PERUSAHAAN PERSEROAN PERSERO PT TELEKOMUNIKASI INDONESIA TBK

6-K 1 u92428e6vk.htm PT TELEKOMUNIKASI INDONESIA PT Telekomunikasi Indonesia PAGEBREAK

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November , 20 04

Perusahaan Perseroan (Persero) PT TELEKOMUNIKASI INDONESIA

(Translation of registrants name into English)

Jalan Japati No. 1 Bandung-40133 INDONESIA

(Address of principal executive office)

[Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F Form 20-F þ Form 40-F o

[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 Yes o No þ

[If yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

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TABLE OF CONTENTS

SIGNATURES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

/TOC

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link1 "SIGNATURES"

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized.

	Perusahaan Perseroan (Persero) PT TELEKOMUNIKASI INDONESIA
	(Registrant)
Date November 5, 2004	By	/s/ Rochiman Sukarno (Signature)
		Rochiman Sukarno Head of Investor Relation Unit

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link1 "CONSOLIDATED BALANCE SHEETS (UNAUDITED)"

PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

	(Restated)	2004
Notes	Rp	Rp	US$ (Note 3)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	2c,2f,7,50	4,860,401	6,112,466	667,300
Temporary investments	2c,2g,8,50	62,119	107,799	11,768
Trade accounts receivable	2c,2h,9,50
Related parties net of allowance for doubtful
accounts of Rp135,689 million in 2003,
and Rp143,591 million in 2004		765,094	690,848	75,420
Third parties net of allowance for doubtful
accounts of Rp413,959 million in 2003,
and Rp562,013 million in 2004		2,583,369	3,090,402	337,380
Other accounts receivable net of allowance for
doubtful accounts of Rp51,649 million in 2003,
and Rp35,442 million in 2004	2c,2h,50	377,661	291,523	31,826
Inventories net of allowance for obsolescence of
Rp51,346 million in 2003, and Rp47,102 million
in 2004	2i,10	185,596	171,746	18,750
Prepaid expenses	2c,2j,11,50	727,972	790,178	86,264
Prepaid taxes	44a	38,370	64,845	7,079
Other current assets	2c,12,50	38,663	44,412	4,848
Total Current Assets		9,639,245	11,364,219	1,240,635
NON-CURRENT ASSETS
Long-term investments net	2g,13	69,741	72,743	7,941
Property, plant and equipment net of accumulated
depreciation of Rp22,220,275 million in 2003,
and Rp27,137,984 million in 2004	2k,2l,14	32,511,049	36,598,850	3,995,508
Property, plant and equipment under revenue-sharing arrangements net of accumulated
depreciation of Rp878,764 million in 2003,
and Rp1,038,777 million in 2004	2m,16,53	315,427	2,788,985	304,474
Advances and other non-current assets	2c,50	151,573	422,715	46,148
Intangible assets net of accumulated amortization
of Rp794,596 million in 2003,
and Rp1,535,299 million in 2004	1c,2d,17	5,365,697	4,582,456	500,268
Advance payments for investments in shares of stock	5d	79,768	65,458	7,146
Property not used in operations		12,354	4,987	545
Escrow accounts	18	447,838	215,001	23,472
Total Non-current Assets		38,953,447	44,751,195	4,885,502
TOTAL ASSETS		48,592,692	56,115,414	6,126,137

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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	(Restated)		2004
Notes	Rp		Rp		US$ (Note 3)
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Trade accounts payable	2c,19,50
Related parties		658,627		827,602		90,350
Third parties		2,470,580		3,331,782		363,732
Other accounts payable		45,293		39,734		4,338
Taxes payable	2s,44b	1,778,106		1,490,932		162,766
Dividends payable		69,418		1,153,412		125,918
Accrued expenses	2c,20,50	1,679,422		1,652,196		180,371
Unearned income	21	660,464		928,724		101,389
Advances from customers and suppliers	22	262,695		328,392		35,851
Short-term bank loan	2c,23,50	37,509		397,537		43,399
Current maturities of long-term liabilities	2c,24,50	3,580,901		2,206,349		240,868
Total Current Liabilities		11,243,015		12,356,660		1,348,982
NON-CURRENT LIABILITIES
Deferred tax liabilities net	2s,44e	3,410,273		3,504,159		382,550
Unearned income on revenue-sharing arrangements	2m,16,53	99,742		2,639,198		288,122
Unearned initial investor payments under joint
operation schemes	2n,37,52	28,876		28,117		3,070
Provision for long service awards	2r,48	477,519		533,226		58,212
Provision for post-retirement health care benefits	2r,49	1,948,136		1,878,085		205,031
Long-term liabilities net of current maturities
Two-step loans related party	2c,25,50	7,005,307		6,505,888		710,250
Guaranteed notes and bonds	26	2,235,511		1,711,807		186,878
Bank loans	2c,27,50	1,790,838		2,579,220		281,574
Liabilities for acquisitions of subsidiaries	28	1,300,049		607,668		66,339
Suppliers credit loans	29	64,804
Bridging loan	30	25,726
Other long-term debt		9,150		9,150		999
Total Non-current Liabilities		18,395,931		19,996,518		2,183,025
MINORITY INTEREST	31	3,291,894		4,462,324		487,153
STOCKHOLDERS EQUITY
Capital stock Rp250 par value per Series A
Dwiwarna share and Series B share
Authorized one Series A Dwiwarna share and
79,999,999,999 Series B shares
Issued and fully paid one Series A Dwiwarna share
and 20,159,999,279 Series B shares	32	5,040,000		5,040,000		550,218
Additional paid-in capital	33	1,073,333		1,073,333		117,176
Difference in value of restructuring transactions
between entities under common control	34	(7,288,271	)	(7,288,271	)	(795,663	)
Difference due to change of equity in associated
companies	2g	424,020		385,595		42,096
Unrealized loss on investment in securities	2e			490		53
Translation adjustment		231,298		230,044		25,114
Retained earnings
Appropriated		1,559,068		1,680,813		183,495
Unappropriated		14,622,404		18,177,908		1,984,488
Total Stockholders Equity		15,661,852		19,299,912		2,106,977
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY		48,592,692		56,115,414		6,126,137

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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link1 "CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)"

PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars, except per share and per ADS data)


	(Restated)		2004
Notes	Rp		Rp		US$ (Note 3)
OPERATING REVENUES
Telephone	2p,35
Fixed lines		6,476,583		7,654,264		835,618
Cellular		6,121,293		7,689,968		839,516
Interconnection	2p,36,50	3,120,941		4,366,230		476,663
Joint operation schemes	2n,37,52	1,086,898		443,407		48,407
Data and Internet	38	2,139,814		3,359,120		366,716
Network	39	323,848		468,479		51,144
Revenue-sharing arrangements	2m,40,53	187,163		788,178		86,046
Other telecommunications services		160,139		249,810		27,272
Total Operating Revenues		19,616,679		25,019,456		2,731,382
OPERATING EXPENSES
Personnel	41	3,189,029		4,320,848		471,708
Depreciation	2k,2l,2m,14,16	3,327,180		4,469,538		487,941
Operations, maintenance and telecommunication
services	42	2,518,459		3,387,144		369,776
General and administrative	43	1,409,783		1,777,552		194,056
Marketing		344,191		639,855		69,853
Total Operating Expenses		10,788,642		14,594,937		1,593,334
OPERATING INCOME		8,828,037		10,424,519		1,138,048
OTHER INCOME (CHARGES)
Interest income	50	255,531		219,280		23,939
Interest expense	50	(948,523	)	(937,779	)	(102,378	)
Gain (loss) on foreign exchange net	2e	165,375		(577,744	)	(63,072	)
Equity in net income (loss) of associated companies	2g,13	(28	)	2,283		249
Others net		(1,895	)	347,541		37,941
Other income (charges) net		(529,540	)	(946,419	)	(103,321	)
INCOME BEFORE TAX		8,298,497		9,478,100		1,034,727
TAX EXPENSE	2s,44e
Current tax		(2,968,881	)	(3,057,132	)	(333,748	)
Deferred tax		66,687		42,613		4,652
		(2,902,194	)	(3,014,519	)	(329,096	)
INCOME BEFORE MINORITY INTEREST IN NET
INCOME OF SUBSIDIARIES		5,396,303		6,463,581		705,631
MINORITY INTEREST IN NET INCOME OF
SUBSIDIARIES	31	(984,731	)	(1,439,235	)	(157,122	)
NET INCOME		4,411,572		5,024,346		548,509
BASIC EARNINGS PER SHARE	2t,45
Net income per share		218.83		249.22		0.03
Net income per ADS
(40 Series B shares per ADS)		8,753.12		9,968.94		1.06

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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link1 "CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)"

PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED) FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

				Difference in
				value of
				restructuring	Difference
				transactions	due to change	Unrealized
		Capital	Additional paid-in	between entities under common	of equity in associated	loss on investment	Translation		Retained earnings			Total stockholders
Description	Notes	stock	capital	control	companies	in securities	adjustments		Appropriated	Unappropriated		equity
		Rp	Rp	Rp	Rp	Rp	Rp		Rp	Rp		Rp
Balance
as of January 1, 2003 Restated		5,040,000	1,073,333	(7,288,271	)	424,020		235,665		745,404	14,383,466		14,613,617
Foreign currency translation of CSM	2g,13							(4,367	)				(4,367	)
Resolved
during the Annual General Meeting of the Stockholders on May 9, 2003
Declaration of cash dividend	46										(3,338,109	)	(3,338,109	)
Appropriation for general reserve	46									813,664	(813,664	)
Social contribution	46										(20,861	)	(20,861	)
Net income for the year											4,411,572		4,411,572
Balance
as of September 30, 2003 Restated		5,040,000	1,073,333	(7,288,271	)	424,020		231,298		1,559,068	14,622,404		15,661,852

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED) (continued) FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

				Difference in
				value of
				restructuring	Difference
				transactions	due to change	Unrealized
		Capital	Additional paid-in	between entities under common	of equity in associated	loss on investment	Translation	Retained earnings			Total stockholders
Description	Notes	stock	capital	control	companies	in securities	adjustments	Appropriated	Unappropriated		equity
		Rp	Rp	Rp	Rp	Rp	Rp	Rp	Rp		Rp
Balance as of January 1, 2004		5,040,000	1,073,333	(7,288,271	)	385,595		224,232	1,559,068	16,318,920		17,312,877
Placement on fixed income mutual fund	8						490					490
Foreign currency translation of CSM	2g,13							5,812				5,812
Resolved during the Annual General Meeting
of the Stockholders on July 31, 2003
Declaration of cash dividend	46									(3,043,613	)	(3,043,613	)
Appropriation for general reserve	46								121,745	(121,745	)
Net income for the year										5,024,346		5,024,346
Balance as of September 30, 2004		5,040,000	1,073,333	(7,288,271	)	385,595	490	230,044	1,680,813	18,177,908		19,299,912

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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link1 "CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)"

PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollar)


(Restated)		2004
Rp		Rp		US$ (Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from operating revenues
Telephone and interconnection net
Fixed lines	7,248,845		8,900,742		971,697
Cellular	7,296,836		8,688,496		948,526
Joint operation scheme	801,912		522,231		57,012
Interconnection net	2,536,624		2,605,403		284,433
Other services	1,362,960		2,046,857		223,456
Total cash receipts from operating revenues	19,247,177		22,763,729		2,485,124
Cash payments for operating expenses	(6,887,371	)	(9,192,774	)	(1,003,578	)
Cash generated from operations	12,359,806		13,570,955		1,481,546
Interest received	258,417		226,053		24,678
Income tax payments	(2,861,768	)	(2,611,147	)	(285,060	)
Interest paid	(755,010	)	(900,716	)	(98,331	)
Advances from customers	142,295		17,380		1,897
Net Cash Provided by Operating Activities	9,143,740		10,302,525		1,124,730
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments and maturity of time deposits	1,703,511		349,096		38,111
Proceeds from sale of property, plant and equipment	47,832		48,699		5,317
Purchase of marketable securities and placements in time deposits	(678,202	)	(441,900	)	(48,242	)
Acquisition of property, plant and equipment	(4,799,351	)	(4,266,626	)	(465,789	)
Decrease (Increase) in advances and others	288,938		7,368		804
Payments of advances for investments in shares of stock	(31,659	)
Cash dividend receipt
Acquisition of subsidiaries	(2,448,478	)
Net Cash Used in Investing Activities	(5,917,409	)	(4,303,363	)	(469,799	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term liabilities	(588,560	)	(2,977,802	)	(325,088	)
Repayments of bonds			(504,101	)	(55,033	)
Cash dividends paid	(3,645,348	)	(2,536,732	)	(276,936	)
Security deposits	(38,101	)
Received of long-term liabilities	618,486		693,058		75,662
Decrease (Increase) in escrow account	(447,838	)	232,837		25,419
Net Cash Used in Financing Activities	(4,101,361	)	(5,092,740	)	(555,976	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(875,030	)	906,422		98,955
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENT	36,361		111,572		12,180
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	5,699,070		5,094,472		556,165
CASH AND CASH EQUIVALENTS AT END PERIOD	4,860,401		6,112,466		667,300

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued) FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollar)

Rp	US$ (Note 3)
Noncash investing and financing activities in 2004:
Increase in property under construction through
the incurrence of long-term debt	1,719,176	187,683
Initial recognition of property, plant and equipment
under revenue sharing arrangement	2,773,375	302,770
Write off property, plant and equipment at Telkomsel	395,429	43,169

See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements.

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link1 "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)"

PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 ( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL

| a. |
| --- |
| Perusahaan Perseroan (Persero) P.T. Telekomunikasi Indonesia Tbk (the
Company) was originally part of Post en Telegraafdienst, which was
established in 1884 under the framework of Decree No. 7 dated March 27,
1884 of the Governor General of the Dutch Indies and published in State
Gazette No. 52 dated April 3, 1884. |
| In 1991, based on Government Regulation No. 25 year 1991, the status of
the Company was changed into a state-owned limited liability corporation
(Persero). The Company was established based on notarial deed No. 128
dated September 24, 1991 of Imas Fatimah, S.H. The deed of establishment
was approved by the Minister of Justice of the Republic of Indonesia in
his decision letter No. C2-6870.HT.01.01.Th.1991 dated November 19, 1991,
and was published in State Gazette of the Republic of Indonesia No. 210
dated January 17, 1992, Supplement No. 5. The articles of association
have been amended several times, the most recent amendment was made
through deed No. 4 dated January 10, 2002, of Notary A. Partomuan Pohan,
S.H., LLM., concerning the change in the Companys objective, scope of
activities, directors scope of authorities and the composition of the
Companys board of commissioners. The notarial deed was approved by the
Minister of Justice and Human Rights of the Republic of Indonesia in his
decision letter No. C-00682HT.01.04.Th.2002 dated January 15, 2002. |
| In accordance with article 3 of its articles of association, the scope of
the Companys activities is as follows: |

| 1. | The Companys objective is to provide telecommunications
and information facilities and services, in accordance with
prevailing regulations. |
| --- | --- |
| 2. | To achieve the above objective, the Company is involved in the
following activities: |

| i. | Planning, building, providing, developing, operating,
marketing or selling, leasing and maintaining telecommunications
and information networks in accordance with prevailing
regulations. |
| --- | --- |
| ii. | Planning, developing, providing, marketing or selling
and improving telecommunications and information services in
accordance with prevailing regulations. |
| iii. | Performing activities and other undertakings in
connection with the utilization and development of the Companys
resources and optimizing the utilization of the Companys
property, plant and equipment, information systems, education
and training, and repairs and maintenance facilities. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

GENERAL (continued)

| a. |
| --- |
| The Companys principal business is the provision of domestic
telecommunications services, including telephone, telex, telegram,
satellite, leased lines, electronic mail, mobile communication and
cellular services. In order to accelerate the construction of
telecommunications facilities, to make the Company a world-class
operator, and to increase the technology as well as the knowledge and
skills of its employees, in 1996, the Company entered into agreements
with investors to develop, manage and operate telecommunications
facilities in five of the Companys seven regional divisions under Joint
Operation Schemes (known as Kerja Sama Operasi or KSO). |
| The Companys head office is located at Jalan Japati No. 1, Bandung, West
Java. |
| Under Law No. 3/1989 on Telecommunications which took effect on April 1,
1989, Indonesian legal entities are allowed to provide basic
telecommunications services in cooperation with the Company as the
domestic telecommunications organizing body (or badan penyelenggara).
Other Indonesian legal entities are also allowed to individually provide
non-basic telecommunications services. In providing telecommunications
services, these entities are required to obtain licenses from the
Minister of Communications of the Republic of Indonesia (the Ministry of
Communications assumed responsibility for the telecommunications sector
from the previous Ministry of Tourism, Post and Telecommunications in
March 1998). Government Regulation No. 8/1993 concerning the provision of
telecommunications services, further regulates that cooperation to
provide basic telecommunications services can be in the form of joint
venture, joint operation or contract management and that the entities
cooperating with the domestic telecommunications organizing body must use
the organizing bodys telecommunications networks. If the
telecommunications networks are not available, the Government Regulation
requires that the cooperation be in the form of a joint venture that is
capable of constructing the necessary networks. |
| The Minister of Tourism, Post and Telecommunications of the Republic of
Indonesia (MTPT), through his two decision letters both dated August
14, 1995, reaffirmed the status of the Company as the organizing body for
the provision of domestic telecommunications services. |
| Further, effective from January 1, 1996, the Company was granted the
exclusive right to provide local wireline and fixed wireless services for
a minimum period of 15 years and the exclusive right to provide domestic
long-distance telecommunications services for a minimum period of 10
years. The exclusive rights also apply to telecommunications services
provided for and on behalf of the Company through a KSO. This grant of
rights does not affect the Companys right to provide other domestic
telecommunications services. |
| On September 8, 1999, the Government issued Law No. 36/1999 on
Telecommunications to replace Law No. 3/1989. Under the new Law, which
took effect from September 2000, telecommunications activities cover: |

i.	Telecommunications networks
ii.	Telecommunications services

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

GENERAL (continued)

a. Establishment and General Information (continued)

iii. Special telecommunications

| National state-owned companies, regional state-owned companies,
privately-owned companies and cooperatives are allowed to provide
telecommunications networks and services. Special telecommunications can
be provided by individuals, government agencies and legal entities other
than telecommunications networks and service providers. |
| --- |
| Under Law No. 36/1999, activities that result in monopolistic practices
and unfair competition are prohibited. In connection with this law,
Government Regulation No. 52/2000 was issued, which provides that
interconnection fees shall be charged to originating telecommunications
network operators where telecommunications service is provided by two or
more telecommunications network operators. |
| Based on press release No. 05/HMS/JP/VIII/2000 dated August 1, 2000 from
the Director General of Post and Telecommunications and the correction
thereto No. 1718/UM/VIII/2000 dated August 2, 2000, the period of
exclusive rights granted to the Company to provide local and domestic
long-distance fixed-line telecommunications services was shortened to
expire in August 2002 and August 2003, respectively. In return, the
Government is required to pay compensation to the Company, the amount of
which is to be estimated by an independent appraiser appointed by the
Government. |
| Based on a press release from the Coordinating Minister of Economics
dated July 31, 2002, the Government decided to terminate the Companys
exclusive rights as a network provider for local and long-distance
services with effect from August 1, 2002. On August 1, 2002, PT
Indonesian Satellite Corporation Tbk (Indosat) was granted a license
to provide local and long-distance telecommunications services. |
| On March 30, 2004, the Minister of Communications issued Announcement
No. PM.2 year 2004 regarding the Implementation of Restructuring in the
Telecommunications Sector which, among others, conveys the compensation
for early termination of exclusive rights. |
| On May 13, 2004, pursuant to the Ministry of Communications Decree No.
KP. 162/2004, the Company was granted a commercial license to provide
International Direct Dialing (IDD) services. |
| Based on the resolution of the Extraordinary General Meeting of
Stockholders, the minutes of which have been notarized by deed No. 37
dated June 21, 2002 of A. Partomuan Pohan, S.H., LLM., the composition
of the Companys Board of Commissioners and Board of Directors as of
September 30, 2003 was as follows: |

President Commissioner	: Bacelius Ruru
Commissioner	: Agus Haryanto
Commissioner	: Djamhari Sirat
Independent Commissioner	: Arif Arryman
Independent Commissioner	: Petrus Sartono

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GENERAL (continued)

a. Establishment and General Information (continued)

President Director	: Kristiono
Director of Finance	: Guntur Siregar
Director of Telecommunications Service Business	: Garuda Sugardo
Director of Human Resources and Support Business	: Agus Utoyo
Director of Telecommunications Network Business	: Suryatin Setiawan

Based on the resolution of the Extraordinary General Meeting of Stockholders, the minutes of which have been notarized by deed No. 4 dated March 10, 2004 of A. Partomuan Pohan, S.H., LLM., the composition of the Companys Board of Commissioners and Board of Directors as of September 30, 2004 was as follows:

President Commissioner	: Tanri Abeng
Commissioner	: Anggito Abimanyu
Commissioner	: Gatot Trihargo
Independent Commissioner	: Arif Arryman
Independent Commissioner	: Petrus Sartono
President Director	: Kristiono
Director of Finance	: Rinaldi Firmansyah
Director of Telecommunications Service Business	: Suryatin Setiawan
Director of Human Resources and Support Business	: Woeryanto Soeradji
Director of Telecommunications Network Business	: Abdul Haris

| | As of September 30, 2003 and 2004, the Company had 32,305 employees and
29,397 employees, respectively, including those in the KSO Units, while
the subsidiaries had 3,722 employees and 4,384 employees, respectively. |
| --- | --- |
| b. | Public offering of shares of the Company |
| | The Companys total number of shares immediately prior to its initial
public offering was 8,400,000,000, which consisted of 8,399,999,999
series B shares and 1 series A Dwiwarna share, all of which were owned
by the Government of the Republic of Indonesia (the Government). On
November 14, 1995, the Government sold the Companys shares through an
initial public offering on the Jakarta Stock Exchange and Surabaya Stock
Exchange. The shares offered consisted of 933,333,000 new series B
shares and 233,334,000 series B shares owned by the Government. A share
offering was also conducted on the New York Stock Exchange and London
Stock Exchange for 700,000,000 series B shares owned by the Government
of the Republic of Indonesia, which were converted into 35,000,000
American Depositary Shares (ADS). Each ADS represents 20 series B
shares. |
| | In December 1996, the Government completed a block sale of 388,000,000
series B shares, and later in 1997, distributed 2,670,300 series B
shares as an incentive to stockholders who did not sell their shares
within one year from the date of the initial public offering. In May
1999, the Government sold 898,000,000 series B shares. |

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GENERAL (continued)

| b. |
| --- |
| Under Law No.1/1995 on Limited Liability Companies, the minimum total
par value of the Companys issued shares of capital stock must be at
least 25% of the total par value of the Companys authorized capital
stock, or in the Companys case Rp5,000,000 million. To comply with the
Law, it was resolved at the Annual General Meeting of Stockholders on
April 16, 1999 to increase the issued share capital by way of
capitalization of certain additional paid-in capital. The bonus shares
were distributed to the then existing stockholders in August 1999. |
| In December 2001, the Government conducted another block sale of
1,200,000,000 shares or 11.9% of the total outstanding series B shares.
In July 2002, the Government sold 312,000,000 shares or 3.1% of the
total outstanding series B shares. |
| On September 28, 2004, the Company splitted its share capital based on a
resolution of the Annual General Meeting of Stockholders, the minutes of
which have been notarized by deed No. 313/VII/2004 dated July 10, 2004
of A. Partomuan Pohan, S.H., LL.M. The stockholders have approved to
split the nominal value of 1 series A Dwiwarna share and series B shares
from Rp500 to Rp250 per share. |
| The authorized capital increase from 40,000,000,000 shares to
80,000,000,000 shares and the issued capital increase from
10,079,999,640 to 20,159,999,280. The splitted share of Series A
Dwiwarna were 1 share established as Series A Dwiwarna owned by the
Government of the Republic of Indonesia and the other 1 share as Series
B owned by the Government of the Republic of Indonesia. |
| On September 29, 2004, the Company obtained an approval from The New
York Stock Exchange with regard of the stock split and changes the ratio
of shares represented by each ADS from 20 shares Series B to 40 shares
Series B. |
| As of September 30, 2004, all of the Companys series B shares were
listed on the Jakarta Stock Exchange and Surabaya Stock Exchange and
22,391,424 ADS shares were listed on the New York Stock Exchange and
London Stock Exchange. |

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GENERAL (continued)

c.
The Company consolidates the following subsidiaries as a result of
majority ownership or its right to control operations.

Subsidiaries	Domicile	Nature of business	Percentage of ownership — 2003	2004	Start of commercial — operations	Total assets before eliminations — 2003	2004
			%	%
PT Pramindo Ikat Nusantara	Medan	Telecommunications
construction & services	100.00	99.99	1995	1,951,238	1,760,726
PT AriaWest International	Bandung	Telecommunications	100.00	99.99	1995	1,579,537	1,673,404
PT Multimedia Nusantara	Jakarta	Pay TV	100.00	99.99	1998	12,007	17,268
PT Graha Sarana Duta	Jakarta	Real
estate, construction and services	99.99	99.99	1982	61,587	86,285
PT Indonusa Telemedia	Jakarta	Multimedia	88.08	90.39	1997	51,166	53,988
PT Dayamitra Telekomunikasi	Balikpapan	Telecommunications	90.32	90.32	1995	891,378	825,386
PT Telekomunikasi Selular	Jakarta	Telecommunications	65.00	65.00	1995	14,298,620	19,451,376
PT Napsindo Primatel International	Jakarta	Telecommunications	60.00	60.00	1999	56,024	35,386
PT Infomedia Nusantara	Jakarta	Data and information service	51.00	51.00	1984	298,093	252,636
PT Pro Infokom Indonesia	Jakarta	System information network	51.00	51.00	2003	6,628	1,368

The Company has indirect investments through its subsidiaries in the following companies:

Indirect subsidiaries	Stockholders	Domicile	Nature of — Business	Effective ownership percentage — 2003	2004	Start of Commercial — Operations
				%	%
Telekomunikasi Selular Finance Limited	PT Telekomunikasi Selular	Mauritius	Fund raising	100.00	100.00	2002
AriaWest International Finance B.V.	PT AriaWest International	Netherlands	Finance		100.00	1996
PT Balebat Dedikasi Prima	PT Infomedia Nusantara	Bogor	Printing		51.33	2000

| PT Pramindo Ikat Nusantara (Pramindo) |
| --- |
| Pramindo is the investor in KSO I (Note 52), the joint operating scheme
that provides telecommunications services in Sumatra. On
April 19, 2002, the Company entered into a Conditional Sale and Purchase Agreement
(CSPA) (as amended on August 1, 2002) to acquire 100% of the issued
and paid-up share capital of Pramindo (Note 5b). |

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GENERAL (continued)

| c. |
| --- |
| PT Pramindo Ikat Nusantara (Pramindo) (continued) |
| Effective with the closing of the first tranche, the Company obtained
control over the operations of Pramindo and KSO Unit I. As a result, the
Company has consolidated Pramindo as of the date of the acquisition
reflecting a 100% ownership interest in Pramindo (Note 2b). |
| On April 21, 2004, the Company sold one share of Pramindo to a related
party for Rp22,800, thereby reducing the Companys ownership interest to
99.99%. |
| PT AriaWest International (AWI) |
| AWI is the investor in KSO III (Note 52), the joint operating scheme
that provides telecommunication services in West Java. On May 8, 2002,
the Company entered into a Conditional Sale and Purchase Agreement
(CSPA) to acquire 100% of the issued and paid-up capital of AWI. The
acquisition was effective on July 31, 2003, the date when the Company
entered into the First Amendment to the Conditional Sale and Purchase
Agreement with the stockholders of AWI in which both parties agreed to
the Companys acquisition of AWI (Note 5c). |
| The CSPA provides for certain conditions that have to satisfied at or
prior to the closing date to effect the acquisition, e.g. completion of
the restructuring of AWIs loan, amendment of KSO III agreement, final
and unconditional dismissal with prejudice of any proceeding. Those
conditions have been satisfied at or prior to July 31, 2003. |
| On December 31, 2003, the Company sold one share of AWI to a related
party for Rp114,000, thereby reducing the Companys ownership interest
to 99.99%. |
| PT Multimedia Nusantara (Metra) |
| Metra is engaged in providing pay television and multimedia
telecommunications services. |
| On April 8, 2003, the Company increased its ownership interest in Metra
from 31% to 100% through a share-swap agreement with PT Indocitra
Grahabawana (Indocitra). Pursuant to the agreement, the Company sold
its investment in PT Menara Jakarta in exchange for Indocitras 69%
ownership interest in Metra (Note 13f). |
| On July 21, 2003, the Company sold one share of Metra to a related party
for Rp10,000, thereby reducing the Companys ownership interest to
99.99%. |

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GENERAL (continued)

| c. |
| --- |
| PT Graha Sarana Duta (GSD) |
| GSD is currently engaged primarily in leasing of offices as well as
providing building management and maintenance services. |
| On April 6, 2001, the Company acquired a 100% ownership interest in GSD
from Koperasi Mitra Duta and Dana Pensiun Bank Duta, for a purchase
consideration of Rp119,000 million. This acquisition resulted in
goodwill of Rp106,348 million which is being amortized over a period of
five years (Note 17). |
| On November 28, 2001, the Company sold one share of GSD to a related
party for Rp9.5 million thereby reducing the Companys ownership
interest to 99.99%. |
| PT Indonusa Telemedia (Indonusa) |
| Indonusa is engaged in providing multimedia telecommunications services. |
| The Company increased its investment in Indonusa from 35% in 2000 to
57.5% in 2001, by acquiring 2,800,000 shares for Rp28,000 million. This
acquisition resulted in goodwill of Rp654 million which was fully
amortized in 2001. |
| On August 8, 2003, the Company increased its investment in Indonusa to
88.08% through a share-swap agreement with PT Centralindo Pancasakti
Cellular (CPSC) (Note 13). |
| Pursuant to the extraordinary meeting of stockholders of Indonusa on
October 29, 2003, Indonusa agreed to convert its payable to the Company
amounting to Rp13,500 million to 1,350,000 shares of Indonusa. Following
such conversion, the Companys ownership in Indonusa increased from
88.08% to 90.39%. |
| PT Dayamitra Telekomunikasi (Dayamitra) |
| Dayamitra is the investor in KSO VI (Note 52), the joint operating
scheme that provides telecommunications services in Kalimantan. The
Companys acquisition of a 90.32% ownership interest in Dayamitra was
effective on May 17, 2001, the date when the Deed of Share Transfer was
signed. The Company also entered into an Option Agreement to acquire the
remaining 9.68% interest from the selling stockholders (Note 5a). |
| PT Telekomunikasi Selular (Telkomsel) |
| Telkomsel is engaged in providing telecommunications facilities and
mobile cellular services using Global System for Mobile Communication
(GSM) technology on a nationwide basis. |
| The Companys cross-ownership transaction with Indosat in 2001 increased
the Companys ownership interest in Telkomsel to 77.72%. The accounting
treatment for the cross-ownership transaction is discussed further in
Note 4. |

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GENERAL (continued)

| c. |
| --- |
| PT Telekomunikasi Selular (Telkomsel) (continued) |
| On April 3, 2002, the Company entered into a Conditional Sale and
Purchase Agreement (CSPA) with Singapore Telecom Mobile Pte. Ltd.
(Singtel). Pursuant to the agreement, the Company sold 23,223 ordinary
registered shares of Telkomsel, representing 12.72% of the issued and
paid-up capital of Telkomsel for a total consideration of US$429,000,000
(equivalent to Rp3,948,945 million). This transaction reduced the
Companys ownership in Telkomsel from 77.72% to 65%. |
| PT Napsindo Primatel Internasional (Napsindo) |
| Napsindo is engaged in providing Network Access Point (NAP), Voice
Over Data (VOD) and other related services. |
| In connection with an increase in Napsindos paid-in capital, the
Company increased its investment in Napsindo by Rp13,840 million on
October 31, 2000. The increase in investment was made to maintain the
Companys ownership interest at 32% and was effective on March 29, 2001. |
| Based on the notarial Deed No. 47 dated December 30, 2002 of Notary H.
Yunardi, S.H., the Company purchased 28% of Napsindos shares from PT
Info Asia Sukses Makmur Mandiri for US$4,900,000 (equivalent to Rp43,620
million), thereby increasing the Companys ownership interest to 60%
after the settlement of payment on January 28, 2003. |
| PT Infomedia Nusantara (Infomedia) |
| Infomedia is engaged in providing telecommunications information
services and other information services in the form of print and
electronic media. In 2002, Infomedia established a new line of business
to provide call center services. |
| PT Pro Infokom Indonesia (PII) |
| On January 29, 2003, the Company together with PT Indonesia Comnets
Plus, a subsidiary of Perusahaan Perseroan (Persero) PT Perusahaan
Listrik Negara (PLN), and PT Prima Infokom Indonesia established PT
Pro Infokom Indonesia (PII). The establishment was notarized by deed
of A. Partomuan Pohan, S.H., LLM., notary in Jakarta, under Article of
Association No. 24, dated January 29, 2003. As of September 30, 2004,
the Company had an ownership interest of 51% in PII. |
| PII was established to develop a national information network system as
the back-bone for the development of the Indonesian e-Government. PII is
intended to maximize the utilization of both the Companys and PLNs
existing infrastructures. |
| PII will act as a service provider that manages the government secure
intranet and government information center management where all
government institutions, including state-owned companies, are expected
to take advantage of this network. |

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GENERAL (continued)

c.	Subsidiaries (continued)
	PT Pro Infokom Indonesia (PII) (continued)
	Pursuant to the Annual General Meeting of PII Shareholders as stated in
notarial deed No. 258/VI/2004 dated June 17, 2004 of A. Partomuan Pohan,
S.H., LL.M., the stockholders approved to discontinue the PII operation
since July 1, 2004.
	Telekomunikasi Selular Finance Limited (TSFL)
	Telkomsel has 100% direct ownership interest in TSFL, a company
established in Mauritius on April 22, 2002. TSFLs objective is to raise
funds for the development of Telkomsels business through the issuance
of debenture stock, bonds, mortgages or any other securities.
	Aria West International Finance B.V. (AWI BV)
	AWI BV, a company established in the Netherlands, is a wholly owned
subsidiary of AWI. AWI BV is engaged in rendering services in the field
of trade and finance.
	PT Balebat Dedikasi Prima (Balebat)
	Infomedia has 51.33% direct ownership interest in Balebat, a company
engaged in the printing business, domiciled in Bogor.
d.	Authorization of the financial statements
	The consolidated financial statements were authorized for issue by the
Board of Directors on October 29, 2004.

| 2. |
| --- |
| The consolidated financial statements of the Company and subsidiaries have
been prepared in accordance with generally accepted accounting principles
in Indonesia (Indonesian GAAP). Indonesian GAAP varies in certain
significant respects to accounting principles generally accepted in the
United States of America (U.S. GAAP). Information relating to the nature
and effect of such differences is presented in Note 58. |

| a. |
| --- |
| The consolidated financial statements, except for the statements of cash
flows, are prepared on the accrual basis of accounting. The measurement
basis used is historical cost, except for certain accounts recorded on
the basis described in the related accounting policies. |
| The consolidated statements of cash flows are prepared using the direct
method and present the changes in cash and cash equivalents from
operating, investing and financing activities. |

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.	Basis for preparation of financial statements (continued)
	Figures in the consolidated financial statements are rounded to and
presented in millions of Indonesian Rupiah (Rp) unless otherwise
stated.
b.	Principles of consolidation
	The consolidated financial statements include the financial statements
of the Company and its subsidiaries in which the Company directly or
indirectly has ownership of more than 50%, or the Company has the
ability to control the entity, even though the ownership is less than or
equal to 50%. Subsidiaries are consolidated from the date on which
effective control is obtained and are no longer consolidated from the
date of disposal. The Company does not consolidate a subsidiary if
control is expected to be temporary.
	All significant inter-company balances and transactions have been
eliminated in consolidation.
	In the case of PT Pramindo Ikat Nusantara (Pramindo), the Company has
evaluated the scope and terms of this investment and concluded that it
has the ability to exercise control over Pramindo and the right to
obtain all of the future economic benefits of ownership as though the
Company owned 100% of the shares. The factors that the Company
considered include, among others, the fact that the purchase price is
fixed, its ability to vote 100% of the shares at general stockholders
meetings, subject to certain protective rights retained by the selling
stockholders, its ability to appoint all of the board members and
management and its consequent ability to exclusively determine the
financial and operating policies of Pramindo subject to certain
protective rights, its issuance of irrevocable and unconditional
promissory notes in settlement of the purchase consideration to the
selling stockholders, the placement of the 70% of Pramindo shares not
yet transferred to the Company in an escrow account by the selling
stockholders and the protective provisions in the various agreements for
the Company to take over all shares (including powers of attorney issued
by the selling stockholders) or collapse the KSO arrangement once the
full amount payable for the shares has been paid (Note 5b).
c.	Transactions with related parties
	The Company and subsidiaries have transactions with related parties. The
definition of related parties used is in accordance with Indonesian
Statement of Financial Accounting Standards (PSAK) No.7 Related Party
Disclosures.
d.	Acquisitions of subsidiaries
	The acquisition of a subsidiary from a third party is accounted for
using the purchase method of accounting. The excess of the acquisition
cost over the Companys interest in the fair value of identifiable
assets acquired and liabilities assumed is recorded as goodwill and
amortized using the straight-line method over a period of not more than
five years.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

d.	Acquisitions of subsidiaries (continued)
	The acquisition transaction with entities under common control is
accounted for in a manner similar to that in pooling of interests
accounting (carryover basis). The difference between the consideration
paid or received and the related historical carrying amount, after
considering income tax effects, is recognized directly in equity and
are reported as Difference in value of restructuring transactions
between entities under common control in the stockholders equity
section.
	The Company continually assesses whether events or changes in
circumstances have occurred that would require revision of the remaining
estimated useful life of goodwill, or whether there is any indication of
impairment. If any indication of impairment exists, the recoverable
amount of goodwill is estimated based on the expected future cash flows
which 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.
e.	Foreign currency translation
	The functional currency of the Company and its subsidiaries is the
Indonesian Rupiah and the books of accounts of the Company and its
subsidiaries are maintained in Indonesian Rupiah. Transactions in
foreign currencies are translated into Indonesian Rupiah at the rates of
exchange prevailing at transaction date. At the balance sheet date,
monetary assets and monetary liabilities balances denominated in foreign
currencies are translated into Indonesian Rupiah based on the buy and
sell rates quoted by Reuters prevailing at the balance sheet date. The
Reuters buy and sell rates, applied respectively to translate monetary
assets and monetary liability balances, were Rp8,405 and Rp8,415 to US$1
as of September 30, 2003, and Rp9,150 and Rp9,170 to US$1 as of
September 30, 2004.
	The resulting foreign exchange gains or losses, realized and unrealized,
are credited or charged to income of the current year, except for
foreign exchange differences incurred on borrowings during the
construction of qualifying assets which are capitalized to the extent
that the borrowings can be attributed to the construction of those
qualifying assets (Note 2k).
f.	Cash and cash equivalents
	Cash and cash equivalents consist of cash on hand and in banks and all
unrestricted time deposits with maturities of not more than three months
from the date of placement. For the purpose of the statements of cash
flows, bank overdrafts that are repayable on demand and form an integral
part of cash management of the Company and subsidiaries are included as
a component of cash and cash equivalents.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Investments

i.	Time deposits
	Time deposits with maturities of more than three months are presented
as temporary investments.
ii.	Investments in securities
	Investments in available-for-sale securities are stated at fair
value. Unrealized holding gains or losses on available-for-sale
securities are excluded from income of the current year and are
reported as a separate component in the stockholders equity section
until realized. Realized gains or losses from the sale of
available-for-sale securities are recognized in the income of the
current year, and are determined on a specific-identification basis.
A decline in the fair value of any available-for-sale securities
below cost that is deemed to be other-than-temporary is charged to
income of the current year.
iii.	Investments in associated companies
	Investments in shares of stock in which the Company has 20% to 50% of
the voting rights, and over which the Company exerts significant
influence, but not control, over the financial and operating policies
are accounted for using the equity method. Under this method, the
Company recognizes the Companys proportionate share in the income or
loss of the associated company from the date that significant
influence commences until the date that significant influence ceases.
When the Companys share of loss exceeds the carrying amount of the
associated company, the carrying amount is reduced to nil and
recognition of further losses is discontinued except to the extent
that the Company has incurred obligations in respect of the
associated company.
	On a continuous basis, but no less frequently than at the end of each
year, the Company evaluates the carrying amount of its ownership
interests in investee companies for possible impairment. Factors
considered in assessing whether an indication of other than temporary
impairment exists include the achievement of business plan objectives
and milestones including cash flow projections and the results of
planned financing activities, the financial condition and prospects
of each investee company, the fair value of the ownership interest
relative to the carrying amount of the investment and other relevant
factors. Impairment to be recognized is measured based on the amount
by which the carrying amount of the investment exceeds the fair value
of the investment. Fair value is determined based on quoted market
prices (if any), projected discounted cash flows or other valuation
techniques as appropriate.
	Changes in the value of investments due to changes in the equity of
associated companies arising from capital transactions of such
associated companies with other parties are recognized directly in
equity and are reported as Difference due to change of equity in
associated companies in the stockholders equity section.
Differences previously credited directly to equity transactions in
associated companies are released to the statement of income upon the
sale of an interest in the associate in proportion with percentage of
the interest sold.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Investments (continued)

iii.	Investments in associated companies (continued)
	The functional currency of PT Pasifik Satelit Nusantara and PT Citra
Sari Makmur is the U.S. Dollar. For the purpose of reporting these
investments using the equity method, the assets and liabilities of
these companies as of the balance sheet date are translated into
Rupiah using the rates of exchange prevailing at that date, while
revenues and expenses are translated into Rupiah at the average rates
of exchange for the year. The resulting translation adjustments are
reported as part of Translation adjustment in the stockholders
equity section.
iv.	Other investments
	Investments in shares of stock with ownership interests of less than
20% that do not have readily determinable fair values and are
intended for long-term investments are carried at cost and are
adjusted only for other-than-temporary decline in the value of
individual investments. Any such write-down is charged directly to
income of the current year.

h.	Trade and other accounts receivable
	Trade and other accounts receivable are recorded net of an allowance for
doubtful accounts, based upon a review of the collectibility of the
outstanding amounts at the end of the year. Accounts are written off
against the allowance during the period in which they are determined to
be not collectible.
	Trade and other accounts receivable are recorded at the invoiced amount.
The allowance for doubtful accounts is the Companys best estimate of
the amount of probable credit losses in the Companys existing accounts
receivable. The Company determines the allowance based on historical
write-off experience. The Company reviews its allowance for doubtful
accounts monthly. Past due balances over 90 days for retail customers
are fully provided, and past due balance for non-retail customers over a
specified amount are reviewed individually for collectibility. Account
balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote. The Company does not have any off-balance sheet
credit exposure related to its customers.
i.	Inventories
	Inventories principally consist of components and modules, which are
transferred to Plant, Property and Equipment upon use. Inventories also
include SIM card and prepaid voucher blanks.
	Cost is determined using the weighted average method for components, SIM
card and prepaid voucher blanks, and the specific-identification method
for modules.
	Allowance for obsolescence is primarily based on the estimated forecast
of future usage of these items.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

j.	Prepaid expenses
	Prepaid expenses are amortized over their beneficial periods using the
straight-line method.
k.	Property, plant and equipment direct acquisitions
	Property, plant and equipment directly acquired are stated at cost,
except for certain revalued assets, less accumulated depreciation.
	Property, plant and equipment, except land, are depreciated using the
straight-line method, based on the estimated useful lives of the assets
as follows:

	Years
Buildings	20
Switching equipment	515
Telegraph, telex and data communication equipment	515
Transmission installation and equipment	520
Satellite, earth station and equipment	315
Cable network	515
Power supply	310
Data processing equipment	310
Other telecommunications peripherals	5
Office equipment	35
Vehicles	58
Other equipment	5

| Land is stated at cost and is not depreciated. |
| --- |
| When the carrying amount of an asset exceeds its estimated recoverable
amount, the asset is written down to its estimated recoverable amount,
which is determined based upon the greater of its net selling price or
value in use. |
| The cost of maintenance and repairs is expensed as incurred.
Expenditures, which extend the useful life of the asset or result in
increased future economic benefits such as increase in capacity or
improvement in the quality of output or standard of performance, are
capitalized and depreciated based on the applicable depreciation rates. |
| When assets are retired or otherwise disposed of, their carrying values
and the related accumulated depreciation are eliminated from the
consolidated financial statements, and the resulting gains or losses on
the disposal or sale of property, plant and equipment are recognized in
the statement of income. |
| Computer software used for data processing is included in the value of
the associated hardware. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

k.	Property, plant and equipment direct acquisitions (continued)
	Property under construction is stated at cost until construction is
complete, at which time it is reclassified to the specific property,
plant and equipment account it relates to. During the construction
period, borrowing costs, which include interest expense and foreign
exchange gains or losses incurred to finance the construction of the
asset, are capitalized in proportion to the average amount of
accumulated expenditures during the period. Capitalization of borrowing
cost ceases when the assets are ready for its intended use.
l.	Property, plant and equipment under capital leases
	Property, plant and equipment acquired under capital leases are stated
at the present value of minimum lease payments. At inception of the
lease, a corresponding liability, which equals to the present value of
minimum lease payments, is also recorded and subsequently reduced by the
principal component of each minimum lease payment. The interest
component of each minimum lease payment is recognized in the statement
of income.
	Leased assets are capitalized only if all of the following criteria are
met: (a) the lessee has an option to purchase the leased asset at the
end of the lease period at a price agreed upon at the inception of the
lease agreement, and (b) the sum of periodic lease payments, plus the
residual value, will cover the acquisition price of the leased asset and
related interest, and (c) there is a minimum lease period of 2 years.
	Leased assets are depreciated using the same method and over the same
estimated useful lives used for directly acquired property, plant and
equipment.
m.	Revenue-sharing arrangements
	Under PSAK 35 paragraph 4, the Company records assets under
revenue-sharing agreements as Property, plant and equipment under
revenue-sharing arrangements (with a corresponding initial credit to
Unearned income under revenue-sharing arrangements presented in the
Liabilities section of the balance sheet) based on the costs incurred by
the investors as agreed upon in the contracts entered into between the
Company and the investors. Property, plant and equipment are depreciated
over their estimated useful lives using the straight-line method.
	Unearned income related to the acquisition of the property, plant and
equipment under revenue-sharing arrangements is amortized over the
revenue-sharing period using the straight-line method.
	At the end of the revenue-sharing period, the respective property, plant
and equipment under revenue-sharing arrangements are reclassified to the
Property, plant and equipment account.
	Revenue earned under revenue-sharing arrangements is recognized on the
basis of the Companys share as provided in the agreement.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

n.	Joint operation schemes
	Revenues from joint operation schemes include amortization of the
investors initial payments, Minimum Telkom Revenues (MTR) and the
Companys share of Distributable KSO Revenues (DKSOR).
	Unearned initial investor payments received as compensation from the KSO
Investors are presented net of all direct costs incurred in connection
with the KSO agreement and are amortized using the straight-line method
over the KSO period of 15 years starting from January 1, 1996.
	MTR are recognized on a monthly basis based upon the contracted MTR
amount for the current year, in accordance with the KSO agreement.
	The Companys share of DKSOR is recognized on the basis of the Companys
percentage share of the KSO revenues, net of MTR and operational
expenses of the KSO Units, as provided in the KSO agreements.
	Under PSAK No. 39, Accounting for Joint Operation Schemes, which
supersedes paragraph 14 of PSAK No. 35, Accounting for
Telecommunication Services Revenue, the assets built by the KSO
Investors under the Joint Operation Schemes are recorded in the books of
the KSO Investors which operate the assets and are transferred to the
Company at the end of the KSO period or upon termination of the KSO
agreement.
o.	Deferred charges for landrights
	Costs incurred to process and extend the landrights are deferred and
amortized using the straight-line method over the term of the
landrights.
p.	Revenue and expense recognition

i.	Fixed line telephone revenues
	Revenues from fixed line installations are recognized at the time
the installations are placed in service. Revenues from usage charges
are recognized as customers incur the charges.
ii.	Cellular and fixed wireless telephone revenues
	Revenues from service connections (connection fees) are recognized
as income at the time the connections occur. Revenues from airtime
(for cellular) and monthly subscription charges are recognized as
accessed and as earned. Revenues from prepaid card customers, which
consist of the sale of starter packs, also known as Subscriber
Identification Module (SIM) cards in the case of cellular and
Removable Unit Identity Card (RUIM) in the case of fixed wireless
telephone, and pulse reload vouchers, are recognized as follows:

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

p. Revenue and expense recognition (continued)

ii. Cellular and fixed wireless telephone revenues (continued)

| 1. | Sale of starter packs is recognized as revenue upon
delivery of the starter packs to distributors, dealers or
directly to customers. |
| --- | --- |
| 2. | Sale of pulse reload vouchers is recognized
initially as unearned income and recognized proportionately as
revenue based on successful calls made by the subscribers or
whenever the unused stored value of the voucher has expired. |

| iii. |
| --- |
| Revenues from network interconnection with other domestic and
international telecommunications carriers are recognized as incurred
and are presented net of interconnection expenses. |

	Expenses are recognized on an accrual basis.
q.	Pension benefits

i.	Defined benefit pension plans
	The Company and certain subsidiaries established defined benefit
pension plans covering substantially all of their permanent
employees.
	The Companys net obligation in respect of the defined benefit
pension plans is calculated at the net present value of estimated
future benefits that the employees have earned in return for their
service in the current and prior periods, deducted by any plan
assets. The calculation is performed by an independent actuary using
the projected unit credit method.
	The benefits earned by the employees are recognized in the statement
of income on a straight-line basis over the period until the
benefits become vested. To the extent that the benefits vest
immediately, the expense is recognized immediately in the statement
of income.
ii.	Early retirement benefits
	Early retirement benefits are accrued at the time the Company makes
a commitment to provide early retirement benefits as a result of an
offer made in order to encourage voluntary redundancy. The Company
is demonstrably committed to a termination when, and only when, the
Company has a detailed formal plan for the early retirement and is
without realistic possibility of withdrawal.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

r. Employee benefits other than pension

i.	Long service awards (LSA)
	The Companys employees are entitled to receive certain cash awards
based on length of service requirement. The benefits are either paid
at the time the employee reaches certain anniversary dates during
employment, upon retirement or at the time of termination.
	The Companys obligation with respect to LSA is calculated by an
independent actuary using the projected unit credit method.
ii.	Post-retirement health care plan
	The Company provides a post-retirement health care plan that covers
its retired employees who meet age, participation and length of
service requirements at retirement, and their eligible dependants.
	The Companys obligation with respect to post-retirement health care
plan is calculated by an independent actuary using the projected
unit credit method.

s.	Income tax
	The Company and subsidiaries apply the asset and liability method of
accounting for income tax. Under this method, deferred tax assets and
liabilities are recognized for temporary differences between the
financial and tax bases of assets and liabilities at each reporting
date. This method also requires the recognition of future tax benefits,
such as the benefit of tax loss carry forwards, to the extent their
realization is probable. Deferred tax assets and liabilities are
measured using enacted or substantially enacted tax rates at each
reporting date which are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled.
	Income tax is charged or credited in the statement of income, except to
the extent that it relates to items recognized directly in equity, in
which case it is also recognized directly in equity.
t.	Earnings per share and earnings per American Depositary Share (ADS)
	Basic earning per share is computed by dividing net income by the
weighted average number of shares outstanding during the year. Net
income per ADS is computed by multiplying basic earnings per share by
40, the number of shares represented by each ADS.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

u.	Segment information
	The Company and its subsidiaries segment information is presented based
upon identified business segments. A business segment is a
distinguishable unit that provides different products and services and
is managed separately. Business segment information is consistent with
operating information routinely reported to the Companys chief
operating decision maker.
	Segment information is prepared in conformity with the accounting
policies adopted for preparing and presenting the consolidated financial
statements.
v.	Derivative instruments
	Derivative transactions are accounted for in accordance with PSAK 55,
Accounting for Derivative Instruments and Hedging Activities which
requires that all derivative instruments be recognized in the financial
statements at fair value. To qualify for hedge accounting, PSAK 55
requires certain criteria to be met, including documentation required to
have been in place at the inception of the hedge.
	Changes in fair value of derivative instruments that do not qualify for
hedge accounting are recognized in the statement of income. If a
derivative instrument are designated and qualify for hedge accounting,
changes in fair value of derivative instruments are recorded as
adjustments to the assets or liabilities being hedged in the income of
the current year or in the stockholders equity, depending on the type
of hedge transaction represented and the effectiveness of the hedge.
w.	Use of estimates
	The preparation of the consolidated financial statements requires
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 consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period. Significant items subject to such estimates and assumptions
include the carrying amount of property, plant and equipment and
intangible assets, valuation allowance for receivables and obligations
related to employee benefits.

| 3. |
| --- |
| The consolidated financial statements are stated in Rupiah. The
translations of Rupiah amounts into United States Dollars are included
solely for the convenience of the readers and have been made using the
average of the market buy and sell rates of Rp9,160 to US$1 published by
Reuters on September 30, 2004. The convenience translations should not be
construed as representations that the Rupiah amounts have been, could have
been, or could in the future be, converted into United States Dollars at
this or any other rate of exchange. |

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| 4. |
| --- |
| As further explained in Note 55a, the Company was informed by the United
States Securities and Exchange Commission (SEC) that its Annual Report on
Form 20-F for 2002 submitted on April 17, 2003 was not in compliance with
the SECs rules and regulations. The Company was required to amend that
report, which it did on June 11, 2003, to identify the deficiencies in its
originally submitted Annual Report. |
| The Company is also required to make a further amendment to its Annual
Report on Form 20-F to bring it into compliance with the relevant rules and
regulations. Furthermore, the Indonesian Capital Markets Supervisory Agency
(BAPEPAM) confirmed that the Company should comply with the requirements
of the SEC and at the same time ensure that the same information is made
available to all shareholders. |
| Subsequent to the issuance of the consolidated financial statements in the
Annual Report on Form 20-F for the year ended December 31, 2002 and the
amendment thereto that was filed with the SEC on June 11, 2003 referred to
above, the Company made certain adjustments to the Indonesian GAAP amounts
previously disclosed for 2000, 2001, 2002 and prior years which the Company
believes are required to be made pursuant to Indonesian GAAP. Adjustments
affecting the U.S. GAAP amounts and disclosures are set out in Note 58. |
| Set forth below are the effects of the restatements on the previously
reported consolidated net income and stockholders equity for the nine
months period ended September 30, 2003. The corrections of the Indonesian
GAAP consolidated financial statements primarily relate to the accounting
for long service awards, deferred income taxes and business acquisitions,
as well as the assumptions underlying the Companys post-retirement
healthcare plan. |

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| 4. |
| --- |
| Set forth below are the effects of the restatements on the previously
reported consolidated net income for the nine months period ended September
30, 2003 (unaudited): |

| Net income
under Indonesian GAAP as previously reported | | 4,371,964 | |
| --- | --- | --- | --- |
| Adjustments | | | |
| Long service awards | (i) | (41,442 | ) |
| Post retirement healthcare benefit | (ii) | 19,382 | |
| Deferred income taxes | (iii) | 72,697 | |
| Acquisition accounting | (iv) | | |
| Operating revenues | (v) | (360,682 | ) |
| Trade accounts payable | (vi) | | |
| Corrections of loan balance | (vii) | | |
| Corrections of tax payable | (viii) | | |
| Other items | (ix) | 768,729 | |
| Corporate income tax | (x) | (48,418 | ) |
| Operating expenses | (xi) | (378,213 | ) |
| Interest expense | (xii) | (6,436 | ) |
| Net periodic pension cost | (xiii) | 13,991 | |
| Net adjustments | | 39,608 | |
| Net income
under Indonesian GAAP as restated | | 4,411,572 | |
| Basic earnings per share (full amount) | | | |
| As previously reported | | 433.73 | |
| As restated | | 437.66 | |
| Basic earnings per ADS (full amount) | | | |
| As previously reported | | 8,674.53 | |
| As restated | | 8,753.12 | |

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4.
The effect of the restatements on stockholders equity as of September 30,
2003 is set forth in the table below:

Stockholders equity under Indonesian GAAP as previously reported		16,907,807
Adjustments
Long service awards	(i)	(597,341	)
Post retirement healthcare benefits	(ii)	(1,253,683	)
Deferred income taxes	(iii)	100,581
Acquisition accounting	(iv)	(86,925	)
Operating revenues	(v)	119,741
Trade accounts payable	(vi)	58,490
Corrections of loan balance	(vii)	117,078
Corrections of taxes payable	(viii)	75,796
Other items	(ix)	793,286
Corporate income taxes	(x)	121,143
Operating expenses	(xi)	(461,052	)
Interest expenses	(xii)	(33,489	)
Net periodic pension cost	(xiii)	(199,580	)
Net adjustments		(1,245,955	)
Stockholders equity under Indonesian GAAP as restated		15,661,852

| These adjustments have been reflected in the accompanying restated
consolidated financial statements and are summarized as follows: |
| --- |
| Adjustments |

| (i) |
| --- |
| The Companys employees are entitled to receive certain cash awards,
such as long service, housing, transport and other allowances, based on
length of service. Depending on the type of award, they are either paid
at the time an employee reaches a certain anniversary date or upon
termination or retirement if the employee has met the requisite number
of years of service. The Company had not previously made provision for
these liabilities and was only accounting for the awards at the time
payments were made to employees. |
| The Company has determined that these awards should have been accounted
for under the accrual method. |

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RESTATEMENT OF FINANCIAL STATEMENTS PREVIOUSLY REPORTED (continued)

(ii)	Post-retirement healthcare benefits
	The Company provides a post-retirement healthcare plan for pensioners
who were employed by the Company for over 20 years. As described in
Notes 2r and 48 of the consolidated financial statements these costs
are accounted for in accordance with U.S. GAAP applying SFAS 106. The
Company has been recognizing the benefit obligations and the related
benefit costs based on actuarial calculations.
	The Company has requested the Companys actuary to review the actuarial
calculations in respect of disclosures for the post-retirement
healthcare plan for the years 2000 and 2001. As a consequence of this
review, the Company recalculated the portion of related expenses for
the nine months period ended September 30, 2004.
(iii)	Deferred income taxes
	The Company has identified the need to make adjustments to correct
errors in prior calculations of deferred income taxes to reflect
certain temporary differences between the tax bases of assets and
liabilities and their reported amounts in the consolidated financial
statements.
(iv)	Acquisition accounting
	In respect of the acquisition of Pramindo in August 2002, the Company
previously consolidated a 30% interest in Pramindo in accordance with
the 30% legal ownership interest in the shares held by the Company. The
Company did not, however, consider other factors affecting its ability
to exercise control over Pramindo and its right to obtain all of the
future economic benefits of ownership as though the Company owned 100%
of the shares. The factors that the Company has now considered include,
among others, the fact that the selling price is fixed, its ability to
vote 100% of the shares at general stockholders meetings, subject to
certain protective rights retained by the selling stockholders, its
ability to appoint all of the board members and management and its
consequent ability to exclusively determine the financial and operating
policies of Pramindo subject to certain protective rights, as a
consequence, the Company has determined that consolidation of a 100%
interest in Pramindo from the date of acquisition is appropriate.
	In addition, in connection with the acquisition of Pramindo in August
2002 and Dayamitra in May 2001, the Company did not properly allocate
the purchase consideration to certain acquired assets. The restated
consolidated financial statements for 2001 and 2002 reflect adjustments
to record such assets at their fair values as of the date of
acquisition and subsequent depreciation thereof.
(v)	Operating revenues
	In line with the Infomedia business progress that have provide call
center service, the Company decided to reclassify the presentation from
other income to operating income. The reclassification was to conform
2004 presentation.

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RESTATEMENT OF FINANCIAL STATEMENTS PREVIOUSLY REPORTED (continued)

(vi)	Trade accounts payable
	As a result of the reconciliation of balances with other telephone
operators in 2002, the Company determined that there were some errors
in trade accounts payable balances that resulted in an overstatement of
the payables recorded in the consolidated financial statements as of
September 2003.
(vii)	Correction of loan balance
	As a result of reconciliation of outstanding loans at the end of 2002,
the Company determined that there was a double recording of a loan
balance which had a corresponding effect of overstating the foreign
exchange loss in the consolidated financial statements for the nine
months period ended September 30, 2003.
(viii)	Correction of taxes payable
	As a result of audited financial statements for the year 2003, the
Company adjusted the tax payable as of September 30, 2003.
(ix)	Other items
	Other adjustments represent adjustments related to depreciation and
reversal expenses resulted by year end audit of 2002.
(x)	Corporate income tax
	Certain of the above adjustment have also impacted the corporate tax
calculation for the 2001 and 2002 tax years. As a result, the Company
has reflected the related adjustments to the corporate tax charge in
the restated consolidated financial statements for the respective
years.
(xi)	Operating expenses
	Restatement for operating expenses represents the reclassification for
amortisation of intangible assets that previously presented as part of
other expenses into part of operating expenses-general and
administrative expenses.
(xii)	Interest expenses
	Adjustment for interest expenses related to the amortisation of
deferred interest in relation to acquisition of 100% equity interest in
PIN since 2002.
(xiii)	Net periodic pension cost
	The Company assigned actuary to recalculate net periodic pension cost
for the year 2002 and the Company has adjusted effect of the
recalculation in its financial statement for nine months period ended
September 30, 2003.

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ACQUISITION OF KSO INVESTORS

| a. |
| --- |
| On May 17, 2001, the Company acquired 90.32% of the shares of Dayamitra
for an aggregate purchase price of US$134,172,232 (including
consultants fees of approximately US$3,303,191 or Rp37,325 million).
Pursuant to the terms of the agreement, the Company paid the initial
payment amount of US$18,289,800 (Rp206,675 million) on May 17, 2001, the
closing date of the transaction, and US$8,937,041 (Rp100,989 million) on
August 10, 2001 as a post-closing working capital adjustment to the
purchase price. The remaining amount of US$103,642,200 (Rp1,171,157
million) was paid through an escrow arrangement discussed below, in
eight quarterly installments of US$12,955,275, from August 17, 2001 to
May 17, 2003. The estimated present value of US$103,642,200 at the
discount rate of 14% was estimated to be US$89,053,984 (Rp1,006,310
million). |
| This acquisition resulted in the identification of an intangible asset
amounting to Rp1,276,575 million representing the right to operate the
business in the KSO Area. The amount is being amortized over the
remaining term of the KSO agreement (Note 17). |
| The Company acquired control of Dayamitra on May 17, 2001 and has
consequently consolidated Dayamitra from that date. |
| The allocation of the acquisition cost for the 90.32% ownership in
Dayamitra was as follows: |

Purchase consideration net of discount on promissory notes	1,351,299
Fair value of net assets acquired:
Cash and cash equivalents	93,652
Distributable KSO revenue receivable	62,398
Other current assets	9,450
Property, plant and equipment	1,401,479
Intangible assets	1,276,575
Other non-current assets	19,510
Current liabilities	(236,265	)
Deferred tax liabilities	(581,816	)
Non-current liabilities	(693,684	)
	1,351,299

Net cash outflow on the acquisition of Dayamitra amounted to Rp241,300 million.

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ACQUISITION OF KSO INVESTORS (continued)

a.
In connection with the Dayamitra transaction, the Company also entered
into the following agreements:

1.	Option Agreement
	The Company entered into an Option Agreement with TM Communications
(HK) Ltd (TMC), providing the Company with an option to acquire the
remaining 9.68% equity interest in Dayamitra, referred to as the
Option Share. Under the agreement, TMC, the selling stockholder,
granted the Company an exclusive option to purchase full and legal
title to the Option Share (the Call Option), and the Company granted
the selling stockholder an exclusive option to sell to the Company
full legal title to those shares (the Put Option).
	In consideration for the grant of the options, the Company will pay to
the selling stockholder the option purchase price of US$6,300,000,
plus US$957,823 as payment for Dayamitras adjusted working capital,
or a total of US$7,257,823. The amount is payable in eight quarterly
installments of US$907,228, beginning on August 17, 2001 and ending on
May 17, 2003.
	Payments will be made through an escrow account established under the
Escrow Agreement discussed below.
	The Company may exercise the option any time after Dayamitra has
satisfied all of its obligations under the JBIC (formerly J-Exim) loan
(Note 27i) beginning on May 17, 2003 and until five business days
prior to March 26, 2006. The strike price payable by the Company to
the selling stockholder for the Option Shares upon exercise of the
option is US$16,200,000, less certain amounts that are stipulated in
the Option Agreement. As of September 30, 2004 the Company has not
exercised the option.
	As of September 30, 2004, the option purchase price that has been paid
by the Company amounted to US$7,257,823 or equivalent to Rp65,458
million (2003: US$7,257,823 or equivalent to Rp79,768 million), and is
presented as part of Advance payments for investments in shares of
stock (Note 5d).
2.	Escrow Agreement
	An Escrow Agreement dated May 17, 2001, was entered into by and among
the Company, Dayamitra, PT Intidaya Sistelindomitra (Intidaya),
Cable and Wireless plc (C&W plc), PT Mitracipta Sarananusa
(Mitracipta), TMC, Tomen Corporation (Tomen), Citibank N.A.
Singapore (the Singapore Escrow Agent) and Citibank N.A. Jakarta (the
Jakarta Escrow Agent), to establish an Escrow Account and facilitate
the payment (Note 18).

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ACQUISITION OF KSO INVESTORS (continued)

| b. |
| --- |
| On April 19, 2002, the Company and the stockholders of Pramindo, namely
France Cables et Radio SA, PT Astratel Nusantara, Indosat, Marubeni
Corporation, International Finance Corporation (IFC) and NMP Singapore
Pte. Ltd. (NMP Singapore) (collectively the Selling Stockholders)
entered into a Conditional Sale and Purchase Agreement (CSPA) pursuant
to which the Company acquired all of Pramindos shares. The Selling
Stockholders shares were transferred to an escrow account (hereafter
referred as escrow shares). |
| Legal title to the escrow shares will be transferred to Telkom in 3
(three) specific tranches on 15 September 2002 30%, 30 September 2003
15% and on 31 December 2004 55% upon payment of the promissory notes
issued to the selling stockholders as payment for the acquisition of the
shares. The escrow shares can be accessed by the selling stockholders
only upon default on payment of the promissory notes by the Company and
no dividends can be paid out until the arrangements between the parties
are completed or terminated in accordance with the terms of the relevant
agreements. |
| The Company and the Selling Stockholders also entered into a
Stockholders Voting Agreement (SVA) on August 15, 2002, pursuant to
which each stockholder of Pramindo delivered to the Company a Power of
Attorney (PoA) whereby the Company obtained the right to vote the
escrow shares. The Company, thereby acquired the right to nominate all
of the members of the Board of Directors and Board of Commissioners of
Pramindo. The SVA is subject to certain reserve matters which serve as
protective rights to the Selling Stockholders. |
| The aggregate purchase price amounted to US$390,308,972 (Rp3,464,040
million) plus Rp250,000 million, represented by an initial payment of
approximately US$9,263,953 (Rp82,218 million), consultants fees of
US$5,945,946 (Rp52,818 million), working capital reimbursement of
Rp250,000 million, and the issue by Telkom of Promissory Notes (series I
and series II) with an aggregate face value of US$375,099,073, of which
the present value at the discount rate of 8.15% at the effective date of
the acquisition was estimated to be US$332,802,122 (Rp2,953,617
million). The series I promissory notes are non-interest bearing and the
series II promissory notes carry a market interest rate. The Promissory
Notes are to be paid in 10 unequal quarterly installments beginning
September 15, 2002 and are irrevocable, unconditional and transferable. |
| The total purchase consideration was allocated first to the net monetary
assets and then the fixed assets acquired. An intangible asset of
Rp2,752,267 million was identified representing right to operate the
business in the KSO Area. The amount is being amortized over the
remaining term of the KSO agreement (Note 17). There was no goodwill
arising from this acquisition. |

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ACQUISITION OF KSO INVESTORS (continued)

| b. |
| --- |
| In addition, the portion that relates to Indosats 13% equity interest
in Pramindo has been accounted for as a restructuring of entities under
common control. The difference between the purchase consideration and
the historical amount of the net assets acquired amounting to Rp296,038
million, included as Difference in value of restructuring transactions
between entities under common control in the stockholders equity
section is calculated as follows: |

Purchase consideration net of discount on promissory notes	3,338,653
Historical amount of net assets	1,061,437
Difference in value for 100% ownership	2,277,216
Difference adjusted to stockholders equity for
Indosats 13% ownership in Pramindo	296,038

| The Company acquired control of Pramindo on August 15, 2002 and has
consequently consolidated Pramindo from August 1, 2002 being the nearest
convenient balance date. |
| --- |
| The allocation of the acquisition cost was as follows: |

Purchase consideration net of discount on promissory notes	3,338,653
Fair value of net assets acquired:
Cash and cash equivalents	141,475
Distributable KSO revenue receivable	187,468
Other current assets	13,839
Property, plant and equipment	1,807,338
Intangible assets	2,752,267
Other non-current assets	160,139
Current liabilities	(284,120	)
Deferred tax liabilities	(1,115,645	)
Non-current liabilities	(620,146	)
Fair value of net assets	3,042,615
Difference adjusted to equity for 13% Indosats ownership in Pramindo	296,038
Total purchase consideration	3,338,653

Net cash outflow on the acquisition of Pramindo amounted to Rp243,561 million.

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ACQUISITION OF KSO INVESTORS (continued)

b.	Pramindo (continued)
	The outstanding promissory notes before unamortized discount issued for
the acquisition of Pramindo are presented as Liabilities for
acquisitions of subsidiaries in the consolidated balance sheets (Note
28). As of September 30, 2004, the promissory notes has been paid
subsequent to obtain of loan from ABN Amro Bank.
c.	PT AriaWest International (AWI)
	Effective on July 31, 2003 (the closing date), the Company acquired
100% of the outstanding common stock of AWI, the investor in KSO III,
for approximately Rp1,141,752 million plus the assumption of AWIs debts
of Rp2,577,926 million. The purchase consideration included
non-interest bearing promissory notes with a face value of
US$109,090,909 (Rp927,272 million), of which the present value at the
discount rate of 5.16% at the closing date was estimated to be
US$92,743,741 (Rp788,322 million). The promissory notes are to be paid
in 10 equal semi-annual installments beginning July 31, 2004.
	The acquisition of AWI has been accounted for using the purchase method
of accounting. There was no goodwill arising from this acquisition.
The following table summarizes the final purchase price allocation of
the acquired assets and assumed liabilities based on estimates of their
respective fair values at the closing date:

Distributable KSO revenue receivable	540,267
Property, plant and equipment	1,556,269
Intangible assets	1,982,564
Other assets	34,372
Deferred tax liabilities	(393,794	)
Fair value of net assets acquired	3,719,678
Borrowings assumed	(2,577,926	)
Amount of cash and promissory notes given up	1,141,752

| The Companys consolidated results of operations include the operating
results of AWI since July 31, 2003, the date of acquisition. |
| --- |
| The outstanding promissory notes issued for the acquisition of AWI are
presented as Liabilities for acquisitions of subsidiaries in the
consolidated balance sheet as of September 30, 2004 (Note 28). As of
September 30, 2004 the outstanding promissory notes, before unamortized
discount, amounted to US$109,090,909 (Rp1,026,000 million). |

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ACQUISITION OF KSO INVESTORS (continued)

c.	PT AriaWest International (AWI) (continued)
	The purchase price described above was based on third party appraisal.
In addition, the Company also entered into a settlement agreement with
AWI pursuant to which the Company and AWI irrevocably settled,
discharged, and released claims and counterclaims in their ICC
arbitration proceeding, and the Company agreed to pay a settlement
amount of US$20,000,000.
d.	Advance payments for investments in shares of stock

Dayamitra (Note 5a)	65,458	65,458
PIN	14,310
	79,768	65,458

| 6. |
| --- |
| On January 20, 2004, the Company and PT Mitra Global Telekomunikasi
Indonesia (MGTI), Partner of KSO IV, have amended their joint operation
agreement in Regional IV. The Company and MGTI, among others, have agreed
that during the remaining KSO period the Company will control and
responsible for the operational of Regional Division IV. All DIVRE IV
revenues shall be deposited to the KSO Account immediately on receipt and
the Company is entitled to all of the Balance of KSO Revenues. The
investor revenues shall be paid monthly to the Investor from KSO Account in
US Dollars with the first payment of February 2004 and will be end on
December 2010 totally US$517,083,302. The agreement shall terminate on
December 31, 2010, at which time all right, title and interest of the
Investor in the new installation shall be transferred to the Company. |
| The Company is interpreting the amendment of KSO agreement as Revenue
Sharing Arrangement in accordance with Indonesian Statement of Financial
Accounting Standard No 35. The acquisition cost of assets is recorded of
US$328 million, that is the present value of projected payment of revenue
sharing to MGTI on the transaction date with the contra account of
Unearned income presented in the Liabilities section of the balance
sheet. |
| Payment to MGTI is recorded as revenue sharing payment based on the payment
schedule in the agreements from February 2004 to December 2010. |
| For the purpose of US GAAP treatment, the amendment was recognized as a
capital lease. |

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CASH AND CASH EQUIVALENTS

Cash on hand	18,469	28,240
Cash in banks
Related parties
Rupiah
Bank Negara Indonesia	448,798	158,151
Bank Mandiri	118,362	77,877
Bank Rakyat Indonesia	11,589	12,022
Bank Pos Nusantara	2,055	3,142
Total	580,804	251,192
Foreign currencies
Bank Mandiri	188,988	15,031
Bank Negara Indonesia	419	1,789
Bank Rakyat Indonesia	453	562
Total	189,860	17,382
Total related parties	770,664	268,574
Third parties
Rupiah
Citibank	22,250	1,984
Bank Bukopin	10,584	8,937
Bank Central Asia	8,894	4,680
Bank Niaga	203	4,237
ABN Amro Bank	48	129,355
Bank Danamon	149	114
Lippo Bank	169	1,127
Bank International Indonesia	109	16
Bank Buana Indonesia		246
Bank Muamalat Indonesia	26	76
Bank Mega	585	3,140
Deutsche Bank	3,679	13,142
Total	46,696	167,054
Foreign currencies
Citibank	3,010	4,166
Deutsche Bank	9,603	17,466
Standard Chartered Bank	13,787	93
ABN Amro Bank	41	2,832
Bank Internasional Indonesia	18	42
Bank Central Asia	29	19
Bank of Tokyo Mitsubishi	7	87
Total	26,495	24,705
Total third parties	73,191	191,759
Total cash in banks	843,855	460,333

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CASH AND CASH EQUIVALENTS (continued)


Time deposits
Related parties
Rupiah
Bank Negara Indonesia	956,170	216,185
Bank Mandiri	765,871	1,783,597
Bank Rakyat Indonesia	501,210	43,975
Bank Tabungan Negara	212,750	187,115
Total	2,436,001	2,230,872
Foreign currencies
Bank Mandiri	548,543
Bank Negara Indonesia	13,481	118
Total	562,024	118
Total related parties	2,998,025	2,230,990
Third parties
Rupiah
Standard Chartered Bank	50,000
Bank Mega	35,258	98,606
Bank Bukopin	57,494	105,277
Bank Yudha Bhakti	1,000
Bank Niaga		62,832
Deutsche Bank	251,197	1,377,195
Bank Danamon	182,622	43,585
ABN Amro Bank	1,000
Bank NISP		51,905
Bank International Indonesia	8,500
Bank Tugu	50,000	8,550
Bank Bumiputra		8,303
Bank Jabar		42,604
Total	637,071	1,798,857
Foreign currencies
Standard Chartered Bank		67,629
Deutsche Bank	362,981	1,526,417
Total	362,981	1,594,046
Total third parties	1,000,052	3,392,903
Total time deposits	3,998,077	5,623,893
Total cash and cash equivalents	4,860,401	6,112,466

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7.
Range of interest rates per annum for time deposits is as follows:

Rupiah	7.50% 7.95 %	6.14% 7.30 %
Foreign currencies	1.50% 2.00 %	0.65% 0.90 %

TEMPORARY INVESTMENTS


Time deposits
Third parties
Rupiah
Bank Bukopin		3,775
Bank Bumiputra		10,000
Bank Mega		10,000
Bank Niaga		10,000
Bank NISP		10,000
Bank Jabar		28,559
Bank Amro		4,000
Standard Chartered Bank		7,000
Foreign currencies
Citibank	62,119
Total time deposits	62,119	83,334
Available-for-sale securities
Investment in mutual fund (Reksadana Bahana)
At cost		17,000
Unrealized gain on increase in value		429
		17,429
Investment in mutual fund (Reksadana BNI)
At cost		7,000
Unrealized gain on increase in value		36
		7,036
Total available-for-sale securities		24,465
Total temporary investments	62,119	107,799

Range of interest rates per annum for time deposits is as follows:

	2003	2004
Rupiah	7.44% 7.92%	7.30% 8.00%
Foreign currency	2.00%	2.50%

The terms of time deposits range from 3 months to 1 year.
Investments placed with related parties have similar interest rates, terms
and conditions as those placed with third parties.

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TRADE ACCOUNTS RECEIVABLE

a.
Related parties:

KSO Units	590,844		514,134
Government agencies	147,176		222,974
PT Mandara Selular Indonesia (formerly PT Mobile Selular Indonesia)	44,488		40,713
PT Citra Sari Makmur			27,381
PT Telekomunikasi Selular	89,592
PT Aplikanusa Lintasarta	17,278		10,893.00
PT Patra Telekomunikasi Indonesia	8,669		11,250
BBT	1,402
PSN	6
Other	1,328		7,094
Total	900,783		834,439
Allowance for doubtful accounts	(135,689	)	(143,591	)
Net	765,094		690,848

| Trade accounts receivable from certain related parties are presented net
of the Companys liabilities to such parties due to legal right of offset
in accordance with agreements with those parties. |
| --- |
| Third parties: |

Residential and business subscribers	2,742,709		3,525,333
Overseas international carriers	174,022		82,876
Others	80,597		44,206
Total	2,997,328		3,652,415
Allowance for doubtful accounts	(413,959	)	(562,013	)
Net	2,583,369		3,090,402

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TRADE ACCOUNTS RECEIVABLE (continued)

b.
Related parties:

Up to 6 months	307,444		547,695
7 to 12 months	333,904		155,357
13 to 24 months	161,375		62,629
More than 24 months	98,060		68,758
Total	900,783		834,439
Allowance for doubtful accounts	(135,689	)	(143,591	)
Net	765,094		690,848

Third parties:

Up to 3 months	2,583,369		3,090,402
More than 3 months	413,959		562,013
Total	2,997,328		3,652,415
Allowance for doubtful accounts	(413,959	)	(562,013	)
Net	2,583,369		3,090,402

c.
Related parties

Rupiah	799,783		749,102
United States Dollar	101,000		85,337
Total	900,783		834,439
Allowance for doubtful accounts	(135,689	)	(143,591	)
Net	765,094		690,848

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TRADE ACCOUNTS RECEIVABLE (continued)

c.
Third parties

Rupiah	2,962,694		3,552,400
United States Dollar	34,634		100,015
Total	2,997,328		3,652,415
Allowance for doubtful accounts	(413,959	)	(562,013	)
Net	2,583,369		3,090,402

d. Movements in the allowance for doubtful accounts

Beginning balance	502,989		443,892
Additions	192,113		281,622
Bad debts write-off	(145,454	)	(19,910	)
Ending balance	549,648		705,604

| Management believes that the allowance for doubtful receivables is
adequate to cover probable losses on uncollectible accounts. |
| --- |
| Except for the amounts receivable from Government Agencies, management
believes that there are no significant concentrations of credit risk on
these receivables. |

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INVENTORIES


Components:
Telephone terminals and spare parts	64,955		30,513
Cable and transmission installation spare parts	15,309		4,459
Other spare parts	13,453		8,724
Total	93,717		43,696
Allowance for obsolescence	(26,210	)	(14,389	)
Net	67,507		29,307
Modules:
Cable and transmission installation spare parts	56,031		52,991
Telephone terminals and spare parts	38,047		34,436
Other spare parts	272		142
Total	94,350		87,569
Allowance for obsolescence	(24,617	)	(32,377	)
Net	69,733		55,192
Cards:
SIM cards and prepaid voucher blanks	48,875		87,583
Allowance for obsolescence	(519	)	(336	)
Net	48,356		87,247
Total	185,596		171,746

Movements in the allowance for obsolescence are as follows:

Beginning balance	53,795		40,489
Additions	(2,006	)	7,167
Inventory write-off	(443	)	(554	)
Ending balance	51,346		47,102

| Management believes that the allowance is adequate to cover probable losses
from decline in inventory value due to obsolescence. |
| --- |
| At September 30, 2004, inventory held by a certain subsidiary was insured
against fire, theft and other specified risks for US$750,000. Management
believes that the insurance amount is adequate to cover such risks. |

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PREPAID EXPENSES

Pension cost (Note 46)	220,206	129,480
Salary	126,835	152,700
Rental	247,141	414,769
Insurance	17,797	58,505
Telephone directory issuance	77,629	114
Other	38,364	34,610
Total	727,972	790,178

| 12. |
| --- |
| This account consists of time deposits and restricted funds at Bank
Mandiri. As of September 30, 2003, the balance consists of the Companys
time deposits of US$4.6 million (equivalent Rp38,663 million) pledged as
collateral for credit facility obtained by Napsindo. and Companys time
deposit of US$25,750 (equivalent Rp236 million) and Rp1,627 million at Bank
Mandiri pledged as collateral for bank guarantees. As of September 30,
2004, the balance consists of the Companys time deposits of US$4.6 million
(equivalent Rp42,549 million) pledged as collateral for credit facility
obtained by Napsindo (Note 23a), Companys bank guarantees of US25,750
(equivalent Rp236 million) and Rp1,627 million pledged as collateral for
bank guarantees. |

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LONG-TERM INVESTMENTS


Percentage				Equity in
of	Opening	Addition/		net income		Translation		Ending
ownership	balance	(deduction)		(loss)		adjustment		balance
Equity method:
PT Citra Sari Makmur	25.00	62,270			(373	)	(6,237	)	55,660
PT Patra Telekomunikasi Indonesia	30.00	12,843			344				13,187
PT Napsindo Primatel International	60.00	4,693	(4,693	)
PT Multimedia Nusantara	100.00	1,928	(1,928	)
PT Telekomindo Selular Raya		26,642	(26,642	)
PT Metro Selular Nusantara		16,307	(16,307	)
PT Pasifik Satelit Nusantara	43.69
PT Menara Jakarta
		124,683	(49,570	)	(29	)	(6,237	)	68,847
Cost method:
PT Batam Bintan Telekomunikasi	5.00	587							587
PT Pembangunan Telekomunikasi
Indonesia	3.18	199							199
Medianusa Pte. Ltd.	9.44	108
PT Komunikasi Selular Indonesia	14.20	57,570	(57,570	)
PT Mandara Selular Indonesia	7.44
		58,464	(57,570	)					894
		183,147	(107,140	)	(29	)	(6,237	)	69,741

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LONG-TERM INVESTMENTS (continued)


Percentage			Equity in
of	Opening	Addition /	net income	Translation	Ending
ownership	balance	(deduction)	(loss)	adjustment	balance
Equity method:
PT Citra Sari Makmur	25.00	52,422		869	5,813	59,104
PT Patra Telekomunikasi Indonesia	30.00	11,332		1,413		12,745
PT Telekomindo Selular Raya
PT Metro Selular Nusantara
PT Pasifik Satelit Nusantara	43.69
		63,754		2,282	5,813	71,849
Cost method:
PT Batam Bintan Telekomunikasi	5.00	587				587
PT Pembangunan Telekomunikasi
Indonesia	3.18	199				199
Medianusa Pte. Ltd.	9.44	108				108
PT Komunikasi Selular Indonesia	14.20
PT Mandara Selular Indonesia	6.40
		894				894
		64,648		2,282	5,813	72,743

| On August 8, 2003, the Company and PT Centralindo Pancasakti Cellular
(CPSC) signed a share-swap agreement (KMT-IP share-swap transaction) in
which the Company delivered its 14.20% outstanding shares in PT Komunikasi
Selular Indonesia (Komselindo), its 20.17% outstanding shares in PT Metro
Selular Nusantara (Metrosel), and its 100% outstanding shares in PT
Telekomindo Selular Raya (Telesera) to CPSC. In return, CPSC delivered
its 30.58% outstanding shares in PT Indonusa Telemedia (Indonusa), 21.12%
outstanding shares in PT Pasifik Satelit Nusantara (PSN) under certain
terms and paid cash of Rp5,398 million to the Company. |
| --- |
| From the KMT IP share-swap transaction, the Company recognized a loss of
Rp47.3 billion being the difference between the fair value of assets
received and the carrying amount of the Companys investments given to
CPSC, and reversal of difference due to change of equity in Metrosel
previously recognized directly in equity. |

a.	PT Citra Sari Makmur (CSM)
	CSM is engaged in providing Very Small Aperture Terminal (VSAT),
network application services and consulting services on
telecommunications technology and related facilities.
b.	PT Patra Telekomunikasi Indonesia (Patrakom)
	Patrakom is engaged in providing satellite communication system services
and related services and facilities to companies in the petroleum
industry.

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LONG-TERM INVESTMENTS (continued)

| c. |
| --- |
| In 2001, the Minister of Justice and Human Rights approved the corporate
restructuring of PT Telekomindo Primabhakti (Telekomindo), an
associated company engaged in the construction and development of
telecommunications facilities. Pursuant to the restructuring,
Telekomindos authorized and paid-up capital was reduced and the capital
reduction became the paid-up capital of two new companies: PT
Telekomindo Media Informatika (TMI) and PT Griya Insani Primabhakti
(GIP). |
| Based on a share-swap agreement dated December 5, 2001 among the
Company, PT Rajawali Corporation (RC), Telekomindo and TMI, the
parties agreed on the following: |

| | The Company sold its investments in Telekomindo, TMI and
GIP to RC for Rp101,838 million and recognized a gain of Rp101,838
million. |
| --- | --- |
| | TMI sold its investments in PT Telekomindo Selular Raya
(Telesera) and the fixed assets of PT Multisaka Mitra (MSM) to
the Company for Rp87,907 million and Rp17,442 million,
respectively. |

| | This transaction resulted in the Company owning 69.77% shares of
Telesera as of December 31, 2001. In 2002, the Company acquired the
remaining 30.23% interest in Telesera from Dana Pensiun Telkom for
Rp38,093 million. In 2002, the Company also recognized a loss of
Rp101,000 million to write down the carrying amount of this investment
to net asset value. As of September 30, 2003, the carrying amount of
this investment was Nil. |
| --- | --- |
| | On August 8, 2003, the Company exchanged its investment in Telesera to
CPSC. |
| d. | PT Metro Selular Nusantara (Metrosel) |
| | Metrosel is engaged in providing national mobile cellular services and
related facilities in Central Java, Yogyakarta, East Java, Maluku and
Irian Jaya. |
| | On May 30, 2002, Metrosel made an equity call. The Company made
additional capital contributions amounting to Rp13,513 million to
maintain its ownership in Metrosel at 20.17%. |
| | On August 8, 2003, the Company exchanged its investment in Metrosel to
CPSC. |
| e. | PT Pasifik Satelit Nusantara (PSN) |
| | PSN is engaged in providing satellite transponder leasing and
satellite-based communication services in the Asia Pacific Region. |
| | In 2001, Management decided to recognize the decline in value of this
investment due to the financial condition of PSN. |

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LONG-TERM INVESTMENTS (continued)

e.	PT Pasifik Satelit Nusantara (PSN) (continued)
	On August 8, 2003, as a result of share-swap transaction with CPSC, the
Company interest in PSN effectively increased to 43.69%.
	In 2003, PSN entered into a negotiation with its current creditors to
restructure its debts. Up to the date of this report, the debt
restructuring has not yet been effective.
f.	PT Menara Jakarta (MJ)
	MJ was engaged in the construction and the operation of towers and
related facilities. The economic difficulties faced by Indonesia have
resulted in the termination of MJs construction projects at the end of
1997. The value of this investment has been reduced to nil.
	On April 8, 2003, the Company exchanged all its shares in MJ to PT
Indocitra Grahabawana (Indocitra) for Indocitras 69% ownership
interest in Metra (Note 1c).
g.	PT Batam Bintan Telekomunikasi (BBT)
	BBT is engaged in providing fixed line telecommunication services at
Batamindo Industrial Park in Muka Kuning, Batam Island and at Bintan
Beach International Resort and Bintan Industrial Estate in Bintan
Island.
h.	PT Pembangunan Telekomunikasi Indonesia (Bangtelindo)
	Bangtelindo is primarily engaged in providing consultancy services on
the installation and maintenance of telecommunications facilities.
i.	Medianusa Pte. Ltd.
	Medianusa Pte. Ltd. is an associated company of Infomedia, which is
engaged as a sales agent, in search of advertisers for telephone
directories.
j.	PT Komunikasi Selular Indonesia (Komselindo)
	Komselindo is a joint venture between the Company and PT Elektrindo
Nusantara (Elektrindo), and is engaged in providing analog mobile
cellular services. These services were previously provided by the
Company under a revenue-sharing arrangement with Elektrindo.

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LONG-TERM INVESTMENTS (continued)

j.	PT Komunikasi Selular Indonesia (Komselindo) (continued)
	Based on the Deed of Komselindos Stockholders Extraordinary General
Meeting No. 110 dated October 10, 2000, which was notarized by Ny. R.
Arie Soetardjo, S.H., the Company agreed to the conversion of Rp92,750
million of receivables from Komselindo into equity in order to maintain
a 35% ownership interest.
	In 2001, the Company recorded the conversion of the receivables into
equity and recognized a loss upon the write-down of the new carrying
amount of the investment amounting to Rp92,750 million.
	On August 30, 2002, Komselindos stockholders through an Extraordinary
Stockholders Meeting approved the equity call for debt restructuring
which was included in the Settlement Agreement and the Settlement,
Termination and Release Agreement dated August 30, 2002. The Company
released and waived its pre-emptive right to subscribe newly issued
shares resulting in the dilution of the Companys ownership in
Komselindo to 14.20%.
	This debt restructuring transaction resulted in a net equity of
Komselindo amounting to Rp405,421 million. As of December 31, 2002, the
Company recorded its 14.20% interest in Komselindo at its net equity
value of Rp57,570 million.
	On August 8, 2003, the Company sold its investment in Komselindo to
CPSC.
k.	PT Mandara Selular Indonesia (formerly PT Mobile Selular
Indonesia, Mobisel)
	Mobisel is engaged in providing mobile cellular services and related
facilities. These services were previously provided by the Company under
a revenue-sharing arrangement with PT Rajasa Hazanah Perkasa (RHP).
The capital contribution made by the Company of Rp10,398 million
represented a 25% equity ownership in Mobisel.
	On July 28, 2003, Mobisels stockholders agreed to a restructuring
program which included a debt to equity conversion of Mobisels
interconnection payables to the Company, and an equity investment by a
new stockholder. The debt conversion was completed in August 2003 which
resulted in dilution of the Companys interest to 7.44%.
	Subsequently, in January 2004, the Companys ownership interest was
further diluted to 6.4% following the debt to equity in conversion of
Mobiles debt to PT Property Java, Boston Investment Limited and Inquam
(Indonesia) Limited Company.
	As of September 30, 2004, the value of investment has been reduced to
nil.

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

PROPERTY, PLANT AND EQUIPMENT

2003	Additions	Deductions		Reclassifications		2003
At cost or revalued amounts:
Direct ownership
Land	267,933	47,601	(207	)	2,481		317,808
Buildings	1,658,390	120,373	(28,226	)	50,006		1,800,543
Switching equipment	9,629,203	294,855			3,389,954		13,314,012
Telegraph, telex and data
communication equipment	206,667	99	(39	)	(11,067	)	195,660
Transmission installation and
equipment	10,340,314	55,058	(6,802	)	4,198,527		14,587,097
Satellite, earth station and
equipment	5,798,011	21,304			(3,027,337	)	2,791,978
Cable network	13,122,336	939,853	(18,448	)	773,004		14,816,745
Power supply	1,032,534	35,526	(3,698	)	33,265		1,097,627
Data processing equipment	2,739,837	275,333	(111	)	23,950		3,039,009
Other telecommunications
peripherals	681,363	51,276	(976	)	2,596		734,259
Office equipment	639,682	65,681	(2,470	)	5,872		708,765
Vehicles	187,353	5,136	(3,789	)	(132	)	188,568
Other equipment	87,370	11,932					99,302
Property under construction:
Buildings	42,913	18,858			(48,934	)	12,837
Switching equipment	348,286	1,297,581			(1,627,570	)	18,297
Transmission installation and
equipment	139,499	2,867,269			(2,895,101	)	111,667
Satellite, earth station and
equipment	264,029	240,583			(23,218	)	481,394
Cable network	115,420	808,852			(832,199	)	92,073
Power supply	5,715	12,756			(16,307	)	2,164
Data processing equipment	10,807	16,303			(25,466	)	1,644
Other telecommunications
peripherals	13,649	6,865			(4,279	)	16,235
Leased assets
Vehicles	3,640						3,640
Total	47,334,951	7,193,094	(64,766	)	(31,955	)	54,431,324
Accumulated depreciation:
Direct ownership
Buildings	736,997	125,704	(28,226	)	(1,373	)	833,102
Switching equipment	4,569,287	952,423			(9	)	5,521,701
Telegraph, telex and data
communication equipment	202,043	997	(39	)	(11,066	)	191,935
Transmission installation and
equipment	3,183,736	902,224	(21	)	(1,395	)	4,084,544
Satellite, earth station and
equipment	2,001,671	144,353	(2,614	)	5,229		2,148,639
Cable network	5,286,209	710,162	(11,383	)	(10,548	)	5,974,440
Power supply	724,985	68,846	(3,610	)	191		790,412
Data processing equipment	990,054	383,761	(94	)	(9,899	)	1,363,822
Other telecommunications
peripherals	499,093	33,747	(628	)	(825	)	531,387
Office equipment	460,518	69,007	(928	)	(932	)	527,665
Vehicles	167,226	11,894	(1,960	)	(133	)	177,027
Other equipment	63,020	10,447					73,467
Leased assets
Vehicles	1,506	628					2,134
Total	18,886,345	3,414,193	(49,503	)	(30,760	)	22,220,275
Net Book Value	28,448,606						32,211,049

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

PROPERTY, PLANT AND EQUIPMENT (continued)

2004	Additions	Deductions		Reclassifications		2004
At cost or revalued amounts:
Direct ownership
Land	298,964	15,652	(2,424	)			312,192
Buildings	1,819,095	31,887	(4,633	)	94,477		1,940,826
Switching equipment	10,473,392	82,218	(667	)	62,035		10,616,978
Telegraph, telex and data
communication equipment	199,314	429			(758	)	198,985
Transmission installation and
equipment	16,818,179	1,297,512	(476,231	)	2,180,418		19,819,878
Satellite, earth station and
equipment	6,209,827	1,721	(163,490	)	312,468		6,360,526
Cable network	15,488,797	37,927	(2,727	)	85,574		15,609,571
Power supply	1,149,458	3,406	(312	)	41,601		1,194,153
Data processing equipment	3,252,667	309,576	(10,330	)	51,797		3,603,710
Other telecommunications
peripherals	735,188	70,721			1,558		807,467
Office equipment	660,491	37,819	(18	)	651		698,943
Vehicles	187,853	208	(4,976	)	541		183,626
Other equipment	107,573	3,346			356		111,275
Property under construction:
Buildings	54,888	158,762			(74,939	)	138,711
Switching equipment	158,056	57,731			(18,364	)	197,423
Transmission installation and
equipment	93,907	2,106,294			(2,123,183	)	77,018
Satellite, earth station and
equipment	586,476	599,330			5,079		1,190,885
Cable network	14,524	1,082,013			(473,362	)	623,175
Power supply	106	21,767			(6,731	)	15,142
Data processing equipment	10,526	62,581			(47,263	)	25,844
Other telecommunications
peripherals	16,483	642			(6,869	)	10,256
Leased assets
Vehicles	239	11					250
Total	58,336,003	5,981,553	(665,808	)	85,086		63,736,834
Accumulated depreciation:
Direct ownership
Buildings	812,319	84,274	(4,616	)	12,802		904,779
Switching equipment	5,266,488	474,272			37,286		5,778,046
Telegraph, telex and data
communication equipment	194,249	1,686			(2,087	)	193,848
Transmission installation and
equipment	4,956,895	1,890,880	(475,412	)	20,547		6,392,910
Satellite, earth station and
equipment	2,158,379	125,691	(163,490	)	(477,648	)	1,642,932
Cable network	6,613,281	997,920	(1,011	)	576,760		8,186,950
Power supply	797,925	67,233	(387	)	3,167		867,938
Data processing equipment	1,469,816	377,715	(10,253	)	(3,673	)	1,833,605
Other telecommunications
peripherals	572,190	63,155			(97,479	)	537,866
Office equipment	497,467	37,019	(129	)	7,267		541,624
Vehicles	173,134	3,853	(4,267	)	(623	)	172,097
Other equipment	69,302	15,957			(6	)	85,253
Leased assets
Vehicles	114	22					136
Total	23,581,559	4,139,677	(659,565	)	76,313		27,137,984
Net Book Value	34,754,444						36,598,850

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PROPERTY, PLANT AND EQUIPMENT (continued)

Proceeds from sale of property, plant and equipment	245,672	51,180
Net book value	8,859	6,063
Gain on sale	236,813	45,117

| Interest capitalized to property under construction amounted to Rp17,193
million and RpNil during nine months period ended September 30, 2003 and
2004, respectively. |
| --- |
| The Company and its subsidiaries own several pieces of land located
throughout Indonesia with Building Use Rights (Hak Guna Bangunan or HGB)
for a period of 20-30 years, which will expire between 2004-2032.
Management believes that there will be no difficulty in obtaining the
extension of the land rights when they expire. |
| Some of the Companys land of 330,690 sqm is still under the name of other
parties including, among others, the Ministry of Tourism, Post and
Telecommunications and the Ministry of Communications of the Republic of
Indonesia. The transfer to the Company of the legal title of ownership on
those parcels of land is still in progress. |
| The estimated date of completion of assets under construction is up to
January 2005. Management believes that there is no impediment to the
completion of the construction in progress. |
| As of September 30, 2004, property, plant and equipment of the Company and
subsidiaries, except for land, were insured with various insurance
companies against fire, theft and other specified risks for a coverage of
Rp22,518,012 million and US$1,982,291,950. In addition, the Palapa B4 and
Telkom-1 satellites are insured for US$59,456,265. Management believes that
the insurance coverage is adequate. |
| For the nine months period ended September 30, 2004, Telkomsel accelerated
the depreciation of IN hardware amounted to Rp205 billion due to
modernization of equipment, and then written off its related carrying cost
as well as accumulated depreciation amounted to Rp395.4 billion. |
| Certain property, plant and equipment of the Company and subsidiaries have
been pledged as collateral for lending agreements (Notes 27, 29 and 30). |

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| 15. |
| --- |
| Set forth below are the Companys property, plant and equipment (included
in Note 14 above) that are being managed, operated and maintained by the
KSOs: |

Land	164		201
Buildings	234,518		170,598
Switching equipment	869,269		554,272
Telegraph, telex and data communication equipment	34,014		26,344
Transmission installation and equipment	350,196		267,430
Satellite, earth station and equipment	50,483		50,420
Cable network	1,118,047		692,109
Power supply	142,954		89,696
Data processing equipment	65,651		32,457
Other telecommunications peripherals	58,103		40,402
Office equipment	48,764		30,737
Vehicles	17,406		10,143
Other equipment	462		326
Property under construction	22,960		3,322
Total cost	3,012,991		1,968,457
Accumulated depreciation	(2,210,117	)	(1,504,714	)
Net book value	802,874		463,743

| In 2003, the property, plant and equipment under joint operation scheme
(which not consolidated) are Regional IV Center Java and Regional VII East
Indonesia. |
| --- |
| In 2004, Joint Operation Scheme IV was consolidated since January 20, 2004. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS

2003	Additions	Deductions		Reclassifications		2003
At cost:
Land	3,160						3,160
Buildings	23,727						23,727
Switching equipment	623,757		(5,897	)	(3,256	)	614,604
Transmission installation
and equipment	107,558		(9,416	)	(5,115	)	93,027
Cable network	333,188						333,188
Other telecommunications
peripherals	129,196		(2,211	)	(500	)	126,485
Total	1,220,586		(17,524	)	(8,871	)	1,194,191
Accumulated depreciation:
Land	1,278	118					1,396
Buildings	10,411	890					11,301
Switching equipment	360,637	32,806	(5,897	)	(3,256	)	384,290
Transmission installation
and equipment	95,198	6,978	(9,416	)	(5,115	)	87,645
Cable network	246,244	21,403					267,647
Other telecommunications
peripherals	129,196		(2,211	)	(500	)	126,485
Total	842,964	62,195	(17,524	)	(8,871	)	878,764
Net Book Value	377,622						315,427

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PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS (continued)

2004	Additions	Deductions		2004
At cost:
Land	3,160	15,811			18,971
Buildings	20,255	103,601	(7,058	)	116,798
Switching equipment	537,890	821,754	(57,156	)	1,302,488
Transmission installation
and equipment	93,028	632,459	(20,739	)	704,748
Cable network	318,381	1,251,335	(17,789	)	1,551,927
Other telecommunications
peripherals	123,972	13,495	(4,637	)	132,830
Total	1,096,686	2,838,455	(107,379	)	3,827,762
Accumulated depreciation:
Land	1,449	93			1,542
Buildings	9,804	5,630	(3,529	)	11,905
Switching equipment	341,525	94,343	(37,951	)	397,917
Transmission installation
and equipment	89,720	70,816	(20,739	)	139,797
Cable network	225,175	153,561	(13,972	)	364,764
Other telecommunications
peripherals	123,972	3,517	(4,637	)	122,852
Total	791,645	327,960	(80,828	)	1,038,777
Net Book Value	305,041				2,788,985

| In accordance with revenue-sharing arrangements agreements, ownership
rights to the property, plant and equipment under revenue-sharing
arrangements are legally retained by the investors until the end of the
revenue-sharing period. |
| --- |
| The unearned income on revenue-sharing arrangements is as follows: |

Gross amount	1,194,190		3,870,061
Accumulated amortization:
Beginning balance	(1,077,789	)	(984,954	)
Addition (Note 39)	(59,416	)	(313,481	)
Deduction	42,757		67,572
Ending balance	(1,094,448	)	(1,230,863	)
Net	99,742		2,639,198

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

INTANGIBLE ASSETS


Intangible Assets						Goodwill
Dayamitra		Pramindo		AWI		GSD		Total
Historical cost:
Beginning balance	1,276,575		2,752,267		1,982,564		106,348		6,117,754
Additions
Deduction
Ending balance	1,276,575		2,752,267		1,982,564		106,348		6,117,754
Accumulated
amortization
Beginning balance	(344,121	)	(463,253	)	(111,380	)	(54,951	)	(973,705	)
Additions	(99,906	)	(245,252	)	(200,484	)	(15,952	)	(561,594	)
Deduction
Ending balance	(444,027	)	(708,505	)	(311,864	)	(70,903	)	(1,535,299	)
Book value	832,548		2,043,762		1,670,700		35,445		4,582,455


Intangible Assets						Goodwill
Dayamitra		Pramindo		AWI		Napsindo		Metra		GSD		Total
Historical cost:
Beginning balance	1,276,575		2,752,267								106,348		4,135,190
Additions					1,982,564		36,788		5,751				2,025,103
Deduction
Ending balance	1,276,575		2,752,267		1,982,564		36,788		5,751		106,348		6,160,293
Accumulated
amortization
Beginning balance	(115,147	)	(94,217	)							(33,682	)	(243,046	)
Additions	(171,730	)	(276,777	)	(44,552	)	(36,788	)	(5,751	)	(15,952	)	(551,550	)
Deduction
Ending balance	(286,877	)	(370,994	)	(44,552	)	(36,788	)	(5,751	)	(49,634	)	(794,596	)
Book value	989,698		2,381,273		1,938,012						56,714		5,365,697

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18.
Escrow accounts consist of the following:

Citibank N.A., Singapore	278,374	208,830
JP Morgan Chase Bank	169,464
Bank Mandiri		6,171
Total	447,838	215,001

a. Citibank N.A., Singapore

| 1) | This escrow account with Citibank N.A., Singapore
(Dayamitra Escrow Agent) was established to facilitate the
payment of the Companys obligations under the Conditional Sale
and Purchase Agreement and Option Agreement entered into with the
selling stockholders of Dayamitra (Note 5a). |
| --- | --- |
| | In accordance with the Escrow Agreement, the Company made the first
installment payment of US$14,343,750 on May 17, 2001. Further
monthly installments of US$6,250,000 for twenty four months are
required by the agreement. The Company is also obliged to make
additional installment payments necessary to settle the obligation
on the due dates and to maintain a minimum balance of US$14,343,750. |
| | The escrow account earns interest at LIBOR minus 0.75% per annum,
which is computed on a daily basis. The interest income earned is
included as part of the escrow funds. The remaining funds available
will be transferred to the Company after all of the obligations
related to the Dayamitra transaction are satisfied. |
| 2) | This escrow account also consist the Companys account
with Citibank N.A., Singapore (CDMA Samsung Project Agent) to
facilitate payment of the Companys loan to Korean Exim Bank. |
| | In accordance with the Escrow Agreement, each disbursement from
Korean Exim should be put into escrow account and will be paid to
Samsung based on request of payment from Telkom. The escrow account
earns interest at LIBOR minus 0.75% per annum, which is computed on
a daily basis. The interest income earned is included as part of the
escrow funds. |

| b. |
| --- |
| This escrow account with JP Morgan Chase Bank (Pramindo Escrow Agent)
was established to facilitate the settlement of the Companys
obligations under its Conditional Sale and Purchase Agreement for the
acquisition of Pramindo (Note 5b). |
| In accordance with the Escrow Agreement, the Company will make
installment payments of US$12,800,000 for eleven months and
US$15,000,000 for sixteen months. The first installment was due on
October 1, 2002. |

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ESCROW ACCOUNTS (continued)

b.	JP Morgan Chase Bank (lanjutan)
	The escrow account earns interest at LIBOR minus 0.4% per annum, which
is computed on a daily basis. The interest income earned will be
included as part of the escrow funds. In June 2004, the account was
closed and the remaining funds available were transferred to the
Company.
c.	Bank Mandiri
	The escrow account with Bank Mandiri was established by Dayamitra in
relation with the credit facilities from Bank Mandiri (Note 27f).

TRADE ACCOUNTS PAYABLE


Related parties
Payables to other telecommunications carriers	340,974	335,263
Concession fees	262,805	397,918
Purchases of equipment, materials and services	53,227	83,741
Others	1,621	10,680
Total	658,627	827,602
Third parties
Purchases of equipment, materials and services	2,258,175	3,111,397
Payables related to revenue-sharing arrangements	109,267	107,578
Payables to other telecommunication providers	103,138	112,807
Total	2,470,580	3,331,782
Total	3,129,207	4,159,384

Trade accounts payable by currency are as follows:

Rupiah	2,917,580	2,230,973
U.S. Dollars	207,372	1,164,693
Euro	3,260	760,500
Japanese Yen		977
Great Britain Pound Sterling	878	884
Singapore Dollars		1,310
Australian Dollars	117	47
Total	3,129,207	4,159,384

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACCRUED EXPENSES

Early retirement benefits	330,973	7,161
Salaries and employee bonuses	340,776	303,439
Interest and bank charges	458,526	509,723
General, administrative and marketing	224,613	339,194
Operations, maintenance and telecommunications services	324,174	486,580
Other	359	6,099
Total	1,679,421	1,652,196

UNEARNED INCOME

Prepaid pulse reload vouchers	462,754	862,323
Telephone directory	125,036	3,300
Other telecommunication services	11,604	6,658
Other	61,070	56,443
Total	660,464	928,724

| 22. |
| --- |
| Represent security deposits received from customers related to services and
performance guarantee deposits from suppliers related to procurement
contracts. |

SHORT-TERM BANK LOANS

Bank Mandiri	37,509	40,854
ABN Amro Bank		356,683
Total	37,509	397,537

On August 28, 2001, Napsindo entered into a loan agreement with Bank Mandiri amounting to US$1,800,000 for a one-year term. The loan is secured with the Companys time deposits (Note 12) with interest rate at 2% above the pledged time deposits interest rate (i.e. 3% as of December 31, 2003). On November 11, 2003, the facility was extended until August 28, 2004. On April 24, 2003, Napsindo obtained a new loan from Bank Mandiri amounting to US$2,660,000 for a one-year term. The loan is secured by the Companys time deposits and bears interest at 2% above the pledged time deposits interest rate. The facility can be extended upon approval by the Company. Subsequently, on May 4, 2004, this loan facility was extended for another one-year term and will expire on April 24, 2005. As of September 30, 2004, principal outstanding under these facilities amounted to US$4,460,000 (Rp40,854 million).

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| 23. |
| --- |
| On January 28, 2004, the Company signed a short-term loan agreement with
ABN-AMRO Bank NV Jakarta Branch (ABN-AMRO) in the amount of approximately
US$130,000,000. The loan was used to re-purchase the outstanding promissory
notes on March 15, 2004 which were issued for the acquisition of the
Pramindo (Note 6b). The loan and interest is payable to ABN-AMRO in 10
monthly installments from March 2004 to December 2004. The loan bears
floating interest rate of LIBOR + 2.75%. The outstanding loan as of
September 30, 2004 amounted to Rp356,683 million
(US$38,896,788). |

MATURITIES OF LONG-TERM LIABILITIES

a. Current maturities

Two-step loans	25	820,428	882,591
Bank loans	27	764,979	1,123,685
Liabilities for acquisitions of subsidiaries	28	1,690,642	200,073
Suppliers credit loans	29	254,335
Bridging loan	30	50,517
Total		3,580,901	2,206,349

b. Long-term portion

Notes	Total	2005	2006	2007	2008	Later
Two-step loans	25	6,505.9	277.6	797.7	680.3	607.0	4,143.3
Guaranteed notes	26	726.6			726.6
Bonds	26	985.2			985.2
Bank loans	27	2,579.2	527.5	1,114.7	743.4	193.6
Liabilities for acquisitions
of subsidiaries	28	607.7		177.1	177.1	177.1	76.5
Other long-term debt		9.1					9.1
Total		11,413.7	805.1	2,089.5	3,312.6	977.7	4,228.9

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 ( Figures in tables are presented in millions of Rupiah, unless otherwise stated)

| 25. |
| --- |
| Two-step loans are loans, which were obtained by the Government from
overseas banks and a consortium of contractors, which are then re-loaned to
the Company. The loans entered into up to July 1994 were recorded and are
payable in Rupiah based on the exchange rate at the date of draw-down.
Loans entered into after July 1994 are payable in their original currencies
and any resulting foreign exchange gain or loss is borne by the Company. |
| The details of the two-step loans are as follows: |

Creditors	Interest Rate — 2003	2004	Outstanding — 2003	2004
Overseas banks	2.95% 17.51 %	3.10% 8.49 %	7,556,223		7,164,614
Consortium of contractors	3.20% 17.51 %	3.20% 13.25 %	269,512		223,865
Total			7,825,735		7,388,479
Current maturities			(820,428	)	(882,591	)
Long-term portion			7,005,307		6,505,888

Details of two-step loans obtained from overseas banks as of September 30, 2003 and 2004 are as follows:

Currencies	Interest Rate — 2003	2004	Outstanding — 2003	2004
U.S. Dollars	3.30% 7.90 %	4.00% 7.98 %	3,017,615	2,883,105
Rupiah	11.85% 14.90 %	8.49% 13.25 %	3,143,967	2,803,197
Japanese Yen	3.10% 3.20 %	3.10% 3.20 %	1,200,654	1,302,944
Euro	7.33% 8.50 %	7.65% 8.45 %	193,987	175,368
Total			7,556,223	7,164,614

The loans are intended for the development of telecommunications infrastructure and supporting equipment. The loans are repayable in semi-annual installments and they are due on various dates until 2025.

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

25.
Details of two-step loans obtained from a consortium of contractors as of
September 30, 2003 and 2004 are as follows:

Currencies	Interest Rate — 2003	2004	Outstanding — 2003	2004
Rupiah	13.25% 17.51 %	8.49% 13.25 %	126,498	99,707
Japanese Yen	3.20%	3.20%	143,014	124,158
Long-term portion			269,512	223,865

| The consortium of contractors consists of Sumitomo Corporation, PT NEC
Nusantara Communications and PT Humpuss Elektronika (SNH Consortium). The
loans were obtained to finance the second digital telephone exchange
project. The loans are repayable in semi-annual installments and they are
due on various dates until March 15, 2015. |
| --- |
| Two-step loans which are payable in Rupiah bear either a fixed interest
rate or a floating rate based upon the average interest rate on 3-month
Certificates of Bank Indonesia during the six-months preceding the
installment due date, plus 1%. Two-step loans which are payable in foreign
currencies bear either a fixed rate interest or the floating interest rate
offered by the lenders, plus 0.5%. |
| As of September 30, 2004, the Company has used all facilities under the
two-step loan program and the draw-down period for the two-step loans has
expired. |
| The Company should maintain financial ratios as follows: |

| a. | Projected net revenue to projected debt service ratio should
exceed 1.5:1 and 1.2:1 for two-step loans originating from World Bank
and Asian Development Bank (ADB), respectively. |
| --- | --- |
| b. | Internal financing (earnings before depreciation and interest
expenses) should exceed 50% and 20% compared to capital expenditures
for loans originally from World Bank and ADB, respectively. |

| | As of September 30, 2004, the Company complied with the above mentioned
ratios. |
| --- | --- |
| 26. | GUARANTEED NOTES AND BONDS |

Guaranteed Notes	1,255,555	726,564
Bonds	979,957	985,243
	2,235,512	1,711,807

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GUARANTEED NOTES AND BONDS (continued)

| a. |
| --- |
| In April 2002, TSFL, Telkomsels wholly-owned subsidiary, issued
US$150,000,000 Guaranteed Notes (Notes) which are guaranteed by
Telkomsel. The Notes bear interest at 9.75%, payable semi-annually on
April 30 and October 30 of each year and will mature on April 30, 2007.
The trustee of the Notes is Deutsche Bank Trustees (Hongkong Limited)
and the custodian is Deutsche Bank AG, Hong Kong Branch. |
| On April 23, 2002, TSFL entered into subscription agreements with UBS AG
(UBS) whereby UBS agreed to subscribe and pay for the Notes at an
issue price equal to 99.709% of the principal amount of the Notes, less
any fees. TSFL has further authorized UBS to have the Notes listed on
the Singapore Exchange Securities Trading Limited (the Singapore
Exchange). |
| Based on the On-Loan Agreement dated April 30, 2002, between Telkomsel
and TSFL, the proceeds from the subscription of the Notes were lent to
Telkomsel at an interest rate of 9.765% per annum, payable on the same
terms as above. |
| On September 8, 2003, the agreement was amended such that if any Notes
are cancelled, the principal amount of the outstanding loan will be
reduced by the principal amount of the Notes cancelled. |
| TSFL may, on the interest payment date falling on or about the third
anniversary of the issue date redeem the Notes, in whole or in part, at
102.50% of the principal amount of such Notes, together with interest
accrued up to the redemption date. If only parts of the Notes are
redeemed, the principal amount of the Notes outstanding after such
redemption must be at least US$100,000,000. |
| Up to September 30, 2004, Telkomsel purchased US$70,633,000 (equivalent
to Rp647,705 million) of the Notes from Deutsche Bank. |
| The current rating for the Notes issued by Standard and
Poors is B+ and
by Fitch is B+. |
| As of September 30, 2003 and 2004, the outstanding principal amount of
the Notes and the unamortized discount are as follows: |

Foreign currency		Rupiah		Foreign currency		Rupiah
US$		equivalent		US$		equivalent
Principal	150,000,000		1,262,250		79,367,000		727,795
Discount	(795,603	)	(6,695	)	(134,252	)	(1,231	)
Net	149,204,397		1,255,555		79,232,748		726,564

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GUARANTEED NOTES AND BONDS (continued)

| b. |
| --- |
| On July 16, 2002, the Company issued bonds amounting to Rp1,000,000
million. The bonds were issued at par value and have a term of five
years. The bonds bear interest at a fixed rate of 17% per annum, payable
quarterly beginning October 16, 2002. The bonds are traded on the
Surabaya Stock Exchange and will mature on July 15, 2007. The trustee of
the bonds is PT Bank Negara Indonesia (Persero) Tbk and the custodian is
PT Danareksa Sekuritas. |
| The current rating for the bonds issued by Pefindo is AAA and by
Standard and Poors is B+. |
| As of September 30, 2003 and 2004, the outstanding principal amount of
the bonds and the unamortized discount are as follows: |

Principal	1,000,000		1,000,000
Discount	(20,043	)	(14,757	)
Net	979,957		985,243

During the period when the bonds are outstanding, the Company should comply with all covenants or restrictions including maintaining consolidated financial ratios as follows:

1.	Debt service coverage ratio should exceed 1.5:1
2.	Debt to equity ratio should not exceed:

| a. | 3:1 for the period of January 1, 2002 to December
31, 2002 |
| --- | --- |
| b. | 2.5:1 for the period of January 1, 2003 to December
31, 2003 |
| c. | 2:1 for the period of January 1, 2004 to the
redemption date of the bonds |

Debt to EBITDA ratio should not exceed 3:1

As of September 30, 2004, the Company complied with the covenants.

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27.
The details of long-term bank loans as of September 30, 2003 and 2004 are
as follows:

			2003
			Outstanding		Outstanding
			Original		Original
		Total facility	currency	Rupiah	currency	Rupiah
Lenders	Currency	(in million)	(in million)	equivalent	(in million)	equivalent
Group of lenders	US$	196.970		1,657,505	147.660	1,354,042
Citibank N.A.	EUR	73.365	40.390	396,429	58.692	663,317
	US$	114.883	20.004	168,338	76.526	701,748
Bank Central Asia	Rp	173,000.000		25,904		157,874
Deutsche Bank	Rp	108,817.711		82,018		41,009
Bank Finconesia	Rp	31,767.818		58,567		29,284
Bank Mandiri	Rp	82,425.262				61,297
Sindikasi Bank	Rp	90,000.000		40,806		14,631
	US$	4.000	2.932	18,681	0.796	7,299
Bank Niaga	Rp	565.000				2,890
The Export-Import Bank
of Korea	US$	123,965			59.081	541,768
Bukopin	Rp	150,000.000				127,746
Bukopin	US$	25.000	12.783	107,569
Total				2,555,817		3,702,905
Current maturities of bank loans				(764,979	)	(1,123,685	)
Long-term portion				1,790,838		2,579,220

| a. |
| --- |
| AWI had a loan of US$270,935,729 from a group of lenders (the lenders)
before it was 100% acquired by the Company on July 31, 2003. Based on
the Conditional Sale and Purchase Agreement related to the acquisition,
the Company assumed the loan by repaying US$73,965,454 and entering into
a credit agreement with the lenders to finance the remaining outstanding
balance of the loan amounting to US$196,970,275, with JP Morgan Chase
Bank, Hong Kong office, as the facility agent. This loan bears an
interest at LIBOR plus 3.5% per annum (i.e., 4.65% as of December 31,
2003), net of 10% withholding tax. The Company must pay an annual
facility agent fee of US$75,000. The loan is repayable in 8 semi-annual
installments beginning on December 31, 2003 with the first through the
seventh installment of US$24,655,151 and final installment of
US$24,384,218. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

BANK LOANS (continued)

b. Citibank N.A.

1.	Hermes Export Facility
	On December 2, 2002, pursuant to the partnership agreement with
Siemens Aktiengesellschaft (AG), Telkomsel entered into the Hermes
Export Facility Agreement (Facility) with Citibank International
plc (as Arranger and Agent) covering a total facility of EUR76,195,313 which is divided into several tranches.
	The agreement was subsequently amended on October 15, 2003, amending
the Facility amount to EUR73,365,093, the Facility will be matured on
May 28, 2008 and the first installment beginning on November 28,
2004.
	The interest rate per annum on the Facility is determined based on
the aggregate of the applicable margin, EURIBOR and mandatory cost,
if any. Interest is payable semi-annually, starting on the
utilization date of the Facility.
	In addition to the interest, in 2003, Telkomsel was also charged an
insurance premium for the insurance guarantee given by Hermes in
favor of Telkomsel for each loan utilization amounting to EUR6,089,149, 15% of which was paid in cash. The remaining balance was
settled through utilization of the Facility.
	The total amount drawn down from the Facility up to September 30,
2004 amounted to EUR73,365,093 (equivalent to Rp835,205 million). As
of September 30, 2004, the outstanding balance was EUR58,692,074.
2.	High Performance Backbone (HP Backbone) Loans

| a. |
| --- |
| The facility was obtained to finance up to 85% of the cost of
supplies and services sourced in Germany relating to the design,
manufacture, construction, installation and testing of high
performance backbone networks in Sumatra pursuant to the
Partnership Agreement referred to above. |
| The lender required a fee of 8.4% of the total facility. This fee
is paid twice during the agreement period, 15% of the fee is
required to be paid in cash and 85% is included in the loan
balance. |
| As of September 30, 2004, the outstanding loan was US$18,861,015.
The loan is payable in ten semi-annual installments beginning in
July 2004. |
| Amounts drawn from the facility bear interest at LIBOR plus 0.75%. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

BANK LOANS (continued)

b. Citibank N.A. (continued)

High Performance Backbone (HP Backbone) Loans (continued)

| c. |
| --- |
| This facility was secured by the Companys property under
construction pursuant to the Partnership Agreement. |
| Amounts drawn from the facility bear fixed interest rate of 4.14%.
The loans are payable in ten semi-annual installments beginning
December 2003. Total principal outstanding as of September 30,
2004 was US$14,846,024. |
| The Company has breached a covenant in the loan agreement which
stipulates that the Company will not make any loans or grant any
credit to or for the benefit of any person. As of June 9, 2004,
the Company has obtained a written waiver from Citibank
International Plc with regard to entering into the AWI loan (Note
5c and 27a). |

| 3. |
| --- |
| On December 2, 2002, pursuant to the partnership agreement with PT
Ericsson Indonesia (Note 55b), Telkomsel entered into the EKN-Backed
Facility agreement (Facility) with Citibank International plc (as
Arranger and Agent) covering a total facility amount of
US$70,483,426 which is divided into several tranches. |
| The agreement was subsequently amended on October 15, 2003, the
Facility will be matured on November 28, 2008 and the first repayment
was on November 28, 2004. |
| The interest rate per annum on the Facility is determined based on
the aggregate of the applicable margin, CIRR (Commercial Interest
Reference Rate) and mandatory cost, if any. The interest charge will
be paid semi annually, starting on the utilization date of the
Facility. |
| In addition to the interest, in 2003, Telkomsel was also charged an
insurance premium for the insurance guarantee given by EKN in favor
of Telkomsel for each loan utilization amounting to US$4,244,793, 15%
of which was paid in cash. The remaining balance was settled through
utilization of the Facility. |
| The total amount drawn down from the Facility up to September 30,
2004 amounted to US$49,185,245 (Rp451,029 million). As of September
30, 2004, the outstanding balance was US$42,819,475. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

BANK LOANS (continued)

c.	Bank Central Asia
	On April 10, 2002, the Company entered into a Term Loan Agreement HP
Backbone Sumatra Project with Bank Central Asia, providing a total
facility of Rp173,000 million. The facility was obtained to finance the
Rupiah portion of the high performance backbone network in Sumatra
pursuant to the Partnership Agreement.
	Amounts drawn from the facility bear interest at 4.35% plus the 3-month
time deposit rate (i.e., 11.6% as of December 31, 2003). The loans are
payable in twelve quarterly installments beginning January 2004. The
loan will mature in October 2006.
	Total principal outstanding as of September 30, 2004 were Rp157,874
million, respectively.
	The loan facility from Bank Central Asia is not collateralized.
	The Company has breached a covenant in the loan agreement which
stipulates that the Company will not make any guarantee or collateralize
its assets for an amount exceeding US$2 million or its equivalent. As
of June 23, 2004 the Company has obtained a written waiver from Bank
Central Asia with regard to the Companys time deposits collateralized
for Napsindos loan (Notes 12b and 23a).
d.	Deutsche Bank AG
	On June 28, 2002, the Company entered into a contract agreement with PT
Siemens Indonesia and PT NEC Nusantara Communications for addition of
Central Electronic Wahler Switching Digital (EWSD) and Nippon Electric
Automatic Exchange (NEAX), respectively, in Division Regional V.
Subsequently, 80% of the contract amounts were factored by the vendors
to Deutsche Bank AG (Facility Agent). The loans bear fixed interest
rate at 19% per annum and are repayable in two annual installments of
Rp13,400 million beginning in December 2003 for loan ex-PT NEC Nusantara
Communications and Rp41,009 million beginning in January 2004 for loan
ex-PT Siemens Indonesia.
e.	Bank Finconesia
	On June 28, 2002, the Company entered into a contract agreement with PT
Olex Cables Indonesia for addition of installation of Central Lucent in
Division Regional V. Subsequently, 80% of the contract amounts were
factored by the vendor to Bank Finconesia. The loan bears fixed interest
rate at 19% per annum and is repayable in two annual installments of
Rp15,884 million beginning in December 2003.

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

BANK LOANS (continued)

f.	Bank Mandiri
	On November 20, 2003, Dayamitra entered into a loan agreement with Bank
Mandiri for a maximum facility of Rp39,925 million. As of
September 30, 2004, the facility has been fully drawn down. This facility is
repayable on a quarterly basis until the fourth quarter of 2005 and
bears interest at 14.5% per annum, payable on a monthly basis and
subject to change. On December 30, 2003, Bank Mandiri agreed to decrease
the interest rate to 14% per annum commencing in January 2004. As of
September 30, 2004 the principal outstanding was Rp30,925 million.
	On December 20, 2003, Dayamitra also obtained a credit facility from
Bank Mandiri for a maximum facility of Rp40,000 million. The facility is
repayable on a quarterly basis beginning end of the third quarter of
2004 until end of the fourth quarter of 2006 and bears interest at 14%
per annum. The loan is obtained to finance the construction of Fixed
Wireless CDMA project pursuant to the procurement agreement entered
between Dayamitra and Samsung Electronic Co. Ltd.
	The above loans are collateralized by Dayamitras telecommunications
equipment/network with CDMA technology financed by these facilities, and
Dayamitras share in the DKSOR of KSO Unit VI. As of September 30, 2004,
principal outstanding under this facility amounted to Rp28,697 million.
	On March 13, 2003, Balebat entered into a loan agreement with Bank
Mandiri for a facility of Rp2,500 million. This facility bears interest
at 15% per annum payable on a monthly basis, is secured by Balebats
operating equipment and will mature in July 2006. The principal is
repayable on a monthly basis. As of September 30, 2004, principal
outstanding under this facility amounted to Rp1,674 million.
g.	Syndicated banks (Internet Protocol Backbone (IP Backbone)
Loan)
	On February 25, 2002, the Company entered into a Facility Funding
Agreement with Bank DBS Indonesia (syndicated agent and lender), Bank
Bukopin (lender) and Bank Central Asia (lender), providing a total
facility of US$4,000,000 and Rp90,000 million to fund the IP Backbone
project in 7 (seven) Regional Divisions or KSO regions divided into 6
(six) batches.
	Amounts drawn in U.S. Dollars bear interest at 2% plus the highest of 1,
2 or 3 month SIBOR divided by 0.87% for the first year and 2% plus the 3
month SIBOR divided by 0.87% thereafter. Amounts drawn in Rupiah bear
interest at 19% fixed for the first year and 5% plus the average of
BCAs and Bukopins interest rates (the highest of 1, 3, 6 or 12 month
time deposit rate) thereafter.
	The loans are payable in eleven quarterly installments beginning in
September 2002. The loans will mature on March 15, 2005.
	Total outstanding IP Backbone loans for Rupiah and U.S. Dollars as of
September 30, 2004 are Rp14,631 million and US$796,000 (equivalent
Rp7,299 million).

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

BANK LOANS (continued)

| g. |
| --- |
| The Company pledged the property under construction as collateral for
the IP Backbone loan pursuant to Notarial Deed No.17 dated February 25,
2002 of Notary Titi Sri Amiretno Diah Wasisti Bagiono, S.H. on
Fiduciary Collateral. The pledge has a maximum amount of US$14,587,525
and Rp401 million. |
| Average interest rates for the loans during 2003 and 2004 were as
follows: |

Rupiah	17.14% 19.00%	10.82% 11.62%
U.S. Dollar	3.5% 4.38%	3.31% 4.18%

Under the Loan Agreements for HP Backbone and IP Backbone, the Company should maintain quarterly financial ratios as follows:

1.	Debt to equity ratio should not exceed 3:1
2.	EBITDA to interest expense should exceed 5:1

| | As of September 30, 2003, the Company complied with the above mentioned
ratios. |
| --- | --- |
| h. | Bank Niaga |
| | On July 18 and December 3, 2003, Balebat entered into loan agreements
with Bank Niaga for facilities totalling Rp565 million. The facilities
bear interest at 15% per annum and are secured by Balebats time deposit
and vehicles. The principal and interest are payable on a monthly basis
which will end in October 2005 and December 2005, respectively. As of
September 30, 2004, principal outstanding amounted to Rp319 million. |
| | On September 27, 2004, Balebat entered into loan agreements with Bank
Niaga for facilities totaling Rp2,571 million. The facilities bear
interest at 12.5% per annum and secured by Balebats fixed assets. The
principal and interest are payable on a monthly basis commencing
February 2005 and will end in February 2008. As of September 30, 2004
the principal outstanding amounted to Rp2,571 million. |
| i. | The Export-Import Bank of Korea |
| | On August 27, 2003, the Company entered into a loan agreement with the
Export-Import Bank of Korea in the amount of US$123,965,000. The loan
will be used to finance the CDMA procurement with Samsung Consortium
(Note 55a(v)) up to US$123,965,000 and will be available until April
2006. |
| | The loan and interest is payable in 10 semi-annual installments on June
30 and December 30 in each year. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

BANK LOANS (continued)

| j. |
| --- |
| On June 21, 2002, the Company entered into a loan agreement with a
consortium of banks amounting to Rp400,000 million for financing the
Regional Division V Junction Project. Bukopin acting as facility agent,
charged the interest for the first year on the signing date, of 19.5%
and then the average 3 month deposit rate plus 4% for the remaining
year. The disbursement period is 19 months from the signing of the loan
agreement with the repayment period 14 times quarterly starting from
April 2004. The loan facility is secured by the project equipment, with
a value of not less than Rp500,000 million. |
| Subsequently, based on an Addendum to the loan agreement dated April 4,
2003, the loan facility was reduced to Rp150,000 million. The
disbursement period changed to 18 months from the signing of the
Addendum. The repayment schedule in 14 quarterly installments starting
from May 21, 2004 and ending on June 21, 2007. |
| As of September 30, 2004, the outstanding facility was Rp127,745
million. |

| 28. |
| --- |
| This amount represents the Companys obligation under the Promissory Notes
issued to the Selling Stockholders of Dayamitra in respect of the Companys
acquisition of 90.32% of Dayamitra, to the Selling Stockholders of Pramindo
in respect of the Companys acquisition of 100% of Pramindo, and to the
Selling Stockholders of AWI in respect of the Companys acquisition of 100%
of AWI. |


Pramindo transaction (Note 6b)
France Cables et Radio S.A.	899,842
PT Astratel Nusantara	787,380
Indosat	292,455
Marubeni Corporation	179,966
International Finance Corporation, USA	67,497
NMP Singapore Pte. Ltd.	22,506
Less discount on promissory notes	(111,671	)
	2,137,975
AriaWest transaction (Note 6c)
PT Aria Infotek	511,914		472,672
The Asian Infrastructure Fund	121,884		112,541
MediaOne International I B.V.	341,275		315,114
Less discount on promissory notes	(122,357	)	(92,586	)
	852,716		807,741
Total	2,990,691		807,741
Current maturity net of discount	(1,690,642	)	(200,073	)
Long-term portion net of discount	1,300,049		607,668

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

SUPPLIERS CREDIT LOANS

Tomen Corporation
Cable & Wireless plc	265,081
Vendor credit	54,058
Total	319,139
Current maturities	(254,335	)
Long-term portion	64,804

a.	Tomen Corporation (Tomen)
	Dayamitra entered into a Design, Supply, Construction and Installation
Contract dated November 18, 1998 with Tomen, the ultimate holding
company of TMC, one of the former stockholders of Dayamitra. Under the
terms of the contract, Tomen is responsible for the construction of the
minimum new installations required under the KSO VI Agreement in which
Dayamitra is the investor.
	In connection with the above agreement, Dayamitra entered into a
Suppliers Credit Agreement (SCA) with Tomen on November 18, 1998. The
total commitment under the SCA was US$54,000,000 of which US$50,444,701
had been drawn down before the expiration date of the available credit
on September 30, 1999.
	Interest accrues on the amounts drawn down at LIBOR plus 4.5% per annum,
and is payable semiannually in arrears. Annual interest rates in 2003
ranged from from 5.53% to 5.92%, respectively.
	The SCA loan is repayable in ten semi-annual installments commencing on
December 15, 2000. The SCA contains a minimum fixed repayment schedules,
however, additional principal repayments are required on repayment dates
in the event that Dayamitra has excess cash, as defined in the SCA. To
date, Dayamitra has not been required to make additional principal
repayments from excess cash. The SCA loan is secured on a pro rata basis
by the security rights provided under the C&W plc bridging facility loan
(Note 30).
b.	Cable and Wireless plc (C&W plc)
	Dayamitra entered into a Suppliers Credit Agreement (SCA) with C&W
plc on May 19, 1999.
	The SCA loan is repayable in ten semi-annual installments commencing on
December 15, 2000. The loan contains a minimum fixed repayment schedule,
however, additional principal repayments are required on repayment dates
in the event that Dayamitra has excess cash, as defined in the SCA.
Interest on this loan is at the rate of LIBOR plus 4.5%. Annual interest
rates in 2003 ranged from 5.53% to 5.92%.
	The SCA loan is secured on a pro rata basis by the security rights
provided under the C&W plc
bridging facility loan. In addition, any distributions to stockholders
in the form of dividends or repayments of share capital require the
written consent of Tomen and C&W plc.

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

SUPPLIERS CREDIT LOANS (continued)

c. Vendor credit

| 1. | Agreement of materials and services procurement between DMT
and vendor for drawing cable network in KSO VI, with the contract
amounted Rp28,491 million. Payment will be made within 24 months
after the signed of Certificate of Acceptance with fixed amount.
As of September 30, 2003 the second Certificates of Acceptance has
not been issued and the work is still in progress. |
| --- | --- |
| 2. | Agreement for telecommunication facility development (PSTN
Excellent) between the Company with vendor in Divre V Surabaya.
Payment will be made within 24 months after the signed of
Certificate of Acceptance with fixed amount. |
| 3. | Procurement Agreement for developing international link of
Network Access Point infrastructure in Napsindo. |

BRIDGING LOAN

Total outstanding amount	76,243
Current maturities	(50,517	)
Long-term portion	25,726

| This loan is owed by Dayamitra to C&W plc under a bridging loan facility
which was assigned from three local Indonesian banks. The loan is repayable
in ten semi-annual installments commencing on December 15, 2000. Interest
is payable on a monthly or a quarterly basis, at the option of Dayamitra,
at the rate of LIBOR plus 4% per annum. Annual interest rates in 2003
ranged from 5.06% to 5.42%. |
| --- |
| C&W plc has agreed to the repayment of the bridging loan facility in
proportion to the amounts made available to Dayamitra under this bridging
loan facility and the C&W plc and Tomen Suppliers Credit Loan. The
security provided against the bridging loan facility consists of an
assignment of KSO revenues, an assignment of bank accounts, a security
interest in Dayamitras movable assets, an assignment of the Tomen
construction contract, an assignment of proceeds from early termination of
the KSO license by the Company, and an assignment of insurance proceeds. |
| Distributions to stockholders in the form of dividends or repayment of
share capital require the written consent of C&W plc. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

MINORITY INTEREST


Minority interest in net assets of subsidiaries:
Telkomsel	3,195,449		4,338,527
Infomedia	49,483		82,293
Dayamitra	36,304		39,235
Indonusa	2,928		1,814
Napsindo	4,889
PII	2,838		451
GSD	3		4
Total	3,291,894		4,462,324
Minority interest in net income (loss) of subsidiaries:
Telkomsel	963,015		1,396,981
Infomedia	17,539		38,534
Dayamitra	10,016		7,381
Indonusa	(670	)	(146	)
Napsindo	(5,724	)	(2,068	)
PII	(1,572	)	(1,448	)
Metra	2,126
GSD	1		1
Total	984,731		1,439,235

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CAPITAL STOCK

	2003	Percentage	Total
Description	Number of shares	of ownership	Paid-up capital
		%
Series A Dwiwarna share
Government of the Republic of Indonesia	1
Series B shares
Government of the Republic of Indonesia	5,160,235,355	51.19	2,580,118
JPMCB US Resident (Norbax Inc.)	885,143,050	8.78	442,572
The Bank of New York	616,342,408	6.11	308,171
Board of Commissioners
Petrus Sartono	9,558		5
Board of Directors
Kristiono	12,690		6
Agus Utoyo	11,826		6
Garuda Sugardo	8,262		4
Guntur Siregar	9,990		5
Suryatin Setiawan	10,854		5
Public (below 5% each)	3,418,215,646	33.92	1,709,108
Total	10,079,999,640	100.00	5,040,000

	2004	Percentage	Total
Description	Number of shares	of ownership	Paid-up capital
		%
Series A Dwiwarna share
Government of the Republic of Indonesia	1
Series B shares
Government of the Republic of Indonesia	10,320,470,711	51.19	2,580,118
JPMCB US Resident (Norbax Inc.)	1,498,550,440	7.43	374,638
The Bank of New York	1,578,694,816	7.83	394,674
Board of Commissioners
Petrus Sartono	19,116		5
Board of Directors
Kristiono	25,380		6
Suryatin Setiawan	16,524		4
Woeryanto Soeradji	21,708		5
Public (below 5% each)	6,762,200,584	33.55	1,690,550
Total	20,159,999,280	100.00	5,040,000

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

32.	CAPITAL STOCK
	On September 28, 2004, the Company split the nominal of Series A Dwiwarna
shares and Series B from Rp500 to Rp250 per share. The number of shares
increase from 40,000,000,000 shares to 80,000,000,000 shares and the total
paid-in capital increase from 10,079,999,640 to 20,159,999,280 (Note 1b).
33.	ADDITIONAL PAID-IN CAPITAL

| Proceeds from sale of 933,333,000 shares in excess of par value
through initial public offering in 1995 | 1,446,666 | | 1,446,666 | |
| --- | --- | --- | --- | --- |
| Capitalization into 746,666,640 series B shares in 1999 | (373,333 | ) | (373,333 | ) |
| Total | 1,073,333 | | 1,073,333 | |

| 34. |
| --- |
| Represents the difference between the consideration paid or received and
the historical amount of the net assets of the investee acquired or
carrying amount of the investment sold, arising from transactions with
entities under common control. |


Consideration		amount of
paid/		net assets/	Deferred	Change
(received)		investment	income tax	in equity		Total		Tax		Net
Cross-ownership transactions in 2001:
Telkomsel	10,782,450		1,466,658	337,324			8,978,468				8,978,468
Satelindo	(2,122,260	)			(290,442	)	(2,412,702	)	(627,678	)	(1,785,024	)
Lintasarta	(437,631	)	116,834				(320,797	)	(119,586	)	(201,211	)
Total	8,222,559		1,583,492	337,324	(290,442	)	6,244,969		(747,264	)	6,992,233
Purchase of 13% interest of PIN in 2002:
	434,025		137,987				296,038				296,038
Total	8,656,584		1,721,479	337,324	(290,442	)	6,541,007		(747,264	)	7,288,271

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

TELEPHONE REVENUES


Fixed lines
Local and domestic long-distance usage	4,764,504	5,304,116
Monthly subscription charges	1,402,234	2,072,775
Installation charges	149,069	158,257
Phone cards	23,452	15,976
Others	137,324	103,140
Total	6,476,583	7,654,264
Cellular
Air time charges	5,526,081	7,233,260
Monthly subscription charges	433,586	356,109
Connection fee charges	158,481	50,009
Features	3,145	50,590
Total	6,121,293	7,689,968
Total Telephone Revenues	12,597,876	15,344,232

INTERCONNECTION REVENUES NET

Cellular	2,591,830	3,855,206
International	291,962	417,582
Other	237,149	93,442
Total	3,120,941	4,366,230

REVENUE UNDER JOINT OPERATION SCHEMES

Minimum Telkom Revenues	735,490	230,754
Share in Distributable KSO Revenues	350,839	210,987
Amortization of unearned initial investor payments
under Joint Operation Schemes	569	1,666
Total	1,086,898	443,407

Distributable KSO Revenues represent the entire KSO revenues, less MTR and operational expenses of the KSO Units. These revenues are shared between the Company and the KSO Investors based upon agreed percentages (Note 52).

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

DATA AND INTERNET REVENUES

SMS	1,489,708	2,481,751
Multimedia	332,476	507,901
VoIP	258,126	269,397
ISDN	59,504	100,071
Total	2,139,814	3,359,120

NETWORK REVENUES

Satellite transponder lease	190,369	164,556
Leased lines	133,479	303,923
Total	323,848	468,479

REVENUE-SHARING ARRANGEMENT REVENUES

Revenue-Sharing Arrangement revenues	127,747	474,697
Amortization of unearned income (Note 15)	59,416	313,481
Total	187,163	788,178

OPERATING EXPENSES PERSONNEL

Salaries and related benefits	1,115,280	1,454,436
Vacation pay, incentives and other benefits	593,568	850,879
Early retirements	202,312	259,209
Net periodic post-retirement benefit cost (Note 48)	506,304	366,835
Net periodic pension cost (Note 46)	139,202	765,676
Employee income tax	316,876	379,963
Long service awards (Note 47)	155,345	82,271
Housing	96,390	116,716
Medical	5,808	8,061
Others	57,944	36,802
Total	3,189,029	4,320,848

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

OPERATING EXPENSES OPERATIONS, MAINTENANCE AND TELECOMMUNICATION SERVICES

Operations and maintenance	1,232,120	1,617,206
Radio frequency usage charges	303,019	374,325
Electricity, gas and water	218,105	296,046
Cost of phone cards	123,568	275,229
Concession fees	248,771	393,580
Insurance	147,587	114,887
Leased lines	72,867	109,511
Vehicles and supporting facilities	85,416	125,774
Travelling	21,681	29,847
Others	65,325	50,739
Total	2,518,459	3,387,144

OPERATING EXPENSES GENERAL AND ADMINISTRATIVE

Professional fees	103,732	102,735
Collection expenses	199,996	250,521
Amortization of intangible assets (Note 16)	509,011	561,594
Training, education and recruitment	101,662	154,242
Travel	105,085	142,154
Security and screening	75,714	79,861
General and social contribution	34,625	66,768
Printing and stationery	34,383	53,866
Meetings	29,062	43,277
Provision for doubtful accounts and inventory obsolescence	198,989	285,588
Research and development	7,074	9,460
Others	10,450	27,486
Total	1,409,783	1,777,552

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

INCOME TAX


a. Prepaid taxes
The Company
Corporate income tax	38,370	38,370
	38,370	38,370
Subsidiaries
Corporate income tax		20,778
Value added tax		5,697
		26,475
	38,370	64,845
b. Taxes payable
The Company
Income tax
Article 21	15,842	42,969
Article 22	3,348	1,448
Article 23	36,071	31,506
Article 25	2,588	87,145
Article 26	1,940	412
Article 29	864,361	310,584
Land and building	19	2
Value added tax	101,682	456,559
	1,025,851	930,625
Subsidiaries
Income tax
Article 21	98,281	9,541
Article 22	282
Article 23	61,850	22,770
Article 26	24,661	394
Article 29	560,785	496,636
Value added tax	6,396	30,966
	752,255	560,307
	1,778,106	1,490,932

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INCOME TAX (continued)

c. The components of income tax expense (benefit) are as follows:


Current:
The Company	1,619,758		1,304,546
Subsidiaries	1,349,123		1,752,586
	2,968,881		3,057,132
Deferred:
The Company	(246,254	)	(14,638	)
Subsidiaries	179,567		(27,975	)
	(66,687	)	(42,613	)
	2,902,194		3,014,519

| d. |
| --- |
| The reconciliation of consolidated income before tax to income before
tax attributable to the Company and the consolidated income tax expense
is as follows: |

Consolidated income before tax	8,298,497		9,478,100
Add back consolidation eliminations	2,865,634		3,082,320
Consolidated income before tax and eliminations	11,164,131		12,560,420
Deduct income before tax of the subsidiaries	(5,195,878	)	(6,429,830	)
Income before tax attributable to the Company	5,968,253		6,130,590
Tax calculated at progressive rates	1,790,446		1,839,160
Income not subject to tax	(57,092	)	(925,381	)
Interest income subject to final tax			(39,214	)
Non-deductible expenses	(380,407	)	371,473
Deferred tax assets from temporary difference
previously not recognized			43,869
Deferred tax assets that cannot be utilized	20,558
Income tax expense of the Company	1,373,505		1,289,907
Income tax expense of the subsidiaries	1,528,689		1,724,612
Total consolidated income tax expense	2,902,194		3,014,519

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| 44. |
| --- |
| The reconciliation between income before tax and the estimated taxable
income for the nine months period ended September 30, 2003 and 2004 is as
follows: |

Income before tax attributable to the Company	5,968,253		6,130,590
Temporary differences:
Depreciation of property, plant and equipment	1,599,438		(118,336	)
Gain on sale of property, plant and equipment	(7,524	)	(160,284	)
Allowance/(write back) for doubtful accounts	136,484		173,709
Accounts receivable written-off	(267	)	(22,275	)
Allowance for inventory obsolescence	(3,215	)	5,582
Inventory written-off	(124	)	(283	)
Provision for early retirement benefit	(340,008	)
Payment of early retirement benefits			(43,091	)
Provision for bonus			(79,472	)
Net periodic pension cost	(350,864	)	173,138
Long service awards			59,593
Amortization of deferred stock issuance costs	(13,457	)
Amortization
of land rights	(98,882	)	(2,829	)
Accrued interest income on AWI loan			45,835
Temporary differences of KSO units	8,098		21,843
Depreciation of property, plant and equipment
under revenue sharing arrangements	62,195		356,518
Amortization of unearned income under revenue-sharing arrangements	(57,942	)	(313,481	)
Equity in net loss of associated companies
Total temporary differences	933,932		96,167

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

INCOME TAX (continued)


Permanent differences:
Net periodic post-retirement benefit cost	101,739		361,264
Amortization of goodwill and intangible assets	268,788		561,594
Amortization of discount on promissory notes	65,017		88,874
Equity in net loss/(income) of associates and
subsidiaries	(2,160,129	)	(3,084,602	)
Gain on sale of long-term investment in Telkomsel
Interest income	(190,308	)	(133,967	)
Amortization of unearned income under revenue-sharing arrangements
Income from land/building rental	3,508		(17,015	)
Others	408,493		246,782
Total permanent differences	(1,502,892	)	(1,977,070	)
Total	(568,960	)	(1,880,903	)
Total taxable income of the Company	5,399,293		4,249,687
Current income tax expense of the Company	1,619,758		1,304,546
Current income tax expense of the subsidiaries	1,349,122		1,752,586
Total	2,968,880		3,057,132

| In July 2004, Tax Office performs a tax audit for Companys Corporate
Income Tax covering fiscal years 2002 and 2003. Until this report issued,
the Company has not received tax assessment letters in relation with the
tax audit. |
| --- |
| In 2003, Telkomsel received tax assessment letters (SKPKB) for all taxes
covering the fiscal years 2000 and 2001. Telkomsel filed an objection on
the SKPKB for fiscal year 2001 which was partly approved by Director
General of Taxes. As a result, Telkomsel charged tax underpayments to
expense in 2003 amounting to Rp32,283 million. |

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INCOME TAX (continued)

e.
The details of the Companys and subsidiaries deferred tax assets and
liabilities are as follows:


		credited		Acquisition
December 31,		to statements		of		September 30,
2002		of income		AWI		2003
The Company
Deferred tax assets:
Allowance for doubtful
accounts	101,389		42,575				143,964
Allowance for inventory
obsolescence	10,507		(1,001	)			9,506
Provision for early retirement
benefits	201,294		(102,002	)			99,292
Decline in value of
investments
Deferred stock issuance costs
Landrights	161		(40	)			121
Provision for long service
awards	146,769		(39,036	)			107,733
Provision for impairment of
property, plant and
equipment	1,920						1,920
Total deferred tax assets	462,040		(99,504	)			362,536
Deferred tax liabilities:
Difference between book and
tax property, plant and
equipments net book value	(1,513,007	)	513,464				(999,543	)
Revenue-sharing arrangements	(18,119	)	1,276				(16,843	)
Long-term investments	52,605		(30,779	)			21,826
Net periodic pension cost	(7,988	)	(138,203	)			(146,191	)
Total deferred tax liabilities	(1,486,509	)	345,758				(1,140,751	)
Deferred tax liabilities of the
Company, net	(1,024,469	)	246,254				(778,215	)
Deferred tax liabilities of the
subsidiaries, net	(2,058,697	)	(179,567	)	(393,794	)	(2,632,058	)
Total deferred tax liabilities, net	(3,083,166	)	66,687				(3,410,273	)

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

INCOME TAX (continued)

e. Deferred tax assets and liabilities (continued)


		credited		Acquisition
December 31,		to statements		of	September 30,
2003		of income		AWI	2004
The Company
Deferred tax assets:
Allowance for doubtful
accounts	118,843		47,532			166,375
Allowance for inventory
obsolescence	11,529		2,381			13,910
Provision for early retirement
benefits	39,843		(12,927	)		26,916
Landrights	(546	)	(849	)		(1,395	)
Provision for employee bonuses	84,385		(23,842	)		60,543
Provision for long service
awards	142,084		17,878			159,962
Provision for impairment of
property, plant and
equipment
Total deferred tax assets	396,138		30,173			426,311
Deferred tax liabilities:
Difference between book and
tax property, plant and
equipments net book value	(1,387,439	)	(84,223	)		(1,471,662	)
Accrued interest	(13,750	)	13,750
Revenue sharing arrangements	(58,454	)	13,518			(44,936	)
Long-term investments	(14,138	)	(10,522	)		(24,660	)
Net periodic pension cost	(88,914	)	51,941			(36,973	)
Total deferred tax liabilities	(1,562,695	)	(15,536	)		(1,578,231	)
Deferred tax liabilities of the
Company, net	(1,166,557	)	14,637			(1,151,920	)
Deferred tax liabilities of the
subsidiaries, net	(2,380,214	)	27,975			(2,352,239	)
Total deferred tax liabilities, net	(3,546,771	)	42,612			(3,504,159	)

| f. |
| --- |
| Under taxation laws of Indonesia, the Company submits tax returns on the
basis of self-assessment. The tax authorities may assess or amend taxes
within ten years from the date the tax became payable. |

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45.	BASIC EARNINGS PER SHARE
	Net income per share is computed by dividing net income by the weighted
average number of shares outstanding during the year. In relation with the
stock split on September 28, 2004, the total shares for the nine months
period ended September 30, 2003 and 2004 computed by dividing net income
for each period with the number of shares outstanding after the stock split
totaling 20,159,999,280 as if the stock split was done at the beginning of
the period.
	The Company does not have potentially dilutive ordinary shares.
46.	CASH DIVIDENDS AND GENERAL RESERVE
	Pursuant to the Annual General Meeting of Shareholders as stated in
notarial deed No. 17/V/2003 dated May 9, 2003 of A. Partomuan Pohan, S.H.,
LL.M., the stockholders approved the distribution of cash dividends for
2002 amounting to Rp3,338,109 million or Rp331.16 per share, and
appropriation of Rp813,664 million for general reserve.
	In connection with the restatement of the consolidated financial statements
for the two years ended December 31, 2002, the stockholders ratified the
previous declaration of dividends in the Extraordinary General Meeting of
Stockholders as stated in notarial deed No. 4 dated March 10, 2004 of
Notary A. Partomuan Pohan, S.H., LLM. as follows:

| | Dividends for 2002 amounting to Rp3,338,109 million or Rp383.63
per share, social contribution fund (Dana Bina Lingkungan) of
Rp20,863 million and appropriated Rp813,664 million for general
reserves. |
| --- | --- |
| | Dividends for 2001 amounting to Rp2,125,055 million or Rp210.81
per share, and appropriated Rp425,011 million for general reserves. |
| | Dividends for 2000 amounting to Rp888,654 million or Rp88.16
per share, and appropriated Rp126.951 million for general reserves. |

| | Pursuant to the Annual General Meeting of Shareholders as stated in
notarial deed No. 313/VII/2004 dated July 30, 2004 of A. Partomuan Pohan,
S.H., LL.M., the stockholders approved the distribution of cash dividend
for 2003 amounting to Rp3,043,614 million or Rp301.95 per share and
appropriation of Rp121,745 million for general reserve. |
| --- | --- |
| 47. | PENSION PLAN |

| a. |
| --- |
| The Company provides a defined benefit pension plan for employees hired
with permanent status prior to July 1, 2002. The pension benefits are
paid based on the participating employees latest basic salary at
retirement and years of service. The plan is managed by Dana Pensiun
Telkom. The participating employees contribute 18% (before March 2003:
8.4%) of their basic salaries to the plan. The Companys contributions
to the pension fund for the nine months period ended September 30, 2003
and 2004 amounted to Rp321,496 million and Rp599,959 million,
respectively. |

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PENSION PLAN (lanjutan)

| In 2002, the Company added double pension benefits for participating
employees above 56 years of age, beneficiaries of deceased participating
employees or employees with physical disabilities. The increase applies
to participating employees who retired on or after July 1, 2002. The
Company also increased pension benefits for employees who retired prior
to August 1, 2000 by 50%, effective January 1, 2003. |
| --- |
| The following table presents the change in benefit obligation, the
change in plan assets, funded status of the plan and the net amount
recognized in the Companys balance sheets as of September 30, 2003 and
2004, which estimated proportionally for the nine months period based on
the actuarial calculation of 2003 and 2004: |


Change in benefit obligation
Benefit obligation at beginning of year	4,248,110		6,852,923
Service cost	89,317		102,948
Interest cost	403,348		555,371
Expected employee contributions	30,398		30,398
Expected benefit payments	(166,816	)	(181,734	)
Actuarial (gain) loss	1,597,364		(677,444	)
Benefit obligation at end of year	6,201,721		6,682,462
Change in plan assets
Fair value of plan assets at beginning of year	3,099,648		3,671,309
Expected employer contributions	391,362		89,734
Expected return on plan assets	316,280		327,504
Expected benefit payments	(166,816	)	(181,734	)
Actuarial gain (loss)	(112,080	)	(112,080	)
Fair value of plan assets at end of year	3,528,394		3,794,733
Funded status	(2,673,327	)	(2,887,729	)
Unamortized net amount resulting from changes in plan experience
and actuarial assumptions	1,042,874		1,351,970
Unamortized prior service cost	1,694,609		1,537,823
Unrecognized net obligation at the date of initial application of
PSAK No. 24	156,050		127,416
Prepaid pension cost	220,206		129,480

| Plan assets consist mainly of Rupiah time deposits. |
| --- |
| The unrecognized net obligation at the date of initial application of
PSAK No. 24 is amortized over the expected average remaining working
lives of active employees, i.e., 17.2 years, starting from January 1,
1992. |

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PENSION PLAN (continued)

| a. |
| --- |
| The actuarial valuations for the pension plan performed based on
measurement date of December 31, 2003 were prepared on May 21, 2004, by
PT Watson Wyatt Purbajaga, an independent actuary in association with
Watson Wyatt Worldwide. The principal actuarial assumptions used by the
independent actuary are as follows: |

Discount rate	11 %
Expected long-term return on plan assets	11 %
Salary growth rate	8 %

The components of net periodic pension cost recognized are as follows:

Service cost	66,895		86,753
Interest cost	403,348		555,371
Expected return on plan assets	(316,280	)	(327,504	)
Net amortization and deferral	(132,349	)	117,588
Increase in amortization of prior service cost	117,588		333,468
Net periodic pension cost (Note 41)	139,202		765,676

| | In addition, the pension cost charged to the KSO Units amounted to
Rp22,422 million and Rp16,196 million in 2003 and 2004, respectively. |
| --- | --- |
| b. | Telkomsel |
| | Telkomsel provides a defined benefit pension plan to its employees under
which pension benefits to be paid are based on the employees latest
basic salary and number of years of service. PT Asuransi Jiwasraya, a
state-owned life insurance company, manages the plan. The employees
contribute 5% of their final monthly basic salaries to the plan and
Telkomsel contributes any remaining amount required to fund the plan. |
| | The components of the net periodic pension cost are as follows, which
estimated proportionally for the nine months period based on the
actuarial calculation of 2003 and 2004: |

Service cost	2,301	3,116
Net amortization and deferral	1,682	3,254
Net periodic pension cost	3,983	6,370

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PENSION PLAN (continued)

| b. |
| --- |
| The net periodic pension cost for the pension plan is calculated based
on the actuarial calculation prepared by PT Watson Wyatt Purbajaga, an
independent actuary in association with Watson Wyatt Worldwide. The
principal actuarial assumptions used by the independent actuary
performed based on measurement date are as follows: |

Discount rate	11 %
Expected long-term return on plan assets	7.5 %
Salary growth rate	9 %

The funded status of the plan as of September 30, 2003 and 2004 is as follows:

Projected benefit obligation	31,519		41,872
Plan assets at fair value	7,680		8,504
Excess (shortages) of plan assets over projected
benefit obligation	(23,839	)	(33,368	)
Unrecognized past service cost	1,866		174
Unrecognized experience adjustment	23,284		23,284
Prepaid (unfunded) pension cost	1,311		(9,910	)

| | The unrecognized net obligation at the date of initial application of
PSAK No. 24 is amortized over the expected average remaining service
period of active employees, i.e., 18.87 years, as of June 1, 1999. |
| --- | --- |
| c. | Other Subsidiaries |
| | Certain of the Companys subsidiaries provide defined benefit pension
plans to their employees. The employees contribute 3-5% of their basic
salaries to the plan and the subsidiary contributes any remaining amount
required to fund the plan. Pension benefit costs are calculated based on
the actuarial valuations from an independent actuary using the Projected
Unit Credit method. |
| | As of September 30, 2004, there are no significant differences between
the fair values of the plan assets of the relevant pension fund and the
projected benefit obligations. |

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| 48. |
| --- |
| The Company provides certain cash awards to employees who meet certain
length of service requirement. The benefits, which are either paid during
active employment, upon resignation, retirement or termination, are as
follows: |
| Awards paid during active employment: |

i.	Karya Bhakti long term award
ii.	Long leave allowance

Awards payable upon resignation, retirement or termination:

i.	Purnabhakti award and Pengabdian award
ii.	Last housing allowance
iii.	Last transportation allowance

The actuarial valuations for the long service awards performed based on measurement date of December 31, 2003 was prepared on May 21, 2004 by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide, using the Projected Unit Credit Method. The principal actuarial assumptions used by the independent actuary are as follows:

Discount rate	11 %
Salary growth rate	8 %

The movement of the long service awards during the nine months period ended, 2003 and 2004 is as follows (including KSO units), which estimated proportionally for the nine months period based on the actuarial calculation of 2003 and 2004:

Liability at beginning of year	489,231		473,614
Net periodic benefit cost (Note 41)	155,345		82,271
Benefits paid	(167,057	)	(22,659	)
Liability at end of year	477,519		533,226

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| 49. |
| --- |
| The Company provides a post-retirement health care plan for all of its
employees hired before November 1, 1995 who have worked for the Company for
20 years or more when they retire, and to their eligible dependents. The
requirement of working for over 20 or more years does not apply to
employees who retired prior to June 3, 1995. However, the employees hired
by the Company starting from November 1, 1995 will no longer be entitled to
this plan. The plan is managed by Yayasan Kesehatan Pegawai Telkom
(YKPT). |
| The components of net periodic post-retirement benefit cost are as follows: |

Service cost	60,449		47,342
Interest cost	370,197		308,333
Expected return on plan assets	(16,775	)	(45,813	)
Amortization of unrecognized transition obligation	18,244		18,244
Amortization of prior service cost	(276	)	(276	)
Amortization of gain/losses	74,465		39,005
Net periodic post-retirement benefit cost (Note 41)	506,304		366,835

| In addition, the cost of post-retirement benefits charged to the KSO Units
amounted to Rp5,846 million and Rp9,781 million in 2003 and 2004,
respectively. |
| --- |
| The actuarial valuations for the post-retirement benefit plan performed
based on measurement date of December 31 for each of the years were
prepared on January 15, 2004, while the valuation for the post-retirement
benefits as of December 31, 2003 was prepared on May 21, 2004 by PT Watson
Wyatt Purbajaga, an independent actuary in association with Watson Wyatt
Worldwide. |
| The principal actuarial assumptions used by the independent actuary as of
December 31, 2003 are as follows: |

Discount rate	11 %
Expected return on plan assets	11 %
Health care cost trend rate assumed for next year	12 %
The ultimate trend rate	8 %
Year that the rate reaches the ultimate trend rate	2006

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| 49. |
| --- |
| The following table presents the change in benefit obligation, the change
in plan assets, funded status of the plan and the net amount recognized in
the Companys balance sheets as of September 30, 2003 and 2004, which
estimated proportionally for the nine months period based on the actuarial
calculation of 2003 and 2004: |


Change in benefit obligation
Benefit obligation at beginning of year	3,812,781		3,748,771
Service cost	60,449		47,342
Interest cost	370,197		308,333
Benefits paid	(70,065	)	(75,041	)
Actuarial (gain) loss	(408,589	)	(442,565	)
Benefit obligation at end of year	3,764,773		3,586,840
Change in plan assets
Fair value of plan assets at beginning of year	343,896		466,896
Employer contributions	135,435		549,690
Actual return on plan assets	42,003		45,813
Benefits paid	(73,959	)	(75,041	)
Actuarial gain (loss)	(11,229	)	(11,228	)
Fair value of plan assets at end of year	436,146		976,130
Funded status	(3,328,627	)	(2,610,710	)
Unrecognized net transition obligation	273,655		249,330
Unrecognized prior service gain	(2,025	)	(1,657	)
Unrecognized net losses	1,108,861		484,952
Accrued post-retirement benefit cost	(1,948,136	)	(1,878,085	)

The transition obligation at the date of initial application of Rp524,250 million is amortized over 20 years, beginning on January 1, 1995.

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| 50. |
| --- |
| In the normal course of business, the Company and its subsidiaries entered
into transactions with related parties. It is the Companys policy that,
the pricing of these transactions be the same as those of arms-length
transactions. |
| The following are significant agreements/transactions with related parties: |

a. Government of the Republic of Indonesia

| i. | The Company obtained two-step loans from the Government
of the Republic of Indonesia, the Companys majority stockholder. |
| --- | --- |
| | Interest expense for two-step loans amounted to Rp742,988 million
and Rp564,614 million in 2003 and 2004 respectively. Interest
expense for two-step loan reflected 78.33% and 60.21% of total
interest expenses in 2003 and 2004, respectively. |
| ii. | The Company and its subsidiary pay concession fees for
telecommunications services provided and radio frequency usage
charges to the Ministry of Communications (formerly, Ministry of
Tourism, Post and Telecommunications) of the Republic of Indonesia. |
| | Concession fees amounted to Rp248,771 million and Rp393,580 million
in 2003 and 2004, respectively. Concession fees reflected 2.3% and
2.7% of total operating expenses in 2003 and 2004, respectively.
Radio frequency usage charges amounted to Rp303,019 million and
Rp374,325 million in 2003 and 2004, respectively. Radio frequency
usage charges reflected 2.8% and 2.6% of total operating expenses in
2003 and 2004, respectively. |

b. Commissioners and Directors Remuneration

| i. | The Company and its subsidiaries provide honorarium and
facilities to support the operational duties of the Board of
Commissioners. The total of such benefits amounted to Rp10,204
million and Rp10,713 million in 2003 and 2004, respectively, which
reflected 0.1% and 0.1% of total operating expenses in 2003 and
2004, respectively. |
| --- | --- |
| ii. | The Company and its subsidiaries provide salaries and
facilities to support the operational duties of the Board of
Directors. The total of such benefits amounted to Rp36,948 million,
and Rp40,140 million in 2003 and 2004, respectively, which
reflected 0.34% and 0.28% of total operating expenses in 2003 and
2004, respectively. |

c.
The Company has an agreement with Indosat for the provision of
international telecommunications services to the public.

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RELATED PARTY INFORMATION (continued)

c.
The principal matters covered by the agreement are as follows:

| i. | The Company provides a local network for customers to make
or receive international calls. Indosat provides the international
network for the customers, except for certain border towns, as
determined by the Director General of Post and Telecommunications
of the Republic of Indonesia. The international telecommunications
services include telephone, telex, telegram, package switched data
network, television, teleprinter, Alternate Voice/Data
Telecommunications (AVD), hotline and teleconferencing. |
| --- | --- |
| ii. | The Company and Indosat are responsible for their
respective telecommunications facilities. |
| iii. | Customer billing and collection, except for leased lines
and public phones located at the international gateways, are
handled by the Company. |
| iv. | The Company receives compensation for the services provided
in the first item above, based on the interconnection tariff
determined by the Minister of Communications of the Republic of
Indonesia. |

| The Company has also entered into an interconnection agreement between
the Companys fixed-line network and Indosats cellular network in
connection with the implementation of Indosat Multimedia Mobile services
and the settlement of the related interconnection rights and
obligations. |
| --- |
| Pursuant to the Ministry of Communications Decree regarding the transfer
of the license for Indosats mobile cellular network operation from
Indosat to PT Indosat Multimedia Mobile (IM3), the Company agreed to
transfer all interconnection rights and obligations to IM3 based on
Interconnection Cooperation Agreement, as regulated in the Amendment of
Agreement in the side letter No. 656 dated March 18, 2002. |
| The Companys compensation relating to leased lines/channel services,
such as International Broadcasting System (IBS), AVD and bill printing
is calculated at 15% of Indosats revenues from such services. |
| Indosat also leases circuits from the Company to link Jakarta, Medan and
Surabaya. |
| The Company has been handling customer billings and collections for
Indosat. Indosat is gradually taking over the activities and performing
its own direct billing and collection. The Company receives compensation
from Indosat computed at 1% of the collections made by the Company
beginning January 1, 1995, plus the billing process expenses which are
fixed at a certain amount per record. |

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RELATED PARTY INFORMATION (continued)

| c. |
| --- |
| Telkomsel also entered into an agreement with Indosat for the provision
of international telecommunications services to GSM mobile cellular
customers. The principal matters covered by the agreement are as
follows: |

| i. | Telkomsels GSM mobile cellular telecommunications network
is connected to Indosats international gateway exchanges to make
outgoing or receive incoming international calls through Indosats
international gateway exchanges. |
| --- | --- |
| ii. | Telkomsels GSM mobile cellular telecommunications network
is connected to Indosats mobile cellular telecommunications
network, enabling Telkomsels cellular subscribers to make outgoing
calls to or receive incoming calls from Indosats cellular
subscribers. |
| iii. | Telkomsel receives as compensation for the interconnection,
a specific percentage of Indosats revenues from the related
services which are made through Indosats international gateway
exchanges and mobile cellular telecommunications network. |
| iv. | Billings for calls made by Telkomsels customers are
handled by Telkomsel. Telkomsel is obliged to pay Indosats share
of revenue regardless whether billings to customers have been
collected. |
| v. | The provision and installation of the necessary
interconnection equipment is Telkomsels responsibility.
Interconnection equipment installed by one of the parties in
another partys locations shall remain the property of the party
installing such equipment. Expenses incurred in connection with
the provision of equipment, installation and maintenance are borne
by Telkomsel. |

Telkomsel also has an agreement with Indosat on the usage of Indosats telecommunications facilities. The agreement, which was made in 1997 and is valid for eleven years, is subject to change based on an annual review and mutual agreement by both parties. The charges for the usage of the facilities amounted to Rp13,450 million and Rp13,035 million in 2003 and 2004, respectively, reflecting 0.1% and 0.1% of total operating expenses in 2003 and 2004, respectively. Other agreements between Telkomsel and Indosat are as follows:

| i. |
| --- |
| On October 10, 1996, Telkomsel, Lintasarta, Satelindo and Indosat
(the Parties) entered into an agreement on the construction and
maintenance of the J-S Cable System. The Parties have formed a
management committee which consists of a chairman and one
representative of each of the Parties to direct the construction and
operation of the cable system. The construction of the cable system
was completed in 1998. In accordance with the agreement, Telkomsel
shared 19.325% of the total construction cost. Telkomsel shares in
the operating and maintenance costs based on an agreed formula. |

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RELATED PARTY INFORMATION (continued)

c. Indosat, including Satelindo (continued)

| | The cost of operation and maintenance shared amounted to Rp430
million and Rp464 million for the years 2003 and 2004, respectively. |
| --- | --- |
| ii. | Indefeasible Right of Use Agreement |
| | On September 21, 2000, Telkomsel entered into agreement with Indosat
on the use of SEA ME WE 3 and tail link in Jakarta and Medan. In
accordance with the agreement, Telkomsel was granted an indefeasible
right to use certain capacity of the Link starting from September
21, 2000 until September 20, 2015 in return for an upfront payment
of US$2,727,273. In addition to the upfront payment, Telkomsel is
also charged annual operation and maintenance costs amounting to
US$136,364. |
| | As of April 8, 2004, in connection with merger of Indosat, amendment
to the agreements with Indosat, including extension of period, is
still in process. |

| The Company and its subsidiary earned net interconnection revenues
(expenses) from Indosat (including IM3 and Satelindo in 2003) of
Rp757,962 million and Rp(421,579) million in 2004 1.7% of total
operating revenues in 2004. |
| --- |
| The Company and its subsidiary earned net interconnection revenue from
IM3 amounted to Rp225,195 million in 2003. |
| The Company leases international circuits from Indosat, subsequent to
the merger of Satelindo to Indosat in 2003. Payments made in relation to
the lease expense amounted to Rp20,369 million and Rp10,659 in 2003 and
2004, which reflected 0.2% and 0.1% of total operating expenses for 2003
and 2004 respectively. |
| The Company has an agreement with Satelindo, an Indosat subsidiary,
whereby both parties agreed, among other matters, on the following: |

| i. | Interconnection of the Companys fixed-line network
(PSTN) with Satelindos international gateway exchange, enabling
the Companys customers to make outgoing or receive incoming
international calls through Satelindos international gateway
exchange. |
| --- | --- |
| ii. | Billings for the international telecommunications services
used by domestic customers through Satelindos international
gateway exchange will be handled by the Company. |

| The Company also has an agreement with Satelindo for the interconnection
of Satelindos GSM mobile cellular telecommunications network with the
Companys PSTN, enabling the Companys customers to make outgoing calls
to or receive incoming calls from Satelindos customers. |
| --- |
| Interconnection revenues earned from Satelindo were Rp1,094,365 million
in 2003 and 2004, respectively, which reflected 5.6% of total operating
revenues for 2003. |

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RELATED PARTY INFORMATION (continued)

c.	Indosat, including Satelindo (continued)
	In 1994, the Company transferred to Satelindo the right to use a parcel
of Company-owned land located in Jakarta which had been previously
leased to Telekomindo, an associated company. Based on the transfer
agreement, Satelindo is given the right to use the land for 30 years and
can apply for the right to build properties thereon. The ownership of
the land is retained by the Company. Satelindo agreed to pay Rp43,023
million to the Company for the thirty-year right. Satelindo paid
Rp17,210 million in 1994 and the remaining Rp25,813 million was not paid
because the Utilization Right (Hak Pengelolaan Lahan) on the land
could not be delivered as provided in the transfer agreement. In 2000,
the Company and Satelindo agreed on an alternative solution resulting in
which the payment is treated as a lease expense up to 2006. In 2001,
Satelindo paid the remaining amount of Rp59,860 million as lease expense
up to 2024. As of September 30, 2004, the prepaid portion is shown in
the consolidated balance sheets as Advances from customers and
suppliers.
d.	The Company provides telecommunication services to Government
agencies.
e.	The Company has entered into agreements with Government agencies
and associated companies, Lintasarta, CSM and Patrakomindo, for
utilization of the Companys Palapa B4 and Telkom 1 satellite
transponders or frequency channels. Revenues earned from these
transactions amounted to Rp16,028 million and Rp47,457 million in 2003
and 2004, respectively, which reflected 0.08% and 0.2% of total
operating revenues in 2003 and 2004, respectively.
f.	The Company provides leased lines to associated companies and
Indosats subsidiaries i.e., CSM, Lintasarta, Satelindo, Komselindo,
Mobisel, Metrosel, Indosat Multi Media and PSN (2004: Exclude CSM,
Satelindo, Komselindo, Mobisel and Metrosel). The leased lines can be
used by the associated companies for telephone, telegraph, data,
telex, facsimile or other telecommunications services. Revenue earned
from these transactions amounted to Rp25,622 million and Rp48,622
million in 2003 and 2004, respectively, reflecting 0.1% and 0.2% of
total operating revenues in 2003 and 2004, respectively.
g.	The Company purchases property and equipment including
construction and installation services from a number of related
parties. These related parties include PT Industri Telekomunikasi
Indonesia (PT INTI), Lembaga Elektronika Nasional, PT Adhi Karya, PT
Pembangunan Perumahan, PT Nindya Karya, PT Boma Bisma Indra, PT Wijaya
Karya, PT Waskita Karya, PT Gratika, Telekomindo, Bangtelindo,
Telesera and Koperasi Pegawai Telekomunikasi. Total purchases made
from these related parties amounted to Rp60,008 million and
Rp1,143,153 million in 2003 and 2004, respectively, reflecting 0.7%
and 19.2% of total fixed assets purchases in 2003 and 2004,
respectively.
h.	PT INTI is also a major contractor and supplier for providing
equipment, including construction and installation services for
Telkomsel. Total purchases from PT INTI in 2003 and 2004 amounted to
Rp66,936 million and Rp182,303 million, respectively, reflecting 1.6%
and 4.9% of total fixed assets purchased in 2003 and 2004,
respectively.

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RELATED PARTY INFORMATION (continued)

| i. | The Company and its subsidiaries carry insurance (on their
property, plant and equipment against property losses, inventory and
on employees social security) obtained from PT Asuransi Jasa
Indonesia, PT Asuransi Tenaga Kerja and PT Persero Asuransi Jiwasraya,
which are state-owned insurance companies. Insurance premiums charged
amounted to Rp126,035 million and Rp64,566 million in 2003 and 2004,
respectively, reflecting 1.2% and 0.4% of total operating expenses in
2003 and 2004, respectively. |
| --- | --- |
| j. | The Company and its subsidiaries maintain current accounts and
time deposits in several state-owned banks. In addition, some of those
banks are appointed as collecting agents for the Company. As of
December 31, 2001, the Company also has an investment in mutual funds
managed by Danareksa, a state-owned company. Total placements in form
of current accounts and time deposits in state-owned banks and mutual
funds amounted to Rp3,055,468 million and Rp2,533,512 million as of
September 30, 2003 and 2004, respectively, reflecting 6.29% and 4.51%
of total assets as of September 30, 2003 and 2004, respectively.
Interest income recognized during 2004 was Rp69,183 million, which
reflecting 50.87% of total interest income. |
| k. | The Company leases buildings, purchases materials and
construction services, and utilizes maintenance and cleaning services
from Dana Pensiun Telkom and PT Sandhy Putra Makmur, a subsidiary of
Yayasan Sandikara Putra Telkom a foundation managed by Dharma Wanita
Telkom. Total charges from these transactions amounted to Rp18,680
million and Rp14,570 million in 2003 and 2004, respectively,
reflecting 0.2% and 0.1% of total operating expenses in 2003 and 2004,
respectively. |
| l. | The Company and its subsidiary earned interconnection revenues
from Komselindo, Metrosel, Mobisel, BBT and PSN (2004: excluding
Komselindo and Metrosel), with a total of Rp15,748 million and Rp8,523
million in 2003 and 2004, respectively, which reflect 0.06% and 0.03%
of total operating revenues in 2003 and 2004, respectively. |
| m. | The Company has also seconded a number of its employees to
related parties to assist them in operating their business. In
addition, the Company provided certain of its related parties with the
right to use its buildings free of charge. |

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RELATED PARTY INFORMATION (continued)

	% of		% of
Rp	total assets	Rp	total assets
a. Cash and cash equivalents (Note 7)	3,768,689	7.76	2,499,564	4.45
b. Temporary investments (Note 8)			7,036	0.00
c. Trade account receivable net (Note 9)	765,094	1.57	690,848	1.23
d. Other account receivables
KSO Units	112,585	0.00	125,635	0.00
State-owned banks (interest)	32	0.00	975	0.00
Government agencies	3,044	0.00	15,855	0.00
Others	72	0.00	29,931	0.00
Total	115,733	0.00	172,396	0.00
e. Prepaid expenses (Note 11)	442,467	0.01	340,799	0.01
f. Other current assets (Note 11)	38,663	0.00	44,412	0.00
g. Advances and other non-current assets
Bank Mandiri			115,880	0.00
PT Asuransi Jasindo			61	0.00
Peruri			813	0.00
Total			116,754	0.00

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RELATED PARTY INFORMATION (continued)

	% of		% of
Rp	liabilities	Rp	liabilities
h. Trade accounts payable (Note 19)
Government agencies	253,983	0.01	397,915	0.01
KSO Units	19,189	0.00	58,042	0.00
Indosat (including Satelindo)	240,658	0.01	273,232	0.01
Koperasi Pegawai Telkom	10,584	0.00	8,389	0.00
PSN	5,787	0.00	8,883	0.00
PT INTI	23,400	0.00	70,505	0.00
Others	3,075	0.00	10,636	0.00
Total	556,676	0.02	827,602	0.03
i. Accrued expenses (Note 20)
Government agencies	135,726	0.01	55,957	0.00
Employees	726,792	0.02	516,884	0.02
PT Asuransi Jasa Indonesia	17,168	0.00	8,572	0.00
Total	879,686	0.03	581,413	0.02
j. Short-term bank loans (Note 23)
Bank Mandiri	37,509	0.00	40,854	0.00
k. Two
step loans (Note 24 and 25)	7,825,735	0.26	7,388,479	0.23
l. Long service awards (Note 48)	477,519	0.02	533,226	0.02
m. Post-retirement benefits (Note 49)	3,764,773	0.13	3,586,840	0.11
n. Long-term bank loans (Note 27)
Bank Mandiri			61,297	0.00

| 51. |
| --- |
| The Company and its subsidiaries have two main business segments: fixed
line and cellular. The fixed line segment provides local and domestic
long-distance telephone services and other telecommunications services
(including among others, leased lines, telex, transponder, satellite and
Very Small Aperture Terminal-VSAT) as well as ancillary services. The
cellular segment provides basic telecommunication services, particularly
mobile cellular telecommunication services. Operating segments that do not
individually represent more than 10% of the Companys revenues are
presented as Other comprising the telephone directories and building
management businesses. |
| Segment revenues and expenses include transactions between business
segments and are accounted for at amounts prices that represent market
prices. |

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SEGMENT INFORMATION (continued)


						Total before				Total
Fixed line		Cellular		Other		elimination		Elimination		consolidated
Segment results
Operating revenues
External operating revenues	11,967,875		7,471,808		176,996		19,616,679				19,616,679
Intersegment operating
revenues	(177,818	)	541,548		18,132		381,862		(381,862	)
Total operating revenues	11,790,057		8,013,356		195,128		19,998,541		(381,862	)	19,616,679
Operating expenses	(7,149,032	)	(3,535,080	)	(189,916	)	(10,874,028	)	85,386		(10,788,642	)
Operating income	4,641,025		4,478,276		5,212		9,124,513		(296,476	)	8,828,037
Interest expense	(831,687	)	(116,836	)			(948,523	)			(948,523	)
Interest income	201,807		47,009		6,715		255,531				255,531
Gain (loss) on foreign exchange net	162,581		2,066		727		165,374				165,374
Other income (charges) net	2,559		(9,741	)	53,501		46,319		(48,213	)	(1,894	)
Tax expense	(1,539,941	)	(1,345,139	)	(17,114	)	(2,902,194	)			(2,902,194	)
Equity in net income of associated companies	2,538,047						2,538,047		(2,538,075	)	(28	)
Income before minority interest	5,174,391		3,055,635		49,041		8,279,067		(2,882,764	)	5,396,303
Unallocated minority interest											(984,731	)
Net income	5,174,391		3,055,635		49,041		8,279,067		(2,882,764	)	4,411,572
Other information
Segment assets	47,353,994		14,200,237		366,157		61,920,388		(13,397,438	)	48,522,950
Investments in associates	69,741						69,741				69,741
Total consolidated assets	47,423,735		14,200,237		366,157		61,990,129		(13,397,438	)	48,592,691
Total consolidated liabilities	(30,588,434	)	(5,070,382	)	(232,489	)	(35,891,305	)	6,252,359		(29,638,946	)
Minority interest											(3,291,894	)
Capital expenditures	(5,040,449	)	(4,077,492	)	(34,390	)	(9,152,331	)			(9,152,331	)
Depreciation and amortization	(2,212,370	)	(1,125,062	)	(6,954	)	(3,344,386	)	10,943		(3,333,443	)
Amortization of intangible assets	(509,011	)					(509,011	)			(509,011	)
Other non-cash expenses	(295,898	)	(76,122	)	(2,837	)	(374,857	)			(374,857	)
Net cash provided by operating activities	4,171,046		4,988,484		19,963		9,179,493		6,398		9,185,891
Net cash used in investing activities	(947,301	)	(4,238,173	)	(20,750	)	(5,206,224	)	(711,185	)	(5,917,409	)
Net cash used in financing activities	(4,318,850	)	(460,120	)	(27,178	)	(4,806,148	)	704,787		(4,101,361	)

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SEGMENT INFORMATION (continued)


						Total before				Total
Fixed line		Cellular		Other		elimination		Elimination		consolidated
Segment results
Operating revenues
External operating revenues	14,766,146		9,966,373		286,937		25,019,456				25,019,456
Intersegment operating revenues	278,612		(716,973	)			(438,361	)	438,361
Total operating revenues	15,044,758		9,249,400		286,937		24,581,095		438,361		25,019,456
Operating income	4,485,550		5,804,356		58,399		10,348,305		76,215		10,424,520
Interest expense	(784,333	)	(153,407	)	(40	)	(937,780	)			(937,780	)
Interest income	146,980		69,610		2,690		219,280				219,280
Gain (loss) on foreign exchange net	(545,210	)	(32,429	)	(105	)	(577,744	)			(577,744	)
Other income (charges) net	312,794		41,659		69,303		423,756		(76,215	)	347,541
Tax expense	(1,237,748	)	(1,738,416	)	(38,355	)	(3,014,519	)			(3,014,519	)
Equity in net income of associated companies	3,084,602						3,084,602		(3,082,319	)	2,283
Income before minority interest	5,462,635		3,991,373		91,892		9,545,900		(3,082,319	)	6,463,581
Unallocated minority interest											(1,439,235	)
Net income	5,462,635		3,991,373		91,892		9,545,900		(3,082,319	)	5,024,346
Other information
Segment assets	40,171,468		19,439,469		331,709		59,942,646		(12,665,426	)	47,277,220
Investments in associates	9,809,824						9,809,824				9,809,824
Total consolidated assets	49,981,292		19,439,469		331,709		69,752,470		(12,665,426	)	57,087,044
Total consolidated liabilities	(29,083,037	)	(7,043,678	)	(126,352	)	(36,253,067	)	3,309,385		(32,943,682	)
Minority interest											(4,462,324	)
Capital expenditures	(2,221,267	)	(3,701,691	)	(43,789	)	(5,966,747	)			(5,966,747	)
Depreciation and amortization	(2,692,979	)	(1,784,779	)	(12,594	)	(4,490,352	)	(9,846	)	(4,500,198	)
Amortization of intangible assets	(561,594	)					(561,594	)			(561,594	)
Other non-cash expenses	(202,589	)	(68,013	)	(4,522	)	(275,124	)			(275,124	)
Net cash provided by operating activities	3,526,345		6,858,595		29,159		10,414,099				10,414,099
Net cash used in investing activities	(634,931	)	(3,641,741	)	(26,692	)	(4,303,364	)			(4,303,364	)
Net cash used in financing activities	(3,733,505	)	(1,354,710	)	(4,526	)	(5,092,741	)			(5,092,741	)

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| 52. |
| --- |
| In 1995, the Company and five investors (PT Pramindo Ikat Nusantara, PT
AriaWest International, PT Mitra Global Telekomunikasi Indonesia, PT
Dayamitra Telekomunikasi and PT Bukaka Singtel International) entered into
agreements for Joint Operation Schemes (KSO) and KSO construction
agreements for the provision of telecommunication facilities and services
for the Sixth Five-Year Development Plan (Repelita VI) of the Republic of
Indonesia. The five investors undertook the development and operation of
the basic fixed telecommunications facilities and services in five of the
Companys seven regional divisions. |
| Under the Joint Operation Scheme, the KSO Unit is required to make payments
to the Company consisting of the following: |

| | Minimum Telkom Revenue (MTR) Represents the amount guaranteed by the KSO investor to be paid to the
Company in accordance with the KSO agreement. |
| --- | --- |
| | Distributable KSO Revenues (DKSOR) DKSOR are the entire KSO revenues, less the MTR and the operational
expenses of the KSO Units, as provided in the KSO agreements. These
revenues are shared between the Company and the KSO Investors based on
agreed upon percentages. |
| | The DKSOR from fixed wireless revenues (Telkom Flexi Revenues) are
shared between the Company and KSO Investor based on a ratio of 95% and
5%, respectively. |
| | The DKSOR from non-Telkom Flexi Revenues are shared between the Company
and KSO Investor based on a ratio of 30% and 70%, respectively, except
for KSO VII. For KSO VII, the DKSOR from non-Telkom Flexi Revenues are
shared between the Company and KSO Investor at a ratio of 35% and 65%,
respectively. Effective on 31 July 2003, the ratio for distribution of
DKSOR from non-Telkom Flexi Revenue in KSO III was changed to 5% and 95%
for the Company and KSO Investor, respectively, from the date thereof
until 31 December 2005, and to 30% and 70%, respectively, thereafter. |

At the end of the KSO period, all rights, title and interests of the KSO Investor in existing installations and all work in progress, inventories, equipment, materials, plans and data relating to any approved additional new installation projects then uncompleted or in respect of which the tests have not been successfully completed, shall be sold and transferred to the Company without requiring any further action by any party, upon payment by the Company to the KSO Investor of one hundred Rupiah, plus:

| i. | the net present value, if any, of the KSO Investors projected
share in DKSOR from the additional new installations forming part of
the KSO system on the termination date over the balance of the
applicable payback periods, and |
| --- | --- |
| ii. | an amount to be agreed upon between the Company and the KSO
Investor as a fair compensation in respect of any uncompleted or
untested additional new installations transferred. |

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| 52. |
| --- |
| The depreciation of the Rupiah against the U.S. Dollars, which started in
the second half of 1997, has impacted the financial condition of the KSO
Investors. In response to economic conditions, on June 5, 1998, all KSO
Investors and the Company signed a Memorandum of Understanding (MoU) to
amend certain provisions of the KSO agreements. Among the amendments are as
follows: |

| i. | The percentage of sharing of the distributable KSO revenues for
1998 and 1999 was 10% and 90% for the Company and the KSO Investors,
respectively. |
| --- | --- |
| ii. | The minimum number of access line units to be installed by the
KSO Investors up to March 31, 1999 was 1,268,000 lines. |
| iii. | The incremental rate of the MTR would not exceed 1% in 1998 and
1.5% in 1999 for the KSO agreements with the Investors that have MTR
incremental factors. |
| iv. | Operating Capital Expenditures in each of the KSO Units will be
shared between the Company and the respective KSO Investors in
proportion to the previous years share in the annual net income of
the KSO Units, starting from 1999. |
| v. | The cancellation of the requirement to maintain a bank guarantee
in respect of MTR. |

| In 1998 and 1999, the Company adopted the provisions of the MoU. Beginning
November 1999, the Company and the KSO Investors had begun to renegotiate
the terms of the KSO agreements in conjunction with the changing
environment and the expiration of certain terms in the MoU. Among others,
it was agreed to return to most of the provisions of the original KSO
agreements beginning January 1, 2000. |
| --- |
| KSO I |
| In 2002, the Company and the stockholders of Pramindo (KSO Investor)
reached an agreement in which the Company acquired 100% of Pramindo and
gained control over the operation of KSO Unit I (Note 5b). |
| KSO III |
| Effective on July 31, 2003, the Company and the stockholders of AWI (KSO
Investor) reached an agreement in which the Company acquired 100% of AWI
and gained control over the operation of KSO Unit III (Note 5c). |
| KSO IV |
| Beginning January 20, 2004, the Company and MGTI entered into an amendment
to the KSO agreement previously Joint Operation Scheme into Revenue Sharing
Agreement. (Note 6). |

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52.	JOINT OPERATION SCHEME (KSO) (continued)
	KSO VI
	In 2001, the Company and the stockholders of Dayamitra (KSO Investor)
reached an agreement in which the Company acquired 90.32% of Dayamitra and
gained control over the operation of KSO Unit VI. In addition, the Company
entered into a put and call option arrangement for the remaining 9.68% of
the issued and paid up capital of Dayamitra (Note 5a).
	KSO VII
	The Company and PT Bukaka Singtel International intend to continue the KSO
schemes in accordance with original agreements with some additional
projects.
	The gross MTR and DKSOR of the unconsolidated KSOs for the nine months
period ended September 30, 2003 and 2004 were Rp1,086,329 million and
Rp441,741 million, respectively.
53.	REVENUE-SHARING ARRANGEMENTS
	The Company has entered into separate agreements with several investors
under Revenue-Sharing Arrangements (RSA) to develop fixed lines, public
card-phone booths (including their maintenance) and related supporting
telecommunications facilities.
	As of September 30, 2004, the Company has 30 RSA with 24 partners. The RSA
were located mostly in Palembang, Pekanbaru, Jakarta and Surabaya with
concession period ranging from 24 to 172 months.
	Under the RSA, the investors finance the costs incurred in developing
telecommunications facilities. Upon completion of the construction, the
Company manages and operates the facilities and bears the cost of repairs
and maintenance during the revenue-sharing period. The investors legally
retain the rights to the property, plant and equipment constructed by them
during the revenue-sharing periods. At the end of each revenue-sharing
period, the investors transfer the ownership of the facilities to the
Company.
	The revenues earned from the customers in the form of line installation
charges are allocated in full to the investors. The revenues from outgoing
telephone pulses and monthly subscription charges are shared between the
investors and the Company based on certain agreed ratio. Certain additional
arrangements are made for revenues earned from analog mobile cellular,
whereby revenues from international outgoing pulses are allocated in full
to the Company. Revenues earned from pay phone cards during the
revenue-sharing period are shared 60:40 (in favor of the investors) based
on the recorded usage of pulses.
	The net book value of property, plant and equipment under RSA which have
been transferred to property, plant and equipment amounted to Rp8,871 and
Rp107,379 million in 2003 and 2004, respectively (Note 16).
	Pursuant to the amendment of KSO IV agreement with MGTI (Investor of KSO
IV) dated January 20, 2004 in respect of revenue sharing mechanism, the
Company interpreted that the new revenue sharing mechanism in KSO IV is
substantially changed to Revenue Sharing Arrangement (Note 6).

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53.	REVENUE-SHARING ARRANGEMENTS (continued)
	On February 2004, the Company applied Telecommunication Service scheme and
decided to cease build, operate and transfer scheme. There are five types
under new scheme, there are: revenue sharing arrangement, compensation,
reimbursement, donation and connectivity. In relation with the new scheme,
head of division was allowed to make agreement telecommunication facility
development with partners in their divisions which more profitable to the
Company and priority given to the development of CDMA facilities.
54.	TELECOMMUNICATIONS SERVICES TARIFFS
	Under Law No. 36 year 1999 and Government Regulation No. 52 year 2000,
tariffs for the use of telecommunications network and telecommunication
services are determined by providers based on the tariffs category,
structure and with respect to fixed line telecommunication services price
cap formula set by the Government.
	Fixed Line Telephone Tariffs
	Fixed line telephone tariffs are imposed for network access and usage.
Access charges consist of a one-time installation charge and a monthly
subscription charge. Usage charges are measured in pulses and classified as
either local or domestic long-distance. The tariffs depend on call
distance, call duration, the time of day, the day of the week and holidays.
	Tariffs for fixed line telephone are regulated under Minister of
Communications Decree No. KM.12 year 2002 dated January 29, 2002 concerning
the addendum of the decree of Minister of Tourism, Post and
Telecommunication (MTPT) No. 79 year 1995, concerning the Method for
Basic Tariff Adjustment on Domestic Fixed Line Telecommunication Services.
Furthermore, the Minister of Communications issued Letter No. PK 304/1/3
PHB-2002 dated January 29, 2002 concerning increase in tariffs for fixed
line telecommunications services. According to the letter, tariffs for
fixed line domestic calls would increase by 45.49% over three years. The
average increase in 2002 was 15%. This increase was effective on February
1, 2002.
	To follow up the previous Letter, the Ministry of Communications issued
Letter No. PR.304/2/4/PHB-2002 dated December 17, 2002 regarding tariff
adjustments for domestic fixed line telecommunications services effective
on January 1, 2003. Considering the fact that the Independent Regulatory
Body, a precondition for the tariff adjustment, had not been established,
The Minister of Communications postponed the implementation of tariffs
adjustments by issuing Ministerial Letter No. PR.304/1/1/PHB-2003, dated
January 16, 2003.
	However, on March 30, 2004, the Minister of Communications issued
Announcement No. PM.2 year 2004 regarding the Implementation of
Restructuring in the Telecommunications Sector, commencing April 1, 2004
the Company apply the new fixed line tariff (local, domestic long-distance
and monthly subscription charges). Monthly subscription charges increase
by average of 21% for all customers segment, local usage increase by
average of 28% per minute and domestic long-distance decrease by average of
10%.

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| 54. |
| --- |
| Mobile Cellular Telephone Tariffs |
| Tariff for cellular providers are set on the basis of the MTPT Decree No.
KM. 27/PR.301/MPPT-98 dated February 23, 1998. Under the regulation, the
cellular tariffs consist of activation fees, monthly charges and usage
charges. |
| The maximum tariff for the activation fee is Rp200,000 per new subscriber
number. The maximum tariff for the monthly charges is Rp65,000. Usage
charges consist of the following: |

| a. |
| --- |
| The maximum basic airtime tariff charged to the originating cellular
subscriber is Rp325/minute. Charges to the originating cellular
subscriber are calculated as follows: |

1. Cellular to cellular.	: 2 times airtime rate
2. Cellular to PSTN.	: 1 times airtime rate
3. PSTN to cellular.	: 1 times airtime rate
4. Card phone to cellular	: 1 times airtime rate plus 41% surcharges

b. Usage Tariffs

| 1. | Usage tariffs charged to a cellular subscriber who makes a
call to a fixed line (PSTN) subscriber are the same as the usage
tariffs applied to PSTN subscribers. For the use of local PSTN
network, the tariffs are computed at 50% of the prevailing local
PSTN tariffs. |
| --- | --- |
| 2. | The long-distance usage tariffs between two different
service areas are the same as the prevailing tariffs for domestic
long-distance call (SLJJ) applied to PSTN subscribers. |
| | Based on the Decree No. KM. 79 year 1998 of the Ministry of
Communications, the maximum tariff for prepaid customers may not exceed
140% of the peak time tariffs for post-paid subscribers. |

| Interconnection Tariffs |
| --- |
| Interconnection tariffs regulate the sharing of interconnection calls
between the Company and other cellular operators. |
| The current interconnection tariff is governed under MTPT Decree No.
KM.46/PR.301/MPPT-98 (KM. 46 year 1998) dated February 27, 1998 which
came into effect on April 1, 1998 and was further revised by the Minister
of Communications Decree No. KM.37 year 1999 dated June 11, 1999 (KM. 37
year 1999). |

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54.
Interconnection Tariffs (continued)

| i. |
| --- |
| Based on KM. 37 year 1999, effective December 1, 1998, the international
interconnection tariffs are calculated by applying the following charges
to successful incoming and outgoing calls to the Companys network: |

	Tariff
Access charge	Rp850 per call
Usage charge	Rp550 per paid minute
Universal Service Obligation (USO)	Rp750 per call

ii.
Based on KM. 46 year 1998, cellular interconnection tariffs with PSTN
are as follows:

1.	Local Calls
	For local calls from a mobile cellular network to PSTN, the cellular
operator pays the Company 50% of the prevailing tariffs for local
calls. For local calls from PSTN to a cellular network, the Company
charges its subscribers the applicable local call tariff plus an
airtime charge, and pays the cellular operator the airtime charge.
2.	Domestic Long-distance Calls
	KM. 46 year 1998 provides tariffs which vary among long-distance
carriers depending upon the routes and the long-distance network
used. Pursuant to this decree, for long-distance calls which
originate from the PSTN, the Company is entitled to retain a portion
of the prevailing long-distance tariffs, which portion ranges from
40% of the tariffs, in cases where the entire long-distance traffic
is carried by cellular operators network and delivered to another,
and up to 85% of the tariffs, in cases where the entire long-distance
traffic is carried by the PSTN.
	For long-distance calls which originate from a cellular operator, the
Company is entitled to retain a portion of the prevailing
long-distance tariffs, which portion ranges from 25% of the tariff,
in cases where the entire long-distance traffic is carried by
cellular operators network and the call is delivered to a cellular
subscriber, and up to 85% of the tariff, in cases where the entire
long-distance traffic is carried by the PSTN and the call is
delivered to a PSTN subscriber.
	Interconnection tariffs with mobile satellite networks (STBSAT) are
established based on Joint Operation Agreements between the Company
and STBSAT providers pursuant to Minister of Communications Decree
No. KM. 30 year 2000 concerning Global Mobile Personal
Telecommunication Service Tariffs by Garuda Satellite dated March 29,
2000. Flat interconnection tariffs per minute apply for those
companies.

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54.
Interconnection Tariffs (continued)

ii. Mobile and fixed cellular interconnection with the PSTN (continued)

| 2. |
| --- |
| Interconnection tariffs with mobile cellular networks, including USO,
are determined based on the duration of the call. Access and usage
charges for international telecommunications traffic interconnection
with telecommunications networks of more than one domestic carrier
are to be shared proportionately with each carrier involved, which
proportion is determined by the MTPT. |
| Interconnection tariffs between a fixed wireless network and PSTN,
and amongst PSTN, are regulated under MTPT letter No.
KU.506/1/1/MPPT-97 dated January 2, 1997 and letter No.
KU.506/4/6/MPPT-97 dated July 21, 1997. Currently, Ratelindo is the
only operator of a fixed wireless network and apart from the Company,
PT Batam Bintan Telekomunikasi (BBT) is the only operator of PSTN.
For fixed wireless interconnection with the PSTN and BBT with the
PSTN, the sender-keeps-all basis for local calls is applied and for
domestic long-distance calls that originate from Ratelindos network
and transit to the PSTN, the Company receives 35% of Ratelindos
revenue for such calls. For domestic long-distance calls that
originate from the PSTN, the Company retains 65% as its revenue for
such calls. For long distance calls from and to BBT, the Company
retains 75% of the revenue while BBT receives the remaining 25%. |

iii.
Based on KM. 46 year 1998, the mobile cellular interconnection tariffs
with other mobile cellular providers are as follows:

1.	Local Calls
	For local calls from one cellular telecommunications network to
another, the originating cellular operator pays the airtime to the
destination cellular operator. If the call is carried by the PSTN,
the cellular operator pays the PSTN operator 50% of the prevailing
tariffs for local calls.
2.	Domestic Long-distance Calls
	For long-distance calls which are originated from a cellular
telecommunications network, the cellular operator is entitled to
retain a portion of the prevailing long-distance tariffs, which
portion ranges from 15% of the tariff in cases where the entire
long-distance traffic is not carried by the cellular operator, up to
60% of the tariff in cases where the entire long-distance portion is
carried by the cellular operator and the call is delivered to another
cellular operator, or up to 75% if the call is delivered to the same
cellular operator.

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TELECOMMUNICATIONS SERVICES TARIFFS (continued)

| iii. |
| --- |
| In connection with the issuance of Law No. 36 year 1999 and Government
Regulation No. 52 year 2000, the Minister of Communications, on May 31,
2001, issued Decree No. KM. 20 year 2001, concerning Operations of
Telecommunications Network and KM. 21 year 2001, concerning Operations
of Telecommunications Services, which became effective from the date of
the decree. Subsequently, the Minister of Communications issued Decree
No. KM. 84 year 2002 concerning Telecommunication Traffic Clearing
Process. |

	Public Phone Kiosk (Wartel) Tariff
	The Company is entitled to retain 70% of the telephone tariff based on
Director of Operational and Marketing Decree No. KD 01/HK220/OPSAR-33/2002
dated January 16, 2002, which came into effect on February 16, 2002. This
governs the transition of the business arrangement between Telkom and
Wartel providers, from a commission-based revenue sharing into agreed usage
charges (pulses).
	On August 7, 2002, the Minister of Communications issued Decree No. KM. 46
year 2002 regarding the operation of phone kiosks. The decree provides that
the Company is entitled to retain a maximum of 70% of the phone kiosk basic
tariffs for domestic calls and up to 92% of phone kiosk basic tariffs for
international calls.
55.	COMMITMENTS

| a. |
| --- |
| As of September 30, 2004, the amount of capital expenditures committed
under contractual arrangements, principally relating to procurement and
installation of switching equipment, transmission equipment and cable
network, are as follows: |

	Amounts in — foreign currencies	Equivalent
Currencies	(in thousands)	in Rupiah
Rupiah		1,492,942
U.S. Dollars	226,606	2,077,980
Euro	185,200	209,083
Japanese Yen	51,507	4,257
Total		3,784,262

The above balance includes the following significant agreements:

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COMMITMENTS (continued)

a. Capital Expenditures (continued)

(i)	Procurement Agreements
	In September 2001, Telkomsel entered into agreements with its three
suppliers called Strategic Partners, namely Motorola, Inc.,
Ericsson Radio A.B., and Siemens Aktiengesellschaft (AG) and one
Strategic Supplier (Nokia Oyj.); which was subsequently also called
Strategic Partner for the procurement of equipment and related
services. In accordance with the agreements with these suppliers,
the procurement will be made based on the Notification to Proceed
(NTP), the agreed procurement planning between Telkomsel and its
suppliers for the coming 18 months divided into 6-quarterly periods,
which are confirmed with the issuance of Execution Orders (EO) on
a quarterly basis. The total amount in the EO could be higher or
lower but not less than 75% of the amount in the NTP.
	The agreements are valid and effective as of the execution date by
the respective parties for a period of three years and extendable
upon mutual agreement of both parties to a maximum of two additional
years.
	Telkomsels procurement (import) under the agreements with Motorola
and Nokia Oyj were made through the Letter of Credit Facilities from
Citibank N.A. and Deutsche Bank (which expired in 2003). Telkomsels
procurement under the agreements with PT Ericsson Indonesia and
Siemens AG will be made through the credit facilities from Citibank
International plc (Note 27b).
	Telkomsel has not collateralized any of its borrowings, loans
Guaranteed Notes or other credit facilities.
	The terms of the various agreements with Telkomsels lenders and
financiers include a number of pledges as well as financial and
other covenants which must be complied with including, inter alia,
certain restrictions on dividend and other profit distributions. The
terms of the relevant agreements also contain default and cross
default clauses. Management is not aware of any breaches of the term
of these agreements and does not foresee any such breaches occurring
in the future.
(ii)	Procurement of TELKOM-2 Satellite
	In accordance with Agreement No.K.TEL.191/HK.810/UTA-00/2002 dated
October 24, 2002, which is amended on December 15, 2003, the Company
and Orbital Sciences Corporation (Contractor) agreed on the
procurement of the TELKOM-2 satellite. The total price of
US$73,140,322 is expected to be fully paid in January 2005. The
agreement also includes a refund provision of US$4,338,292 for any
transponder that has its communication capabilities reduced below
3dB and which cannot be corrected by switching to a redundant
transponder.

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COMMITMENTS (continued)

a. Capital Expenditures (continued)

(iii)	Launching of TELKOM-2 Satellite
	On November 8, 2002, the Company and ARIANESPACE S.A. agreed on the
launching of TELKOM-2 Satellite between November 1, 2004 and January
31, 2005. Payments totaling US$62,880,000 is expected to be settled
in December 2004.
(iv)	CDMA Procurement Agreement with Samsung Consortium
	On October 9, 2002, the Company signed an Initial Purchase Order
Contract for CDMA 2000-IX with Samsung Consortium for Base Station
Subsystem (BSS) procurement in Regional Division II, and on
December 23, 2002, the Company signed a Master Procurement
Partnership Agreement (MPPA). The MPPA provides for planning,
manufacturing, delivery, and construction of 1.6 million lines as
well as service level agreement. The MPPA between the Company and
Samsung consists of construction of 1,656,300 lines of Network and
Switching Subsystem (NSS) for nationwide and 802,000 lines of BSS
for Regional Division III, IV, V, VI and VII for US$116 per line for
BSS and US$34 per line for NSS. This project will be partly financed
by The Export-Import Bank of Korea as contemplated in the Loan
Agreement dated August 27, 2003. The total facility amounts to
US$123,965,000 and will be available from the execution of the
agreement until April 2006 (Note 55h).
(v)	CDMA Procurement Agreement with Ericsson CDMA Consortium
	The Company and Ericsson CDMA Consortium have also entered into a
Master Procurement Partnership Agreement (MPPA) on December 23,
2002. The MPPA consists of construction of 631,800 lines of BSS for
US$116 per line. This MPPA is part of the planning, manufacturing,
delivery and construction of total 1.6 million CDMA lines as well as
service level agreement.
	Under the MPPA, the work related to network deployment shall be
carried out and completed within 42 months (six months after end of
fiscal year 2005).
(vi)	Partnership Agreement for the Construction and Provision of
High Performance Backbone in Sumatera
	On November 30, 2001, the Company signed a partnership agreement
with a consortium consisting of PT Pirelli Cables Indonesia and PT
Siemens Indonesia for the construction and provision of a high
performance backbone network in Sumatera. The agreement became
effective as of June 10, 2002. The scope of work includes the
provision of an optical fiber cable, together with transmission
equipment and network management systems. The Company is obliged to
pay approximately US$46,322,629 and Rp172,690 million as
consideration. On June 12, 2003, the parties agreed to amend this
agreement to reflect additional work being carried out by the
consortium in consideration for a lump-sum additional US$2,830,086
and Rp1,699 million.

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COMMITMENTS (continued)

a. Capital Expenditures (continued)

| (viii) |
| --- |
| On November 27, 2002, the Company entered into a supply contract
with NEC Corporation, the Communications Authority of Thailand (the
CAT) and Singapore Telecommunications Limited (SingTel) whereby
NEC Corporation has agreed to construct a submarine fiber optic
network linking Thailand, Indonesia and Singapore. Under the terms
of this agreement, the Company, SingTel and the CAT will contribute
equally to a payment of US$32,680,000 (inclusive of value-added
tax). The amount will be fully settled in the last quarter of 2004. |

b.	Amendment of KSO IV Agreement
	On January 20, 2004, the Company and PT Mitra Global Telekomunikasi
Indonesia (MGTI), Partner of KSO IV, have amended their joint
operation agreement in Regional IV. The Company and MGTI among others
have agreed monthly payment to the Investor from KSO Account in US
Dollars with the first payment of February 2004 and will be end on
December 2010 totally US$517,083,302. As of September 30, 2004, the
Company has paid the investor revenue totaling of US$43,333,328 (Note
6).
c.	Agreements on Derivative Transactions
	Telkomsel purchases equipment from several countries and, as a result,
is exposed to movements in foreign currency exchange rates. As of
September 30, 2004, Telkomsel had outstanding forward foreign exchange
contracts with Deutsche Bank (DB) for US$5,000,000 to protect against
foreign exchange risks relating to its foreign currency denominated
purchases. The primary purpose of Telkomsels foreign currency hedging
activities is to protect against the volatility associated with foreign
currency purchases of equipment and other assets in the normal course of
business. The outstanding contract is scheduled to be settled at July
20, 2004.
d.	MPPA with PT INTI
	The Company and PT INTI signed an MPPA on August 26, 2003 whereby PT
INTI is appointed to construct a CDMA fixed wireless access network and
integrate such network with the Companys existing network and all
ancillary services relating thereto in West Java and Banten. Under the
terms of this Agreement, PT INTI must deliver the CDMA 2000 IX system
within thirty-four months after August 26, 2003 for a total of
approximately US$22,856,791 and Rp61,408 million (inclusive of
valued-added tax). PT INTI will service and maintain the CDMA 2000 IX
system pursuant to a Service Level Agreement dated the same date in
return for an annual consideration of US$2,305,000.

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COMMITMENTS (continued)

e.	MPPA with Motorola
	On March 24, 2003, the Company signed an MPPA with Motorola, Inc. Under
the MPPA, Motorola is obliged to undertake and be jointly responsible
for the demand forecast and solely responsible for the survey, design,
development, manufacture, delivery, supply, installation, integration
and commissioning of the network, including all project management,
training and other related services in relation to the establishment of
the T-21 Program.
	The MPPA consists of 222,500 lines of BSS (radio system) for Regional
Division I Sumatera for a total of approximately US$20,686,855 and
Rp61,268 million. The agreed price does not include the service level
agreement, training for technical staff and documentation. The network
will use Samsungs NSS as already contracted on December 23, 2002 (Note
55a(v)). The agreement is valid until mid of 2006.
f.	Partnership Agreement with Siemens Consortium
	The Company entered into a Partnership Agreement with a consortium led
by Siemens AG on September 24, 2003 for the development, procurement and
construction of a fiber optic backbone transmission network in
Kalimantan and Sulawesi, a related work management system and the
provision of maintenance services in connection with this network. Other
members of the consortium include PT Siemens Indonesia, PT Lembaga
Elektronik Indonesia and Corning Cable System GmbH & Co.KG. The
consideration payable by the Company for the fiber optic networks is
approximately US$3,776,269 plus Rp74,021 million for the network located
within Kalimantan and approximately US$3,815,295 plus Rp70,733 million
for the network located within Sulawesi.
g.	Metro Junction and Optical Network Access Agreement for Regional
Division III with PT INTI
	On November 12, 2003, the Company entered into an agreement with PT INTI
for the construction and procurement of an optical network, as well as a
network management system and other related services and equipment, with
respect to Regional Division III (West Java). Under this agreement, the
Company is obliged to pay PT INTI a total consideration of approximately
US$6,479,992 and Rp112,427 million.
h.	In December 2003, Napsindo entered into an agreement with Indosat
with regards to an installation of fiber optic international link
cable from Jakarta to Hong Kong. Napsindo shall pay fixed revenue of
US$100,000 and 30% of income to Indosat. Napsindo also entered into a
sales VSAT contract with PT Pundi Karya Abadi amounting to US$120,000
(inclusive of value-added tax).

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CONTINGENCIES

| a. | The SEC requires that the Companys Annual Report on Form 20-F be
filed within six months after the reported balance sheet date. In this
respect, the Company published its previous 2002 consolidated
financial statements in March 31, 2003 and submitted the Annual Report
on Form 20-F to the SEC on April 17, 2003. |
| --- | --- |
| | In May 2003, however, the SEC informed the Company that it considered
that the submitted 2002 consolidated financial statements were
un-audited as the audit firm that was originally appointed to perform
the 2002 audit was not qualified for SEC purposes. Due to the time
consumed in selecting an SEC qualified auditor, KAP Drs. Haryanto Sahari
& Rekan (formerly called KAP Drs. Hadi Sutanto & Rekan), the member
firm of PricewaterhouseCoopers in Indonesia, began their work in July
2003. As a result, the Company was not able to meet its June 30, 2003
deadline to file a fully compliant Annual Report on Form 20-F with the
SEC. |
| | Because of the foregoing and the fact that Annual Report was filed after
the June 30, 2003 deadline, the Company may face an SEC enforcement
action under U.S. securities law and other legal liability and adverse
consequences such as delisting of its ADSs from the New York Stock
Exchange. In addition, the staff of the SEC has described a press
release that the Company issued and furnished to the SEC on Form 6-K in
May 2003 as grossly understating the nature and severity of the staffs
concerns regarding matters related to the Companys filing of a
non-compliant Annual Report. Such press release could also form the
basis of an SEC enforcement action and other legal liability. The
Company cannot at this time predict the likelihood or severity of an SEC
enforcement action or any other legal liability or adverse consequences. |
| b. | In the ordinary course of business, the Company has been named as
a defendant in various legal actions. Based on Managements estimate
of the outcome of these matters, the Company accrued Rp44,292 million
at September 30, 2004. |
| c. | In connection with the re-audit of the Companys 2002
consolidated financial statements, the former auditor KAP Eddy Pianto
filed lawsuits in the South Jakarta District Court against KAP Drs.
Haryanto Sahari & Rekan (formerly called KAP Drs. Hadi Sutanto &
Rekan) (the Companys auditor for the re-audit of the 2002
consolidated financial statements), the Company, KAP Hans Tuanakotta &
Mustofa (the Companys 2001 auditor) and the Capital Market
Supervisory Agency BAPEPAM (collectively, Defendants), alleging
that the Defendants, through the reaudit of the Companys 2002
consolidated financial statements, had conspired to engage in an
illegal action against KAP Eddy Pianto, tarnishing the reputation of
KAP Eddy Pianto in the public accounting profession. KAP Eddy Pianto
seeks to recover approximately Rp7,840 billion in damages from the
Company and its co-defendants. The mediation process to resolve the
dispute amicably did not succeed and the Company is scheduled to
formally submit its response to the claim soon. The resolution of this
issue at present time cannot be determined. |

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CONTINGENCIES (continued)

| d. | On August 13, 2004, the Business Competition Supervisory
Commission (Komisi Pengawas Persaingan Usaha) read its decision in the
Open Commission Session, stated that the Company has breached several
articles of Law of the Republic of Indonesia No. 5/1999 on Anti
Monopolistic Practices and Unfair Business Competition (Indonesian
Competition Law), particularly Article 15 (3) b regarding Closed
Agreement and Article 19(a) and (b) regarding market control which
prevent other operator to enter into the same business. Furthermore,
KPPU decided that the Company should open the access for other
international call operators, in kiosks or Warung Telkom, and call off
certain clause in the Agreement between the Company and Warung Telkom
Providers which provides the restriction of the sales of other
products in Warung Telkom. The Company has processed the Objection
Claim on September 14, 2004 and until now there has not been any
verdict on the Claim. |
| --- | --- |
| e. | As of September 30, 2004, the Company has been named as a
defendant in various legal actions in respect of landright ownership
and telecommunication services. The Company did not provide a
provision for the contingent loss from the litigation, due to the
legal status is uncertain and the estimated contingent loss is not
significant. |

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57.
The balances of monetary assets and liabilities denominated in foreign
currencies are as follows:

Foreign		Foreign
currencies	Rupiah	currencies	Rupiah
(in thousands)	Equivalent	(in thousands)	Equivalent
ASSETS
Cash and cash equivalents
U.S. Dollars	127,653	1,072,925	88,675	813,223
Euro	5	44	72,812	822,898
Japanese Yen	26	2	1,687	139
Deutsche	38,202	321,087
Temporary investment
U.S. Dollars	7,381	62,119
Trade accounts receivable
Related parties
U.S. Dollars	12,010	101,000	9,318	85,337
Third parties
U.S. Dollars			10,931	100,015
Other accounts receivable
U.S. Dollars			33,165	303,456
French Franc			4,427	5,447
Netherland Guilder			750	2,745
Prepaid expenses
U.S. Dollars			6,096	55,776
Euro			8	89
Other current assets
U.S. Dollars	4,600	38,663	4,676	42,785
Advances and other non-current assets
U.S. Dollars			27,867	163,817
Escrow accounts
U.S. Dollars	53,282	447,838	22,823	208,830
Total Assets		2,043,678		2,604,557

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ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued)


Foreign			Foreign
currencies	Rupiah		currencies	Rupiah
(in thousands)	equivalent		(in thousands)	equivalent
Liabilities
Trade accounts payable
Related parties
U.S. Dollars	438	3,689	34,157	313,222
Japanese Yen			5,893	487
Euro			638	7,211
Third parties
U.S. Dollars	6,258	203,683	93,574	851,471
Euro	1,000	3,260	66,652	753,289
Great Britain Pound Sterling	160	878	61	884
Japanese Yen			5,923	490
Singapore Dollars	36	117	242	1,310
Australian Dollars			7	47
Accrued expenses
U.S. Dollars	2,300	19,839	1,333	12,223
Japanese Yen			146,527	12,128
French Franc			710	877
Netherland Guilder			326	1,770
Advances from customers and suppliers
U.S. Dollars			14,143	129,694
Euro			12,549	141,863
Short-term bank loans
Third parties
U.S. Dollars	4,460	37,509	43,357	397,537
Current maturities of long-term liabilities
U.S. Dollars	164,197	1,381,726	190,503	1,746,871
Euro	12,239	121,009	17,588	213,887
Japanese Yen	375,014	28,501	758,963	62,819
Long-term liabilities
U.S. Dollars	585,420	4,927,940	699,605	5,672,935
Euro	15,513	152,261	64,976	624,798
Japanese Yen	17,274,268	1,632,208	16,730,301	1,364,284
Total liabilities		8,512,620		12,310,097
Net liabilities		(6,468,942	)	(9,705,540	)

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| 58. |
| --- |
| The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Indonesia (Indonesian GAAP),
which differ in certain significant respects with generally accepted
accounting principles in the United States of America (U.S. GAAP). A
description of the differences and their effects on net income and
stockholders equity are set forth below. |

(1) Description of differences between Indonesian GAAP and U.S. GAAP

a.	Termination benefits
	Under Indonesian GAAP, termination benefits are recognized as
liabilities when certain criteria are met (e.g. the enterprise is
demonstratively committed to provide termination benefits as a
result of an offer made in order to encourage early retirement).
	Under U.S. GAAP, termination benefits are recognized as liabilities
when the employees accept the offer and the amount can be reasonably
estimated.
b.	Foreign exchange differences capitalized to property under
construction
	Under Indonesian GAAP, foreign exchange differences resulting from
borrowings used to finance property under construction are
capitalized. Capitalization of foreign exchange differences cease
when the construction of the qualifying asset is substantially
completed and the constructed property is ready for its intended
use.
	Under U.S. GAAP, foreign exchange differences are charged to current
operations.
c.	Interest capitalized on property under construction
	Under Indonesian GAAP, qualifying assets, to which interest cost can
be capitalized, should be those that take a substantial period of
time to get ready for its intended use or sale, i.e. minimum 12
months. To the extent that funds are borrowed specifically for the
purpose of obtaining a qualifying asset, the amount of interest cost
eligible for capitalization on that asset should be determined based
on the actual interest cost incurred on that borrowing during the
period of construction less any investment income on the temporary
investment of those borrowings.
	Under U.S. GAAP, there is no limit on the length of the construction
period in which the interest cost could be capitalized. The interest
income arising from any unused borrowings is recognized directly to
current operations.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

d.	Revenue-sharing arrangements
	Under Indonesian GAAP, property, plant and equipment built by an
investor under revenue-sharing arrangements are recognized as
property, plant and equipment under revenue-sharing arrangements in
the books of the party to whom ownership in such properties will be
transferred at the end of the revenue-sharing period, with a
corresponding initial credit to unearned income. The property, plant
and equipment are depreciated over their useful lives, while the
unearned income is amortized over the revenue-sharing period. The
Company records its share of the revenues earned net of amounts due
to the investors.
	Under U.S. GAAP, the accounting for revenue-sharing arrangements
depends on whether or not the investor will receive a guaranteed
minimum return. When there is no guaranteed investment return to the
investor, the revenue-sharing arrangements are accounted for in a
manner similar to operating lease. When there is a guaranteed
investment return, the assets under revenue-sharing arrangements are
recorded and, correspondingly, an obligation under revenue-sharing
arrangements is recorded. A portion of the investors share in
revenue is recorded as interest expense based on the implicit rate
of return and the balance is treated as a reduction of the
obligation. Revenues are recorded on a gross basis.
e.	Revaluation of property, plant and equipment
	While Indonesian GAAP does not generally allow companies to
recognize increases in the value of property, plant and equipment
that occur subsequent to acquisition, an exception is provided for
revaluations made in accordance with Government regulations. The
Company revalued its property, plant and equipment that were used in
operations as of January 1, 1979 and January 1, 1987.
	Under U.S. GAAP, asset revaluations are not permitted. The effects
of the previous revaluations have been fully depreciated in 2002,
such that there is no difference in equity as of September 301,
2002.
f.	Pension
	In 1994 and 1998, the Company provided increases in pension benefits
for pensioners. Under Indonesian GAAP, the prior service costs
attributable to the increases in pension benefits for pensioners
were directly charged to expense in those years. Under U.S. GAAP,
because the majority of plan participants are still active, such
prior service costs are deferred and amortized systematically over
the remaining service period for active employees.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

f.	Pension (lanjutan)
	Under Indonesian GAAP, the Company amortizes the cumulative
unrecognized actuarial gain or loss over four years. Under U.S.
GAAP, any cumulative unrecognized actuarial gain or loss exceeding
10% of the greater of the projected benefit obligation or the fair
value of plan assets is recognized in the statement of income on a
straight-line basis over the estimated remaining service period.
	Under U.S. GAAP, the Company would be required to recognize an
additional minimum liability when the accumulated benefit obligation
exceeds the fair value of the plan assets, and an equal amount would
be recognized as an intangible asset, provided that the asset
recognized does not exceed the amount of unrecognized prior service
cost.
g.	Equity in net income or loss of associated companies
	The Company records its equity in net income or loss of associated
companies based on the associates financial statements that have
been prepared under Indonesian GAAP.
	For U.S. GAAP reporting purposes, the Company recognized the effect
of the differences of U.S. GAAP and Indonesian GAAP in the
investment accounts and its share of the net income or loss of those
associates.
h.	Land rights
	In Indonesia, the title of land rests with the State under the Basic
Agrarian Law No. 5 of 1960. Land use is accomplished through land
rights whereby the holder of the right enjoys the full use of the
land for a stated period of time, subject to extensions. The land
rights generally are freely tradeable and may be pledged as security
under borrowing agreements. Under Indonesian GAAP, land ownership is
not depreciated unless it can be foreseen that the possibility for
the holder to obtain an extension or renewal of the rights is
remote.
	Under U.S. GAAP, the cost of acquired land rights is amortized over
the period the holder is expected to retain the land rights.
i.	Equipment to be installed
	Under Indonesian GAAP, temporarily idle equipment or equipment that
is awaiting installation is not depreciated.
	Under U.S. GAAP, temporarily idle equipment should continue to be
depreciated. In 2002, prior year equipment to be installed was fully
installed and their carrying values have been reclassified to
property, plant and equipment.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

i.	Equipment to be installed
	In 2002, the Company reclassified the prior year equipment to be
installed to fixed assets, therefore there is no difference with
Indo GAAP.
j.	Revenue recognition
	Under Indonesian GAAP, revenues from cellular and fixed wireless
services connection fees are recognized as income when the
connection takes place (for postpaid service) or at the time of
delivery of starter packs to distributors, dealers or customers (for
prepaid service). Installation fees for wire line services are
recognized at the time of installation. The revenue from calling
cards (Kartu Telepon) is also recognized when the Company sells
the card.
	Under U.S. GAAP, revenue from front-end fees are deferred and
recognized over the expected term of the customer relationship.
Direct incremental costs were not significant. Revenues from calling
cards are recognized upon usage or expiration.
k.	Goodwill
	Under Indonesian GAAP, goodwill is amortized over a period, not
exceeding 20 years that it is expected to benefit the Company.
	Under U.S. GAAP, effective January 1, 2002, goodwill is no longer
amortized but rather subjected to a test for impairment.
l.	Capital leases
	Under Indonesian GAAP, a leased assets is capitalized only if all of
the following criteria are met: (a) the lessee has an option to
purchase the leased asset at the end of the lease period at a price
agreed upon at the inception of the lease agreement, and (b) the sum
of periodic lease payments, plus the residual value, will cover the
acquisition price of the leased asset and related interest, and (c)
there is a minimum lease period of 2 years.
	Under U.S. GAAP, a leased asset is capitalized if one of the
following criteria is met: (a) there is an automatic transfer of
ownership at the end of the lease term; or (b) the lease contains a
bargain purchase option; or (c) the lease term is for 75% or more of
the economic life of the asset; or (d) the lease payments are at
least 90% of the fair value of the asset.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

m.	Acquisition of Dayamitra
	The Company acquired a 90.32% interest in Dayamitra and
contemporaneously acquired a call option to buy the other 9.68% at a
fixed price at a stated future date, and provided to the minority
interest holder a put option to sell the other 9.68% to the Company
under those same terms; meaning that the fixed price of the call is
equal to the fixed price of the put option. Under U.S. GAAP, the
Company should account for the option contracts on a combined basis
with the minority interest and account for it as a financing of the
purchase of the remaining 9.68% minority interest. As such, under
U.S. GAAP, the Company has consolidated 100% of Dayamitra and
attributed the stated yield earned under the combined derivative and
minority interest position to interest expense.
	Under Indonesian GAAP, the Company accounts for the remaining 9.68%
of Dayamitra as minority interest. In addition, the option price
that has been paid by the Company is presented as Advance payments
for investments in shares of stock.
n.	Reversal of difference due to change of equity in
associated companies
	Under Indonesian GAAP, differences previously credited directly to
equity as a result of equity transactions in associated companies
are released to the statement of income upon the sale of an interest
in the associate in proportion with the percentage of the interest
sold.
	Under U.S. GAAP, it is the Companys policy to include differences
resulting from equity transactions in associated companies in
equity. Such amounts can not be released to the statement of income
and consequently remain in equity indefinitely.
o.	Asset retirement obligations
	Under Indonesian GAAP, legal obligations associated with the
retirement of long-lived assets that result from the acquisition,
construction, development and/or the normal operation of long-lived
assets are charged to current operations as incurred.
	Under U. S. GAAP, the obligations are capitalized to the related
long-lived assets and depreciated over the useful life of the
assets.
p.	Deferred income taxes
	Under Indonesian GAAP, the Company does not recognize deferred taxes
on temporary differences between the financial statement carrying
amounts and tax bases of equity method investments when it is not
probable that these differences will reverse in the foreseeable
future.
	Under US GAAP, deferred taxes are recognized in full on temporary
differences between the financial statement carrying amounts and tax
bases of equity method investments.

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

q.	Impairment of assets
	Under Indonesian GAAP, an impairment loss is recognized whenever the
carrying amount of an asset or its cash-generating unit exceeds its
recoverable amount. The recoverable amount of fixed assets is
greater of its net selling price or value in use. In assessing
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. An impairment loss can be reversed if there
has been a change in the estimates used to determine the recoverable
amount. An impairment loss is only reversed to the extent that the
assets carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation, if no impairment
loss had been recognized.
	Under U.S. GAAP, an impairment loss is recognized whenever the sum
of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset. An impaired
asset is written down to its estimated fair value based on quoted
market prices in active markets of discounting estimated future cash
flows. Reversals of previously recognized impairment losses are
prohibited.
	There were no impairment charges recognized by the Company and
therefore there were no differences between Indonesian GAAP and U.S.
GAAP.
r.	Gain (loss) on sale of property, plant and equipment
	Under Indonesian GAAP, the Company classifies gain (loss) on sale of
property, plant and equipment as a component of other income
(expense) which is excluded from determination of operating income.
	Under U.S. GAAP, gain (loss) on sale of property, plant and
equipment is classified as a component of operating expenses and
hence included in the determination of operating income. For the
nine months period ended September 30, 2003 and 2004, operating
income would have been higher by Rp47,832 million and Rp48,699
million, respectively, and other income (expenses) would have been
lower by the same amounts due to the inclusion of the gain on sale
of property, plant and equipment in the determination of operating
income.

(2) A summary of the significant adjustments to consolidated net income for the nine months period ended September 30, 2003 and 2004 and to consolidated stockholders equity as of September 30, 2003 and 2004 which would be required if U.S. GAAP had been applied, instead of Indonesian GAAP, in the consolidated financial statements are set forth below:

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(2) (continued)

| Net income according to the consolidated statements of income prepared under
Indonesian GAAP | Note | 4,411,572 | | 5,024,346 | |
| --- | --- | --- | --- | --- | --- |
| U.S. GAAP adjustments increase (decrease) due to: | | | | | |
| Termination benefits | (a) | (594,526 | ) | 6,988 | |
| Capitalization of foreign exchange differences | (b) | 50,813 | | 17,891 | |
| Interest capitalized on property under construction | (c) | 21,128 | | 17,474 | |
| Revenue-sharing arrangements | (d) | | | 398,388 | |
| Revaluation of property, plant and equipment | (e) | | | | |
| Pension | (f) | (142,910 | ) | 156,935 | |
| Equity in net income/ (loss) of associated companies | (g) | (87 | ) | (371 | ) |
| Amortization of landrights | (h) | (2,062 | ) | (7,505 | ) |
| Depreciation of equipment to be installed | (i) | | | | |
| Revenue recognition | (j) | (53,640 | ) | (24,890 | ) |
| Goodwill | (k) | | | 14,182 | |
| Capital leases | (l) | | | 12,443 | |
| Adjustment for Dayamitra accounted at 100% | (m) | | | (25,677 | ) |
| Reversal of difference due to change of equity in associated companies | (n) | | | | |
| Asset retirement obligations | (o) | | | | |
| Other | | 14,366 | | | |
| Deferred income tax: | | | | | |
| Deferred income tax on equity method investments | (p) | | | | |
| Deferred income tax effect on U.S. GAAP adjustments | | 207,122 | | (175,568 | ) |
| | | (499,796 | ) | 390,290 | |
| Minority interest | | | | (9,024 | ) |
| Net adjustments | | (499,796 | ) | 381,266 | |
| Net income in accordance with U.S. GAAP | | 3,911,776 | | 5,405,612 | |
| Net income per share in full Rupiah amount | | 194 | | 268 | |
| Net income per ADS (20 Series B shares per ADS) in full Rupiah amount | | 7,761 | | 10,725 | |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(2) (continued)

Equity according to the consolidated balance sheets prepared under Indonesian GAAP	Note	15,661,852		19,299,912
U.S. GAAP adjustments increase (decrease) due to:
Early retirement benefits	(a)	120,358		6,988
Capitalization of foreign exchange differences net of related depreciation	(b)	(692,433	)	(532,582	)
Interest capitalized on property under construction net of related depreciation	(c)	80,847		119,286
Revenue-sharing arrangements	(d)	(379,243	)	(49,308	)
Revaluation of property, plant and equipment:	(e)
Increment		(664,974	)	(664,974	)
Accumulated depreciation		664,974		664,974
Pension	(f)	109,148		279,091
Equity in net loss of associated companies	(g)	(17,804	)	(18,623	)
Amortization of landrights	(h)	(5,469	)	(72,716	)
Revenue recognition	(j)	(120,044	)	(793,439	)
Goodwill	(k)			56,721
Capital leases	(l)			33,566
Adjustment for Dayamitra accounted at 100%	(m)			(64,396	)
Asset retirement obligations	(o)			(848	)
Other		(43,533	)	52,186
Deferred income tax:
Deferred income tax on equity method investments	(p)
Deferred income tax effect on U.S. GAAP adjustments		228,455		280,256
		(719,718	)	(703,818	)
Minority interest		65,920		56,898
Net adjustments		(653,798	)	(646,920	)
Equity in accordance with U.S. GAAP		15,008,054		18,652,992

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(2)
The changes in stockholders equity in accordance with U.S. GAAP for the
nine months period ended September 30, 2003 and 2004 are as follows:

Equity at beginning of year	13,910,864		16,284,692
Changes during the year:
Net income under U.S. GAAP	3,911,776		5,405,612
Dividends	(3,338,109	)	(3,043,614	)
Unrealized gain on marketable securities			490
Transactions with entities under common control	502,663
Other comprehensive income, net of nil tax	20,861		5,812
Equity at end of year	15,008,055		18,652,992

With regard to the consolidated balance sheets, the following significant captions determined under U.S. GAAP would have been:


Consolidated balance sheets
Current assets	9,637,217	11,397,538
Non-current assets	38,297,609	44,351,637
Total assets	47,934,826	55,749,175
Current liabilities	11,159,556	12,847,605
Non-current liabilities	18,523,507	19,843,130
Total liabilities	29,683,063	32,690,735
Minority interest in net assets of subsidiaries	3,243,708	4,405,448
Equity	15,008,055	18,652,992
Total liabilities and equity	47,934,826	55,749,175

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC

| a. |
| --- |
| The reconciliation between the expected income tax provision in
accordance with U.S. GAAP and the actual provision for income tax
recorded in accordance with U.S. GAAP is as follows: |

Consolidated income before tax in accordance with U.S. GAAP	7,884,289		10,043,959
Income tax in accordance with U.S. GAAP at 30% statutory tax rate	2,365,270		3,013,170
Effect of permanent differences at the enacted maximum tax rate (30%)
Net periodic post-retirement benefits cost	30,522		106,001
Amortization of discount on promissory notes and interest expense	19,505		26,662
Employee benefits
Permanent differences of the KSO Units	6,518		13,237
Revenue sharing-arrangements	1,276
Amortization
of landrights	(167	)
Interest income which was already subject to final tax	(57,092	)	(39,214	)
Equity in net (income) loss of associated companies	(761,414	)	(925,381	)
Others	271,264		206,629
Total	(350,286	)	(593,121	)
Provision for income tax in accordance with U.S. GAAP	2,014,984		2,420,049

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

| a. |
| --- |
| For the three year period ended December 31, 2003, all of the
Companys operating revenues occurred in Indonesia, and accordingly,
the Company has not been subject to income tax in other countries. |


Deferred tax assets
Allowance for doubtful accounts	420,764		144,265
Allowance for inventory obsolescence	10,693		13,910
Tax loss carryforwards
Provision for long service awards	6,746		26,916
Deferral of revenue	263,025
Provision for employee benefits			159,962
Others	(678	)	19,681
Total	700,550		364,734
Deferred tax liabilities
Difference between book and tax non-current assets	(2,181,538	)	(1,471,662	)
Long-term investments	1,871		(24,660	)
Pension	(108,893	)	(36,973	)
Prepaid expenses and other receivables	(48,891	)	(5,469	)
Total	(2,337,451	)	(1,538,764	)
Total deferred tax liabilities net	(1,636,900	)	(1,174,030	)

| | Benefits enjoyed by pensioners fall under the category of benefits
in kind which are non-deductible expenses under Indonesian tax laws. |
| --- | --- |
| b. | Fair Value of Financial Instruments |
| | The following methods and assumptions are used to estimate the fair
value of each class of financial instruments: |
| | Cash and cash equivalents and temporary investments |
| | The carrying amount approximates fair value because of the
short-term nature of the instruments. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

b.
Short-term bank loans
The carrying amount approximates fair value because of the
short-term nature of the instruments.
Long-term liabilities

| (i) | The fair value of two-step loans are estimated on
the basis of the discounted value of future cash flows expected
to be paid, considering rates of interest at which the Company
could borrow as of the respective balance sheet dates. |
| --- | --- |
| | For purposes of estimating the fair value of two-step loans, the
Company has used the average Rupiah borrowing rates of 9.69%,
the average U.S. Dollar borrowing rate of 1.42% and the
respective average borrowing rates for 2004 for the debt in
other currencies. Under the current environment, an estimate of
the interest rates as of a point in time, given the significance
of the Companys debt and the general unavailability of funds,
is difficult. For one percentage point increase in the
above-mentioned borrowing rates, the fair value of the Companys
long-term two-step loans at September 30, 2004 would decrease by
Rp450,581 million. |
| (ii) | The fair value of suppliers credit loans, bridging
loan and long-term bank loan is estimated on the basis of the
discounted value of future cash flows expected to be paid,
considering rates of interest at which the Company could borrow
as of the balance sheet date. |
| (iii) | The fair value of the liability for the
acquisition of subsidiaries is estimated on the basis of the
discounted future cash flows expected to be paid. |
| (iv) | The fair value of the bonds and guaranteed notes
are based on market prices at balance sheet date. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional Financial Statement disclosures required by U.S. GAAP and U.S. SEC (continued)

b.
The estimated fair values of the Company and its subsidiaries
financial instruments as of September 30, 2004 are:

amount	value
2003
Cash and cash equivalents	4,860,401	4,860,401
Temporary investments	62,119	62,119
Long-term liabilities
Two-step loans	7,825,735	9,693,071
Suppliers credit loans	319,139	338,902
Bridging loan	76,243	78,898
Liabilities for acquisitions of subsidiaries	2,990,691	3,546,853
Bank loans	2,555,817	2,737,927
Guaranteed notes and bonds	2,235,511	2,833,146
Others	9,150	9,224
2004
Cash and cash equivalents	6,112,466	6,112,466
Temporary investments	107,799	107,799
Long-term liabilities
Two-step loans	7,388,479	8,946,976
Liabilities for acquisitions of subsidiaries	807,741	864,234
Bank loans	4,100,442	4,212,823
Guaranteed notes and bonds	1,711,807	2,218,589
Others	9,150	9,150

The methods and assumptions followed to determine the fair value estimates are inherently judgmental and involve various limitations, including the following:

| i. | Fair values presented do not take into
consideration the effect of future currency fluctuations. |
| --- | --- |
| ii. | Estimated fair values are not necessarily
indicative of the amounts that the Company and its subsidiary
would record upon disposal/termination of the financial
instruments. |

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PERUSAHAAN PERSEROAN (PERSERO) PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional Financial Statement disclosures required by U.S. GAAP and U.S. SEC (continued)

c.	Research and Development
	Research and development expenditures, as determined under U.S.
GAAP, amounted to approximately Rp7,074 million and Rp9,460 million
in 2003 and 2004, respectively.
d.	Comprehensive Income

Net income under U.S. GAAP	3,911,776		5,405,612
Unrealized gain (loss) in value of securities			490
Translation adjustment in associated companies	(4,367	)	57,998
Equity at end of year	3,907,409		5,464,100

Adjustments to net income in determined the comprehensive income covered the translation adjustment in associated companies and unrealized gain (loss) in value of securities. Other comprehensive gain (loss) components are as follows:

Unrealized gain (loss) in value of securities		490
Translation adjustment in associated companies	160,599	282,230
Equity at end of year	160,599	282,720

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