 1,331,416 922,225 772,450 449,759 487,074 326,472 218,210 50,068 97,142 83,970 80,157 247,135 44,297 67,030 30,340 7,087,850 2010 1,735,942 1,612,375 943,503 715,349 517,432 377,580 259,323 214,636 197,434 133,746 112,404 84,075 74,266 54,816 31,543 48,986 7,113,410
Interconnection relates to the expenses for the interconnection between the Companys telecommunications networks and those owned by Telkom or other telecommunications carriers (Note 2f5). 21. OPERATING EXPENSES - PERSONNEL This account consists of:
Salaries Incentives and other employee benefits Bonuses Employee income tax Post-retirement healthcare benefits (Note 24) Medical expense Outsourcing Pension (Note 24) Separation, appreciation and compensation expense under Labor Law No. 13/2003 (Note 24) Early retirement* Post-retirement benefit of salary continuation before retirement (Note 17) Others Total 2008 420,297 278,837 279,483 251,950 120,147 61,220 115,890 36,796 27,581 19,598 9,052 18,142 1,638,993 2009 451,150 260,884 207,690 145,421 88,615 68,471 74,809 32,336 40,972 38,106 14,933 28,173 1,451,560 2010 492,452 277,361 236,950 131,630 104,600 69,509 60,858 45,688 42,833 16,253 (96,820)O 29,930 1,411,244
* On June 27, 2006, the Companys 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 package. For the years ended December 31, 2008, 2009 and 2010, there were additional 41, 66 and 19 employees, respectively, who took the option.
The personnel expenses capitalized to properties under construction and installation during the years ended December 31, 2008, 2009 and 2010 amounted to Rp37,111, Rp34,092 and Rp38,668, respectively. 78
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 22. OPERATING EXPENSES - GENERAL AND ADMINISTRATION This account consists of:
2008 Rent Professional fees Utilities Provision for impairment of receivables (Note 5) Transportation Office Insurance Catering Others (each below Rp20,000) Total 141,245 116,043 60,760 74,281 122,987 49,673 26,093 22,045 124,305 737,432 2009 144,585 103,916 77,318 98,042 58,882 44,710 29,183 20,730 116,071 693,437 2010 120,428 109,374 97,518 67,041 64,485 48,370 39,807 25,585 87,379 659,987
23. FINANCING COST This account consists of:

2008 Interest on loans Loss on the redemption of GN 2010 and GN 2012 (Note 15) Amortization of debt and bonds / notes issuance costs, consent solicitation fees and discount (Notes 14 and 15) Bank charges Total 1,776,514 19,493 53,541 8,746 1,858,294 2009 1,808,620 51,305 13,042 1,872,967 2010 2,080,274 96,487 90,116 4,751 2,271,628
24. 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 stateowned 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 Companys 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).
79
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. PENSION PLAN (continued) Defined Benefit Pension Plan (continued) 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 and were paid on due dates. On March 1, 2007, the Company entered into an agreement with Jiwasraya to provide defined death insurance plan to 1,276 employees as of January 1, 2007, who are not covered by the defined benefit pension plan as stated above. Based on the agreement, a participating employee will receive: Expiration benefit equivalent to the cash value at the normal retirement age, or Death benefit not due to accident equivalent to 100% of insurance money plus cash value when the employee dies not due to accident, or Death benefit due to accident equivalent to 200% of insurance money plus cash value when the employee dies due to accident.
The premium of Rp7,600 was fully paid on March 29, 2007. Subsequently, in August 2007, February to December 2008, January to December 2009 and January to December 2010, the Company made payments for additional premium of Rp275 for additional 55 employees, Rp805 for additional 161 employees, Rp415 for additional 81 employees and Rp120 for additional 14 employees, respectively. On June 25, 2003, Satelindo entered into an agreement with Jiwasraya to amend the benefits and premium payment pattern of the formers 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. 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 pension basic salary 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.
80
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. PENSION PLAN (continued) Defined Benefit Pension Plan (continued) 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 10 annual premium installments totalling Rp1,653 which are payable starting 2005 until 2015. The contributions made by Lintasarta to Jiwasraya amounted to Rp9,653 each for the years ended December 31, 2008, 2009 and 2010, respectively. The net periodic pension cost for the pension plans for the years ended December 31, 2008, 2009 and 2010 was calculated based on the actuarial valuations as of December 31, 2008, 2009 and 2010, respectively. The actuarial valuations were prepared by an independent actuary, using the projectedunit-credit method and applying the following assumptions:
2008 Annual discount rate Expected annual rate of return on plan assets Annual rate of increase in compensation Mortality rate (Indonesian Mortality Table - TMI) 12.0% 4.5 - 9.0% 3.0 - 9.0% TMI 1999 2009 10.5 - 10.7% 4.5 - 9.0% 3.0 - 9.0% TMI 1999 2010 8.5 - 9.0% 4.5 - 9.0% 3.0 - 9.0% TMI 1999
a. The composition of the net periodic pension cost for the years ended December 31, 2008, 2009 and 2010 is as follows:
2008 Interest cost Service cost Amortization of unrecognized actuarial loss (gain) Return on plan assets Net periodic pension cost (Note 21) 66,100 29,502 5,088 (63,894) 36,796 2009 63,648 39,510 (1,429) (69,393) 32,336 2010 74,558 41,749 850 (71,469 ) 45,688
b. The funded status of the plans as of January 1, 2009 and December 31, 2009 and 2010 is as follows: December 31, January 1, 2009 Plan assets at fair value Projected benefit obligation Excess of plan assets over projected benefit obligation Unrecognized actuarial loss (gain) Total prepaid pension cost 805,199 (541,239) 263,960 (90,860) 173,100 2009 813,588 (726,427) 87,161 62,659 149,820 2010 852,958 (750,625) 102,333 10,928 113,261
81
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. PENSION PLAN (continued) Defined Benefit Pension Plan (continued) c. Movements in the fair value of plan assets during the years ended December 31, 2008, 2009 and 2010 are as follows: December 31, 2008 Fair value of plan assets at beginning of year Expected return on plan assets Actuarial gain (loss) on plan assets Contributions Actual benefits paid Fair value of plan assets at end of year December 31, 2009 Fair value of plan assets at beginning of year Expected return on plan assets Actuarial loss on plan assets Contributions Actual benefits paid Fair value of plan assets at end of year December 31, 2010 Fair value of plan assets at beginning of year Expected return on plan assets Actuarial loss on plan assets Contributions Actual benefits paid Fair value of plan assets at end of year The Company 697,641 60,960 37,546 805 (33,252) 763,700 Lintasarta 33,146 2,934 (1,632) 9,653 (2,602) 41,499 Total 730,787 63,894 35,914 10,458 (35,854) 805,199
The Company 763,700 65,745 (8,910) 415 (57,706) 763,244
Lintasarta 41,499 3,648 (3,000) 9,653 (1,456) 50,344
Total 805,199 69,393 (11,910) 10,068 (59,162) 813,588
The Company 763,244 67,149 (12,283) 120 (24,566) 793,664
Lintasarta 50,344 4,320 (2,677) 9,653 (2,346) 59,294
Total 813,588 71,469 (14,960) 9,773 (26,912) 852,958
d. Movements in the present value of the defined benefit obligation during the years ended December 31, 2008, 2009 and 2010 are as follows: December 31, 2008 Benefit obligation at beginning of year Interest cost Current service cost Actuarial gain on obligation Actual benefits paid Effect of changes in actuarial assumptions Present value of obligation at end of year 82 The Company 639,131 62,859 27,280 (10,588) (32,694) (173,475) 512,513 Lintasarta 33,014 3,241 2,222 (8,144) (1,607) 28,726 Total 672,145 66,100 29,502 (18,732) (34,301) (173,475) 541,239
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. PENSION PLAN (continued) Defined Benefit Pension Plan (continued) December 31, 2009 Benefit obligation at beginning of year Interest cost Current service cost Actuarial loss on obligation Actual benefits paid Effect of changes in actuarial assumptions Present value of obligation at end of year December 31, 2010 Benefit obligation at beginning of year Interest cost Current service cost Actuarial loss on obligation Actual benefits paid Effect of changes in actuarial assumptions Present value of obligation at end of year The Company 512,513 60,288 36,496 624 (57,057) 131,747 684,611 Lintasarta 28,726 3,360 3,014 7,809 (1,093) 41,816 Total 541,239 63,648 39,510 8,433 (58,150) 131,747 726,427
The Company 684,611 70,279 38,375 (156,345) (24,102) 87,592 700,410
Lintasarta 41,816 4,279 3,374 2,912 (2,166) 50,215
Total 726,427 74,558 41,749 (153,433) (26,268) 87,592 750,625
e. Movements in the prepaid pension cost during the years ended December 31, 2008, 2009 and 2010 are as follows: December 31, 2008 Prepaid pension cost at beginning of year Net periodic pension cost Refund from Jiwasraya Contribution to Jiwasraya Prepaid pension cost at end of year December 31, 2009 Prepaid pension cost at beginning of year Net periodic pension cost Refund from Jiwasraya Contribution to Jiwasraya Prepaid pension cost at end of year The Company 187,801 (33,607) (558) 805 154,441 Lintasarta 13,190 (3,189) (995) 9,653 18,659 Total 200,991 (36,796) (1,553) 10,458 173,100
The Company 154,441 (29,487) (649) 415 124,720
Lintasarta 18,659 (2,849) (363) 9,653 25,100
Total 173,100 (32,336) (1,012) 10,068 149,820
83
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. PENSION PLAN (continued) Defined Benefit Pension Plan (continued) December 31, 2010 Prepaid pension cost at beginning of year Net periodic pension cost Refund from Jiwasraya Contribution to Jiwasraya Prepaid pension cost at end of year f. Prepaid pension cost consists of: January 1, 2009 Current portion (presented as part of Prepaid Expenses) The Company Lintasarta The Company 124,720 (41,505) (464) 120 82,871 Lintasarta 25,100 (4,183) (180) 9,653 30,390 Total 149,820 (45,688) (644) 9,773 113,261
December 31, 2009 2010
2,712 402 3,114
1,715 725 2,440 123,005 24,375 147,380 149,820
1,401 516 1,917 81,470 29,874 111,344 113,261
Long-term portion The Company Lintasarta
151,729 18,257 169,986
Total prepaid pension cost
173,100
The major categories of plan assets as a percentage of the fair value of total plan assets are as follows: December 31, January 1, 2009 Investment in mutual fund Investment in time deposits Investment in debt securities Investment in shares and properties Oher investments 71.67% 12.84% 9.71% 5.77% 0.01% 2009 74.28% 13.68% 6.81% 5.22% 0.01% 2010 78.90% 12.16% 5.06% 3.87% 0.01%
The overall expected rate of return on assets is determined based on the market expectations prevailing on that date, applicable to the period over which the obligation is to be settled. There has been a significant change in the expected rate of return on assets due to the improved stock market scenario.
84
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. PENSION PLAN (continued) 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 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 years ended December 31, 2008, 2009 and 2010 amounted to Rp16,866, Rp19,451 and Rp46,557, 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 Company, Lintasarta and IMM also accrue benefits under Labor Law No. 13/2003 (Labor Law) dated March 25, 2003. Their employees will receive the benefits under this law or defined benefit pension plan, whichever amount is higher. The net periodic pension cost under the Labor Law for the years ended December 31, 2008, 2009 and 2010 was calculated based on the actuarial valuations as of December 31, 2008, 2009 and 2010, respectively. The actuarial valuations were prepared by an independent actuary, using the projectedunit-credit method and applying the following assumptions:
2008 2009 2010
Annual discount rate Annual rate of increase in compensation
12.0% 10.0 - 11.0%
10.5% 9.0 - 10.0%
8.5 - 9.0% 8.0 - 9.0%
a. The composition of the periodic pension cost under the Labor Law for the years ended December 31, 2008, 2009 and 2010 is as follows: 2008 Service cost Interest cost Amortization of unrecognized actuarial loss Immediate recognition of past service cost vested benefit Total periodic pension cost under the Labor Law (Note 21) 16,779 10,357 445 27,581 2009 19,587 18,639 1,842 904 40,972 2010 21,747 19,586 1,500 42,833
b. The composition of the accrued pension cost under the Labor Law as of January 1, 2009 and December 31, 2009 and 2010 is as follows: December 31, January 1, 2009 Projected benefit obligation Unrecognized actuarial loss Unrecognized past service cost Accrued pension cost 156,454 (42,698) (427) 113,329 2009 187,888 (27,147) (10,348) 150,393 2010 217,754 (17,245) (9,632) 190,877
85
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. PENSION PLAN (continued) Labor Law No. 13/2003 (continued) c. Movements in the present value of pension cost obligation under the Labor Law during the years ended December 31, 2008, 2009 and 2010 are as follows: December 31, 2008 Benefit obligation at beginning of year Actuarial loss (gain) on obligation Current service cost Interest cost Actual benefits paid Effect of changes in actuarial assumption Present value of obligation at end of year December 31, 2009 The Company Benefit obligation at beginning of year Actuarial gain on obligation Current service cost Interest cost Actual benefits paid Past service cost Effect of changes in actuarial assumption Present value of obligation at end of year December 31, 2010 The Company Benefit obligation at beginning of year Actuarial loss (gain) on obligation Current service cost Interest cost Actual benefits paid Effect of changes in actuarial assumption Present value of obligation at end of year 159,055 1,166 17,661 16,574 (2,150) (9,734) 182,572 Lintasarta 22,173 (890) 1,967 2,319 (97) (1,132) 24,340 IMM 6,660 804 2,119 693 (102) 668 10,842 Total 187,888 1,080 21,747 19,586 (2,349) (10,198) 217,754 141,316 (3,316) 16,173 16,832 (3,841) (8,109) 159,055 Lintasarta 11,464 (78) 1,817 1,372 (47) 10,853 (3,208) 22,173 IMM 3,674 (368) 1,597 435 (20) 1,342 6,660 Total 156,454 (3,762) 19,587 18,639 (3,908) 10,853 (9,975) 187,888 The Company 94,063 27,284 14,736 9,317 (2,526) (1,558) 141,316 Lintasarta 6,297 2,285 1,019 628 (46) 1,281 11,464 IMM 4,168 (667) 1,024 412 (16) (1,247) 3,674 Total 104,528 28,902 16,779 10,357 (2,588) (1,524) 156,454
86
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. PENSION PLAN (continued) Labor Law No. 13/2003 (continued) d. Movements in the accrued pension cost under the Labor Law during the years ended December 31, 2008, 2009 and 2010 are as follows: December 31, 2008 Accrued pension cost under the Labor Law at beginning of year Periodic Labor Law cost Benefit payment Accrued pension cost under the Labor Law at end of year December 31, 2009 Accrued pension cost under the Labor Law at beginning of year Periodic Labor Law cost Benefit payment Accrued pension cost under the Labor Law at end of year December 31, 2010 Accrued pension cost under the Labor Law at beginning of year Periodic Labor Law cost Benefit payment Accrued pension cost under the Labor Law at end of year The Company Lintasarta IMM Total
78,604 24,440 (2,526)
7,013 1,642 (46)
2,719 1,499 (16)
88,336 27,581 (2,588)
100,518
8,609
4,202
113,329
The Company
Lintasarta
IMM
Total
100,518 34,739 (3,841)
8,609 4,209 (47)
4,202 2,024 (20)
113,329 40,972 (3,908)
131,416
12,771
6,206
150,393
The Company
Lintasarta
IMM
Total
131,416 35,019 (2,150)
12,771 4,974 (97)
6,206 2,840 (102)
150,393 42,833 (2,349)
164,285
17,648
8,944
190,877
As of January 1, 2009 and December 31, 2009 and 2010, the current portion of pension cost under the Labor Law included in accrued expenses (Note 13) amounted to Rp2,155, Rp2,603 and Rp2,933, respectively, and the non-current portion included in employee benefit obligations (Note 17) amounted to Rp111,174, Rp147,790 and Rp187,944, respectively.
87
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. PENSION PLAN (continued) Post-retirement Healthcare The Company provides post-retirement healthcare benefits to its employees who leave the Company after the employees fulfill the early retirement requirement. The spouse and children who have been officially registered in the administration records of the Company are also eligible to receive benefits. If the employees die, the spouse and children are still eligible for the post-retirement healthcare until the spouse dies or remarries and the children reach the age of 25 or get married. The utilization of post-retirement healthcare is limited to an annual maximum ceiling that refers to monthly pension from Jiwasraya as follows: 16 times the Jiwasraya monthly pension for a pensioner who receives monthly pension from Jiwasraya 16 times the equality monthly pension for a pensioner who became permanent employee after September 1, 2000 16 times the last monthly pension for a pensioner who retired after July 1, 2003 and does not receive Jiwasraya monthly pension.
The net periodic post-retirement healthcare cost for the years ended December 31, 2008, 2009 and 2010 was calculated based on the actuarial valuations as of December 31, 2008, 2009 and 2010. The actuarial valuations were prepared by an independent actuary, using the projected-unit-credit method and applying the following assumptions:
2008 Annual discount rate Ultimate cost trend rate Next year trend rate Period to reach ultimate cost trend rate 12.0% 6.0% 18.0% 6 years 2009 11.0% 6.0% 16.0% 5 years 2010 9.5% 6.0% 14.0% 4 years
a. The composition of the periodic post-retirement healthcare cost for the years ended December 31, 2008, 2009 and 2010 is as follows: 2008 Interest cost Service cost Amortization of unrecognized past service cost Amortization of unrecognized actuarial loss Periodic post-retirement healthcare cost (Note 21) 76,300 16,997 10,452 16,398 120,147 2009 58,535 19,628 10,452 88,615 2010 65,919 28,229 10,452 104,600
b. The composition of the accrued post-retirement healthcare cost as of January 1, 2009 and December 31, 2009 and 2010 is as follows: December 31, January 1, 2009 Projected benefit obligation Unrecognized past service cost Unrecognized actuarial gain (loss) Accrued post-retirement healthcare cost 492,615 (52,158) 43,315 483,772 2009 605,660 (41,705) (2,150) 561,805 2010 846,636 (31,253) (161,443) 653,940
88
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. PENSION PLAN (continued) Post-retirement Healthcare (continued) c. Movements in the present value of defined benefit obligation during the years ended December 31, 2008, 2009 and 2010 are as follows:
2008 Benefit obligation at beginning of year Interest cost Current service cost Actual benefits paid Actuarial gain on obligation Effect of changes in actuarial assumptions Present value of obligation at end of year 767,828 76,300 16,997 (8,181) (150,730) (209,599) 492,615 2009 492,615 58,535 19,628 (10,582) (37,177) 82,641 605,660 2010 605,660 65,919 28,229 (12,465 ) (38,574 ) 197,867 846,636
d. Movements in the accrued post-retirement healthcare cost during the years ended December 31, 2008, 2009 and 2010 are as follows: 2008 2009 2010 Beginning balance Net periodic post-retirement healthcare cost Benefit payment Ending balance 371,806 120,147 (8,181) 483,772 483,772 88,615 (10,582) 561,805 561,805 104,600 (12,465 ) 653,940
e. The effect of a one percentage point change in assumed post-retirement healthcare cost trend rate would result in aggregate service and interest costs for the years ended December 31, 2008, 2009 and 2010 and accumulated post-retirement healthcare benefit obligation as of January 1, 2009 and December 31, 2009 and 2010 as follows: Increase Service and interest costs
2008 2009 2010
116,060
95,709
December 31,
116,581
January 1, 2009
2009
2010
Accumulated post-retirement healthcare benefit obligation Decrease Service and interest costs
588,492
2008
725,664
2009
1,030,938
2010
75,753
64,493
December 31,
76,868
January 1, 2009
2009
2010
Accumulated post-retirement healthcare benefit obligation
416,360
510,522
702,632
As of January 1, 2009 and December 31, 2009 and 2010, the current portion of post-retirement healthcare cost included in accrued expenses (Note 13) amounted to Rp9,654, Rp12,798 and Rp14,669, respectively, and the non-current portion included in employee benefit obligations (Note 17) amounted to Rp474,118, Rp549,007 and Rp639,271, respectively. 89
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 24. PENSION PLAN (continued) Amounts for the current annual period and previous four annual periods of employee benefits:
Defined Benefit Pension Plan December 31, 2006 The Company Plan assets Projected benefit obligation Excess of plan assets over projected benefit obligation Unrecognized actuarial loss (gain) Net Prepaid Pension Lintasarta Plan assets Projected benefit obligation Excess of plan assets over projected benefit obligation Unrecognized actuarial loss Net Prepaid Pension Total 702,852 (616,715) 86,137 139,158 225,295 24,804 28,188 (3,384) 11,663 8,279 233,574 2007 697,641 (639,131) 58,510 129,291 187,801 33,146 (33,014) 132 13,058 13,190 200,991 January 1, 2009 763,700 (512,513) 251,187 (96,746) 154,441 41,499 (28,726) 12,773 5,886 18,659 173,100 2009 763,244 (684,611) 78,633 46,087 124,720 50,344 (41,816) 8,528 16,572 25,100 149,820 December 31, 2010 793,664 (700,410 ) 93,254 (10,383 ) 82,871 59,294 (50,215) 9,079 21,311 30,390 113,261
Labor Law No.13/2003 December 31, 2006 The Company Projected benefit obligation Unrecognized actuarial loss Net Lintasarta Projected benefit obligation Unrecognized actuarial loss (gain) Unrecognized past service cost Net IMM Projected benefit obligation Unrecognized actuarial loss (gain) Unrecognized past service cost Net Total (77,419) 14,447 (62,972) (9,704) 4,254 (5,450) (1,096) 118 (978) (69,400) 2007 (94,063) 15,459 (78,604) (6,297) (716) (7,013) (4,168) 994 455 (2,719) 88,336 January 1, 2009 (141,316) 40,798 (100,518) (11,464) 2,855 (8,609) (3,674) (955) 427 (4,202) (113,329) 2009 (159,055) 27,639 (131,416) (22,173) (547) 9,949 (12,771) (6,660) 55 399 (6,206) (150,393) December 31, 2010 (182,572 ) 18,287 (164,285 ) (24,340 ) (2,569 ) 9,261 (17,648 ) (10,842 ) 1,527 371 (8,944 ) (190,877 )
Post-retirement Healthcare December 31, 2006 The Company Projected benefit obligation Unrecognized past service cost Unrecognized actuarial loss (gain) Net (526,231) 73,063 180,210 (272,958) 2007 (767,828) 62,610 333,412 (371,806) January 1, 2009 (492,615) 52,158 (43,315) (483,772) 2009 (605,660) 41,705 2,150 (561,805) December 31, 2010 (846,636 ) 31,253 161,443 (653,940 )
90
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 25. 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 (%)

Cash and cash equivalents (Note 4) PT Bank Rakyat Indonesia (Persero)Tbk (BRI) PT Bank Mandiri (Persero)Tbk (Mandiri) PT Bank Negara Indonesia (Persero) Tbk (BNI) PT Bank Tabungan Negara (Persero)Tbk (BTN) PT Bank Syariah Mandiri (Mandiri Syariah) BPD-Jabar BRI Syariah BPD-NTT BPD-Papua PT Bank Pembangunan Daerah Yogyakarta (BPD-DIY) PT Bank Pembangunan Daerah DKI Jakarta PT Bank Pembangunan Daerah Jawa Tengah Others Total Accounts Receivable - trade (Note 5) State-owned banks Telkom PT Televisi Republik Indonesia (Persero) (TVRI) PT Citra Sari Makmur (CSM) PT Telekomunikasi Selular (Telkomsel) PT Pos Indonesia (Persero) PT Pasifik Satelit Nusantara (PSN) Q-tel Perusahaan Tambang Minyak Negara (Pertamina) Comnet PT Angkasa Pura (Persero) Others Total Less allowance for impairment of accounts receivable Net Prepaid expenses MOCIT Kopindosat Telkom PT Industri Telekomunikasi Indonesia (Persero) (INTI) Jiwasraya (Note 26) Others Total
763,563 2,207,564 1,283,174 69,400 202,786 2,175 4,158 1,500 2,785 4,537,105
171,500 1,450,937 207,983 117,000 107,310 142 1,896 4,652 3,500 3,122 2,068,042
799,125 522,449 146,189 89,770 32,215 9,885 5,000 4,475 2,473 1,256 935 1,879 1,615,651
1.47 4.26 2.47 0.13 0.39 0.01 0.01 0.00 0.01 8.75
0.31 2.62 0.37 0.21 0.19 0.00 0.01 0.01 0.01 3.73
1.50 0.98 0.27 0.17 0.06 0.02 0.01 0.01 0.00 0.00 0.00 0.00 3.02
17,644 32,801 27,016 10,932 20,346 11,966 6,419 18,398 145,522
42,860 31,724 25,322 13,807 5,318 10,752 2,746 3,460 1,737 1,515 44,209 183,450
91,774 56,108 38,261 13,135 9,073 8,935 8,607 2,827 2,281 1,683 37,462 270,146
0.03 0.06 0.05 0.02 0.04 0.02 0.01 0.05 0.28
0.08 0.06 0.04 0.02 0.01 0.02 0.00 0.01 0.00 0.00 0.09 0.33
0.17 0.11 0.07 0.02 0.02 0.02 0.02 0.01 0.00 0.00 0.07 0.51
69,444 76,078
57,538 125,912
47,640 222,506
0.13 0.15
0.10 0.23
0.09 0.42
632,350 2,790 1,434
783,533 2,306 1,434
1,186,669 3,294 2,452
1.22 0.01 0.00
1.41 0.00 0.00
2.22 0.01 0.01
1,648 3,114 2,091 643,427
2,116 2,440 3,051 794,880
1,947 1,917 5,367 1,201,646
0.00 0.01 0.00 1.24
0.00 0.01 0.01 1.43
0.00 0.00 0.01 2.25
91
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 25. ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued)
Amount

Other current assets Tax Office Others Total Other current financial assets State-owned banks Due from related parties Kopindosat Senior management Telkomsel Directorate General of Customs and Excise Pertamina Others Total Less allowance for impairment of receivables Net Long-term prepaid pension (Note 26) Jiwasraya Long-term advance INTI Kopindosat Total Long-term prepaid rentals Telkom Kopindosat INTI Others Total Other non-current financial assets State-owned banks Other non-current assets Others
345,695 7 345,702
421,745 54 421,799
0.67 0.00 0.67
0.76 0.00 0.76
26,045
20,173
35,957
0.05
0.04
0.07
5,958 817 2,892 23,629 7,153 4,466 44,915 2,419 42,496
5,958 68 1,558 813 8,397 1,182 7,215
5,958 1,362 1,053 694 9,067 646 8,421
0.01 0.00 0.00 0.05 0.01 0.01 0.08 0.00 0.08
0.01 0.00 0.00 0.01 0.00 0.01
0.01 0.01 0.00 0.00 0.02 0.00 0.02
169,986
147,380
111,344
0.33
0.27
0.21
1,830 2,577 4,407
3,108 2,059 5,167
3,705 1,016 4,721
0.00 0.01 0.01
0.01 0.00 0.01
0.01 0.00 0.01
21,032 12,288 4,744 1,733 39,797
19,598 11,982 5,499 2,608 39,687
18,164 12,817 3,658 2,850 37,489
0.04 0.02 0.01 0.01 0.08
0.04 0.02 0.01 0.00 0.07
0.03 0.02 0.01 0.01 0.07
32,520 -
46,170 -
55,274 87
0.06 -
0.08 -
0.10 0.00
92
Amount

Accounts payable - trade Telkomsel Indonesia Comnet Plus (Comnet) Telkom Qtel Others Total Procurement payable (Note 11) INTI Kopindosat PT Personel Alih daya PT Pembangunan Perumahan PT Perusahaan Listrik Negara (PLN) TVRI Others Total Accrued expenses MOCIT PLN Senior management PT Personel Alih Daya Kopindosat Telkom Others Total Other current liabilities Telkomsel Tax Office Others Total Due to related parties TVRI Kopindosat State-owned banks Telkom PT Pos Indonesia (Persero) Others Total
5,226 431 1,699 4,753 12,109
30,901 2,793 4,447 529 38,670
20,292 1,345 456 167 22,260
0.02 0.00 0.01 0.01 0.04
0.08 0.01 0.01 0.00 0.10
0.06 0.00 0.00 0.00 0.06
34,737 25,240 17,739 2 77,718
30,143 25,509 13,907 35,911 11,797 17 117,284
24,048 22,123 13,210 7,007 2,293 68,681
0.10 0.08 0.05 0.00 0.23
0.08 0.07 0.04 0.10 0.03 0.00 0.32
0.07 0.06 0.04 0.02 0.01 0.20
345,424 3,330 15,914 18,441 4,872 387,981
305,564 94,337 27,825 9,305 1,112 438,143
293,590 81,578 33,553 16,906 13,838 1,063 440,528
1.01 0.01 0.05 0.05 0.02 1.14
0.83 0.26 0.08 0.02 0.00 1.19
0.85 0.23 0.10 0.05 0.04 0.00 1.27
2,738 157,721 620 161,079
1,664 99,872 101,536
1,664 1,664
0.01 0.46 0.00 0.47
0.00 0.27 0.27
0.00 0.00
6,910 1,303 2,072 601 3,813 14,699
10,147 1,490 977 59 48 1,043 13,764
19,141 1,490 101 1,367 22,099
0.02 0.00 0.01 0.00 0.01 0.04
0.03 0.01 0.00 0.00 0.00 0.00 0.04
0.06 0.00 0.00 0.00 0.06
93
Amount

Loans payable (Note 14) State-owned Banks Other non-current liabilities Telkomsel Kas Negara Total
1,796,142
2,592,489
1,297,045
5.27
7.03
3.74
9,782 9,782
8,118 8,118
6,454 3,895 10,349
0.02 0.02
0.02 0.02
0.02 0.01 0.03
Amount 2008 Operating revenues Telkom Telkomsel State-owned banks Qtel PSN Governmental Department TVRI PT Pos Indonesia Pertamina State-owned universities Comnet CSM PT Angkasa Pura (Persero) Badan Pusat Statistik PLN PT Infomedia Nusantara Badan Meteorologi dan Geofisika (BMG) PT Aneka Tambang StarHub* Private banks SingTel* Others Total Operating expenses Cost of services MOCIT Telkom Telkomsel PLN PT Personel Alih Daya Kopindosat Comnet Qtel PT Pos Indonesia INTI Perusahaan Gas Negara (PGN) PSN SingTel* StarHub* Others Total 1,318,855 941,224 584,470 390,965 68,948 2,615 37,649 7,015 8,388 2,206 12,637 3,321 3,570 3,381,863 1,633,596 711,784 566,334 617,953 57,714 5,661 36,741 3,367 3,213 1,692 3,638,055 1,939,415 550,124 528,067 508,473 80,902 59,205 27,681 27,375 14,947 10,040 1,933 1,024 3,749,186 919,410 375,198 214,631 2,546 9,847 20,909 4,178 6,297 2,439 5,203 10,534 7,420 4,888 2,059 1,478 1,797 1,445 36,748 28,161 17,304 117,623 1,790,115 2009 672,225 260,345 301,434 6,714 7,202 12,668 22,547 14,379 11,238 17,348 5,831 14,855 3,887 2,667 2,274 3,027 1,591 113,976 1,474,208 2010 587,386 414,860 387,546 36,521 23,694 23,478 19,698 15,378 10,431 8,445 8,121 7,124 6,213 3,922 2,527 2,248 2,217 1,623 79,159 1,640,591
Percentage to Respective Income or Expenses (%) 2008 4.78 1.95 1.12 0.01 0.05 0.11 0.02 0.03 0.01 0.03 0.05 0.04 0.03 0.01 0.01 0.01 0.01 0.19 0.15 0.09 0.62 9.32 2009 3.57 1.38 1.60 0.04 0.04 0.07 0.12 0.08 0.06 0.09 0.03 0.08 0.02 0.01 0.01 0.02 0.01 0.59 7.82 2010 2.99 2.11 1.97 0.19 0.12 0.12 0.10 0.08 0.05 0.04 0.04 0.04 0.03 0.02 0.01 0.01 0.01 0.01 0.41 8.35
9.10 6.50 4.03 2.70 0.48 0.02 0.26 0.05 0.06 0.01 0.09 0.02 0.02 23.34
10.46 4.56 3.62 3.95 0.37 0.04 0.24 0.02 0.02 0.01 23.29
12.03 3.41 3.28 3.15 0.50 0.37 0.17 0.17 0.09 0.06 0.01 0.01 23.25
* no longer a related party since June 6, 2008 (Note 18)
94
Amount 2008 Personnel Senior management Jiwasraya PT Personel Alih Daya Kopindosat Total General and administration PLN Kopindosat PT Personel Alih Daya Telkom Usaha Gedung Bank Dagang Negara (UGBDN) State-owned banks Others Total Other income (expenses) Interest income State-owned banks Private banks* Others 134,613 36,796 114,368 285,777 2009 145,510 32,336 56,613 234,459 2010 131,906 45,688 40,139 217,733 Percentage to Respective Income or Expenses (%) 2008 0.93 0.25 0.79 1.97 2009 0.93 0.21 0.36 1.50 2010 0.82 0.28 0.25 1.35
42,436 45,124 4,806 505 6,891 99,762
75,967 24,465 35,912 887 1,971 4,122 143,324
88,697 26,072 17,914 2,393 1,603 1,567 6,727 144,973
0.30 0.31 0.03 0.00 0.05 0.69
0.49 0.16 0.23 0.00 0.01 0.03 0.92
0.55 0.16 0.11 0.01 0.01 0.01 0.05 0.90
222,727 36,458 879 260,064
101,693 306 101,999 (225,216 ) (5,624 ) (230,840 ) (128,841 )
106,177 754 106,931 (231,530 ) (231,530 ) (124,599 )
10.25 1.68 0.04 11.97 (9.05) (0.75) (0.31) (10.11) 1.86
14.93 0.04 14.97 (33.05) (0.83) (33.88) (18.91)
4.83 0.04 4.87 (10.54 ) (10.54 ) (5.67 )
Financing cost State-owned banks Private banks* Others
(196,667 ) (16,302 ) (6,715 ) (219,684 )
Net
40,380
The relationship and nature of account balances/transactions with related parties are as follows: No. 1. 2. 3. 4. 5. 6. 7. Related Parties PT Bank Rakyat Indonesia (Persero) Tbk (BRI) PT Bank Mandiri (Persero) Tbk (Mandiri) PT Bank Negara Indonesia (Persero) Tbk (BNI) PT Bank Tabungan Negara (Persero) Tbk (BTN) PT Bank Syariah Mandiri (Mandiri Syariah) BPD - Jabar BRI Syariah 95 Relationship Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Nature of Account Balances/Transactions Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 25. ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued) No. 8. 9. Related Parties BPD - NTT BPD - Papua Relationship Affiliate Affiliate Nature of Account Balances/Transactions Cash and cash equivalents Cash and cash equivalents
10. PT Bank Pembangunan Daerah Yogyakarta (BPD - DIY) 11. PT Bank Pembangunan Daerah DKI Jakarta (BPD - DIY) 12. PT Bank Pembangunan Daerah Jawa Tengah (BPD - DIY) 13. State-owned banks
Affiliate
Cash and cash equivalents
Affiliate
Cash and cash equivalents
Affiliate Affiliate
Cash and cash equivalents Cash and cash equivalents, loans payable and operating revenues - MIDI Operating revenues - cellular, fixed telecommunication and MIDI; operating expenses cost of services Operating revenues - MIDI Operating revenues - MIDI Operating revenues - cellular and fixed telecommunication Operating revenues - MIDI Operating revenues - MIDI Operating revenues - fixed telecommunication Operating revenues - MIDI Operating expenses - cost of services Operating revenues - MIDI Operating revenues - MIDI; operating expenses - cost of services Operating expenses - personnel expenses, general and administration expenses
14. Telkom (Note 29)
Affiliate
15. TVRI 16. CSM 17. Telkomsel 18. PT Pos Indonesia (Persero) 19. PSN 20. Qtel
Affiliate Affiliate Affiliate Affiliate Affiliate Ultimate Stockholder
21. Pertamina 22. Comnet 23. PT Angkasa Pura (Persero) 24. MOCIT
Affiliate Affiliate Affiliate Government Agency
25. Kopindosat
Affiliate
96
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 25. ACCOUNTS AND TRANSACTIONS WITH RELATED PARTIES (continued) No. 26. INTI 27. Jiwasraya 28. Tax Office 29. Senior management Related Parties Relationship Affiliate Affiliate Government Agency Key management personnel Nature of Account Balances/Transactions Procurement payable Long-term prepaid pension Other current asset and other current liabilities Operating expenses - personnel expenses, and prepaid expense - unamortized portions of housing and transformation advances, and transformation incentives Other current liabilities Operating expenses - personnel expenses and cost of services Procurement payable Operating expenses - cost of services Operating revenues - MIDI Operating revenues - MIDI Operating revenues - MIDI Operating revenues - MIDI Operating revenues - MIDI Operating revenues - MIDI Operating revenues - international calls, operating expenses cost of services Operating revenues - international calls, operating expenses cost of services Operating expenses - cost of services Operating expenses - cost of services Cash and cash equivalents, loans payable and operating revenues - MIDI
30. Directorate General of Customs and Excise 31. PT Personel Alih Daya 32. PT Pembangunan Perumahan 33. PLN 34. Governmental Departments 35. State-owned universities 36. Badan Pusat Statistik 37. PT Infomedia Nusantara 38. BMG 39. PT Aneka Tambang 40. StarHub*
Government Agency Affiliate Affiliate Affiliate Government Agency Affiliate Government Agency Affiliate Affiliate Affiliate Affiliate
41. SingTel*
Affiliate
42. PGN 43. UGBDN 44. Private banks

Affiliate Affiliate Affiliates
97
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 26. BASIC AND DILUTED EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
2008 (Restated) Numerator for basic and diluted earnings per share - profit for the year attributable to the Owners of the Company, as previously reported Accounting policy change (Note 2g) Numerator for basic and diluted earnings per share - profit for the year attributable to the Owners of the Company Denominator for basic and diluted earnings per share Weighted-average number of shares outstanding during the year Basic and diluted earnings per share Basic and diluted earnings per ADS (50 B shares per ADS) 2009 (Restated) 2010
2,037,753 6,022
1,690,804 13,094
824,637 -
2,043,775 5,433,933,500 376.11 18,805.67
1,703,898 5,433,933,500 313.57 15,678.31
824,637 5,433,933,500 151.76 7,587.85
There are no potential dilutive outstanding shares as of December 31, 2008, 2009 and 2010. 27. DISTRIBUTION OF INCOME AND APPROPRIATION OF RETAINED EARNINGS At the Companys Annual Stockholders General Meeting (ASGM), the stockholders approved, among others, the appropriation of annual net income for reserve fund and cash dividend distribution, as follows, and the utilization of the remaining amount for reinvestment and working capital. ASGM Date 2007 Net Comprehensive Income June 5, 2008 2008 Net Comprehensive Income June 11, 2009 2009 Net Comprehensive Income June 22, 2010 Reserve Fund (Rp) 20,420 18,786 14,982 Dividend per Share (Rp) 187.90 172.85 137.86 Dividend Payment Date July 15, 2008 July 22, 2009 August 2, 2010
Dividend for the Government was paid in accordance with the prevailing laws and regulations in Indonesia.
98
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES The Company entered into several swap contracts. Listed below is the information related to the contracts and their fair values (net of credit risk adjustment) as of January 1, 2009 and December 31, 2009 and 2010:
Fair Value (Rp) December 31, Notional Amount (US$) January 1, 2009 Receivable (Payable) 2009 Receivable (Payable)
________
2010 Receivable (Payable)
Cross Currency Swap Contracts:

a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. p. Standard Chartered Bank, Jakarta Branch (StandChart) GSI (9) GSI (9) GSI Merrill Lynch Capital Market Bank Limited (MLCMB) (5) MLCMB (3) StandChart MLCMB (4) StandChart StandChart HSBC, Jakarta Branch (10) Merrill Lynch International Bank Limited, London Branch (MLIB) MLIB MLIB DBS GSI (11)
(6)
25,000 100,000 25,000 75,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 50,000 25,000 25,000 25,000 84,000
223,306 36,569 22,604 59,003 73,690 83,663 69,427 (31,106) (4,418) (1,345) (20,991) 87,600 598,002
88,523 (10,033 ) 70,588 (431 ) 11,885 22,768 14,428 3,272 (6,646 ) 5,425 1,497 5,618 206,894
50,866 (12,055 ) (1,731 ) 9,443 (2,234 ) 2,154 3,778 3,093 53,314
Sub-total
Currency Forward Contracts:

q. StandChart (1) r. JPMorgan Close Bank, Singapore Branch (JPMorgan) (2) s. DBS (7) t. DBS (7) u. DBS (8) Sub-total
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
2,000 3,000 or 6,000 5,000 5,000 5,000
contract entered into in February 2007 and settled in February 2008 contract entered into in April 2007 and settled in April 2008 contract entered into in November 2005 and restructured into a new contract in August 2008 contract entered into in March 2006 and restructured into a new contract in August 2008 contract entered into in September 2005 and restructured into a new contract in September 2008 contract entered into in April 2004 and settled in November 2008 contracts entered into in May 2009 and settled in August 2009 contract entered into in May 2009 and settled in November 2009 contract entered into in May 2005 and settled in November 2010 contract entered into in August 2006 and settled in November 2010 contract entered into in December 2008 and settled in November 2010
99
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES (continued)
Fair Value (Rp) December 31, Notional Amount (US$) January 1, 2009 Receivable (Payable) 2009 Receivable (Payable)
________
2010 Receivable (Payable)
Interest Rate Swap Contracts:

v. HSBC, Jakarta Branch w. HSBC, Jakarta Branch x. y. z. GSI DBS DBS 27,037 with decreasing amount 44,200 with decreasing amount 100,000 25,000 with decreasing amount 25,000 with decreasing amount 25,000 with decreasing amount 25,000 with decreasing amount 25,000 with decreasing amount 40,000 with decreasing amount 26,000 with decreasing amount 26,000 with decreasing amount 36,500 with decreasing amount 25,000 with decreasing amount 33,500 (28,549) (67,402) (111,690) (16,941) (13,856) (7,094) (5,271) (3,882) 732 (3,321) (257,274) 340,728 (9,184 ) (19,935 ) (73,226 ) (10,680 ) (9,927 ) (5,134 ) (3,920 ) (3,116 ) (1,311 ) (3,414 ) (2,307 ) (6,485 ) (4,340 ) (4,451 )
__
(13,100 ) (29,027 ) (90,273 ) (9,238 ) (9,343) (6,656 ) (5,885 ) (5,297 ) (6,814 ) (4,966 ) (4,303 ) (7,347 ) (4,014 ) (3,120 ) (199,383) (146,069)
aa. Bank of Tokyo MUFJ (BTMUFJ) ab. BTMUFJ ac. BTMUFJ ad. StandChart ae. DBS af. DBS ag. BTMUFJ ah. ING Bank N.V. ai. ING Bank N.V. Sub-total Total
(157,430 ) 49,464
The net changes in fair value of the swap contracts and embedded derivative (Note 14j), totaling Rp136,603, (Rp486,916) and (Rp448,831) in 2008, 2009 and 2010, respectively, were charged to Gain (Loss) on Change in Fair Value of Derivatives - Net, which is presented under Other Income (Expenses) in the consolidated statements of comprehensive income.
100
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES (continued) The following are the details of the contracts: Cross Currency Swap Contracts
Counterparties
StandChart (i) GSI
(iv)
No.
a. b.
Contract Period and Swap Amount

April 23, 2004 - November 5, 2008 Swap Rp214,625 for US$25,000 May 13, 2005 - November 5, 2010 Swap Rp832,250 for US$100,000
Annual Swap Premium Rate

6-month U.S. dollar LIBOR plus 2.60% (i) Fixed rate of 6.96% per annum for US$50,000 and (ii) 6month U.S. dollar LIBOR plus 2.62% per annum for US$50,000, netted with (a) 6month U.S. dollar LIBOR per annum multiplied by US$11,750 during the period May 13, 2005 through May 13, 2008 and (b) the amount of US$11,750 on May 13, 2008. On May 14, 2008, the Company received from GSI the fixed amount of US$11,750 (equivalent to Rp109,099) related to the cross currency swap contract. 4.30% of US$25,000 3.28% of US$75,000
Every May 5 and November 5 Every May 5 and November 5
Swap Premium Payment Date
16,263 64,009
Amount of Swap Premium Paid/ Amortized (Rp) 2008 2009 2010

54,116 46,136
c. d.
GSI (v) GSI
e.
MLCMB (ii)
f. g. h. i. j. k.
(i) (ii) (iv) (v) (vi)
MLCMB (ii) StandChart MLCMB

(ii)
StandChart StandChart HSBC (vi)
May 13, 2005 - November 5, 2010 Swap Rp245,000 for US$25,000 August 22, 2005 - June 22, 2012 The Company will swap the following: US$75,000 which is equal to US$75,000 multiplied by the lowest IDR/USD exchange rate within the period of August 22, 2005 - June 22, 2012 if the IDR/USD spot rate at termination date is less than or equal to the lowest of IDR/USD exchange rate mentioned above plus Rp4,300 (in full amounts) US$75,000 which is equal to US$75,000 multiplied by IDR/USD spot rate at termination date minus Rp4,300 (in full amount) if IDR/USD spot rate at termination date is greater than the lowest of IDR/USD exchange rate mentioned above plus Rp4,300 (in full amounts) September 20, 2005 - June 22, 2012 The Company will receive the following: zero amount if the IDR/USD spot rate at termination date is less than Rp9,500 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$25,000 multiplied by (1Rp9,500 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD 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) certain U.S. dollar amount which is equal to US$25,000 multiplied by (Rp14,000-Rp9,500 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp14,000 to US$1 (in full amounts) November 16,2005 - June 22, 2012 Swap Rp245,000 for US$25,000 January 11, 2006 - June 22, 2012 Swap Rp236,250 for US$25,000 March 1,2006 - June 22, 2012 Swap Rp229,975 for US$25,000 March 15, 2006 - June 22, 2012 Swap Rp228,550 for US$25,000 May 12, 2006 - June 22, 2012 Swap Rp217,500 for US$25,000 August 8, 2006 - November 5, 2010 Swap Rp225,000 for US$25,000
Every May 5 and November 5 Every June 22 and December 22
11,005 25,665
10,906 24,357
9,841 22,866
2.99% of US$25,000
3,482
5.50% of US$25,000 4.78% of US$25,000 4.15% of US$25,000 3.75% of US$25,000 3.45% of US$25,000 4.00% of US$25,000
Every June 22 and December 22 Every June 22 and December 22 Every June 22 and December 22 Every June 22 and December 22 Every June 22 and December 22 Every May 5 and November 5
6,406 12,474 4,887 9,786 9,004 10,184
11,791 9,250 8,510 10,145
11,034 8,657 7,964 9,074
On November 5, 2008, this contract expired and the Company received settlement gain on the cross currency swap amounting to Rp58,375. On September 8, 2008, the Company restructured this contract into a new contract. On November 5, 2010 this contract expired and the Company received settlement gain on the cross currency swap amounting to Rp59,925. On November 5, 2010 this contract expired and the Company paid settlement loss on the cross currency swap amounting to Rp21,881. On November 5, 2010, this contract expired and the Company paid settlement loss on the cross currency swap amounting to Rp2,550.
101
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES (continued) Cross Currency Swap Contracts (continued)
Counterparties
MLIB (iii)
No.
l.

August 8, 2008 - June 22, 2012 The Company will receive the following: zero amount if the IDR/USD spot rate at termination date is less than or equal to Rp8,950 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$50,000 multiplied by (1 Rp8,950 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp8,950 but is less than or equal to Rp11,000 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$50,000 multiplied by (Rp11,000 - Rp8,950) divided by IDR/USD spot rate (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp11,000 to US$1 (in full amounts) September 2, 2008 - June 12, 2013 The Company will receive the following: zero amount if the IDR/USD spot rate at termination date is less than or equal to Rp8,800 to US$1 (in full amounts) certain U.S. dollar amount as arranged in the contract multiplied by (IDR/USD spot rate - Rp8,800) divided by IDR/USD spot rate (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp8,800 but is less than or equal to Rp12,000 to US$1 (in full amounts) certain U.S. dollar amount as arranged in the contract multiplied by (Rp3,200 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp12,000 to US$1 (in full amounts) September 8, 2008 - June 22, 2012 The Company will receive the following: zero amount if the IDR/USD spot rate at termination date is less than or equal to Rp9,000 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$25,000 multiplied by (1 Rp9,000 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp9,000 but is less than or equal to Rp11,000 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$25,000 multiplied by (Rp11,000 - Rp9,000) divided by IDR/USD spot rate (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp11,000 to US$1 (in full amounts)

4.22% of US$50,000
11,988

22,778
23,965
m.
MLIB
4.10% of US$25,000 up to June 12, 2011 , and 4.10% of decreasing U.S. dollar amount as arranged in the contract up to June 12, 2013
3,203
11,230
11,852
n.
MLIB (ii)
2.52% of US$25,000
3,579
6,801
7,156
(ii) (iii)
On September 8, 2008, the Company restructured this contract into a new contract. On August 8, 2008, the Company restructured these contracts into a new contract.
102
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES (continued) Cross Currency Swap Contracts (continued)
Counterparties
DBS
No.
o.

September 10, 2008 - June 12, 2013 The Company will receive the following: zero amount if the IDR/USD spot rate at the scheduled settlement date is at or less than Rp8,800 to US$1 (in full amounts) certain U.S. dollar amount which is equal to U.S. dollar amount at scheduled settlement date multiplied by (IDR/USD spot rate - Rp8,800) divided by IDR/USD spot rate (in full amounts) if the IDR/USD spot rate at settlement date is greater than Rp8,800 and is at or less than Rp12,000 to US$1 (in full amounts) certain U.S. dollar amount which is equal to U.S. dollar amount at scheduled settlement date multiplied by (Rp12,000 - Rp8,800) divided by IDR/USD spot rate (in full amounts) if the IDR/USD spot rate at settlement date is greater than Rp12,000 to US$1 (in full amounts) December 16, 2008 - November 5, 2010 The Company will receive the following: zero amount if the IDR/USD spot rate at termination date is less than or equal to Rp11,500 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$84,000 multiplied by (IDR/USD spot rate - Rp11,500 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp11,500 but is less than or equal to Rp15,000 to US$1 (in full amounts) certain U.S. dollar amount which is equal to US$84,000 multiplied by (Rp3,500 divided by IDR/USD spot rate) (in full amounts) if the IDR/USD spot rate at termination date is greater than Rp15,000 to US$1 (in full amounts)

3.945% of US$25,000 up to June 12, 2011 , and 3.945% of decreasing U.S. dollar amount as arranged in the contract up to June 12, 2013

2,833 9,980 9,044
p.
GSI (vii)
Upfront premium of US$9,500 (equivalent to Rp105,212) which was fully paid on December 19, 2008. The premium is amortized over the contract period.
1,991
55,899
47,323
(vii)
On November 5, 2010, this contract expired and the Company received zero settlement on the cross currency swap.
All cross currency swap contracts with GSI (contracts No. a, b and c) are structured to include creditlinkage with the Company as the reference entity and with the Companys (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 Companys obligations and those of GSI under these swap contracts will be terminated 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.
103
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES (continued) Currency Forward Contracts
No.
q. r. s. t. u.
(viii) (ix)
StandChart (viii) JPMorgan (viii) DBS

(ix)
Counter-parties
DBS (ix) DBS

(ix)
February 15, 2007 February 20, 2008 April 24, 2007 - April 28, 2008 May 8, 2009 August 12, 2009 May 8, 2009 August 12, 2009 May 11, 2009 November 3, 2009
Contract Period
Rp8,950 to US$1
IDR/USD Fixing Rate (in full amounts)
Every month starting March 20, 2007 to February 20, 2008 Every month starting May 25, 2007 to April 28, 2008 August 12, 2009 August 12, 2009 November 13, 2009
Settlement Dates
Spot rate on the settlement date Rp10,610 to US$1 Rp10,610 to US$1 Rp10,750 to US$1
These contracts (q and r) expired on February 20, 2008 and April 28, 2008, respectively. Contracts s and t expired on August 12, 2009 and contract u, on November 13, 2009.
Interest Rate Swap Contracts

No.
v.
Counter-parties
HSBC
Contract Period
April 23, 2008 November 27, 2016 April 23, 2008 September 29, 2019

5.42% of US$27,037, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.45% per annum 4.82% of US$44,200, the notional amount of which will decrease based on predetermined schedule, in exchange for U.S. dollar LIBOR plus 0.35% per annum (8.10% - underlyer return) of US$100,000 per annum, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 5.625% of US$25,000 per annum, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum
w.
HSBC
x.
GSI
September 2, 2008 - June 12, 2013
y.
DBS
September 5, 2008 - June 12, 2013
z.
DBS
October 23, 2008 June 12, 2013
5.28% of US$25,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 4.46% of US$25,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 4.25% of US$25,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 4.09% of US$25,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 3.85% of US$40,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum
aa.
BTMUFJ
December 1, 2008 - June 12, 2013
ab.
BTMUFJ
December 4, 2008 - June 12, 2013
ac.
BTMUFJ
December 12, 2008 - June 12, 2013
ad.
StandChart
December 19, 2008 - June 12, 2013
Every April 1 and October 1 up to October 2009, and every May 27 and November 27 up to termination date Every January 28 and July 28 up to July 2009, and every March 29 and September 29 up to termination date Every June 10 and December 10 up to June 2011, and every June 12 and December 12 up to termination date Every June 10 and December 10 up to December 2010, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date
(1,784)
Amount of Swap Income (Expense) Received (Paid) (Rp) 2008 2009 2010
(4,320)
(7,589)
(648)
(7,309)
(16,920)
(24,051)
(39,332)
(4,539)
(7,289)
(2,106)
(6,676)
(1,107)
(4,778)
(935)
(4,291)
(835)
(3,921)
(504)
(5,384)
104
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 28. DERIVATIVES (continued) Interest Rate Swap Contracts (continued)
No. ae. Counter-parties
DBS
Contract Period
December 22, 2008 December 12, 2012 January 21, 2009 December 12, 2012

4.02% of US$26,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 3.83% of US$26,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 4.10% of US$36,500, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 4.0094% of US$25,000, the notional amount of which will decrease based on predetermined schedule, in exchange for 6-month U.S. dollar LIBOR plus 1.85% per annum 3.75% of US$33,500, in exchange for 6month U.S. dollar LIBOR plus 1.85% per annum
af.
DBS
ag.
BTMUFJ
March 2, 2009 June 12, 2012
ah.
ING Bank N.V.
March 3, 2009 December 12, 2011
ai.
ING Bank N.V.
April 14, 2009 June 12, 2011
Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and every June 12 and December 12 up to termination date Every March 25 and September 25 up to March 2011, and on June 12, 2011
Amount of Swap Income (Expense) Received (Paid) (Rp) 2008 2009 2010
(558)
(3,909)
(302)
(3,451)
(627)
(5,758)
(522)
(3,734)
(4,199)
29. SIGNIFICANT AGREEMENTS, COMMITMENTS AND CONTINGENCIES a. As of December 31, 2010, commitments on capital expenditures which are contractual agreements not yet realized relate to the procurement and installation of property and equipment amounting to US$90,015 (Note 33r) and Rp569,173. The significant commitments on capital expenditures are as follows:
Contract Date December 10, 2010 Contract Description The Procurement of Technology Upgrade for 2G and 3G Telecommunications Network in Kalimantan (see b below) The Procurement of Telco Infrastructure Supply of GSM Cellular Infrastructure Vendor PT Nokia Siemens Networks and Nokia Siemens Networks Oy Amount of Contract/Purchase Orders (POs) Already Issued US$38,439 Amount of Contract/POs Not Yet Served US$17,959
June 16, 2010 May 16, 2007
April 20, 2007 April 3, 2007
Telecommunications Equipment Supply and Service Supply of GSM Infrastructure
PT Nokia Siemens Networks and Nokia Siemen Networks Oy PT Nokia Siemens Networks, Nokia Siemens Networks Oy and Nokia Siemens Networks GmbH & Co. KG. PT Alcatel Lucent Indonesia and Alcatel Shanghai Bell Co. Ltd. PT Ericsson Indonesia and Ericsson AB
US$106,655 and Rp461,479 US$318,446 and Rp1,385,390
US$13,344 and Rp142,002 US$4,118 and Rp55,310
US$79,311 and Rp679,301 US$383,104 and Rp1,110,375
US$2,334 and Rp41,105 US$358 and Rp24,871
105
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 29. SIGNIFICANT AGREEMENTS, COMMITMENTS AND CONTINGENCIES (continued) b. On December 10, 2010, the Company agreed with PT Nokia Siemens Networks and Nokia Siemens Networks OY (Nokia) to restate and amend the agreement for The Procurement of Technology Upgrade for 2G and 3G Telecommunication Network in Kalimantan that was originally entered into on June 30, 2010. Based on the new agreement, the Company agreed to exchange certain existing cellular technical equipment units in Kalimantan area with new equipment units from Nokia with total value of US$75,243 consisting of cellular technical equipment with net book value of U$66,963 (net of discount amounting to US$2,029) for 1,325 units of 2G Base Transceiver Station [BTS], 24 units of Base Station Controller [BSC], 11 units of Transcoders, 66 units of Node B equipment and 3 units of Radio Network Controller [RNC], and pay US$6,251 to Nokia for the installation services. As of December 31, 2010, the carrying amount of the cellular technical equipment units given up (122 units of 2G BTS, 5 units of BSC, 25 units of Node B equipment and 1 unit of RNC) totalled Rp158,285 (Note 7). The Company also committed to procure additional equipment units from Nokia with a total value of US$11,708 until the end of 2012. c. On September 17, 2010, the Company received STPs from the DGT for the underpayment of the Companys 2008 and 2009 income tax article 26 totalling Rp80,018 (including interest). On October 13, 2010, the Company submitted cancellation letters to the Tax Office regarding such STPs. Subsequently, on November 16, 2010, the Company was required to pay a certain portion of these STPs by using the approved tax refund claim on the Companys corporate Income Tax for fiscal year 2005 (Note 6) amounting to Rp38,155. As of December 31, 2010, the remaining amount of Rp41,863 has not yet been paid (Note 33b). d. On August 18, 2010, the Company and Telkom signed a memorandum of understanding on the cooperation for joint utilization of filling of satellite networks at 150.5 degree East geostationary orbital slot. This cooperation will include procuring, operating and maintaining satellite between the Company and Telkom in order to utilize filling of satellite networks at 150.5 degree East geostationary orbital slot after the termination of the operation of Satellite Palapa C-2 owned by the Company. The capital expenditure related to such cooperation will be borne on a pro rata basis between the Company and Telkom. As of December 31, 2010, the Company has not made any capital expenditure related to such cooperation. e. On January 29, April 15, May 24 and June 3, 2010, the Company agreed to lease part of its telecommunications towers and sites to PT Hutchison CP Telecommunication (Hutchison) for a period of 12 years, to PT Natrindo Telepon Selular (NTS) for a period of 10 years, to PT XL Axiata Tbk (XL Axiata, formerly PT Excelcomindo Pratama Tbk or Excelcom) for a period of 10 years and to PT Berca Global Access (Berca) for a period of 10 years, respectively. Hutchison, NTS, and XL Axiata (on annual basis) and Berca (on quarterly basis) are required to pay the lease and maintenance fees in advance which are recorded as part of unearned income. The agreements are cancellable before termination under certain conditions, as stated in the agreements. f. On April 15, 2010, Lintasarta, a subsidiary, entered into agreements with MOCIT-Balai Telekomunikasi dan Informatika Pedesaan (MOCIT-BTIP), whereby Lintasarta agreed to provide Pusat Layanan Jasa Akses Internet Kecamatan (Center for Internet Access and Services in Rural Areas) (PLIK) for Work Packages (Paket Pekerjaan) 7, 8 and 9 that cover the provinces of Bali, West Nusa Tenggara, East Nusa Tenggara, West Kalimantan, South Kalimantan, East Kalimantan, Central Kalimantan, Maluku and Papua. On December 22, 2010, the agreements were amended to increase the contract values. The agreement covers four years starting from October 15, 2010 with contract values amounting to Rp91,895, Rp143,668 and Rp116,721 for Work Packages 7, 8 and 9, respectively. As of December 31, 2010, Lintasarta has outstanding advance payments from MOCIT-BTIP related with the agreements amounting to Rp56,573 and Rp11,739 which 106
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 29. SIGNIFICANT AGREEMENTS, COMMITMENTS AND CONTINGENCIES (continued) Rp11,739 which are classified as part of unearned income for the current portion and other noncurrent liabilities for the long-term portion, respectively. In accordance with the agreements, Lintasarta placed its time deposits totalling Rp18,200 as a performance bond for the four-year contract period which is classified as part of other non-current financial assets (Note 2f8). On May 6, 2010, Lintasarta entered into an agreement with PT Wira Eka Bhakti (WEB), for the procurement of equipment and infrastructure required for the construction of PLIKs, as agreed with the MOCIT-BTIP above, with total contract value amounting to Rp189,704. On October 20, 2010, the agreement was amended to increase the contract value to become Rp203,776. As of December 31, 2010, Lintasarta has outstanding advances to WEB totalling Rp39,107 and Rp2,668 which are classified as part of advances for the current portion and long-term advances for the long-term portion, respectively. On December 12, 2010, Lintasarta entered into agreements with MOCIT-BTIP to provide Pusat Layanan Jasa Akses Internet Kecamatan Bergerak (Mobile Center for Internet Access and Services in Rural Areas) (PLIKB) for Work Packages 2, 3, 11, 15, 16 and 18 that cover the provinces of North Sumatra, West Sumatra, East Nusa Tenggara, West Kalimantan, South Kalimantan and East Kalimantan. The agreements cover four years starting on June 22, 2011 with contract values amounting to Rp79,533, Rp92,003, Rp71,879, Rp84,583, Rp69,830 and Rp60,149 for Work Packages 2, 3, 11, 15, 16 and 18, respectively. As of December 31, 2010, Lintasarta has outstanding advance payments from MOCIT-BTIP related with the agreements amounting to Rp9,725 and Rp73,543 which are classified as part of unearned income for the current portion and other non-current liabilities for the long-term portion, respectively. g. On May 25, 2007, the Company and six other telecommunications operators signed a memorandum of understanding on the construction of the national optical fiber network Palapa Ring for the eastern part of Indonesia (Palapa Ring Project Phase I) wherein the Company will share 10% of the total project cost of Rp3,000,000. In addition, they also agreed to equally bear the cost of preparation and implementation (preparation cost) of Palapa Ring Project Phase I up to the amount of Rp2,000. If the preparation cost exceeds Rp2,000, there will be further discussion among them. However, one of the telecommunications operators subsequently decided not to join the project. On November 10, 2007, the Company and the other five telecommunications operators (including Telkom, a related party) signed the agreement on the consortium for the construction and maintenance of Palapa Ring wherein the Company agreed to bear 13.36% of the total project cost of US$225,037. This agreement replaced the previous memorandum of understanding. Furthermore, three of the telecommunications operators also no longer joined the project. Consequently, as of December 31, 2010, the remaining telecommunications operators which are still committed to this project are the Company, Telkom and Bakrie Telecom. Hence, the projects commitment is being evaluated to accommodate the change in the number of participating telecommunications operators. As of December 31, 2010, the Company has paid the amount of US$1,503 which is recorded as part of other non-current financial assets. h. The Company and IMM have committed to pay annual radio frequency fee over the 3G and BWA licenses period, provided the Company and IMM hold the 3G and BWA licenses. The amount of annual payment is based on the payment scheme set out in Regulations No. 7/PER/M.KOMINFO/2/2006, No. 268/KEP/M.KOMINFO/9/2009 and No. 237/KEP/ M.KOMINFO/7/2009 dated February 8, 2006, September 1, 2009 and July 27, 2009, respectively, of the MOCIT.
107
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 29. SIGNIFICANT AGREEMENTS, COMMITMENTS AND CONTINGENCIES (continued) i. On July 20, 2005, the Company obtained facilities from HSBC to fund the Companys short-term working capital needs. These facilities were amended on May 14, 2007 to extend the expiration date to February 28, 2008. On December 4, 2009, these facilities were further amended to extend the expiration date to April 30, 2010. Subsequently, on June 17, 2010, these facilities were further extended up to April 30, 2011. The facilities consist of the following: Overdraft facility amounting to US$2,000 (including overdraft facility denominated in rupiah amounting to Rp17,000). Interest is 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. Revolving loan facility amounting to US$30,000 (including revolving loan denominated in rupiah amounting to Rp255,000). The loan matures within a maximum period of 180 days and can be drawn in tranches with minimum amounts of US$500 and Rp500 for loans denominated in U.S. dollar and rupiah, respectively. Interest is charged on daily balances at 3% per annum above the HSBC Cost of Fund Rate for the loans denominated either in rupiah or U.S. dollar. As of December 31, 2010, the Company has not used these facilities. j. In 1994, the Company was appointed as a Financial Administrator (FA) 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 APCNs Indefeasible Right of Use (IRU), Defined Underwritten Capacity (DUC) and Occasional Commercial Use (OCU). The funds received from the sale of IRU, DUC and OCU and for upgrading the APCN cable did not belong to the Company and, therefore, were not recorded in the Companys books. However, the Company managed these funds in separate accounts. As of December 31, 2010, the balance of the funds (including interest earned) which are under the Companys custody amounted to US$5,428. Besides receiving their share of the funds from the sale of IRU, DUC and OCU, the members of the consortium also received their share of the interest earned by the above funds. k. Other agreements made with Telkom are as follows: Under a cooperation agreement, the compensation to Telkom relating to leased circuit/channel services, such as world link and bit link, is calculated at 15% of the Companys collected revenues from such services. The Company and Satelindo also lease circuits from Telkom to link Jakarta, Medan and Surabaya. In 1994, Satelindo entered into a land transfer agreement for the transfer of Telkoms rights to use a 134,925-square meter land property located at Daan Mogot, West Jakarta, where Satelindos 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. The term of the agreement may be extended based on mutual agreement. This agreement was subsequently superseded by a land rental agreement dated December 6, 2001, generally under the same terms as those of the land transfer agreement.
108
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 29. SIGNIFICANT AGREEMENTS, COMMITMENTS AND CONTINGENCIES (continued) 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 ninth amendment agreement dated May 24, 2010. Transponder lease expense charged to operations amounting to Rp30,255 and Rp27,547 in 2009 and 2010, respectively, is presented as part of Operating Expenses - Cost of Services in the consolidated statements of income. 30. OPERATING 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. The cellular segment currently provides the network coverage in all major cities and population centers across Indonesia by using GSM 900 and GSM 1800 technology. Its primary service is the provision of voice and data transfer which is sold through post-paid and prepaid plans. The fixed telecommunication segment is the provider of international long-distance services, fixed wireless services, DLD services and local fixed telephony services. The MIDI segment offers products and services which include internet, high-speed point-to-point international and domestic digital leased line broadband and narrowband services, a high-performance packet-switching service and satellite transponder leasing and broadcasting services. Refer to Notes 2f5 and 19 for the description of type of products and services under each reporting segment. No operating segments have been aggregated to form the above reportable operating segments. 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. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects, as explained in the table below, is measured differently from operating profit or loss in the consolidated financial statements. The Companies financing (including finance costs and finance income) and income taxes are managed on a group basis and are not allocated to operating segments. Operating segments are reported based on financial information determined in conformity with generally accepted accounting principles in Indonesia (Indonesian GAAP), which information is also consistent with the internal reporting provided to the chief operation decision maker. The chief operation decision maker is responsible for allocating resources and assessing performance of the operating segments, and has been identified as a steering committee that makes strategic decisions.
109
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 30. OPERATING SEGMENT INFORMATION (continued) Consolidated information by industry segment follows:
Major Segments Fixed Telecommunication Inter-Segment Eliminations (1)
Cellular December 31, 2008 Operating revenues Revenues from external customers Inter-segment revenues Total operating revenues Income Operating income Interest income Gain on change in fair value of derivatives - net Financing cost Loss on foreign exchange Income tax expense - net Amortization of goodwill Others - net Profit for the year January 1, 2009 Segment assets Unallocated assets Assets - net Segment liabilities Unallocated liabilities Liabilities - net Other disclosures Capital expenditures Depreciation and amortization December 31, 2009 Operating revenues Revenues from external customers Inter-segment revenues Total operating revenues Income Operating income Gain on foreign exchange - net Interest income Financing cost Income tax expense - net Loss on change in fair value of derivatives - net Amortization of goodwill Others - net Profit for the year 14,300,163 14,300,163 2,003,034 29,574,729 39,472,716 14,454,275 (363,347 ) 14,090,928 3,151,926
MIDI
Total
Adjustments (2)
Consolidated
2,021,753 363,347 2,385,100 790,640
2,735,495 472,460 3,207,955 790,713
(472,460 ) (472,460 ) -
19,211,523 19,211,523 4,733,279 460,089 136,603 (1,858,294 ) (885,729 ) (419,830 ) (227,317 ) (33,516 ) 1,905,285
4,448 4,448 (5,031) (65,510 ) 227,317 7,919 164,695
19,215,971 19,215,971 4,728,248 460,089 136,603 (1,858,294 ) (885,729 ) (485,340 ) (25,597 ) 2,069,980
2,570,142
7,115,939
(5,375,381 )
43,783,416
169,156
43,952,572 7,909,907 51,862,479
1,197,315
3,795,130
(4,099,410 )
30,467,764
88,031
30,555,795 3,527,000 34,082,795
10,042,807 3,698,620
682,907 290,842
1,616,189 566,429
12,341,903 4,555,891
9,479
12,341,903 4,565,370
1,803,039 1,803,039 330,401
2,720,984 515,961 3,236,945 879,580
(515,961 ) (515,961 ) -
18,824,186 18,824,186 3,213,015 1,656,407 138,951 (1,872,967 ) (677,265 ) (517,655 ) (235,420 ) (150,338 ) 1,554,728
22,720 22,720 12,510 (106,684) 30,739 235,420 33,517 205,502
18,846,906 18,846,906 3,225,525 1,656,407 138,951 (1,872,967 ) (783,949 ) (486,916 ) (116,821 ) 1,760,230
Segment assets Unallocated assets Assets - net Segment liabilities Unallocated liabilities Liabilities - net Other disclosures Capital expenditures Depreciation and amortization
43,871,953
2,606,166
7,776,333
(4,953,666 )
49,300,786
393,516
49,694,302 5,740,701 55,435,003
31,678,430
1,028,375
3,748,888
(3,542,963 )
32,912,730
106,890
33,019,620 3,840,474 36,860,094
9,661,360 4,585,081
579,862 335,270
1,343,327 641,039
11,584,549 5,561,390
10,210
11,584,549 5,571,600
110
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 30. OPERATING SEGMENT INFORMATION (continued)
Major Segments Fixed Telecommunication Inter-Segment Eliminations (1)
Cellular December 31, 2010 Operating revenues Revenues from external customers Inter-segment revenues Total operating revenues Income Operating income Gain on foreign exchange - net Interest income Financing cost Loss on change in fair value of derivatives - net Income tax expense - net Amortization of goodwill Others - net Profit for the year 16,027,062 16,027,062
MIDI
Total
Adjustments (2)
Consolidated
1,293,177 1,293,177
2,476,276 563,726 3,040,002
(563,726 ) (563,726 )
19,796,515 19,796,515
(148,137 ) (148,137 )
19,648,378 19,648,378
2,745,063
(34,495 )
763,376
3,473,944 492,401 143,402 (2,271,628 ) (418,092 ) (357,798 ) (226,380 ) (111,830 ) 724,019
47,750 (30,739 ) (64,540 ) 226,380 178,851
3,521,694 492,401 143,402 (2,271,628 ) (448,831 ) (422,338 ) (111,830 ) 902,870
Segment assets Unallocated assets Assets - net
45,875,021
2,020,957
8,459,948
(7,802,547 )
48,553,379
607,508
49,160,887 4,264,808 53,425,695
Segment liabilities Unallocated liabilities Liabilities - net Other disclosures Capital expenditures Depreciation and amortization
(1) (2)
27,195,689
630,442
3,250,615
(6,219,525 )
24,857,221
142,031
24,999,252 9,724,480 34,723,732
4,455,608 5,052,691
210,770 297,334
848,611 801,886
5,514,989 6,151,911
10,940
5,514,989 6,162,851
These include inter-segment assets, liabilities and revenues eliminated upon consolidation. These are adjustments to reconcile segment financial information to consolidated IFRS financial statements. Segment financial information, as reported to the chief operation decision maker, is still managed and maintained by the Companies under Indonesian GAAP.
31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES A. RISK MANAGEMENT The main risks arising from the Companies financial instruments are interest rate risk, foreign exchange rate risk, equity risk, credit risk and liquidity risk. The importance of managing these risks has significantly increased in light of the considerable change and volatility in both Indonesian and international financial markets. The Companys Board of Directors reviews and approves the policies for managing these risks which are summarized below. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Companies exposure to the risk of changes in market interest rates relates primarily to their loans and bonds payable with floating interest rates.
111
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) A. RISK MANAGEMENT (continued) Interest rate risk (continued) The Companys policies relating to interest rate risk are as follows: (1) Manage interest cost through a mix of fixed and variable rate debts. The Company evaluates the fixed to floating rate ratio of its loans and bonds payable in line with movements of relevant interest rates in the financial markets. Based on managements assessment, new financing will be priced either on a fixed or floating rate basis, and (2) Manage interest rate exposure on its loans and bonds payables by entering into interest rate swap contracts. As of January 1, 2009 and December 31, 2009 and 2010, more than 70%, 50% and 60%, respectively, of the Companies debts are fixed-rated. Several interest rate swap contracts are entered into to hedge floating rate U.S. dollar debts. These contracts are accounted as transactions not designated as hedges, wherein the changes in the fair value are credited or charged directly to profit or loss for the year. The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Companys consolidated profit for the year ended December 31, 2010 (through the impact on floating rate borrowings which is based on LIBOR for U.S. dollar borrowings and on JIBOR for rupiah borrowings). 2008 Increase or (decrease) in basis points: U.S. dollar Rupiah Effect on profit for the year U.S. dollar Rupiah (2) (280) USD18 (equivalent to Rp195) Rp86,757 2009 2 (10) USD(106) (equivalent to Rp(993)) Rp3,857 2010 11 411 USD(57) (equivalent to Rp(509)) Rp(9,490)
Management conducted a survey among the Companys banks to determine the outlook of the LIBOR and JIBOR interest rates until the Companys next reporting dates of March 31, 2009, 2010 and 2011. The outlook is that the LIBOR and JIBOR interest rates may move 2 and 280 basis points lower, 2 and 10 basis points higher and lower and 1 and 41 basis points higher, respectively, as compared to the year-end interest rates of 2008, 2009 and 2010, respectively. If LIBOR interest rates were 2 basis points lower, 2 and 1 basis points higher than the market levels for the years ended December 31, 2008, 2009 and 2010, respectively, with all other variables held constant, the Companies profit for the years then ended and the consolidated stockholders equity would be Rp2,043,970, Rp1,702,905 and Rp824,128 and Rp17,493,631, Rp18,246,164 and Rp18,317,067, respectively, which are higher, lower and lower than the actual results for the years ended December 31, 2008, 2009 and 2010, respectively, mainly due to the lower, higher and higher interest expense on floating rate borrowings. If JIBOR interest rates were 280 and 10 basis points lower and 41 basis points higher than the market levels for the years ended December 31, 2008, 2009 and 2010, respectively, with all other variables held constant, the Company profit for the years then ended and the consolidated stockholders equity would be Rp2,130,532, Rp1,707,755 and Rp815,147 and Rp17,580,193, Rp18,251,014 and Rp18,308,086, respectively, which are higher, higher and lower than the actual results for the years ended December 31, 2008, 2009 and 2010, respectively, mainly due to the lower, lower and higher interest expense on floating rate borrowings. 112
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) A. RISK MANAGEMENT (continued) Foreign exchange rate risk Foreign exchange rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Companies exposure to exchange rate fluctuations results primarily from U.S. dollar-denominated loans and bonds payable, accounts receivable, accounts payable and procurement payable. To manage the Companies foreign exchange rate risks, several cross currency swap contracts and other permitted instruments, if considered necessary, are entered into. These contracts are accounted for as transactions not designated as hedges, wherein the changes in the fair value are charged or credited directly to profit or loss for the year. The Companies accounts payable are primarily foreign currency net settlement payables to foreign telecommunications operators, while most of the Companies accounts receivable are Indonesian rupiah-denominated collections from domestic operators. To the extent the Indonesian rupiah depreciated further from the exchange rates in effect at December 31, 2008, 2009 and 2010, the Companies obligations under such loans and bonds payable, accounts payable and procurement payable would increase in Indonesian rupiah terms. However, the increases in these obligations would be offset in part by increases in the values of foreign currencydenominated time deposits and accounts receivable. As of January 1, 2009 and December 31, 2009 and 2010, 51.42%, 43.31% and 17.90%, respectively, of the Companys U.S. dollar-denominated debts were insured from exchange rate risk by entering into several cross currency swap contracts. The following table shows the Companies consolidated U.S. dollar-denominated assets and liabilities as of January 1, 2009 and December 31, 2009 and 2010:
January 1, 2009 U.S. Dollar Assets: Cash and cash equivalents Accounts receivable Trade Others Derivative assets Other current assets Other current financial assets Due from related parties Other non-current financial assets Total assets Liabilities: Accounts payable - trade Procurement payable Accrued expenses Deposits from customers Derivative liabilities Other current liabilities Other current financial liabilities Due to related parties Loans payable (including current maturities) Bonds payable (including current maturities) Other non-current liabilities Other non-current financial liabilities Total liabilities Net liabilities position 370,247 112,100 467 59,963 36 2,223 756 1,131 546,923 31,044 412,301 32,903 1,010 28,846 6,145 23 1 645,698 344,157 8,495 4,765 1,515,388 968,465 Rupiah * 4,054,207 1,227,495 5,114 656,594 397 24,339 8,278 12,388 5,988,812 339,932 4,514,696 360,284 11,059 315,866 67,292 252 11 7,070,388 3,768,519 93,024 52,178 16,593,501 10,604,689 December 31, 2009 U.S. Dollar 37,114 119,730 58,086 23,830 1,686 70 1,392 241,908 4,927 310,151 32,345 841 18,568 6,189 40 830,536 344,157 8,365 1,556,119 1,314,211 Rupiah * 348,875 1,125,462 546,008 224,004 15,850 658 13,083 2,273,940 46,316 2,915,419 304,047 7,907 174,540 58,172 373 7,807,038 3,235,076 78,637 14,627,525 12,353,585 December 31, 2010 U.S. Dollar 111,782 115,530 544 7,711 1,715 117 1,427 238,826 32,788 246,615 46,263 1,477 23,958 6,124 67 886,602 650,000 8,730 1,902,624 1,663,798 Rupiah * 1,005,042 1,038,726 4,893 69,334 15,418 1,047 12,833 2,147,293 294,797 2,217,320 415,953 13,275 215,403 55,058 602 7,971,436 5,844,150 78,494 17,106,488 14,959,195
*The exchange rates used to translate the U.S. dollar amounts into rupiah were Rp10,950 to US$1.00 (in full amounts), Rp9,400 to US$1.00 (in full amounts) and Rp8,991 to US$1.00 (in full amounts) as published by the Indonesian Central Bank as of January 1, 2009 and December 31, 2009 and 2010, respectively.
113
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) A. RISK MANAGEMENT (continued) Foreign exchange rate risk (continued) The following table demonstrates the sensitivity to a reasonably possible change in the U.S. dollar exchange rates, with all other variables held constant, of the Companys profit for the year: 2008 Change in US dollar Effect on profit for the year 6% (445,397) 2009 -3% 266,837 2010 -3% 336,582
Management conducted a survey among the Companys banks to determine the outlook of the U.S. dollar exchange rate until the Companys next reporting dates of March 31, 2009, 2010 and 2011. The outlook was that the U.S. dollar exchange rate may strengthen by 6% as compared to the exchange rate at December 31, 2008 and weaken by 3% as compared to the exchange rate at December 31, 2009 and 2010, respectively. If the U.S. dollar exchange rate strengthened by 6% and weakened by 3% as compared to the exchange rate as of December 31, 2008, 2009 and 2010, with all other variables held constant, the Companies profit for the years then ended and the consolidated stockholders equity would be Rp1,598,378, Rp1,970,735 and Rp1,161,219; and Rp17,048,039, Rp18,513,994 and Rp18,654,158, respectively, which are lower, higher and higher than the actual results as of December 31, 2008, 2009 and 2010, respectively, mainly due to the consolidated foreign exchange loss and gain on the translation of U.S. dollar-denominated net liabilities. Equity price risk The Companies long-term investments consist primarily of minority investment in the equity of private Indonesian companies and equity of foreign companies. With respect to the Indonesian companies in which the Companies have investments, the financial performance of such companies may be adversely affected by the economic conditions in Indonesia. Credit risk Credit risk is the risk that the Companies will incur a loss arising from their customers, clients or counterparties that fail to discharge their contractual obligations. There are no significant concentrations of credit risk. The Companies manage and control this credit risk by setting limits on the amount of risk they are willing to accept for individual or collective customers and by monitoring exposures in relation to such limits. The Companies trade only with recognized and creditworthy third parties. It is the Companies policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis to reduce the exposure to bad debts.
114
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) A. RISK MANAGEMENT (continued) Credit risk (continued) The table below shows the maximum exposure to credit risk for the components of the consolidated statements of financial position.
Gross Maximum Exposure (1) January 1, 2009 Loans and receivables: Cash and cash equivalents Accounts receivable Trade - net Others - net Other current financial assets Due from related parties - net Other non-current financial assets Held-for-trading: Cross currency swaps Interest rate swap Available-for-sale investments: Other long-term investments - net Total 5,737,866 1,340,706 16,914 44,777 42,496 72,800 655,862 732 2,730 7,914,883 December 31, 2009 2,835,999 1,385,125 564,859 35,173 7,215 100,004 224,004 2,730 5,155,109 December 31, 2010 2,075,270 1,548,426 10,031 53,119 8,421 77,675 69,334 2,730 3,845,006 January 1, 2009 5,737,866 1,328,003 16,914 44,777 42,496 72,800 655,862 732 2,730 7,902,180 Net Maximum Exposure (2) December 31, 2009 2,835,999 1,385,125 564,859 35,173 7,215 100,004 224,004 2,730 5,155,109 December 31, 2010 2,075,270 1,548,426 10,031 53,119 8,421 77,675 69,334 2,730 3,845,006
(1) gross financial assets before taking into account any collateral held or other credit enhancements or offsetting arrangements (2) net financial assets after taking into account any collateral held or other credit enhancements or offsetting arrangements
Liquidity risk The liquidity risk is defined as a risk when the cash flow position of the Companies indicates that the short-term revenue is not enough to cover the short-term expenditure. The Companies liquidity requirements have historically arisen from the need to finance investments and capital expenditures related to the expansion of their telecommunications business. The Companies telecommunications business requires substantial capital to construct and expand mobile and data network infrastructure and to fund operations, particularly during the network development stage. Although the Companies have substantial existing network infrastructure, the Companies expect to incur additional capital expenditures primarily in order to focus cellular network development in areas they anticipate will be high-growth areas, as well as to enhance the quality and coverage of their existing network. In the management of liquidity risk, the Companies monitor and maintain a level of cash and cash equivalents deemed adequate to finance the Companies operations and to mitigate the effects of fluctuation in cash flows. The Companies also regularly evaluate the projected and actual cash flows, including their loan maturity profiles, and continuously assess conditions in the financial markets for opportunities to pursue fund-raising initiatives. These activities may include bank loans, debt capital and equity market issues.
115
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) A. RISK MANAGEMENT (continued) Liquidity risk (continued) The table below summarizes the maturity profile of the Companies financial liabilities based on contractual undiscounted payments.
Expected maturity as of January 1, 2009 Discount/ Debt issuance cost and consent solicitation fees
2009 Financial Liabilities: Accounts payable - trade Procurement payable Accrued expenses Deposits from customers Derivative liabilities Other current financial liabilities Due to related parties Other non-current financial liabilities Loans payable In rupiah In U.S. dollar Total loans payable Bonds payable In rupiah In U.S. dollar Total bonds payable Total financial liabilities 608,754 6,446,357 1,445,238 32,121 315,866 31,022 474,446 98,023 572,469 56,442 56,442 9,508,269
2010
2011
2012
2013 and thereafter
Total
Carrying value as of January 1, 2009
14,699 45,511 670,000 258,127 928,127 640,000 2,570,480 3,210,480 4,198,817
679,933 1,448,392 2,128,325 1,100,000 1,100,000 3,228,325
2,075,000 1,766,509 3,841,509 1,198,039 1,198,039 5,039,548
684,300 3,499,337 4,183,637 4,850,000 4,850,000 9,033,637
608,754 6,446,357 1,445,238 32,121 315,866 31,022 14,699 45,511 4,583,679 7,070,388 11,654,067 6,646,442 3,768,519 10,414,961 31,008,596
(40,329) (229,109) (269,438) (23,148) (19,755) (42,903) (312,341)
608,754 6,446,357 1,445,238 32,121 315,866 31,022 14,699 45,511 4,543,350 6,841,279 11,384,629 6,623,294 3,748,764 10,372,058 30,696,255
Expected maturity as of December 31, 2009 Discount/ Debt issuance cost and consent solicitation fees
2010 Financial Liabilities: Accounts payable trade Procurement payable Accrued expenses Deposits from customers Derivative liabilities Other current financial liabilities Due to related parties 537,476 5,289,782 1,525,561 22,463 174,540 43,721 -
2011
2012
2013
2014 and thereafter
Total
Carrying value as of December 31, 2009
13,764
537,476 5,289,782 1,525,561 22,463 174,540 43,721 13,764
537,476 5,289,782 1,525,561 22,463 174,540 43,721 13,764
116
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) A. RISK MANAGEMENT (continued) Liquidity risk (continued)
Expected maturity as of December 31, 2009 Discount/ Debt issuance cost and consent solicitation fees (41,642) (242,649) (284,291) (40,712) (13,516) (54,228) (338,519)
2010 Loans payable In rupiah In U.S. dollar Total loans payable Bonds payable In rupiah In U.S. dollar Total bonds payable Total financial liabilities 993,772 446,487 1,440,259 640,000 2,206,622 2,846,622 11,880,424
2011 1,029,933 2,509,510 3,539,443 1,100,000 1,100,000 4,653,207
2012 2,625,000 1,090,597 3,715,597 41,989 1,028,454 1,070,443 4,786,040
2013 984,300 1,992,239 2,976,539 1,330,000 1,330,000 4,306,539
2014 and thereafter 1,000,000 1,768,204 2,768,204 5,020,000 5,020,000 7,788,204
Total 6,633,005 7,807,037 14,440,042 8,131,989 3,235,076 11,367,065 33,414,414
Carrying value as of December 31, 2009 6,591,363 7,564,388 14,155,751 8,091,277 3,221,560 11,312,837 33,075,895
Expected maturity as of December 31, 2010 Discount/ Debt issuance cost and consent solicitation fees
2011 Financial Liabilities: Accounts payable trade Procurement payables Accrued expenses Deposits from customers Derivative liabilities Other current financial liabilities Due to related parties Loans payable In rupiah In U.S. dollar Total loans payable Bonds payable In rupiah In U.S. dollar Total bonds payable Total 645,505 3,644,467 1,710,885 50,279 215,403 23,127
2012
2013
2014
2015 and thereafter
Total
Carrying value as of December 31, 2010
22,099 2,022,483 1,192,411 3,214,894 41,989 41,989 3,278,982
434,300 2,015,736 2,450,036 1,330,000 1,330,000 3,780,036
545,059 545,059 2,358,000 2,358,000 2,903,059
1,668,643 1,668,643 2,662,000 5,844,150 8,506,150 10,174,793
645,505 3,644,467 1,710,885 50,279 215,403 23,127 22,099 3,091,716 7,971,436 11,063,152 7,491,989 5,844,150 13,336,139 30,711,056
(25,125) (187,076) (212,201) (29,353) (94,551) (123,904) (336,105)
645,505 3,644,467 1,710,885 50,279 215,403 23,127 22,099 3,066,591 7,784,360 10,850,951 7,462,636 5,749,599 13,212,235 30,374,951
634,933 2,549,587 3,184,520 1,100,000 1,100,000 10,574,186
117
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) B. CAPITAL MANAGEMENT The Companies aim to achieve an optimal capital structure in pursuit of their business objectives, which include maintaining healthy capital ratios and strong credit ratings, and maximizing stockholder value. Some of the Companies debt instruments contain covenants that impose maximum leverage ratios. In addition, the Companys credit ratings from the international credit ratings agencies are based on its ability to remain within certain leverage ratios. The Companies have complied with all externally imposed capital requirements. Management monitors capital using several financial leverage measurements such as debt-to-equity ratio. The Companys objective is to maintain its debt-to-equity ratio at a maximum of 1.75, 2.50 and 2.50 as of January 1, 2009 and December 31, 2009 and 2010. The Companies continue to manage their debt covenants and capital structure based on financial information determined under Indonesian GAAP. As of January 1, 2009 and December 31, 2009 and 2010, the Companies debt-to-equity ratio accounts are as follows:
January 1, 2009 Long-term debts, including current maturities - gross Interest-bearing procurement payable, which are overdue 6-month after the date of invoice Total Debts Equity attributable to owners of the Company Debt-to-equity ratio 22,069,028 22,069,028 17,493,436 1.26 December 31, 2009 25,807,107 25,807,107 18,247,157 1.41 December 31, 2010 24,399,291 24,399,291 18,317,576 1.33
Under IFRS, the debt-to-equity ratios of the Companies are 1.26, 1.41 and 1.33 as of January 1, 2009 and December 31, 2009 and 2010, respectively, due to reconciliation difference in the equity attributable to owners of the Company. C. COLLATERAL The loans of a subsidiary, Lintasarta, which were obtained from CIMB Niaga, are collateralized by all equipment (Note 7) purchased by Lintasarta from the proceeds of the credit facilities and receivables (Note 5) from frame relay operations. There are no other significant terms and conditions associated with the use of collateral. The Company did not hold any collateral as of January 1, 2009 and December 31, 2009 and 2010.
118
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 32. ECONOMIC CONDITIONS The operations of the Companies have been affected and may continue to be affected for the foreseeable future by the market events and economic conditions in Indonesia that are mainly characterized by volatility in currency values and interest rates, which could negatively impact economic growth. Economic improvements and 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. The financial statements include the effects of the economic conditions to the extent they can be estimated. 33. EVENTS AFTER THE REPORTING PERIOD a. On January 1, 2011, Lintasarta paid the last installment amounting to Rp4,933 on Investment Credit Facility 5 loan from CIMB Niaga (Note 14n). b. On January 7, 2011 the Company paid the remaining amount of Rp41,863 on the underpayment of the Companys 2008 and 2009 income tax article 26 based on STPs from the DGT (Note 29c). Subsequently, on April 11, 2011, the Company received a letter from the Tax Office which declined the request for cancellation of such STPs. As of April 20, 2011, the Company is preparing an appeal letter to the Tax Court for such letter. c. On January 11, 2011 and February 9, 2011, the Company agreed to amend the latest interconnection agreements with Telkom and Bakrie Telcom, respectively, to meet the requirement in the BRTI letter No. 227/BRTI/XII/2010 dated December 31, 2010 regarding the implementation of new interconnection tariff in 2011. d. On January 20, 2011, the Companys Board of Directors issued Directors Decree No. 003/Direksi/2011 regarding the Organizational Restructuring Program through an offering program on the basis of mutual agreement between the Company and certain employees (Voluntary Separation Scheme), that became effective on the same date. Under IAS 37, Provisions, Contingent Liabilities and Contingent Assets, the Company is required to disclose the total number of employees who participate in the program and the compensation paid. However, the Company did not disclose such required information in these consolidated financial statements, as the Company believes it could affect the precipitate presumption on the outcome of the program, since the Company currently still offers such program to its employees. e. On February 4, 2011, the Company and Dayamitra Telekomunikasi (Mitratel) entered into a Tower Lease Agreement. Mitratel may sub-lease the Company's tower to Telkom and Telkomsel with additional infrastructure at Mitratel's cost. f. On February 8, 2011, the Company held an Extraordinary General Meeting of Stockholders approving the changes in the composition of the Company's Board of Commissioners (until the closing of the Annual General Meeting in 2012) and Board of Directors (until the closing of the Annual General Meeting in 2015). g. On February 10, 2011, the Company entered into a Revolving Time Loan facility agreement with BCA covering a maximum amount of Rp1,000,000 to fund the Company's capital expenditure and/ or for general corporate purposes. This facility will be available from February 10, 2011 to February 10, 2014 and drawdowns bear interest at 1-month JIBOR plus 1.4% per annum. h. On February 10, 2011 and March 11, 2011, SKAGEN AS increased its ownership in the Company to 5.15% and 5.38%, respectively.
i.
On February 10, 2011, the Company agreed to lease part of its telecommunications towers and sites to PT First Media Tbk (FM) for a period of 5 years. FM is required to pay the lease and maintenance fees in advance on a semi-annual basis. 119
PT INDOSAT Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of January 1, 2009 and December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 (Expressed in millions of rupiah and thousands of U.S. dollar, except share and tariff data) 33. EVENTS AFTER THE REPORTING PERIOD (continued) j. On February 24, 2011, the Company received letter No. MPK-161/SP.51/II/2011 from the Tax Court regarding the re-evaluation of the Tax Courts decision letter on its acceptance of the Companys remaining objection on its 2005 corporate income tax, which was previously released on October 29, 2010 (Note 6). On February 28, 2011, the Company paid the second installment of SEK credit facility B amounting to US$11,071.43 (Note 14d). On February 28, 2011, Lintasarta paid the loan installment of CIMB Niaga Investment Credit Facility 6 amounting to Rp7,500 (Note 14l).
k. l.
m. On March 3, 2011, the Company and XL Axiata entered into the latest amendment of interconnection agreement in order to meet the implementation of new interconnection charge for the year 2011. n. On March 3, 2011, the Company and Hutchison entered into the latest amendment of interconnection agreement in order to meet the implementation of new interconnection charge for the year 2011. o. On March 9 and 30, 2011, IMM made the first and second capital injections, respectively to its newly established subsidiary, PT Interactive Vision Media (IVM), totalling Rp4,999 which is equal to 99.98% ownership. IVM will engage in Pay TV business. p. On March 29, 2011, the Company paid the third semi-annual installments of its COFACE and SINOSURE facilities from HSBC France amounting to US$7,859.34 and US$2,210, respectively. q. On March 30, 2011, the Company drew down US$60,000 from the SEK credit facility C (Note 14d). r. As of April 20, 2011, the prevailing exchange rate of the rupiah to U.S. dollar is Rp8,657 to US$1 (in full amounts), while as of December 31, 2010, the prevailing exchange rate was Rp8,991 to US$1 (in full amounts). Using the exchange rate as of April 20, 2011, the Companies earned foreign exchange gain amounting to approximately Rp555,708 (excluding the effect of revaluing derivative contracts on April 20, 2011) on the foreign currency liabilities, net of foreign currency assets, as of December 31, 2010 (Note 31). 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 prevailing exchange rate of the rupiah to U.S. dollar as of December 31, 2010 or at any other rate of exchange. The commitments for the capital expenditures denominated in foreign currencies as of December 31, 2010 as disclosed in Note 29a are approximately Rp779,260 if translated at the prevailing exchange rate as of April 20, 2011.
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Operational Review
Financial Report
Corporate Data
CORPORATE DATA
545
SHAREHOLDERS INFORMATION
Shareholders and Public inquiries should be addressed to: Investor Relations Group Gedung Indosat, 2nd Floor Front Podium Jl. Medan Merdeka Barat No. 21 Jakarta 10110 Indonesia Tel. : +62 21 30003001, 3869615 Fax. : +62 21 30003757 Email : investor@indosat.com Website : http://www.indosat.com
Stock Exchanges where Indosat shares are listed

Indonesia Stock Exchange (IDX) New York Stock Exchange (NYSE)
Name and Address of Capital Market Professional Support

ADR Custodian Bank The Bank of New York Mellon Depository Receipt Division 101 Barclay Street New York, New York 10286 USA Tel. : +1 212 815 2293 (International Caller) Fax. : +1 212 571 3050/1/2 1-888-BNY-ADRs (Toll Free within USA) Email : shareowners@bankofny.com
Capital Stock (as of December 31, 2010)

Authorized Capital Rp2,000,000,000,000 comprises of 20,000,000,000 shares that include 1 Series A share and 19,999,999,999 Series B shares with nominal value of Rp100 per share. Share issued and fully paid (as of December 31, 2010) 5,433,933,500 comprise of 1 Series A Share and 5,433,933,499 Series B Shares with a nominal value of Rp543,393,350,000 owned by: 1. The Government of Indonesia (1 Series A Share and 776,624,999 Series B Share) 2. Qatar Telecom (Qtel Asia) Pte Ltd (3,532,056,600 Series B Shares) 3. Public (1,125,251,900 Series B Shares)
Stock Administration Bureau

PT EDI Indonesia Wisma SMR, 10th Floor Jl. Yos Sudarso Kav 89 Jakarta 14350 Indonesia Tel. : +62 21 651 5130 Fax. : +62 21 651 5131
Independent Auditor
Purwantono, Suherman & Surja a member of Ernst & Young Global Gedung Bursa Efek Indonesia Tower 2, 7th Floor Jl. Jenderal Sudirman Kav. 52-53 Jakarta 12190 Indonesia Tel. : +62 21 5289 5000 Fax. : +62 21 5289 4747
Share Ownership Above 5% (as of December 31, 2010)

1. 2. 3. 4. Qatar Telecom (Qtel Asia) Pte Ltd (65.00%) The Government of Indonesia (14.29%) SKAGEN AS (5.11%) Public (15.60%)
Annual Report on Form 20-F

The Report mostly contains the Companys corporate and financial information that is presented in the 20-F Format which is filed to the United States Securities and Exchange Commission.
546
Introduction
Operational Review
Financial Report
Corporate Data
Trustees
PT Bank Rakyat Indonesia (Persero) Tbk Divisi Treasury Gedung BRI II, 3rd Floor Jl. Jenderal Sudirman kav 44-46 Jakarta 10210 Indonesia Tel. : + 62 21 570 9060 ext 2371-2335-2307 Fax. : + 62 21 251 1647 The Bank of New York Mellon Global Corporate Trust 21st Floor West 101 Barclay Street New York, New York 10286 Global Corporate Trust One Temasek Avenue #02-01 Milenia Tower Singapore 039192 Tel. : +65 6432.0348 Fax. : +65 6883 0338
Moodys Moodys Investors Service 50 Raffles Place #23-06 Singapore Land Tower Singapore, 048623 www.moodys.com FitchRatings 414-421, 4th Floor, World Trade Centre, Connaught Place, New Delhi - 110001, India Tel: +91 11 4356 7239 Fax: +91 11 4356 7231 www.fitchratings.com
Annual General Meeting of Shareholders

Indosat 2011 Annual General Meeting of Shareholders will be held in June 24, 2011.
Name and Address of Rating Agency

PT Pemeringkat Efek Indonesia Setiabudi Atrium, 8th Floor, Suite 809-810 Jl. HR Rasuna Said Kav. 62, Kuningan Jakarta 12920 Indonesia Tel. : +62 21 521 0077 Fax. : +62 21 521 0078 Standard & Poors Corporate Ratings, Standard & Poors Rating Services, Crisil House, Central Avenue Road, Hiranandani Business Park, Powai, Mumbai - 400 076.
547
ORGANIZATIONAL STRUCTURE
PRESIDENT DIRECTOR & CHIEF EXECUTIVE OFFICER
DIRECTOR & CHIEF COMMERCIAL OFFICER
DIRECTOR & CHIEF WHOLESALE & INFRASTRUCTURE OFFICER
CONSUMER BROADBAND (IM2)
GROUP HEAD COMMERCIAL PLANNING, ANALYSIS & PROCESSES GROUP HEAD PRODUCT DEVELOPMENT & MANAGEMENT
GROUP HEAD REGIONAL OPERATION
LINTASARTA
GROUP HEAD MARKETING
HEAD OF REGION JABOTABEK & WEST JAVA
GROUP HEAD CUSTOMER SOLUTION
GROUP HEAD SEGMENT MANAGEMENT
HEAD OF REGION CENTRAL JAVA, EAST JAVA & BALINUSRA
GROUP HEAD SALES
GROUP HEAD MARKETING COMMUNICATION
HEAD OF REGION SUMATERA
GROUP HEAD INTERCONNECTION & VOICE WHOLESALE
GROUP HEAD DISTRIBUTION & CHANNEL MANAGEMENT
HEAD OF REGION KALIMANTAN & SULAMPAPUA
GROUP HEAD TOWER MANAGEMENT
GROUP HEAD CUSTOMER SERVICE
* As of February 11, 2011
548
Introduction
Operational Review
Financial Report
Corporate Data
DIRECTOR & CHIEF TECHNOLOGY OFFICER
DIRECTOR & CHIEF FINANCIAL OFFICER
CHIEF CORPORATE SERVICES OFFICER
CHIEF STRATEGY & PLANNING OFFICER
GROUP HEAD TECHNOLOGY PLANNING
GROUP HEAD BUSINESS PLANNING & ANALYSIS
GROUP HEAD HUMAN RESOURCES
GROUP HEAD CORPORATE PLANNING & ANALYSIS
GROUP HEAD INTERNAL AUDIT
GROUP HEAD PROGRAMS & PROJECTS MANAGEMENT
GROUP HEAD TREASURY
GROUP HEAD LEGAL
GROUP HEAD BUSINESS DEVELOPMENT
GROUP HEAD NETWORK OPERATION & MAINTENANCE
GROUP HEAD ACCOUNTING
GROUP HEAD CORPORATE SECRETARY
GROUP HEAD CORPORATE STRATEGY & INTELLIGENCE
GROUP HEAD SURVEILLANCE & REPORTING
GROUP HEAD REVENUE ASSURANCE
GROUP HEAD REGULATORY
GROUP HEAD IT PLANNING
GROUP HEAD INVESTOR RELATIONS
GROUP HEAD PROPERTY & FACILITIES MANAGEMENT
GROUP HEAD IT OPERATION
GROUP HEAD PROCUREMENT
TRANSFORMATION PROJECT
GROUP HEAD ENTERPRISE RISK MANAGEMENT
GROUP HEAD SOX
549
MEMBER OF AUDIT COMMITTEE PROFILES
1.
Kanaka Puradiredja
has been a member of the Audit Committee since January 2009. He is the founder of Kanaka Puradiredja, Suhartono Public Accounting Firm and was Senior Partner from 2000 to October 2007. He currently is the Chairman in Honorary Board of Indonesian Institute of Audit Committee and former Chairman of Honorary Board of Indonesian Accountants Association. He is member of the Honorary Board of Professionals in Risk Management Association (PRIMA). Previously he held several positions, including member of Marketing & Communication Committee of KPMG International in 1995, member of KPMG Asia Pacific Board during 1994-1998, Managing Partner of KPMG Indonesia during 1978-1999 with last position as Chairman and previously worked at Peat Marwick Mitchell (predecessor of KPMG) in Melbourne, Australia during 1975-1977 and at the Directorate General of Financial Supervisory Board (now BPKP) during 1971-1974. He graduated from Faculty of Economics, majoring in Accounting, at Padjajaran University, Bandung in 1971 and was a Charter Member of Indonesian Institute of Commissioners and Directors (LKDI).
2.
Unggul Saut Marupa Tampubolon

has been a member of the Audit Committee since 2008. In the past, he has held several positions, including President Director of PT Satelindo from 2001 to 2002, General Manager, Legal Affairs of PT Indosat from 2000 to 2001, Commissioner of PT MGTI (Indosat Group) from 2000 to 2001, President Director of PT Indosel from 1997 to 1999, Commissioner of PT Sisindosat (Indosat Group) from 1997 to 1999, Director of PT Menara Jakarta from 1996 to 1997, Commissioner of PT Patrakom (Indosat Group) from 1996 to 1997 and General Manager, Legal and General Affairs of PT Indosat from 1988 to 1997. Prior to joining Indosat he was the Corporate Attorney of PT Nickel Indonesia from 1980 to 1983 and a lawyer at Imam & Associates Law Firm, Jakarta from 1977 to 1979. Mr. Tampubolon earned a degree in International Law from the Faculty of Law, University of Indonesia in 1977.
550
Introduction
Operational Review
Financial Report
Corporate Data
SUBSIDIARY COMPANIES
As of December 31, 2010
PT Aplikanusa Lintasarta (Lintasarta) Indosat holds of 72.36% the shares in Lintasarta, which provides high-speed communication and corporate network services. Address: Gedung Menara Thamrin Fl.12 Jl. M.H. Thamrin Kav.3 Jakarta 10250 Phone : (62-21) 230 2345 Fax. : (62-21) 230 3883 Website : http://www.lintasarta.net Contact person: Lista Dewi Soegiharto, General Manager Corporate Secretary Phone : (62-21) 230 2345 Email : lista.dewi@lintasarta.co.id PT Indosat Mega Media (IMM) Indosat hold 99.85% of its shares in IMM , which provides multimedia and internet services which include IP -based multimedia, Internet, and IP-based LAN & WAN network communications services. Address: Jl. Kebagusan Raya No. 36 Pasar Minggu, Jakarta 12550 Contact person: Andri Aslan, Head of Corporate Secretary Phone : (62) 855 1082101, (62-21) 7854 6969, ext. 103. Email : andri.aslan@indosatm2.com Indosat Finance Company B. V. (IFB) IFB was established in Amsterdam, the Netherlands, in October 2003 and operates as a financing company. Indosat holds 100% of the shares in this company. In 2003, IFB issued guaranteed notes which are due in 2010. Address: Netherlands Prins Bernhardplein 200 1097 JB Amsterdam, The Netherlands Phone : (31-20) 521 4777 Fax. : (31-20) 521 4888 post address P.O. Box 990
1000 AZ Amsterdam, The Netherlands Contact person: Gert Jan van Nieuwpoort, Financial Account Manager Phone : (31-20) 521 4830 Fax. : (31-20) 521 4825 Email : gertjan.van.nieuwpoort@ intertrustgroup.com Indosat International Finance Company B. V. (IIFB) IIFB was incorporated in Amsterdam, the Netherlands, in April 2005 and operates as a financing company. Indosat holds 100% of the shares in this company. In 2005, IIFB issued guaranteed notes which are due in 2012. Address: Netherlands Prins Bernhardplein 200 1097 JB Amsterdam, The Netherlands Phone : (31-20) 521 4777 Fax. : (31-20) 521 4888 P.O. Box 990, 1000 AZ Amsterdam, The Netherlands Contact person: Gert Jan van Nieuwpoort, Financial Account Manager Phone : (31-20) 521 4830 Fax. : (31-20) 521 4825 Email : gertjan.van.nieuwpoort@ intertrustgroup.com Indosat Singapore Pte. Ltd (ISPL) ISP was established in Singapore on 21 December 2005. ISP is whollyowned by Indosat. This company provides telecommunications services. Indosat holds 100% of the shares in this company. Address: 8 Temasek Boulevard, Suntec City Tower 3, #15-05 Singapore 038988 Phone : (65) 62355155 Fax. : (65) 63374838 Contact person: Fuad Fachroeddin Email : info@indosat.com.sg
PT Star One Mitra Telekomunikasi (SMT) SM T was established on 15 June 2006 to support the construction and operation of fixed wireless access network using Code Division Multiple Access (CDMA) 2000-1x technology in Central Java and its surrounding area. Indosat holds 72.54% of the shares in this company. Address: Gd Grinatha Fl. 1 Jl. Pemuda No. 142 Semarang 50132 Phone : (62-21) 62355155 Fax. : (62-24) 3560806 Contact person: Ariehte Miranda Email : ariehte.miranda@ptsmt.com Indosat Palapa Company B.V. (IPBV) IPBV didirikan di Amsterdam, Belanda pada tanggal 28 April 2010. IPBV bergerak di bidang keuangan. Indosat memiliki saham di IPBV sebesar 100%. Pada tahun 2010, IPBV menerbitkan guaranteed notes yang jatuh tempo tahun 2010. Address: Jan Luijkenstraat 12, 1071 CM Amsterdam The Netherlands Phone : (31) 20 890 6931 Fax. : (31) 20 890 6930 Contact person: John Peter van Leeuwen Email : john@indosatpalapaco.com info@indosatpalapaco.com
551
BAPEPAM-LK NO. X.K.6 CROSS REFERENCE

Bapepam-LK requires us to deliver similar information to both capital market regulators and stock exchanges, as stipulated in Bapepam-LK Rule X.K.7. This section provides cross reference to Bapepam-LK Rule X.K.6 to show compliance to such requirements: Cross Reference to Bapepam-LK Rule X.K.6
Subject & Explanation I. General

Page
1. In good and correct Indonesian, it is recommended to present the report also in English. 2. Printed on light-colored paper so that the text is clear and easy to read. 3. Should state clearly the identity of the company. Name of company and year of the Annual Report is placed on: 1. The front cover; 2. Sides; 3. Back cover; 2. Each page. 4. The Annual Report is presented in the companys website. II. Summary of Key Financial Information 1. Result of the Company information in comparative from over a period of 5 financial years or since the commencement of business if the company has been running its business activities for less than 5 years. The information contained includes: 1. Sales/income from business. 2. Gross profit (loss). 3. Business profit (loss). 4. Net profit (loss). 5. Net profit (loss) per share. 2. Financial information in comparative form over a period of 5 financial years or since the commencement of business if the company has been running its business activities for less than 5 years. The information contained includes: 1. Net working capital 2. Total investment 3. Total assets 4. Total liabilities 5. Total equity 3. Financial Ratio in comparative form over a period of 5 financial years or since the commencement of business if the company has been running its business activities for less than 5 years. The information contains 5 (five) general financial ratios and relevant to the industry 2. The Annual Report must contain information regarding share price in the form of tables and graphs. The price of shares prior to the last revision in capital should be adjusted in the event, among others, that it was due to a splitting of shares, dividend on shares, and bonus shares. The information contained includes: 1. Highest share price 2. Lowest share price 3. Closing share price 4. Share volume for each three-month period in the last two (2) financial years (if any). 5. The Annual Report must contain information regarding the number of bonds or convertible bonds issued which remain outstanding, the interest rate, and date of maturity in the last 2 financial years. The information contained includes: 1. The number of bonds/convertible bonds outstanding 2. Interest rate 3. Maturity date 4. Rating of bonds
18-19
18-19
18 20-21
22-23
22
552
Introduction
Operational Review
Financial Report
Corporate Data
Subject & Explanation III. Board of Commissioners and Board of Directors Report 1. Board of Commissioners Report. Contains the following items: 1. Assessment on the performance of the Board of Directors in managing the company. 2. View on the prospects of the companys business as established by the Board of Directors. 3. Committees under the Board of Commissioners. 4. Changes in the composition of the Board of Commissioners (if any). 2. Board of Directors Report. Contains the following items: 1. The companys performance, encompassing among others strategic policies, comparison between achievement of results and targets, and challenges faced by the company. 2. Business prospects. 3. Implementation of Good Corporate Governance by the company. 4. Changes in the composition of the Board of Directors (if any). 3. Signature of members of the Board of Directors and Board of Commissioners. Contains the following items: 1. Signatures are set on a separate page. 2. Statement that the Board of Directors and the Board of Commissioners are fully responsible for the accuracy of the annual report. 3. Signed by all members of the Board of Commissioners and Board of Directors, stating their names and titles/positions. 4. A written explanation in a separate letter from each member of the Board of Commissioners or Board of Directors who refuses to sign the annual report, or written explanation in a separate letter from the other members in the event that there is no written explanation provided by the said member. IV. Company Profile 1. Name and address of the company. Includes information on name and address, zip code, telephone and/or facsimile, email, website. 2. Brief history of the company.
Page
30-33
38-41
279
546 Inside Back Cover
16
Includes among others: date/year of establishment, name and change in the company name, if any. 3. Field of business.
28-29
Includes the types of products and or services produced. 4. Organizational structure.

548-549
In the form of a chart, giving the names and titles. 5. Company vision and mission.
17
Includes the explanation on the company vision and mission 6. Name, title, and brief curriculum vitae of the members of the Board of Commissioners. The information should contain: 1. Name 2. Title (including in other company or institution) 3. Age 4. Education 5. Working experience 7. Name, title, and brief curriculum vitae of the members of the Board of Directors. The information should contain: 1. Name 2. Title (including in other company or institution) 3. Age 4. Education 5. Working experience
34-37
42-43
553
Subject & Explanation 8. Number of employees (comparative in two years) and description of competence building (for example: education and training of employees). The information should contain: 1. The number of employees for each level of the organization. 2. The number of employees for each level of education. 3. Training of employees that has been conducted. Availability of equal opportunity to all employees. 4. Expenses incurred. 9. Composition of shareholders. Should include: 1. Names of shareholders having 5% or more shares. 2. Directors and Commissioners who own shares. 3. Public shareholders having respective share ownership of less than 5%. 10. List of subsidiaries and/or affiliated companies. The information contains, among others: 1. Name of subsidiaries/affiliated companies. 2. Percentage of share ownership. 3. Information on the field of business of the subsidiary or affiliated company. 4. Explanation regarding the operational status of the subsidiary or affiliated company (already operating or not yet operating). 11. Chronology of shares listing. Includes among others: 1. Chronology of shares listing. 2. Types of corporate action that caused changes in the number of shares. 3. Changes in the number of shares from the beginning of listing up to the end of the financial year. 4. Name of Stock Exchange where the company shares are listed. 12. Chronology of other securities listing. Includes among others: 1. Chronology of other securities listing. 2. Types of corporate action that caused changes in the number of securities. 3. Changes in the number of securities from the initial listing up to the end of the financial year. 4. Name of Stock Exchange where the companys other securities are listed. 5. Rating of the securities. 13. Name and address of capital market institutions and or supporting professions. The information contains, among others: 1. Name and address of Share Registrar. 2. Name and address of the Public Accountants Office. 3. Name and address of the securities rating company. 14. Company accountant. The information should contain: 1. How many audit periods has the accountant audited the financial statements of the company. 2. How many audit periods has the public accountant firm audited the financial statements of the company. 3. The amount of audit fee. 4. Other service provided by the accountant in addition to financial audit. 15. Award and certification received by the company, both on a national scale and international scale. Information should include: 1. Name of the award and or certification. 2. Year of receiving the award. 3. Institution presenting the award and or certification. 4. Period of validity. 16. Name and address of subsidiary and or branch office or representative office (if any).
Page
61
23 546
551
16
22
546-547
77
24-25
337-338 551
554
Introduction
Operational Review
Financial Report
Corporate Data
Subject & Explanation V. Management Analysis and Discussion on Company Performance 1. Operational review per business segment. Contains description of: 1. Production/business activity. 2. Sales/income from business. 3. Profitability. 4. Increase/decrease in production capacity in each business segment. 2. Description of companys financial performance. Financial performance analysis which includes a comparison between the financial performance of the current year and that of the previous year (in the form of narration and tables), among others concerning: 1. Current assets, non-current assets, and total assets. 2. Current liabilities, non-current liabilities, and total liabilities. 3. Sales/income from business. 4. Overhead cost. 5. Net profit/loss. 3. Discussion and analysis on the capacity to pay debts and the companys collectable accounts receivable. Explanation on: 1. Capacity to pay debts. 2. Collectable accounts receivable. 4. Discussion on capital structure, capital structure policies, and solvability. Explanation on: 1. Capital structure. 2. Capital structure policies. 3. Solvability 5. Discussion on material ties for the investment of capital goods. Explanation on: 1. The purpose of such ties. 2. Source of funds expected to fulfil the said ties. 3. Currency of denomination. 4. Steps taken by the company to protect the position of related foreign currency against risks. Note: Should be disclosed if the company has no material ties in investments in capital goods 6. Discussion and analysis of financial information that was reported concerning extraordinary and rare events. Explanation on: 1. Extraordinary and rare events 2. Impact to the financial condition of the company Note: if there is no extraordinary and rare event, to be disclosed 7. Information regarding substantial components of earnings and other costs, in order to calculate the companys income. Explanation on: 1. Substantial component of other income 2. Substantial component of other expenses 8. If the financial statement discloses a material increase or decrease in the sales or net income, then an explanation should be included concerning the extent that such changes can be linked to, among others, the amount of goods or services sold, and or the existence of new products or services. Explanation on: 1. The increase/decrease in sales or net income 2. The increase/decrease in material from the sales or net income related to the amount of goods or services sold, and or any new products or services
Page
46-55
114-147
128-143 187
224-230
143-144
213-214
117-118 121-122
123
555
Subject & Explanation 9. Discussion on the impact of price change to the companys sales and net income and the operational profit of the company for the past two (2) years or since the company commenced its business, if the company has been operating for less than two years. Is this disclosed or not. 10. Material Information and acts that occurred after the date of the accountants report. Description of important events after the date of the accountants report including their impact on performance and business risks in the future. Note: should be disclosed if there is no significant events after the date of accountant report 11. Description of the companys business prospects. Information on the company prospects in connection with industry, economy in general, and the international market, which can be accompanied with supporting quantitative data if there is a reliable data source. 12. Information on marketing aspects.
Page
116
267-268
33 41
46-55
Information regarding the marketing of the companys products and services, among others concerning the market segment. 13. Statement regarding the dividend policy and the date and amount of cash dividend per share and amount of dividend per year as announced or paid during the past two (2) years. Contains information on: 1. Amount of dividend 2. Dividend per share 3. Pay-out ratio for each year Note: if there is no dividend payment, disclose the reasons for not making a dividend payment 14. Realization of uses of funds obtained from the public offering. Contains information on: 1. Total funds obtained. 2. Budget plan. 3. Details of use of fund. 4. Balance. 5. Date of GMS Approval on change in the budget plan (if any). 15. Material information, among others concerning investment, expansion, divestment, acquisition, debt/capital restructuring. Contains information on: 1. The purpose of the transaction; 2. The value of transactions or number of distinguished restructured; 3. Source of funds Note: should be disclosed if there are no such transactions 16. Information on material transactions with conflict of interest and/or transactions with related parties. Contains information on: 1. Name of the transacting parties; 2. Nature of affiliation; 3. A description of the fairness of the transaction; 4. Realization of transactions during the period. Note: should be disclosed if there are no such transactions 17. Description of changes in regulation which have a significant effect on the company Description should contain among others: any changes in regulation and its impact on the company. Note: if there is no change in regulation which have a significant effect, to be disclosed
Not Applicable
18
213 349
143-144
400
556
Introduction
Operational Review
Financial Report
Corporate Data
Subject & Explanation 18. Description of changes in the accounting policy. Description should contain among others: any revision to accounting policies, rationale and impact on the financial statement. VI. Corporate Governance 1. Information on the Board of Commissioners. The information should contain: 1. Description of the tasks implemented by the Board of Commissioners. 2. Disclosing the procedure for determining remuneration 3. Remuneration amount for members of the Board of Commissioners 4. Frequency of meetings 5. Attendance of the Board of Commissioners in the meetings. 2. Information on the Board of Directors. The information should include: 1. Scope of work and responsibility of each member of the Board of Directors. 2. Disclosing the procedure for determining remuneration 3. Remuneration amount for members of the Board of Directors 4. Frequency of meetings. 5. Attendance of the Board of Directors in the meetings. 6. Training programs for improving the competence of the Board of Directors. 3. Audit Committee. Includes among others: 1. Name, title, and brief curriculum vitae of the members of the Audit Committee. 2. Description of tasks and responsibilities. 3. Frequency of meetings and the attendance of the Audit Committee. 4. Brief report on the activities carried out by the Audit Committee. 5. Independence of the members of the Audit Committee. 4. Nomination Committee. Includes among others: 1. Name, title, and brief curriculum vitae of the members of the Nomination Committee. 2. Independence of the members of the Nomination Committee. 3. Description of the tasks and responsibilities. 4. Activities carried out by the Nomination Committee. 5. Frequency of meetings and the attendance of the Nomination Committee. 5. Remuneration Committee. Includes among others: 1. Name, title, and brief curriculum vitae of the members of the remuneration committee. 2. Independence of the members of the remuneration committee. 3. Description of the tasks and responsibilities. 4. Activities carried out by the remuneration committee. 5. Frequency of meetings and the attendance of the remuneration committee. 6. Other committees under the Board of Commissioners Includes among others: 1. Name, title, and brief curriculum vitae of the members of the committees 2. Independence of the members of the committee. 3. Description of the tasks and responsibilities. 4. Activities carried out by the committees 5. Frequency of meetings and the attendance of other committee.
Page
268-270 144
70-71
71-73
89-90 550
Not Applicable
93
91-92
557
Subject & Explanation 7. Description of the remuneration policy for the Board of Directors that related to the company performance Includes among others: 1. Remuneration procedures stipulated in SOP 2. Performance indicators to measure the performance of the Board of Directors related to the remuneration. 8. Description of tasks and function of the Corporate Secretary. Includes among others: 1. Name and brief history of the position of Corporate Secretary. 2. Description of the tasks performed by the Corporate Secretary. 9. Description of the companys internal audit unit. Includes among others: 1. Name of the head of audit internal unit 2. Qualification/certification as an internal audit profession 3. Structure or position of the internal audit unit 4. The existence of an internal audit unit charter 5. Description of duties. 10. Description of the companys Internal Audit Unit. Includes among others: 1. Description of the risks faced by the company (eg the risk caused by fluctuations in exchange rates or interest rates, competition, supply of raw materials, foreign or international regulations, and government policies) 2. Efforts to manage these risks 11. Description of company commitment to consumer protection. Includes among others: 1. The existence of Consumer Complaint Center 2. Description of follow-up on complaints 3. The level of completion of complaints received 4. Program to improve service to consumers 12. Description of the activities and expenses incurred in related to corporate social responsibility, particularly on commitment to consumer protection. Information includes among others: 1. Supervised Business Partner. 2. Development program on education/healthy/Culture etc. 3. Expenses incurred. 13. Description on the activities and expenses incurred related to corporate social responsibility, particularly on community development program Information includes among others: 1. Environmental conservation activities 2. Environmental management activities 3. Certification of environmental management 4. Expenses incurred 14. Important cases faced by the Company, current members of the Board of Directors and Board of Commissioners. Information includes among others: 1. Material of the case/claim. 2. Status of settlement of case/claim. 3. Potential impacts on the financial condition of the company. Notes: in case not litigants, to be disclosed 15. Access to corporate information and data. Description on the availability of access to corporate information and data to the public, for example through website, mass media, mailing list, bulletin etc.
Page
Not Reported
82-85
76
96-111
2010 Sustainability Report page 30-35
2010 Sustainability Report page 36-41 page 48-55
2010 Sustainability Report page 42-47
78-82
83-87
558
Introduction
Operational Review
Financial Report
Corporate Data
Subject & Explanation 16. Company Ethics. Contains information on: 1. The existence of the Code of Conduct. 2. Content of the Code of Conduct. 3. Distribution of the Code of Conduct to the employees and efforts to uphold the Code. 4. Statement concerning the corporate culture. 17. Disclosures of the whistleblowing system. Contains information on: 1. The existence of whistleblowing system 2. Mechanism of whistleblowing system 3. Use and output of whistleblowing system VII. Financial Information 1. Statement by the Board of Directors concerning the Responsibility of the Board of Directors on the Financial Statement.
Page
82
82
148
Compliance with Bapepam Regulation No.VIII.G.11 on Responsibility of the Board of Directors on the Financial Statement. 2. Independent auditors opinion on the financial statement. 3. Description of the Independent Auditor in the Opinion. The description contains: 1. Name and signature. 2. Date of the audit report. 3. KAP license number and Public Accountant license number. 4. Comprehensive financial statement. Contains all elements of the financial statement: 1. Balance sheet. 2. Profit loss statement. 3. Statement of changes in equity. 4. Cash flow report. 5. Notes to the financial statement. 5. Comparison of profitability.
18 153 421 153 421
154-272
Comparison of profit / loss from operations for the year by the previous year. 6. Presentation of Cash Flow Report. Meets the following provisions: 1. Grouped into three categories of activity: operational activity, investment, and funding. 2. Uses a direct method reporting for cash flows for operational activity. 3. Disclosing activities that do not influence the cash flow. 4. Separating the presentation between cash receipt and or cash expended to the customer, employee, supplier, and payment of taxes during the current year for operational activities. 5. Presenting the addition and payment of long-term debt as well as dividend in funding. 7. Summary of Accounting Policy. Includes at least: 1. Basic concept in presenting a financial statement. 2. Recognition of income and expenses. 3. Assessment for investment (equity participation in other entities. 4. Supply. 5. Lease.
128 161-162
169-184
559
Subject & Explanation 8. Disclosures relating to investment property. Issues that should be disclosed are: 1. Description of the selected accounting policies between the fair value model and cost model 2. The methods and significant assumptions applied in determining the fair value of investment properties 3. Determination of the fair value of investment property based on valuation by independent valuers. If no such assessment, it should be disclosed 4. Reconciliation of the carrying value of investment property at the beginning and end of period 5. The amounts recognized in the consolidated income derived from investment property (rental income, direct operating expenses, the cumulative change in fair value) 9. Disclosure related to taxation Issues that should be disclosed in addition to Type and Amount of Tax Debt 1. Reconciliation between tax charge (income) and the result of multiplying the accounting profit with the current rate and disclosing the basis for calculating the tax rate. 2. Fiscal reconciliation and calculation of current tax. 3. Statement that the amount of Taxable Profit as calculated through reconciliation is in accordance with the Tax Return. 4. Details of the assets and liabilities in deferred tax presented in the balance sheet in each period of presentation, and amount of charge (income) of deferred tax acknowledged in the profit loss statement if the said amount is not evident in the asset or liability of deferred tax acknowledged in the balance sheet. 5. Disclosure of whether or not there is a tax dispute. 10. Disclosure related to Fixed Assets. Issues that should be disclosed 1. Depreciation method used 2. Description of the selected accounting policies between the revaluation model and cost model 3. The methods and significant assumptions used in estimating the fair value of fixed assets (revaluation model) or disclosure of the fair value of fixed assets (cost model) 4. Gross amount and accumulated depreciation at the beginning and end of the period for each class of fixed assets 5. Reconciliation amount at the beginning and end of the period for each group of assets, which shows: the addition, assets classified as available for sale/disposal groups, mergers, revaluation, impairment losses, depreciation, net foreign exchange, or other changes. 11. Updates on Financial Accounting Standards and Other Regulations. Issues that should be disclosed: 1. Explanation of financial accounting standards and new regulations are implemented and affects the activity of enterprise; 2. Impact of implementation of financial accounting standards and new regulations. 12. Disclosures relating to Financial Instruments Issues that should be disclosed: 1. Terms, conditions and accounting policies for each class of financial instruments 2. Classification of financial instruments 3. The fair value of each group of financial instruments 4. Explanation of the risks associated with financial instruments: market risk, credit risk and liquidity risk 5. Objectives and financial risk management policy
Page
335-336
188-190 197-201
193-195
267-270
202-224
560
2010 Annual Report
PT Indosat Tbk. Jl. Medan Merdeka Barat No. 21 Jakarta 10110, Indonesia Tel: 62 21 3000 3001 Fax: 62 21 3812 617 www.indosat.com email: publicrelations@indosat.com

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2010 Annual Report

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546 548 550 551

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1967 1980 1994 2001 2002 2003 2006 2008

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