UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1997
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to _____________________
Commission file number 0-16560
VANGUARD CELLULAR SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1549590
- ------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation organization)
2002 Pisgah Church Road, Suite 300,
Greensboro, North Carolina 27455-3314
- ------------------------------------- -------------------------------------
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (336) 282-3690
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the registrant's Common Stock held by those
other than executive officers and directors at March 26, 1998, based on the
NASDAQ closing sale price for the Registrant's Common Stock as of such date, was
approximately $550,262,374.
The number of shares outstanding of the issuer's common stock as of
March 26, 1998 was 37,232,053.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) and (2) Financial Statements and Financial Statement Schedules. The
financial statements and supplemental schedules listed in the
accompanying Index to Financial Statements and Schedules are
filed as a part of this report.
(a)(3) Exhibits. Exhibits to this report are listed in the accompanying
Index to Exhibits.
(b) Reports on Form 8-K. There were no reports filed on Form 8-K
during the fourth quarter of 1997.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 and 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VANGUARD CELLULAR SYSTEMS, INC.
By: /s/ HAYNES G. GRIFFIN
------------------------------
Haynes G. Griffin
Chairman of the Board of Directors
and Co-Chief Executive Officer
Date: June 30, 1998
3
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Vanguard Cellular Systems, Inc. and Subsidiaries
Consolidated Balance Sheets, December 31, 1997 and 1996 ............. *
Consolidated Statements of Operations for the Years ended December
31, 1997, 1996 and 1995 ........................................... *
Consolidated Statements of Changes in Shareholders' Equity for the
Years ended December 31, 1997, 1996 and 1995 ...................... *
Consolidated Statements of Cash Flows for the Years ended December
31, 1997, 1996 and 1995 ........................................... *
Notes to Consolidated Financial Statements .......................... *
Report of Independent Public Accountants ............................ *
Schedule I -- Condensed Financial Information of the Registrant ..... *
Schedule II -- Valuation and Qualifying Accounts .................... *
Financial Statements of Certain Significant 50% or less Owned
Persons ............................................................. F-2**
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
- --------
*Previously filed as Financial statements and Schedules of Form 10-K.
**Financial statements for PT Rajasa Hazanah Perkasa, a foreign business,
are filed herein. All other Financial Statements of Certain Significant
50% or less Owned Persons were previously filed as Financial Statements
and Schedules of Form 10-K and Form 10-K/A (Amendment No. 1).
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Report No. 27181S
THE BOARD OF DIRECTORS AND STOCKHOLDERS
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
We have audited the consolidated balance sheets of PT Rajasa Hazanah
Perkasa and Subsidiary as of December 31, 1995 and 1996, and the related
consolidated statements of income and deficit and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with auditing standards established by
the Indonesian Institute of Accountants, which are substantially similar to the
generally accepted auditing standards in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PT Rajasa
Hazanah Perkasa and Subsidiary as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles in the Republic of Indonesia.
Generally accepted accounting principles in Indonesia vary in certain
respects with those in the United States of America. A description of the
significant differences between those two generally accepted accounting
principles and the approximate effects of those differences on net income and
stockholders' equity are set forth in Notes 22 and 23 to the consolidated
financial statements.
PRASETIO, UTOMO & CO.
Drs M.P. Sibarani
License No. SI.570/MK.17/1993
March 24, 1997
F-2
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
NOTES RP RP U.S. $ (NOTE 3)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................ 2,4,9,13 5,543,708,243 15,676,909,861 6,578,645
Accounts receivable
Trade -- net of allowance for doubtful accounts of Rp
568,483,998 in 1995 and Rp 7,600,569,741 in 1996.... 2,5,9,13 2,617,547,345 5,099,085,512 2,139,776
Others................................................. 79,039,898 681,504,236 285,986
Inventories -- net of allowance for obsolescence of Rp
3,858,732,612 in 1995 and Rp 2,282,225,057 in 1996..... 2,6,9 3,462,954,359 1,316,129,149 552,299
Prepaid taxes............................................ 296,370,438 2,404,474 1,008
Prepaid expenses......................................... 2 270,883,931 3,341,430,541 1,402,195
Advances................................................. 19 -- 5,704,584,928 2,393,867
Total Current Assets..................................... 12,270,504,214 31,822,048,701 13,353,776
PROPERTY AND EQUIPMENT................................... 2,7,9,13,19
Cost 51,107,776,543 109,776,610,466 46,066,559
Accumulated depreciation................................. (2,491,591,496) (7,180,710,614) (3,013,307)
Net Book Value........................................... 48,616,185,047 102,595,899,852 43,053,252
OTHER ASSETS
Advance for purchase of equipment........................ 8 -- 45,064,135,670 18,910,673
Long-term prepayments.................................... 2 410,858,052 4,390,264,725 1,842,327
Claims for tax refund.................................... -- 1,001,401,054 420,227
Refundable deposits...................................... 160,401,084 756,401,377 317,416
Preoperating expenses.................................... 2 55,000,000 29,000,000 12,170
Total Other Assets....................................... 626,259,136 51,241,202,826 21,502,813
Total Assets............................................. 61,512,948,397 185,659,151,379 77,909,841
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES
Short-term loans......................................... 9 9,475,366,558 15,485,200,000 6,498,196
Accounts payable
Trade.................................................. 10 564,424,841 11,585,958,918 4,861,921
Others................................................. 11 15,094,628,251 73,413,519 30,807
Taxes payable............................................ 2,12 4,923,954,854 8,716,465,563 3,657,770
Accrued expenses......................................... 1,683,945,836 17,950,552,254 7,532,754
Current maturities of long-term debts.................... 13 8,638,028,690 1,809,565,256 759,364
Total Current Liabilities................................ 40,380,349,030 55,621,155,510 23,340,812
LONG-TERM DEBTS -- NET OF CURRENT MATURITIES............. 13 2,291,291,579 143,010,194,291 60,012,671
DUE TO STOCKHOLDERS...................................... 2,14 -- 6,003,518,250 2,519,311
MINORITY INTEREST IN EQUITY OF CONSOLIDATED SUBSIDIARY... 12,150,167,821 2,953,733,963 1,239,502
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock -- Rp 1,000,000 par value
Authorized and issued -- 25,000 shares................. 15 25,000,000,000 25,000,000,000 10,490,978
Deficit.................................................. (18,308,860,033) (46,929,450,635) (19,693,433)
Total Stockholders' Equity (Capital Deficiency).......... 6,691,139,967 (21,929,450,635) (9,202,455)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)..................................... 61,512,948,397 185,659,151,379 77,909,841
</TABLE>
See accompanying Notes to Consolidated Financial Statements
which are an integral part of the consolidated financial statements.
F-3
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
NOTES RP RP U.S. $ (NOTE 3)
<S> <C> <C> <C> <C>
REVENUES....................................................... 2,16 16,812,363,798 24,469,261,033 10,268,259
COST OF REVENUES............................................... 2,17 7,831,126,477 27,290,182,329 11,452,028
GROSS PROFIT (LOSS)............................................ 8,981,237,321 (2,820,921,296) (1,183,769)
OPERATING EXPENSES............................................. 11,777,729,953 25,209,636,409 10,578,949
LOSS FROM OPERATIONS........................................... (2,796,492,632) (28,030,557,705) (11,762,718)
OTHER INCOME (CHARGES)
Interest income................................................ 403,155,251 2,029,190,074 851,527
Interest expense............................................... (4,813,937,236) (8,750,900,607) (3,672,220)
Loss on foreign exchange -- net................................ 2 (507,805,347) (2,555,505,519) (1,072,390)
Gain (loss) on disposal of property and equipment -- net....... 2 344,054,448 (113,865,638) (47,782)
Miscellaneous -- net........................................... 2,971,641,507 (395,385,065) (165,919)
Other Charges -- Net........................................... (1,602,891,377) (9,786,466,755) (4,106,784)
LOSS BEFORE PROVISION FOR INCOME TAX........................... (4,399,384,009) (37,817,024,460) (15,869,502)
PROVISION FOR INCOME TAX....................................... 12 4,173,487,000 -- --
LOSS BEFORE MINORITY INTEREST.................................. (8,572,871,009) (37,817,024,460) (15,869,502)
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY.................... 326,750,179 9,196,433,858 3,859,183
NET LOSS....................................................... (8,246,120,830) (28,620,590,602) (12,010,319)
DEFICIT AT BEGINNING OF YEAR................................... (10,062,739,203) (18,308,860,033) (7,683,114)
DEFICIT AT END OF YEAR......................................... (18,308,860,033) (46,929,450,635) (19,693,433)
</TABLE>
See accompanying Notes to Consolidated Financial Statements
which are an integral part of the consolidated financial statements.
F-4
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
RP RP U.S. $ (NOTE 3)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................................... (8,246,120,830) (28,620,590,602) (12,010,319)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation......................................................... 786,350,586 7,096,919,730 2,978,145
Provision for doubtful accounts...................................... 62,739,169 8,102,437,967 3,400,100
Provision for inventory obsolescence................................. 2,967,643,196 (1,576,507,555) (661,564)
Minority interest in net loss of consolidated subsidiary............. (326,750,179) (9,196,433,858) (3,859,183)
Amortization of deferred charges..................................... 4,819,331,622 -- --
Amortization of preoperating expenses................................ -- 29,000,000 12,170
Loss (gain) on disposal of property and equipment.................... (344,054,448) 113,865,638 47,782
Changes in operating assets and liabilities:
Accounts receivable............................................... 196,000,856 (11,186,440,472) (4,694,268)
Inventories....................................................... 348,812,887 3,751,126,484 1,574,119
Prepaid taxes..................................................... (232,806,380) 383,684,761 161,009
Prepaid expenses.................................................. (164,817,811) (7,139,672,080) (2,996,086)
Advances.......................................................... -- (5,704,584,928) (2,393,867)
Refundable deposits............................................... (160,401,084) (596,000,293) (250,105)
Claims for tax refund............................................. -- (1,001,401,054) (420,227)
Advance for purchase of equipment................................. -- (45,064,135,670) (18,910,674)
Accounts payable.................................................. 10,709,592,486 (3,999,680,655) (1,678,422)
Taxes payable..................................................... (3,402,494,577) 3,792,510,709 1,591,486
Accrued expenses.................................................. (5,876,403,564) 16,266,606,418 6,826,104
Net Cash Used in Operating Activities.................................. 1,136,621,929 (74,549,295,460) (31,283,800)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals of property and equipment...................... 498,794,393 209,161,024 87,772
Acquisitions of property and equipment................................. (6,259,361,352) (61,427,454,916) (25,777,362)
Addition in preoperating expenses...................................... (55,000,000) (3,000,000) (1,259)
Addition in deferred charges........................................... 38,150,067,797 -- --
Increase in minority interest.......................................... 12,476,918,000 -- --
Net Cash Provided by (Used in) Investing Activities.................... 44,811,418,838 (61,221,293,892) (25,690,849)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in long-term debts................................. (16,727,237,705) 133,890,439,278 56,185,665
Increase (decrease) in short-term loans................................ (6,347,377,490) 6,009,833,442 2,521,961
Decrease in due to stockholders........................................ (52,342,326,140) 6,003,518,250 2,519,311
Proceeds from capital stock issuance................................... 24,000,000,000 -- --
Decrease in due from stockholders...................................... 4,041,764,800 -- --
Net Cash Provided by (Used in) Financing Activities.................... (47,375,176,535) 145,903,790,970 61,226,937
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... (1,427,135,768) 10,133,201,618 4,252,288
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 6,970,844,011 5,543,708,243 2,326,357
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... 5,543,708,243 15,676,909,861 6,578,645
</TABLE>
See accompanying Notes to Consolidated Financial Statements
which are an integral part of the consolidated financial statements.
F-5
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
PT Rajasa Hazanah Perkasa (the Company) was established on December 17,
1984 based on notarial deed No. 22 of Pariwondo Soekarno SH. The deed of
establishment was approved by the Ministry of Justice (MOJ) in its decision
letter No. C2-2666-HT.01.01.TH'85 dated May 8, 1985, registered at the South
Jakarta Court of Justice under No. 503/Not/1985/PN.JKT.SEL on July 24, 1985 and
was published in the State Gazette No. 82, Supplement No. 1199 dated October 14,
1986. The Company's articles of association have been amended from time to time,
most recently by notarial deed No. 106 of Sinta Susikto SH dated January 24,
1997 (see Note 15).
According to Article No. 3 of the Company's articles of association, the
Company is engaged in supplying non-wire telecommunication services and
installing and operating domestic telephone lines.
The Company changed its status to foreign capital investment based on the
approval of Investment Coordinating Board No. 22/V/PMA/1995 dated May 26, 1995
and No. 1226/A.6/1995 dated September 28, 1995.
On November 30, 1995, as covered by notarial deed No. 210 dated November
30, 1995 of Sinta Susikto SH, the Company, PT Telekomunikasi Indonesia (Telkom)
and Yayasan Dana Pensiun Pegawai Telkom (YDPP Telkom) established a joint
venture company named PT Mobile Selular Indonesia (Mobisel). In accordance with
the joint venture agreement, the Company transferred network assets to
Subsidiary as capital contribution.
Under existing regulation, Subsidiary can only operate upon the approval of
its articles of associations by MOJ. As such, the following arrangements and
conditions are adopted with respect to the transfer and assumption of the
operations of, and recognition and sharing of revenues being generated from, the
above-mentioned assets transferred to Subsidiary:
a. The operations of the network assets will be transferred to and assumed
by Subsidiary effective on the 20th day of the month of approval of its articles
of association by MOJ, with the condition that if the approval is made exactly
on the 20th day of the said month, then the transfer shall be effective on that
date.
b. Revenues generated from the operations of the transferred assets can
only be recognized by Subsidiary starting from the effectivity date of the
transfer being referred to in point (a). Prior to the said date, all revenues
generated are recognized by the Company.
c. The revenue sharing agreement between Telkom and the Company covering
the transferred assets is still valid as long as the condition in point (a) is
not yet fulfilled.
The Company, as a joint venture company, was granted an approval in
principle to engage in providing facilities for mobile cellular phone services
by the Ministry of Tourism, Posts and Telecommunications of the Republic of
Indonesia on April 28, 1995, based on the letter No. PB.301/1/25/MPPT-95.
Government Regulation No. 8 of 1993, which governs the Provision of
Telecommunications Services, stipulates that the establishment of cooperation
which aims to provide basic telecommunications services can be in the form of
joint venture, joint operation or contract management. The said regulation
further provides that entities cooperating with the domestic and/or
international telecommunications organizing bodies must use the organizing
bodies' existing telecommunications networks. If the telecommunications networks
are not available, the government regulation requires that the cooperation shall
be in the form of a joint venture capable of constructing the necessary
networks.
According to Article 3 of Subsidiary's articles of association, the scope
of activities of Subsidiary comprises operating and providing facilities for
Mobile Cellular Phone Services (Jasa Sambungan Telepon Bergerak Selular) in
accordance with existing laws.
Subsidiary's deed of establishment was approved by MOJ in its decision
letter No. C2-1238.HT.01.01-TH'96 dated January 31, 1996. Accordingly, the
Company is still entitled to the pulse sharing revenue until February 20, 1996.
F-6
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements have been prepared on the historical
cost basis of accounting, except for inventory which are valued at the lower of
cost or net realizable value (market).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its 70% owned Subsidiary, PT Mobile Selular Indonesia (Mobisel). Mobisel was
legally established on January 31, 1996. In recognition of its change in legal
status as explained in Note 1 and for comparative purposes, the Company restated
the 1995 accounts previously reported as if Subsidiary was legally established
in 1995 and accordingly consolidated in 1995.
All significant intercompany accounts and transactions have been
eliminated.
CASH EQUIVALENTS
Time deposits with maturities of three months or less at the time of
placement or purchase are considered as "Cash Equivalents".
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance are provided for doubtful accounts based on a review of the
status of the individual receivable accounts at the end of the year.
PREPAID EXPENSES
Prepaid expenses are amortized over the periods benefited using the
straight-line method. Prepaid expenses which benefited more than one year are
classified in "Other Assets -- Long-term Prepayments".
INVENTORIES
Inventories are stated at the lower of cost or net realizable value
(market). Cost is determined by the first-in, first-out method. The Company
provides an allowance for obsolescence on inventories based on a periodic review
of their condition.
TRANSACTIONS WITH RELATED PARTIES
The Company and its Subsidiary have transactions with entities which are
regarded as having special relationship as defined under Statement of Financial
Accounting Standards No. 7, "Related Party Disclosures".
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
The Company and its Subsidiary use double-declining balance method and
straight-line methods, respectively, for computing the depreciation, based on
the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Vehicles........................................................................... 2-4
Furniture and fixtures............................................................. 2-4
Building improvements.............................................................. 4
Computer equipment................................................................. 4
Cellular mobile telephones......................................................... 4
Machinery and equipment............................................................ 4
Maintenance and installer equipment................................................ 4
Telecommunication network.......................................................... 7
</TABLE>
F-7
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
Telecommunication network represents capitalized system costs for the
development of the Subsidiary's cellular mobile telephone systems. This includes
the costs of the construction, direct labor cost spent on the construction, and
interest on loans used to finance the construction. Capitalization of interest
ceases when the construction is completed and ready for its intended use.
The cost of maintenance and repairs is charged to income as incurred;
significant renewals and betterments are capitalized. When assets are retired or
otherwise disposed of, their costs and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in income
for the period.
CONSTRUCTION IN PROGRESS
Construction in progress is stated at cost. The accumulated costs are
reclassified to the appropriate property and equipment accounts when the
construction is completed and ready for its intended use.
PREOPERATING EXPENSES
Preoperating expenses are amortized over three years up to 1998, in
accordance with the Statement of Financial Accounting Standards No. 6,
"Accounting and Reporting for a Development Stage Company".
REVENUE AND EXPENSE RECOGNITION
Revenue is recorded as earned when products are delivered to the customers
or when services are rendered. Expenses are recognized when they are incurred.
Revenue is obtained from three primary sources:
-- connecting fee for each new line sold
-- pulse-sharing
-- sales, repair, maintenance and rental of outstations and accessories
FOREIGN CURRENCY TRANSACTIONS AND BALANCES
Transactions involving foreign currencies are recorded at the rates of
exchange prevailing at the time the transactions are made. At the balance sheet
date, assets and liabilities denominated in foreign currencies are adjusted to
reflect the middle rate of Bank Indonesia prevailing at such date and the
resulting gains or losses are credited or charged to operations of the current
year.
PROVISION FOR INCOME TAX
Provision for income tax is determined on the basis of estimated taxable
income for the year. No deferred tax is provided for the timing differences in
the recognition of income and expenses in the financial statements for financial
reporting and income tax purposes.
3. TRANSLATIONS OF INDONESIAN RUPIAH AMOUNTS INTO UNITED STATES DOLLAR AMOUNTS
The financial statements are stated in Indonesian rupiah. The translations
of Indonesian rupiah amounts into United States dollars are included solely for
the convenience of the readers, using the average buying and selling rates
published by Bank Indonesia (Central Bank) on December 31, 1996 of Rp 2,383 to
U.S.$ 1. The convenience translations should not be construed as representations
that the Indonesian 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.
F-8
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C> <C>
Cash on hand....................................................................... Rp 22,438,597 Rp 28,161,045
Cash in banks...................................................................... 830,916,549 10,169,998,816
Cash equivalents
Time deposits, with annual interest rates ranging from 4.5% -- 6.06% for U.S.
Dollar time deposit and 17% for Rupiah time deposit.............................. 4,690,353,097 5,478,750,000
Total.............................................................................. Rp 5,543,708,243 Rp 15,676,909,861
</TABLE>
A portion of cash and cash equivalents amounting to Rp 4,740,770,937 and Rp
3,009,678,457 as of December 31, 1995 and 1996, respectively, are used as
collateral for the short-term loans and long-term debts (see Notes 9 and 13).
5. ACCOUNTS RECEIVABLE -- TRADE
The details of this account are as follows:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C> <C>
Pulse revenue receivables.......................................................... Rp 2,579,752,929 Rp 12,093,378,485
Outstation receivables............................................................. 606,278,414 606,276,768
Total.............................................................................. 3,186,031,343 12,699,655,253
Less allowance for doubtful accounts............................................... 568,483,998 7,600,569,741
Net................................................................................ Rp 2,617,547,345 Rp 5,099,085,512
</TABLE>
Trade receivables are used as collaterals to secure the short-term loans
and long-term debts (see Notes 9 and 13).
6. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C> <C>
Cellular mobile telephones........................................................ Rp 5,009,533,582 Rp 1,342,094,659
Optional equipment................................................................ 2,286,941,570 2,256,259,547
Mobile telephones in transit...................................................... 25,211,819 --
Total............................................................................. 7,321,686,971 3,598,354,206
Less allowance for obsolescence................................................... (3,858,732,612) (2,282,225,057)
Net............................................................................... Rp 3,462,954,359 Rp 1,316,129,149
</TABLE>
Certain inventories are used as collateral to secure certain short-term
loans (see Note 9).
Allowance for inventory obsolescence is made for non-moving inventory of
old and out-modelled mobile telephone equipment.
F-9
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. PROPERTY AND EQUIPMENT
The details of property and equipment are as follows:
<TABLE>
<CAPTION>
1995 BEGINNING ENDING
(RESTATED) BALANCE ADDITIONS DEDUCTIONS BALANCE
(SEE NOTE 2) RP RP RP RP
<S> <C> <C> <C> <C>
Cost
Vehicles......................................... 2,452,282,407 739,187,868 710,052,795 2,481,417,480
Furniture and fixtures........................... 403,108,997 121,921,924 2,276,940 522,753,981
Building improvements............................ 474,708,473 -- -- 474,708,473
Computer equipment............................... 513,888,700 137,193,300 41,667,500 609,414,500
Cellular mobile telephones....................... 325,786,242 -- 146,149,131 179,637,111
Machinery and equipment.......................... 203,951,126 1,035,000 -- 204,986,126
Construction in progress......................... 41,374,835,612 5,260,023,260 -- 46,634,858,872
Total............................................ 45,748,561,557 6,259,361,352 900,146,366 51,107,776,543
Accumulated Depreciation
Vehicles......................................... 1,654,460,019 519,139,456 676,943,561 1,496,655,914
Furniture and fixtures........................... 234,032,459 62,877,847 1,759,910 295,150,396
Building improvements............................ 261,340,006 53,342,117 -- 314,682,123
Computer equipment............................... 149,419,287 96,819,502 18,620,970 227,617,819
Cellular mobile telephones....................... 68,304,517 21,353,642 48,081,980 41,576,179
Machinery and equipment.......................... 83,091,043 32,818,022 -- 115,909,065
Total............................................ 2,450,647,331 786,350,586 745,406,421 2,491,591,496
Net Book Value................................... 43,297,914,226 48,616,185,047
</TABLE>
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE ADDITIONS DEDUCTIONS BALANCE
1996 RP RP RP RP
<S> <C> <C> <C> <C>
Cost
Vehicles......................................... 2,481,417,480 2,429,220,000 1,198,837,868 3,711,799,612
Furniture and fixtures........................... 522,753,981 428,694,854 300,167,427 651,281,408
Building improvements............................ 474,708,473 -- 474,708,473 --
Computer equipment............................... 609,414,500 668,892,120 423,421,488 854,885,132
Cellular mobile telephones....................... 179,637,111 -- 179,637,111 --
Machinery and equipment.......................... 204,986,126 -- 181,848,626 23,137,500
Maintenance and installer equipment.............. -- 131,800,000 -- 131,800,000
Telecommunication network........................ -- 45,916,993,858 -- 45,916,993,858
Construction in progress......................... 46,634,858,872 57,754,810,761 45,902,956,677 58,486,712,956
Total............................................ 51,107,776,543 107,330,411,593 48,661,577,670 109,776,610,466
Accumulated Depreciation
Vehicles......................................... 1,496,655,914 678,632,031 1,025,531,138 1,149,756,807
Furniture and fixtures........................... 295,150,396 209,480,847 300,167,427 204,463,816
Building improvements............................ 314,682,123 160,026,350 474,708,473 --
Computer equipment............................... 227,617,819 359,585,023 423,421,488 163,781,354
Cellular mobile telephones....................... 41,576,179 18,953,045 60,529,224 --
Machinery and equipment.......................... 115,909,065 30,671,297 123,442,862 23,137,500
Maintenance and installer equipment.............. -- 2,745,834 -- 2,745,834
Telecommunication network........................ -- 5,636,825,303 -- 5,636,825,303
Total............................................ 2,491,591,496 7,096,919,730 2,407,800,612 7,180,710,614
Net Book Value................................... 48,616,185,047 102,595,899,852
</TABLE>
F-10
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. PROPERTY AND EQUIPMENT -- Continued
Depreciation charged to operations amounted to Rp 786,350,586 and Rp
7,096,919,730 for the year ended December 31, 1995 and 1996, respectively. The
Company's property and equipment are used as collateral to the short-term loans
and long-term debts (see Notes 9 and 13).
8. ADVANCES FOR PURCHASE OF EQUIPMENT
This account represents deposits in Deutsche Bank to secure letters of
credit issued for purchase of certain equipment.
9. SHORT-TERM LOANS
This account represents loans obtained from the following:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C> <C>
Nissho Iwai........................................................................ Rp -- Rp 10,485,200,000
PT Bank Umum Servitia.............................................................. -- 5,000,000,000
PT Bank Utama...................................................................... 9,475,000,000 --
PT Lippobank....................................................................... 366,558 --
Total.............................................................................. Rp 9,475,366,558 Rp 15,485,200,000
</TABLE>
As of December 31, 1996, the credit facility obtained from Nissho Iwai
amounted to U.S.$ 4,400,000 and bears interest at 2.5% above LIBOR. The Company
has pledged 773 of its ordinary shares as collateral for this credit. The credit
is used to pay certain liabilities which are owed by the Company to Bank Utama.
The credit facility obtained from PT Bank Utama bears annual interest
ranging from 20% to 24%. The loan is collateralized with certain cash,
receivables, inventories, property and equipment, and corporate guarantee from
PT Bina Reksa Perdana, a stockholder, and certain property and equipment of PT
Panutan Duta, affiliate.
The loan facility obtained from PT Bank Umum Servitia bears interest at an
annual rate of 23% and is collateralized on a pari passu basis with collaterals
of long-term debt obtained from Nissho Iwai International (Singapore) Pte., Ltd.
(see Note 13).
10. ACCOUNTS PAYABLE -- TRADE
This account represents liabilities to:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C> <C>
Nokia Telecommunications Oy, Finland................................................. Rp -- Rp 3,884,753,279
PT Telekomunikasi Indonesia (Telkom)................................................. -- 3,494,041,002
Ericsson Radio System AB............................................................. -- 2,093,452,328
PT Indonesian Satellite Corporation -- 962,996,540
Directorate General of Posts and Telecommunications.................................. -- 222,774,250
PT Satelit Palapa Indonesia.......................................................... -- 192,475,201
EDS Management Consulting............................................................ -- 141,875,000
Nokia Telecommunications, Jakarta.................................................... -- 131,879,987
Others (each below Rp 100 million)................................................... 564,424,841 461,711,331
Total................................................................................ Rp 564,424,841 Rp 11,585,958,918
</TABLE>
F-11
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
11. ACCOUNTS PAYABLE -- OTHERS
As of December 31, 1995, this account mainly represents amounts due to a
former stockholder and PT Telekomunikasi Indonesia (Telkom) of Rp 6,145 million
and Rp 6,610 million, respectively. The amount due to Telkom represents the
difference between the agreed price of Telkom's portion on the network assets
transferred to Subsidiary and Telkom's share of the capital contribution in
Subsidiary. As of December 31, 1996, the above liabilities have been settled.
12. TAXES PAYABLE
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C> <C>
Estimated income tax payable (less tax prepayment of
Rp 97,784,316 in 1995)............................................................ Rp 4,075,702,684 Rp --
Income tax
Article 21........................................................................ 268,692,322 583,665,864
Article 23........................................................................ 361,833,151 542,096,601
Article 25 and 29................................................................. 43,107,840 4,071,033,731
Article 26........................................................................ 174,618,857 2,618,090,566
Value added tax..................................................................... -- 901,578,801
Total............................................................................... Rp 4,923,954,854 Rp 8,716,465,563
</TABLE>
No provision was made for income tax for the year ended December 31, 1996
since the Company and its Subsidiary are in a fiscal loss position.
A reconciliation between loss before provision for income tax, as shown in
the statement of income, and estimated taxable income for the year ended
December 31, 1995 is as follows:
<TABLE>
<S> <C> <C>
Loss before provision for income tax per consolidated statement of income.............................. Rp (4,399,384,009)
Loss of Subsidiary before provision for income tax..................................................... 1,089,167,264
Gain on sale of telecommunication network.............................................................. 10,967,490,528
Income before provision for income tax................................................................. 7,657,273,783
Timing differences:
Amortization of deferred charges..................................................................... 4,819,331,622
Provision for inventory obsolescence................................................................. 2,967,643,196
Difference in beginning balance of property and equipment as regulated by Directorate General of
Taxes Circular Letter No. 44/1995................................................................. 1,211,445,061
Depreciation......................................................................................... 473,000,943
Provision for uncollectible trade receivables........................................................ 62,739,169
Gain on disposal of telecommunication network........................................................ (5,856,159,247)
Gain on disposal of property and equipment........................................................... (401,162,201)
Permanent differences:
Donation............................................................................................. 2,090,349,100
Employees' benefits in kind.......................................................................... 599,409,987
Entertainment........................................................................................ 461,698,721
Interest expense..................................................................................... 206,746,361
Tax penalty and interest............................................................................. 17,415,989
Non-taxable income
Interest already subjected to final income tax....................................................... (368,942,024)
Estimated taxable income............................................................................... Rp 13,940,790,460
</TABLE>
F-12
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
12. TAXES PAYABLE -- Continued
The provision for income tax and computation of the estimated corporate
income tax payable for the year ended December 31, 1995 are as follows:
<TABLE>
<S> <C> <C>
Estimated taxable income (rounded-off).................................................................. Rp 13,940,790,000
Provision for income tax................................................................................ 4,173,487,000
Prepayments of income tax
Article 22............................................................................................ 52,898,433
Article 23............................................................................................ 1,350,000
Article 25............................................................................................ 43,535,883
97,784,316
Estimated corporate income tax payable.................................................................. Rp 4,075,702,684
</TABLE>
13. LONG-TERM DEBTS
This account represents long-term debts as follows:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C> <C>
Rupiah
PT Bank Indonesia Raya........................................................ Rp 1,718,555,179 Rp 1,718,555,179
PT Bank Tamara................................................................ 676,853,686 --
PT Lippobank.................................................................. 350,942,390 --
Others (each below Rp 100 million)............................................ 211,173,942 121,204,368
U.S. Dollar
Nissho Iwai International Pte. Ltd., Singapore................................ -- 142,980,000,000
Svenska Handelsbanken, Singapore.............................................. 7,971,795,072 --
10,929,320,269 144,819,759,547
Less current maturities......................................................... 8,638,028,690 1,809,565,256
Long-term portion............................................................... Rp 2,291,291,579 Rp 143,010,194,291
</TABLE>
On March 12, 1996, Subsidiary obtained a loan from Nissho Iwai
International (Singapore) Pte. Ltd. (Nissho Iwai) with a maximum facility
amounting to U.S.$ 60,000,000 to finance the construction and implementation of
the NMT-450 Network in Bandar Lampung in Sumatra, Java, Bali and Lombok. The
loan, which term is five years and inclusive of a two years grace period on
principal payment, is repayable in six equal semi-annual installments. Proceeds
from collections of Subsidiary's receivables are deposited directly into escrow
accounts maintained with certain banks as chosen and agreed-upon by both
parties.
Based on the Joint Venture Agreement No. PKS 234/HK.810/UTA-00/95 dated
November 30,1995 between the Company, Telkom and Yayasan Dana Pensiun Pegawai
Telkom (YDPP Telkom), the Company transferred the balance of the loan from
Svenska Handelsbanken, Singapore to Subsidiary as of June 30, 1995 amounting Rp
10,752,598,140.
The above loans are collateralized with cash and cash equivalents,
receivables, and property and equipment of the Company and Subsidiary, corporate
guarantee from the Company and shares of Subsidiary. The Rupiah loans bear
interest at rates ranging from 20% to 23% per annum. The loan from Nissho Iwai
bears interest at an annual rate of 2.5% above LIBOR. The loan from Svenska
Handelsbanken, Singapore bears annual interest at 0.55% above one month SIBOR.
Certain loan agreements contain terms and conditions restricting the
Company and Subsidiary from, without prior consent from the lenders, taking
additional loans, entering into any investment, merger, consolidation,
reorganization and changing ownership. In addition, the Company has to maintain
certain financial ratios.
F-13
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
14. DUE TO STOCKHOLDERS
Due to stockholders represents unsecured and non-interest bearing loans
from:
<TABLE>
<CAPTION>
1996
<S> <C> <C>
PT Bina Reksa Perdana.................................................................................... Rp 2,383,000,000
International Wireless Communications, Inc............................................................... 2,345,613,250
PT Deltona Satya Dinamika................................................................................ 1,274,905,000
Total.................................................................................................... Rp 6,003,518,250
</TABLE>
15. CAPITAL STOCK
The stockholders and their respective stockholdings as of December 31, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
STOCKHOLDERS NUMBER OF SHARES % OF OWNERSHIP AMOUNT
<S> <C> <C> <C> <C>
PT Bina Reksa Perdana............................................... 12,500 50% Rp 12,500,000,000
International Wireless Communications, Inc.......................... 6,250 25 6,250,000,000
PT Deltona Satya Dinamika........................................... 6,250 25 6,250,000,000
Total............................................................... 25,000 100% Rp 25,000,000,000
</TABLE>
Based on notarial deed of Sinta Susikto SH No. 106 dated January 24, 1997,
the Company changed certain parts of its Articles of Association including the
change in authorized and issued capital stock from Rp 25,000,000,000 to Rp
25,773,000,000 and the change in share ownership. The notarial deed has been
approved by MOJ in its decision letter No. C2-1331.HT.01.04.Th.97 dated February
27, 1997. Accordingly, the stockholders and their respective stockholdings after
the above mentioned transaction are as follows:
<TABLE>
<CAPTION>
STOCKHOLDERS NUMBER OF SHARES % OF OWNERSHIP AMOUNT
<S> <C> <C> <C> <C>
PT Bina Reksa Perdana............................................... 11,450 44.43% Rp 11,450,000,000
International Wireless Communications, Inc.......................... 7,300 28.32 7,300,000,000
PT Deltona Satya Dinamika........................................... 6,250 24.25 6,250,000,000
Nissho Iwai......................................................... 773 3.00 773,000,000
Total............................................................... 25,773 100.00% Rp 25,773,000,000
</TABLE>
The Company will receive U.S.$ 8,500,000 from Nissho Iwai for the
additional issued capital. As of December 31, 1996, the Company has received
U.S.$ 4,400,000 from Nissho Iwai as a prepayment for the issuance of the new
shares. As agreed with Nissho Iwai, the prepayment has been treated as a loan
and bears interest at 2.5% above LIBOR per annum after the MOJ approval has been
obtained (see Note 9).
16. REVENUES
Revenues are as follows:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C> <C>
Pulse sharing, monthly subscription charges and airtime.......................... Rp 12,249,170,887 Rp 23,149,038,764
Sales of outstations............................................................. 4,113,518,256 811,013,167
Connecting fee................................................................... 126,500,000 342,000,000
Repair, maintenance and others................................................... 323,174,655 167,209,102
Total............................................................................ Rp 16,812,363,798 Rp 24,469,261,033
</TABLE>
F-14
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
17. COST OF REVENUES
Cost of revenues are as follows:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C> <C>
Pulse sharing and airtime.......................................................... Rp 5,465,526,989 Rp 24,884,675,582
Cost of outstations................................................................ 2,055,407,793 2,365,219,867
Repair, maintenance and others..................................................... 310,191,695 40,286,880
Total.............................................................................. Rp 7,831,126,477 Rp 27,290,182,329
</TABLE>
18. CONTINGENT LIABILITY
The Company is in a dispute with PT Larikerindo relating to the settlement
of a loan. On August 9, 1994, the court dismissed the claim against the Company.
However, PT Larikerindo filed an appeal concerning the court decision. On
December 29, 1995, the higher court again dismissed the claim. In the event the
case is reappealed, the management believes that the Company will win the case
and incur no significant cost.
19. CONSULTANCY AGREEMENTS
Subsidiary had agreements with several parties in connection with the
installation and development of infrastructure of the STKB-C (Cellular mobile
telephone network) project. The agreements, made prior to the approval of
Subsidiary's articles of association by MOJ, were entered into by the Company on
behalf of Subsidiary. These agreements are as follows:
a. Consultancy service agreement with Telecon Ltd. (Telecon), Finland,
whereby Telecon agreed to provide an expert to work in Jakarta as a training
manager in radio network planning of NMT 450i for Subsidiary. Telecon will
charge U.S. $18,500 per month and Subsidiary provides accommodation. The work
started in September 1996 and has a duration of six months.
b. Technical support agreement with Broadcast Communications Limited (BCL),
New Zealand, whereby BCL agreed to provide technical support services concerning
the development of cellular mobile radio telecommunication and related business
in Indonesia. The agreement commenced on May 20, 1996 and has a duration of 12
months. The fee for the services amounted to U.S.$ 32,839 per month (excluding
Value Added Tax) and Subsidiary provides accommodation as defined under the
agreement.
c. Supply contract and technical support agreement with Nokia
Telecommunications Oy, Finland, in connection with NMT-470 Network Expansion and
Transmission System in order to provide new network coverage for NMT mobile
telephone system. These contracts were made on January 19, 1996. Supply contract
has a contract price of U.S.$ 20.9 million, while technical support is charged
on a fixed annual fee basis as defined and set forth in the agreement. The fee
amounted to U.S.$ 91,871 for the year 1996 and with approximate U.S.$ 1 million
per year for the years 1997-2001.
d. Service contract with Nokia Telecommunications Pte. Ltd., Singapore, for
a contract price of U.S.$ 4.54 million. This is also in connection with NMT-470
Network Expansion and Transmission System in order to provide new network
coverage for NMT mobile telephone system. This contract was made on January 19,
1996.
e. Cooperation agreement on network interconnection of Subsidiary's Mobile
Cellular Phone (STBS) with Telkom's Public Service Telephone Network (PSTN).
This agreement contains the interconnection configuration points and capacities,
operation and maintenance of interconnection equipment, other facilities and
services, joint services and financial settlement. This agreement was entered
into on August 21, 1996 and may be terminated at any time subject to the express
written approval of both parties or their respective successors and permitted
assigns.
f. Service agreement with Telkom whereby Telkom will provide billing and
collection service to the Company. As compensation, the Company will pay 1% of
its collected revenue to Telkom. The agreement will expire on March 31, 1997.
F-15
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
19. CONSULTANCY AGREEMENTS -- Continued
g. Subsidiary also has several agreements with contractors which among
others include agreements for establishing telecommunication towers in Jakarta,
Depok, Cikarang, East Java, Lampung and Bali with aggregate cost approximately
amounting to Rp 5 billion and for interior design of Subsidiary's new office
with total contract cost amounting to Rp 3.1 billion.
h. The Company appointed CV Aporindo Consultant to assist the Company in
handling the settlement of the corporate income tax for the year 1995 for a
total amount Rp 3,800,000,000, inclusive of the consultant's fee. The Company
has paid Rp 1,300,000,000 to December 31, 1996 and the fee is recorded as
"Advance" in the consolidated balance sheet.
Fees related to the installation and development of infrastructure of
STKB-C are capitalized and recorded under "Property and Equipment" in the
consolidated balance sheet.
20. COMMITMENTS
a. Subsidiary has agreed to take over service equipment, spareparts and
outstations owned by the Company amounting to Rp 1,453,000,000, as appraised by
PT Aditya Appraisal Bhakti. As of December 31, 1996, only service equipment
amounting to Rp 131,800,000 has been transferred to Subsidiary.
b. As of December 31, 1996, Subsidiary has unused credit facilities
aggregating to Rp 5,000,000,000 from PT Bank Umum Servitia.
21. SUBSEQUENT EVENTS
a. Based on notarial deed No.106 of Sinta Susikto SH dated January 24,
1997, the Company's authorized capital stock was changed from Rp 25,000,000,000
divided into 25,000 shares with a par value of Rp 1,000,000 per share to Rp
25,773,000,000 divided into 25,773 shares of the same par value and other
changes in the capital structure. The changes in the authorized capital stock
was approved by the Ministry of Justice in its decision letter No.
C2-1331.HT.01.04.Th.97 dated February 27, 1997 (see Note 14).
b. On January 29, 1997, Subsidiary entered into a syndicated short-term
notes facility agreement made with PT Bank Umum Servitia (BUS), as arranger.
Under the agreement, the syndicated banks have agreed to purchase short-term
notes amounting to Rp 60,000,000,000 and interest notes amounting to Rp
15,000,000,000 issued by the Company. Subsidiary is required to pay these loans
prior to payment for all other loans.
These short-term notes will be used to finance the working capital and
expansion of Subsidiary prior to the issuance of the convertible bonds; while
the interest notes will be used to finance any accrued interest payments on the
short-term notes or the interest notes.
c. Based on the decree No. KM.5/PR.301/MPPT-97 of Ministry of Tourism,
Posts and Telecommunications of the Republic of Indonesia dated January 1, 1997,
Subsidiary, as one of mobile cellular phone services providers, is entitled to
get:
-- 100% of long-distance interconnection fee from owned STBS to owned STBS
which use owned network.
-- 30% of long-distance call pulse from owned STBS to owned STBS which use
PSTN network.
-- 15% of long-distance call pulse from owned STBS to other STBS, and
vice-versa, which use PSTN network.
-- 40% of long-distance call pulse from owned STBS to PSTN which use owned
network.
-- 15% of long-distance call pulse from PSTN to owned STBS which use PSTN
network.
F-16
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
22. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY
THE COMPANY AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES THE FINANCIAL
STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH INDONESIAN GAAP WHICH
DIFFER IN CERTAIN RESPECTS FROM U.S. GAAP.
THE DIFFERENCES ARE REFLECTED IN THE APPROXIMATIONS PROVIDED IN NOTE 26 AND
ARISE DUE TO THE ITEMS DISCUSSED IN THE FOLLOWING PARAGRAPHS:
A. INCOME TAXES
Under Indonesian GAAP, it is acceptable to recognize Income Tax expense
based upon the estimated current Income Tax liability on the current year's
earnings. When income and expense recognition for Income Tax purposes does not
occur in the same year as income and expense recognition for financial reporting
purposes, the resulting temporary differences are not considered in the
computation of Income Tax expense for the year.
Under U.S. GAAP, the liability method is used to calculate the Income Tax
provision. Under the liability method, deferred tax assets or liabilities are
recognized for differences between the financial reporting and tax bases of
assets and liabilities at each reporting date.
b. REGULATION
The Company provides telephone service in Indonesia and therefore is
subject to the regulatory control of the Minister of Tourism, Posts and
Telecommunications of the Republic of Indonesia. Rates for services are
tariff-regulated. Although changes in rates for services are authorized and
computed based on a decree issued by the Minister of Tourism, Posts and
Telecommunications of the Republic of Indonesia, these are not based on a fixed
rate of return and are not designed to provide for the recovery of the Company's
cost of services. Accordingly, the requirements of U.S. GAAP related to a
business whose rates are regulated on the basis of its actual costs are not
applicable to the Companies' financial statements.
c. PRESENTATION OF THE STATEMENTS OF STOCKHOLDERS' EQUITY
Under Indonesian GAAP, except for public companies, it is not required to
present statements of retained earnings. Under U.S. GAAP, the Companies are
required to present statements of stockholders' equity.
F-17
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
23. RECONCILIATION BETWEEN NET INCOME AND STOCKHOLDERS' EQUITY DETERMINED UNDER
INDONESIAN AND U.S. GAAP THE FOLLOWING IS A SUMMARY OF THE SIGNIFICANT
ADJUSTMENTS TO NET INCOME FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
TO STOCKHOLDERS' EQUITY AS OF DECEMBER 31, 1995 AND 1996 WHICH WOULD BE REQUIRED
IF U.S. GAAP HAD BEEN APPLIED INSTEAD OF INDONESIAN GAAP IN THE FINANCIAL
STATEMENTS:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C>
RP RP U.S. $ (NOTE 3)
Net loss according to the financial statements prepared under Indonesian
GAAP................................................................... (8,246,120,830) (28,620,590,602) (12,010,319)
Adjustments due to:
Income tax............................................................. 4,245,298,915 11,253,159,872 4,722,266
Valuation allowance.................................................... (4,245,298,915) (11,400,961,024) (4,784,289)
Approximate net loss in accordance with U.S. GAAP........................ (8,246,120,830) (28,768,391,754) (12,072,342)
Stockholders' equity (capital deficiency) according to the financial
statements prepared under Indonesian GAAP.............................. 6,691,139,967 (21,929,450,635) (9,202,455)
Adjustments due to:
Income tax............................................................. 5,127,282,969 16,380,442,841 6,873,875
Valuation allowance.................................................... (5,127,282,969) (16,528,243,993) (6,935,898)
Approximate stockholders' equity (capital deficiency) in accordance with
U.S. GAAP.............................................................. 6,691,139,967 (22,077,251,787) (9,264,478)
</TABLE>
Regarding the consolidated balance sheets and statements of income and
deficit, the following significant captions determined under U.S. GAAP would
have been presented:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C>
RP RP U.S. $ (NOTE 3)
Balance sheets:
Current assets........................................................ 12,270,504,214 31,822,048,701 13,353,776
Total assets.......................................................... 61,512,948,397 185,659,151,379 77,909,841
Current liabilities................................................... 40,380,349,030 55,621,155,510 23,340,812
Total liabilities..................................................... 54,821,808,430 207,736,403,166 87,174,319
Statements of income and deficit:
Loss from operations.................................................. 2,796,492,632 28,030,557,705 11,762,718
</TABLE>
F-18
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
24. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED BY U.S. GAAP
The following information is presented on the basis of U.S. GAAP:
INCOME TAX
The tax effect on significant temporary differences is as follows:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C>
RP RP U.S. $ (NOTE 3)
Deferred tax assets -- current:
Allowance for inventory obsolescence..................................... 1,157,619,784 684,667,517 287,313
Allowance for doubtful accounts.......................................... 170,545,199 2,280,170,922 956,849
1,328,164,983 2,964,838,439 1,244,162
Valuation allowance...................................................... (1,328,164,983) (2,964,838,439) (1,244,162)
Total deferred tax assets -- current -- net.............................. -- -- --
</TABLE>
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C>
RP RP U.S. $ (NOTE 3)
Deferred tax assets -- non-current:
Tax loss carryforwards................................................... 98,024,916 10,453,429,119 4,386,668
Property and equipment................................................... 3,701,093,070 3,105,626,435 1,303,242
Preoperating expenses.................................................... -- 4,350,000 1,825
3,799,117,986 13,563,405,554 5,691,735
Valuation allowance...................................................... (3,799,117,986) (13,563,405,554) (5,691,735)
Total deferred tax assets -- non-current -- net.......................... -- -- --
Deferred tax liabilities -- non-current:
Property and equipment................................................... -- 51,079,045 21,435
Prepaid long-term rent................................................... -- 96,722,107 40,588
Deferred tax liabilities -- non current.................................. -- 147,801,152 62,023
Deferred tax -- net...................................................... -- 147,801,152 62,023
</TABLE>
The temporary differences, on which deferred tax assets have been computed
are not deductible for income tax purposes until the provision for inventory
obsolescence and provision for uncollectible trade receivable are written-off.
The differences between the book and tax bases of property and equipment,
prepaid long-term rent and preoperating expenses are due to the differing
recognition methods for Income Tax and financial reporting purposes.
F-19
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
24. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED BY U.S.
GAAP -- Continued
The Income Tax provision recorded under U.S. GAAP differs from the expected
provision at U.S. statutory rates due to certain permanent differences detailed
below:
<TABLE>
<CAPTION>
1995
(RESTATED)
(SEE NOTE 2) 1996
<S> <C> <C> <C>
RP RP U.S. $ (NOTE 3)
Approximate loss before Income Tax in accordance
with U.S. GAAP......................................................... (4,399,384,009) (37,817,024,460) (15,869,502)
Effect of permanent differences:
Donation............................................................... 2,090,349,100 34,041,756 14,285
Expenses incurred during preoperating stage of Subsidiary.............. 762,417,085 -- --
Employees' benefits in kind............................................ 599,499,987 47,837,543 20,075
Entertainment.......................................................... 461,698,721 33,906,969 14,229
Interest expense....................................................... 206,746,361 2,114,346,227 887,262
Tax penalty and interest............................................... 17,415,989 104,353,376 43,791
Interest income which was already subjected to final tax............... (368,942,024) (2,027,994,320) (851,026)
3,769,185,219 306,491,551 128,616
Approximate loss before Income Tax in accordance
with U.S. GAAP......................................................... (630,198,790) (37,510,532,909) (15,740,886)
Provision for income tax (on tax loss) in accordance with U.S. GAAP
before adjustment...................................................... (197,809,637) (11,253,159,872) (4,722,266)
Adjustment for enacted changes in tax rates.............................. 125,997,722 -- --
Increase in valuation allowance.......................................... 4,245,298,915 11,400,961,024 4,784,289
Provision for income tax (on tax loss) in accordance with U.S. GAAP after
adjustment............................................................. 4,173,487,000 147,801,152 62,023
</TABLE>
Donations amounting to Rp 2,079,486,000 were given to Yayasan Dana Pensiun
Pegawai (YDPP) Telkom (Pension Fund of Telkom) as YDPP Telkom's contribution in
Subsidiary.
b. VALUATION AND QUALIFYING ACCOUNTS
Activity in the Company's allowance for doubtful accounts for the years
ended December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING OF COSTS AND AND END OF
FOR THE YEARS ENDED YEAR EXPENSES DEDUCTIONS YEAR
<S> <C> <C> <C> <C>
RP RP RP RP
December 31, 1995.......................................... 505,744,829 62,739,169 -- 568,483,998
December 31, 1996.......................................... 568,483,998 8,102,437,967 1,070,352,224 7,600,569,741
</TABLE>
Activity in the Company's allowance for inventory obsolescence for the
years ended December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING OF COSTS AND AND END OF
FOR THE YEARS ENDED YEAR EXPENSES DEDUCTIONS YEAR
<S> <C> <C> <C> <C>
RP RP RP RP
December 31, 1995........................................ 891,089,416 2,967,643,196 -- 3,858,732,612
December 31, 1996........................................ 3,858,732,612 -- 1,576,507,555 2,282,225,057
</TABLE>
F-20
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
25. RECLASSIFICATIONS OF ACCOUNTS
Certain accounts in the 1995 financial statements have been reclassified to
conform with the presentation of accounts in the 1996 financial statements.
F-21
<PAGE>
ATTACHMENT I
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
CAPITAL STOCK STOCKHOLDERS'
(ISSUED AND FULLY PAID) DEFICIT EQUITY
DESCRIPTION RP RP RP
<S> <C> <C> <C>
BALANCE as of January 1, 1995............................... 1,000,000,000 (10,062,739,203) (9,062,739,203)
Approved during the Extraordinary General Meeting of the
Stockholders on November 9, 1995: Increase in the issued
and fully paid-up capital from Rp 1,000,000,000 to Rp
25,000,000,000............................................ 24,000,000,000 -- 24,000,000,000
Net loss for 1995 (restated)................................ -- (8,246,120,830) (8,246,120,830)
BALANCE as of December 31, 1995 (restated).................. 25,000,000,000 (18,308,860,033) 6,691,139,967
Net loss for 1996........................................... -- (28,620,590,602) (28,620,590,602)
BALANCE as of December 31, 1996............................. 25,000,000,000 (46,929,450,635) (21,929,450,635)
</TABLE>
F-22
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, 1996 AND 1997 (unaudited)
<TABLE>
<CAPTION>
1995
(As Restated,
see Note 2) 1996
------------- --------------
A S S E T S Notes Rp Rp
---------- ------------- --------------
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents 2,4,10,14 5,543,708,243 15,676,909,861
Accounts receivable
Trade - net of allowance for doubtful accounts of
Rp 568,483,998 in 1995, Rp 7,600,569,741 in 1996
and Rp 19,270,979,387 in 1997 2,5,10,14 2,617,547,345 5,099,085,512
Others 79,039,898 681,504,236
Inventories - net of allowance for obsolescence of
Rp 3,858,732,612 in 1995 and Rp 2,282,225,057 in 1996 2,6,10 3,462,954,359 1,316,129,149
Prepaid taxes and expenses 2 567,254,369 3,343,835,015
Advances 21 - 5,704,584,928
-------------- --------------
Total Current Assets 12,270,504,214 31,822,048,701
-------------- --------------
DUE FROM STOCKHOLDERS 2 - -
-------------- --------------
PROPERTY AND EQUIPMENT 2,7,10,14,21
Cost 51,107,776,543 109,776,610,466
Accumulated depreciation - ( 2,491,591,496 )( 7,180,710,614 )
-------------- ---------------
Net Book Value - 48,616,185,047 102,595,899,852
-------------- ---------------
OTHER ASSETS
Advances for purchases of equipment 8 - 45,064,135,670
Long-term prepayments 2 410,858,052 4,390,264,725
Estimated claims for tax refund - 1,001,401,054
Refundable deposits 160,401,084 756,401,377
Preoperating expenses 2 55,000,000 29,000,000
Other non-current asset 2,9 - -
------------- --------------
Total Other Assets 626,259,136 51,241,202,826
------------- --------------
TOTAL ASSETS 61,512,948,397 185,659,151,379
============== ===============
<CAPTION>
1997 (unaudited)
----------------------------------
A S S E T S Rp U.S.$ (SeeNote 3)
-------------- -----------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents 4,503,817,999 849,777
Accounts receivable
Trade - net of allowance for doubtful accounts of
Rp 568,483,998 in 1995, Rp 7,600,569,741 in 1996
and Rp 19,270,979,387 in 1997 6,052,416,437 1,141,965
Others 1,657,122,521 312,665
Inventories - net of allowance for obsolescence of
Rp 3,858,732,612 in 1995 and Rp 2,282,225,057 in 1996 2,939,270,214 554,579
Prepaid taxes and expenses 7,085,338,750 1,336,857
Advances 406,649,189 76,726
--------------- ----------
Total Current Assets 22,644,615,110 4,272,569
--------------- ----------
DUE FROM STOCKHOLDERS 968,200,000 182,679
--------------- ----------
PROPERTY AND EQUIPMENT
Cost 244,554,068,464 46,142,277
Accumulated depreciation ( 23,289,254,882 ) ( 4,394,199 )
--------------- ----------
Net Book Value 221,264,813,582 41,748,078
--------------- ----------
OTHER ASSETS
Advances for purchases of equipment 3,253,896,840 613,943
Long-term prepayments 2,762,558,727 521,237
Estimated claims for tax refund 1,372,551,380 258,972
Refundable deposits 1,794,650,853 338,613
Preoperating expenses - -
Other non-current asset 14,042,306,169 2,649,492
-------------- ---------
Total Other Assets 23,225,963,969 4,382,257
-------------- ---------
TOTAL ASSETS 268,103,592,661 50,585,583
=============== ==========
</TABLE>
F-23
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, 1996 AND 1997 (unaudited)
<TABLE>
<CAPTION>
1995
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) (As Restated,
see Note 2) 1996
-------------- ---------------
Notes Rp Rp
CURRENT LIABILITIES ----------- --------------- ---------------
<S> <C> <C> <C>
Short-term loans 10 9,475,366,558 15,485,200,000
Accounts payable 11 15,659,053,092 11,659,372,437
Taxes payable 2,12 4,923,954,854 8,716,465,563
Accrued expenses 2,13 1,683,945,836 17,950,552,254
Current maturities of long-term debts
Bank loans 2,14 8,638,028,690 1,809,565,256
Obligations under capital leases 2,7,14 - -
-------------- ---------------
Total Current Liabilities 40,380,349,030 55,621,155,510
-------------- ---------------
LONG-TERM DEBTS~ - net of current maturities
Bank loans 2,14 2,291,291,579 143,010,194,291
Obligations under capital leases 2,7,14 - -
-------------- ---------------
Total Long-Term Debts 2,291,291,579 143,010,194,291
-------------- ---------------
DUE TO STOCKHOLDERS 2,15 - 6,003,518,250
-------------- ---------------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 2 12,150,167,821 2,953,733,963
-------------- ---------------
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock - Rp 1,000,000 par value
Authorized and issued - 25,000 shares in 1995 and
1996 and 25,773 shares in 1997 16 25,000,000,000 25,000,000,000
Additional paid-in capital 16 - -
Deficit 22 ( 18,308,860,033 ) ( 46,929,450,635 )
-------------- ---------------
Stockholders' Equity - Net (Capital Deficiency) 6,691,139,967 ( 21,929,450,635 )
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY) 61,512,948,397 185,659,151,379
============== ===============
<CAPTION>
1997 (unaudited)
-----------------------------------
Rp U.S.$ (See Note 3)
CURRENT LIABILITIES --------------- ------------------
<S> <C> <C>
Short-term loans 75,000,000,000 14,150,943
Accounts payable 55,778,714,374 10,524,286
Taxes payable 10,123,125,241 1,910,024
Accrued expenses 33,971,640,734 6,409,743
Current maturities of long-term debts
Bank loans 318,313,648,058 60,059,179
Obligations under capital leases 143,173,304 27,014
--------------- -------------
Total Current Liabilities 493,330,301,711 93,081,189
--------------- -------------
LONG-TERM DEBTS~ - net of current maturities
Bank loans 25,143,575,000 4,744,071
Obligations under capital leases 233,575,872 44,071
--------------- -------------
Total Long-Term Debts 25,377,150,872 4,788,142
--------------- -------------
DUE TO STOCKHOLDERS 4,550,765,606 858,635
--------------- -------------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY - -
--------------- -------------
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock - Rp 1,000,000 par value
Authorized and issued - 25,000 shares in 1995 and
1996 and 25,773 shares in 1997 25,773,000,000 4,862,830
Additional paid-in capital 19,572,700,000 3,692,962
Deficit 300,500,325,528 ) ( 56,698,175 )
--------------- -------------
Stockholders' Equity - Net (Capital Deficiency) 255,154,625,528 ) ( 48,142,383 )
--------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY) 268,103,592,661 50,585,583
=============== =============
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
------------- --------------- ----------------------------------
Notes Rp Rp Rp U.S.$(See Note 3)
-------- ------------- --------------- --------------- --------------
OPERATING REVENUES 2,18 16,812,363,798 24,469,261,033 32,218,394,657 6,078,942
OPERATING EXPENSES 2,19,20 19,608,856,430 52,499,818,738 115,259,577,388 21,747,090
-------------- -------------- --------------- ----------
LOSS FROM OPERATIONS 2,796,492,632 28,030,557,705 83,041,182,731 15,668,148
-------------- -------------- -------------- ----------
OTHER CHARGES (INCOME)
Interest income (403,155,251) (2,029,190,074) (1,194,966,988) (225,465)
Loss on foreign exchange - net 2,7 507,805,347 2,555,505,519 147,168,454,141 27,767,633
Interest expense 2,7 4,813,937,236 8,750,900,607 25,061,686,319 4,728,620
Loss (gain) on disposal of
equipment 2 344,054,448 113,865,638 47,518,202 8,966
Miscellaneous- net 2,971,641,507 395,385,065 2,400,734,451 452,968
------------- ----------- ------------- ----------
Other Charges - Net 1,602,891,377 9,786,466,755 173,483,426,125 32,732,722
------------- ------------- --------------- ----------
LOSS BEFORE PROVISION
FOR INCOME TAX 4,399,384,009 37,817,024,460 256,524,608,856 48,400,870
PROVISION FOR INCOME
TAX 2,12 4,173,487,000 - - -
------------- ------------- --------------- ------------
LOSS BEFORE MINORITY
INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARY 8,572,871,009 37,817,024,460 256,524,608,856 48,400,870
MINORITY INTEREST IN
NET LOSS OF CONSOLIDATED
SUBSIDIARY 326,750,179 9,196,433,858 2,953,733,963 557,308
------------- ------------- ------------- -----------
NET LOSS 8,246,120,830 28,620,590,602 253,570,874,893 47,843,562
DEFICIT AT BEGINNING OF THE
YEAR 10,062,739,203 18,308,860,033 46,929,450,635 8,854,613
-------------- -------------- -------------- -----------
DEFICIT AT END OF THE YEAR 18,308,860,033 46,929,450,635 300,500,325,528 56,698,175
============== ============== =============== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN
INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
F-25
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
------------- --------------- -----------------------------------
Rp Rp Rp U.S.$ (See Note 3)
--------------- ---------------- ------------------ -----------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss (8,246,120,830) (28,620,590,602) (253,570,874,893) (47,843,562)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation 786,350,586 7,096,919,730 16,990,403,644 3,205,737
Provision for doubtful accounts 62,739,169 8,102,437,967 11,670,409,646 2,201,964
Provision (write-off) for inventory
obsolescence 2,967,643,196 (1,576,507,555) (2,282,225,057) (430,609)
Loss on foreign exchange due to
restatement of long-term debts - 2,460,000,000 175,020,000,000 33,022,642
Minority interest in net loss of
consolidated subsidiary (326,750,179) (9,196,433,858) (2,953,733,963) (557,308)
Amortization of deferred charges 4,819,331,622 - - -
Amortization of preoperating
expenses - 29,000,000 29,000,000 5,472
Loss (gain) on disposals of
equipment (344,054,448) 113,865,638 47,518,202 8,966
Changes in operating assets and
liabilities:
Accounts receivable - net 196,000,856 (11,186,440,472) (13,637,650,376) (2,573,142)
Inventories - net 348,812,887 3,751,126,484 659,083,992 124,355
Prepaid taxes and expenses (397,624,191) (6,755,987,319) (2,113,797,737) (398,830)
Advances - (5,704,584,928) 5,297,935,739 999,611
Refundable deposits (160,401,084) (596,000,293) (1,038,249,476) (195,896)
Estimated claims for tax refund - (1,001,401,054) (371,150,326) (70,028)
Other non-current assets - - (14,042,306,169) (2,649,492)
Accounts payable 10,709,592,486 (3,999,680,655) 44,301,175,185 8,358,712
Taxes payable (3,402,494,577) 3,792,510,709 1,406,659,678 265,407
Accrued expenses (5,876,403,564) 16,266,606,418 16,021,088,480 3,022,847
---------------- --------------- -------------- -------------- -------------
Net Cash Provided by (Used in)
Operating Activities 1,136,621,929 (72,089,295,460) (18,566,713,431) (3,503,153)
-------------------- ------------- ---------------- ---------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from disposals of equipment 498,794,393 209,161,024 129,283,613 24,393
Acquisitions of equipment (6,259,361,352) (61,427,454,916) (94,025,880,359) (17,740,732)
Advances for purchases of
equipment - (45,064,135,670) - -
Deductions to deferred charges 38,150,067,797 - - -
Additions to preoperating expenses (55,000,000) (3,000,000) - -
Increase in minority interest in consolidated
subsidiary 12,476,918,000 - - -
Net Cash Provided by (Used in) Investing
Activities 44,811,418,838 (61,221,293,892) (93,896,596,746) (17,716,339)
---------- -------------- ---------------- --------------- ------------
</TABLE>
F-26
<PAGE>
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. GENERAL
PT Rajasa Hazanah Perkasa (the Company) was established on December 17,
1984 based on notarial deed No. 22 of Pariwondo Soekarno, S.H. The deed of
establishment was approved by the Ministry of Justice (MOJ) in its decision
letter No. C2-2666-HT.01.01.TH'85 dated May 8, 1985, registered at the
South Jakarta Court of Justice on July 24, 1985 under registry No.
503/Not/1985/PN.JKT.SEL and was published in Supplement No. 1199 of the
State Gazette No. 82 dated October 14, 1986. The Company changed its status
to foreign capital investment company which was approved by the Investment
Coordinating Board in its letter No. 22/V/PMA/1995 dated May 26, 1995 and
No. 1226/A.6/1995 dated September 28, 1995. The Company's articles of
association has been amended from time to time, most recently by notarial
deed No. 106 of Sinta Susikto, S.H. dated January 24, 1997 (see Note 16).
As stated in Article No. 3 of its articles of association, the Company is
engaged in supplying wireless telecommunication services and installing and
operating domestic telephone lines.
The Company was granted an approval in principle to engage in providing
facilities for mobile cellular phone services by the Ministry of Tourism,
Posts and Telecommunications (MTPT) of the Republic of Indonesia on April
28, 1995 based on the latter's letter No. PB.301/1/25/MPPT-95. Government
Regulation No. 8 of 1993, which governs the Provision of Telecommunications
Services, stipulates that the establishment of a cooperation which aims to
provide basic telecommunications services can be in the form of joint
venture, joint operations or contract management. The said regulation
further provides that entities cooperating with the domestic and/or
international telecommunications organizing bodies must use the organizing
bodies' existing telecommunications networks. If the telecommunications
networks are not available, the government regulation requires that the
cooperation shall be in the form of a joint venture capable of constructing
the necessary networks.
Hence, on November 30, 1995, the Company, PT Telekomunikasi Indonesia
(Telkom) and Yayasan Dana Pensiun Pegawai Telkom (YDPP Telkom) established
a joint venture company under the name of PT Mobile Selular Indonesia
(Mobisel, the Subsidiary). The joint venture agreement is covered by
notarial deed No. 210 dated November 30, 1995 of Sinta Susikto, S.H.
Pursuant to the said agreement, the Company transferred certain
telecommunication networks to the Subsidiary as capital contribution,
including its rights to engage in providing facilities for mobile cellular
phone services granted by MTPT.
Under existing regulations, the Subsidiary can only formally operate upon
the approval of its articles of associations by MOJ. The Subsidiary's deed
of establishment was approved by the MOJ in its decision letter No.
C2-1238.HT.01.01-TH'96 dated January 31, 1996. Accordingly, the Company was
entitled to the pulse sharing revenue until February 20, 1996.
As stated in Article 3 of Subsidiary's articles of association, the scope
of activities of the Subsidiary comprises operating and providing
facilities for Mobile Cellular Phone Services (Jasa Sambungan Telepon
Bergerak Selular) in accordance with existing laws.
F-27
<PAGE>
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis Of Consolidated Financial Statements
==========================================
The consolidated financial statements have been prepared on the historical
cost basis of accounting, except for inventories which are valued at the
lower of cost or net realizable value (market).
Principles Of Consolidation
===========================
The consolidated financial statements include the accounts of the Company
and its 70% - owned subsidiary, Mobisel, which was legally established on
January 31, 1996. In recognition of the change in its legal status, as
explained in Note 1, and for comparative purposes, the Company restated the
1995 accounts previously reported as if the Subsidiary was legally
established in 1995 and, accordingly, consolidated starting in 1995.
All significant intercompany accounts and transactions have been
eliminated.
Cash Equivalents
================
Time deposits and other short-term investments with maturities of three
months or less at the time of placement or purchase are considered as "Cash
Equivalents".
Allowance For Doubtful Accounts
===============================
Allowance for doubtful accounts is provided based on a review of the status
of the individual receivable accounts at the end of the year.
Inventories
===========
Inventories are stated at the lower of cost or net realizable value
(market). Cost is determined by the first-in, first-out method. The Company
provides allowance for obsolescence based on a periodic review of the
physical condition of inventories.
Transactions With Related Parties
=================================
The Company and its Subsidiary have transactions with entities which are
regarded as having special relationships as defined under Statement of
Financial Accounting Standards No. 7, "Related Party Disclosures".
Prepaid Expenses
================
Prepaid expenses are amortized over the periods benefited using the
straight-line method. Prepaid expenses whose benefits extend over one year
are classified under "Other Assets - Long-term Prepayments".
F-28
<PAGE>
Property And Equipment
======================
Property and equipment are stated at cost less accumulated depreciation.
The Company and its Subsidiary use the double-declining balance and
straight-line methods, respectively, in computing the depreciation based on
the estimated useful lives of the assets as follows:
Years
-----
Vehicles 2-4
Furniture and fixtures 2-4
Building improvements 4
Computer equipment 4
Cellular mobile telephones 4
Machinery and equipment 4
Maintenance and installer equipment 4
Telecommunication network 7-15
Telecommunication network represents capitalized system costs for the
development of the Subsidiary's cellular mobile telephone systems. This
includes the costs of the construction, direct labor cost spent on the
construction, and interest and foreign exchange losses on loans used to
finance the construction.
The cost of maintenance and repairs is charged to income as incurred;
significant renewals and betterments are capitalized. When assets are
retired or otherwise disposed of, their costs and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss
is reflected in income for the period.
Construction in progress is stated at cost. The accumulated costs are
reclassified to the appropriate equipment accounts when the construction is
completed and ready for its intended use.
Leases
======
Lease transactions are accounted for under the capital lease method and the
related leased assets are presented in Property and Equipment when the
required capitalization criteria are met. Otherwise, leases are accounted
for under the operating lease method. Assets under capital lease are
recorded based on the present value of the lease payments at the beginning
of the lease term plus residual value (option price) to be paid at the end
of the lease period. Depreciation is computed using the straight-line
method based on the estimated useful lives of the leased assets in line
with the estimated useful lives of the property and equipment.
Capitalization Of Borrowing Costs
=================================
Starting in 1997, the Subsidiary capitalized interest and foreign exchange
losses incurred on loans used to finance the construction and
implementation of the NMT-450 Network, in accordance with the amended
Statement No. 26 of the Financial Accounting Standards, "Borrowing Costs".
Capitalization of interest and foreign exchange losses ceases when the
construction is completed and the asset is ready for its intended use.
F-29
<PAGE>
Preoperating Expenses
=====================
Preoperating expenses are amortized over two years up to 1997, in
accordance with the Statement No. 6 of the Financial Accounting Standards,
"Accounting and Reporting for a Development Stage Company".
Revenue And Expense Recognition
===============================
Revenue is recorded as earned when products are delivered to the customers
or when services are rendered. Expenses are recognized when they are
incurred.
Foreign Currency Transactions And Balances
==========================================
Transactions involving foreign currencies are recorded at the rates of
exchange prevailing at the time the transactions are made. At the balance
sheet date, assets and liabilities denominated in foreign currencies are
adjusted to reflect the middle rates of Bank Indonesia at balance sheets
date for 1995 and 1996, and the prevailing rates of exchange as published
by Bank Indonesia at the last banking transaction date for 1997. Any
resulting gains or losses, net of capitalized portion, are credited or
charged to operations of the current year.
For December 31, 1995, 1996 and 1997, the rates of exchange used were Rp
2,200 to U.S.$ 1, Rp 2,383 to U.S.$ 1 and Rp 5,300 to U.S.$ 1 computed by
taking the average of the buying and selling rates for bank notes as of
December 31, 1995 and 1996, the balance sheets date and as of December 30,
1997, the last transaction date in 1997, respectively.
Provision For Income Tax
========================
Provision for income tax is determined on the basis of estimated taxable
income for the period. No deferred tax is provided for the timing
differences in the recognition of income and expenses for financial
reporting and income tax purposes.
- --------------------------------------------------------------------------------
3. TRANSLATIONS OF INDONESIAN RUPIAH AMOUNTS INTO UNITED STATES DOLLAR AMOUNTS
The financial statements are stated in Indonesian Rupiah. The translation
of Indonesian Rupiah amounts into United States Dollars using the average
buying and selling rates of Rp 5,300 to U.S.$ 1, as published by Bank
Indonesia (Central Bank) on December 30, 1997, are included solely for the
convenience of the readers. The convenience translation should not be
construed as representation that the Indonesian Rupiah amounts have been,
could have been, or could in the future be, converted into United States
Dollars at this or any other rates of exchange.
F-30
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
----------------- ----------------- -------------------
Cash on hand Rp 22,438,597 Rp 28,161,045 Rp 97,025,000
Cash in banks 830,916,549 10,169,998,816 4,406,792,999
Cash equivalents
Time deposits, with annual
interest rates ranging
from 4.50% - 6.06%for U.S.
Dollar time deposit, and 17%
for Rupiah time deposit 4,690,353,097 5,478,750,000 -
----------------------- ------------------- ------------------ ----------------
Total Rp 5,543,708,243 Rp 15,676,909,861 Rp 4,503,817,999
================= ================== ================
</TABLE>
A portion of cash and cash equivalents amounting to Rp 4,740,770,937, Rp
3,009,678,457 and Rp 1,556,821,379 as of December 31, 1995, 1996 and 1997,
respectively, is used as collateral for the short-term loans and long-term
debts referred to in Notes 10 and 14, respectively.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
5. ACCOUNTS RECEIVABLE - TRADE
The details of this account are as follows:
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
---------------- ------------------ ------------------
Pulse revenue receivables Rp 2,579,752,929 Rp 12,093,378,485 Rp 25,323,395,824
Outstation receivables 606,278,414 606,276,768 -
---------------- ------------------ ------------------
Total 3,186,031,343 12,699,655,253 25,323,395,824
Less allowance for doubtful accounts 568,483,998 7,600,569,741 19,270,979,387
---------------- ------------------ ------------------
Net Rp 2,617,547,345 Rp 5,099,085,512 Rp 6,052,416,437
================ ================== ==================
</TABLE>
Trade receivables are used as collateral to secure the short-term loans and
long-term debts referred to in Notes 10 and 14, respectively.
F-31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
6. INVENTORIES
Inventories consist of the following:
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
---------------- ------------------ ------------------
Cellular mobile telephones Rp 5,009,533,582 Rp 1,342,094,659 Rp 1,493,558,278
Optional equipment 2,286,941,570 2,256,259,547 1,343,251,068
Mobile telephones in-transit 25,211,819 - 102,460,868
---------------- ------------------ ------------------
Total 7,321,686,971 3,598,354,206 2,939,270,214
Less allowance for obsolescence (3,858,732,612) (2,282,225,057) -
----------------- ------------------ ------------------
Net Rp 3,462,954,359 Rp 1,316,129,149 Rp 2,939,270,214
================= ================== ==================
</TABLE>
Certain inventories are used as collateral to secure certain short-term
loans (see Note 10).
In 1995 and 1996, allowance for inventory obsolescence was made
specifically for non-moving inventory of old and outmoded mobile telephone
equipment. In 1997, all of said old and outmoded mobile telephone equipment
has been written-off.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
7. PROPERTY AND EQUIPMENT
The details of this account are as follows:
1995
(As Restated, see Note 2)
-------------------------
---------------------------------------------------------------------------
Beginning Ending
Balance Additions Deductions Balance
--------------- ---------------- ---------------- -------------------
Rp Rp Rp Rp
Cost
----
Vehicles 2,452,282,407 739,187,868 710,052,795 2,481,417,480
Furniture and fixtures 403,108,997 121,921,924 2,276,940 522,753,981
Building improvements 474,708,473 - - 474,708,473
Computer equipment 513,888,700 137,193,300 41,667,500 609,414,500
Cellular mobile telephones 325,786,242 - 146,149,131 179,637,111
Machinery and equipment 203,951,126 1,035,000 - 204,986,126
Construction in progress 41,374,835,612 5,260,023,260 - 46,634,858,872
-------------- ------------- --------------- --------------
Total 45,748,5r1,557 6,259,361,352 900,146,366 51,107,776,543
-------------- ------------- --------------- --------------
Accumulated Depreciation
------------------------
Vehicles 1,654,460,019 519,139,456 676,943,561 1,496,655,914
Furniture and fixtures 234,032,459 62,877,847 1,759,910 295,150,396
Building improvements 261,340,006 53,342,117 - 314,682,123
Computer equipment 149,419,287 96,819,502 18,620,970 227,617,819
Cellular mobile telephones 68,304,517 21,353,642 48,081,980 41,576,179
Machinery and equipment 83,091,043 32,818,022 - 115,909,065
------------- -------------- ------------- --------------
Total 2,450,647,331 786,350,586 745,406,421 2,491,591,496
------------- -------------- ------------- --------------
Net Book Value 43,297,914,226 48,616,185,047
============== ==============
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
1996
---------------------------------------------------------------------------
Beginning Ending
Balance Additions Deductions Balance
--------------- --------------- ---------------- -------------------
Rp Rp Rp Rp
Cost
----
Vehicles 2,481,417,480 2,429,220,000 1,198,837,868 3,711,799,612
Furniture and fixtures 522,753,981 428,694,854 300,167,427 651,281,408
Building improvements 474,708,473 - 474,708,473 -
Computer equipment 609,414,500 668,892,120 423,421,488 854,885,132
Cellular mobile telephones 179,637,111 - 179,637,111 -
Machinery and equipment 204,986,126 - 181,848,626 23,137,500
Maintenance and installer equipment - 131,800,000 - 131,800,000
Telecommunication network - 45,916,993,858 - 45,916,993,858
Construction in progress 46,634,858,872 57,754,810,761 45,902,956,677 58,486,712,956
-------------- --------------- -------------- ---------------
Total 51,107,776,543 107,330,411,593 48,661,577,670 109,776,610,466
-------------- --------------- -------------- ---------------
Accumulated Depreciation
------------------------
Vehicles 1,496,655,914 678,632,031 1,025,531,138 1,149,756,807
Furniture and fixtures 295,150,396 209,480,847 300,167,427 204,463,816
Building improvements 314,682,123 160,026,350 474,708,473 -
Computer equipment 227,617,819 359,585,023 423,421,488 163,781,354
Cellular mobile telephones 41,576,179 18,953,045 60,529,224 -
Machinery and equipment 115,909,065 30,671,297 123,442,862 23,137,500
Maintenance and installer equipment - 2,745,834 - 2,745,834
Telecommunication network - 5,636,825,303 - 5,636,825,303
--------------- ------------- ------------- ---------------
Total 2,491,591,496 7,096,919,730 2,407,800,612 7,180,710,614
--------------- ------------- ------------- ---------------
Net Book Value 48,616,185,047 102,595,899,852
============== ===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1997 (unaudited)
--------------------------------------------------------------------------
Beginning Ending
Balance Additions Deductions Balance
----------- ------------------ ---------------- --------------------
Rp Rp Rp Rp
Cost
----
Direct Ownership
----------------
Vehicles 3,711,799,612 899,346,807 885,129,612 3,726,016,807
Building improvements - 5,109,563,230 - 5,109,563,230
Furniture and fixtures 651,281,408 1,472,224,363 100,664,630 2,022,841,141
Computer equipment 854,885,132 11,110,253,351 59,799,449 11,905,339,034
Machinery and equipment 23,137,500 20,051,850 23,137,500 20,051,850
Maintenance and installer equipment 131,800,000 42,732,454 - 174,532,454
Corporate assets - 42,479,860 - 42,479,860
Telecommunication network 45,916,993,858 112,467,916,130 - 158,384,909,988
Construction in progress 58,486,712,956 133,364,659,336 129,256,538,192 62,594,834,100
--------------- --------------- --------------- ---------------
Sub-total 109,776,610,466 264,529,227,381 130,325,269,383 243,980,568,464
Capital Lease
-------------
Vehicles - 573,500,000 - 573,500,000
--------------- ---------------- --------------- ---------------
Total 109,776,610,466 265,102,727,381 130,325,269,383 244,554,068,464
--------------- --------------- --------------- ---------------
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
1997 (unaudited)
---------------------------------------------------------------------------
Beginning Ending
Balance Additions Deductions Balance
--------------- ----------------- ----------------- -----------------
Rp Rp Rp Rp
Accumulated Depreciation
------------------------
Direct Ownership
----------------
Vehicles 1,149,756,807 772,880,782 701,601,339 1,221,036,250
Building improvements - 947,282,494 - 947,282,494
Furniture and fixtures 204,463,816 262,428,876 100,664,630 366,228,062
Computer equipment 163,781,354 2,906,501,292 56,455,907 3,013,826,739
Machinery and equipment 23,137,500 3,475,082 23,137,500 3,475,082
Maintenance and installer equipment 2,745,834 41,551,205 - 44,297,039
Corporate assets - 7,512,386 - 7,512,386
Telecommunication network 5,636,825,303 11,957,781,949 - 17,594,607,252
------------------------- ------------- -------------- -------------- --------------
Sub-total 7,180,710,614 16,899,414,066 881,859,376 23,198,265,304
Capital Lease
-------------
Vehicles - 90,989,578 - 90,989,578
------------- -------------- -------------- --------------
Total 7,180,710,614 16,990,403,644 881,859,376 23,289,254,882
------------- -------------- -------------- --------------
Net Book Value 102,595,899,852 221,264,813,582
=============== ===============
</TABLE>
Depreciation charged to operations amounted to Rp 786,350,586, Rp
7,096,919,730 and Rp 16,990,403,644 for the years ended December 31, 1995,
1996 and 1997, respectively. The Company's equipment is used as collateral
for the short-term loans and long-term debts referred to in Notes 10 and
14, respectively.
Construction in progress represents construction of the telecommunication
network.
Interest expense and foreign exchange losses capitalized to equipment
amounted to Rp 12,096,678,017 and Rp 30,845,347,264, respectively for 1997.
- --------------------------------------------------------------------------------
8. ADVANCES FOR PURCHASES OF EQUIPMENT
This account represents deposits in Deutsche Bank, Jakarta and PT Bank
Internasional Indonesia Tbk. to secure letters of credit for importation of
certain equipment.
- --------------------------------------------------------------------------------
9. OTHER NON-CURRENT
This account represents an escrow account deposit in Sanwa Bank, Singapore,
the purpose of which is for interest payment to Nissho Iwai International
Pte., Ltd.
F-34
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
10. SHORT-TERM LOANS
The details of this account are as follows:
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
------------------- -------------------- --------------------
PT Bank Umum Servitia Rp - Rp 5,000,000,000 Rp 75,000,000,000
Nissho Iwai International Pte.
Ltd., Singapore (Nissho Iwai) - 10,485,200,000 -
PT Bank Utama 9,475,000,000 - -
PT Bank Lippo 366,558 - -
------------------- -------------------- --------------------
Total Rp 9,475,366,558 Rp 15,485,200,000 Rp 75,000,000,000
=================== ==================== ====================
</TABLE>
The syndicated loan facility obtained from various banks with PT Bank Umum
Servitia (BUS), acting as agent, has a maximum facility of Rp
60,000,000,000, plus an interest facility amounting to Rp 15,000,000,000
during construction. The loan bears interest at JIBOR plus minimum annual
rate of 3.5%. The loan is secured, on a pari passu basis, with the same
collateral used for long-term debt obtained from Nissho Iwai (see Note 14).
The loan from Nissho Iwai represented the prepayment of its subscription
for 773 shares of the Company's capital stock amounting to U.S.$ 4,400,000.
Such prepayment was temporarily treated as a loan with interest at LIBOR
plus 2.5% until the MOJ's approval for the increase in the Company's
authorized and issued capital was obtained on February 27, 1997. The said
loan was converted to capital effective on said date of MOJ approval (see
Note 16).
The proceeds of the above loan from Nissho Iwai were used to repay certain
liabilities owed by the Company to PT Bank Utama.
The covering loan agreement from BUS provides for certain covenants which
stipulate, among others, the maintenance of good operating condition of the
Subsidiary. In view of the recurring losses incurred by the Company and
Subsidiary and the uncertainty discussed in Note 21, the Subsidiary is
deemed to be in default. The Subsidiary has requested a waiver from the
bank in respect of the said non-compliance with the loan covenant. As of
audit report date, the Subsidiary has not obtained such approval from the
bank. The Subsidiary is presently negotiating the extension of the loan
which was due on February 26, 1998.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
11. ACCOUNTS PAYABLE
This account represents trade liabilities to:
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
---------------- ------------------- -------------------
PT Telekomunikasi Indonesia
(Telkom) Rp 6,610,200,392 Rp 3,494,041,002 Rp 16,214,749,225
</TABLE>
F-35
<PAGE>
<TABLE>
<S> <C>
1995
(As Restated,
see Note 2) 1996 1997
---------------- ----------- --------
Nokia Telecommunications Oy,
Finland Rp - Rp 3,884,753,279 Rp 6,086,548,124
Ericsson Radio System AB - 2,093,452,328 4,151,908,228
Directorate General of Posts and
Telecommunications - 222,774,250 3,925,928,868
Other cellular operators - 269,029,161 2,977,739,581
Grafic Mc Cann - - 2,869,646,633
Logica - - 1,768,875,000
Ali Mohamad - - 1,179,209,928
PT Indonesian Satellite Corporation - 962,996,540 1,118,068,033
PT Karunia Berca Indonesia - - 929,587,786
Amos Aked Swift - - 770,690,119
PT Mitra Integrasi Informatika - - 694,958,737
PT Mandalika Saptakarsa - - 692,444,404
PT Bukaka Teknik Utama - - 599,141,137
PT Bukit Jaya Abadi - - 570,251,386
PT Compact Microwave Indonesia - - 503,846,938
PT Anugrah Kaligawe - - 496,605,000
PT Citra Hagen Utama - - 470,930,224
PT Santi Yoga - - 465,762,026
PT Adi Kara - - 454,314,700
PT Wilis Nusacitra - - 430,266,900
Celtec - - 395,910,000
PT Cerah Sempurna - - 361,951,151
PT Bank International Indonesia - - 346,118,500
Cycleworld Corp. Sdn. Bhd. - - 321,136,364
PT Permata Birama Sakti - - 284,704,366
PT Catur Bina Guna Persada - - 255,873,756
PT Inka Forindo Jaya - - 253,656,544
PT Ideal Asta Duta - - 224,209,995
PT Puser Bumi - - 222,103,300
PT Dinamika Indah Jaya - - 215,712,827
PT Fakta Sarana Ampuh - - 215,243,600
PT Cirebon Raya Abadi - - 210,732,700
Achmad Tahir 6,145,424,000 - -
Others (for amounts below Rp 200
million each) 2,903,428,700 732,325,877 5,099,888,294
-------------- -------------- --------------
Total Rp 15,659,053,092 Rp 11,659,372,437 Rp 55,778,714,374
============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
12. TAXES PAYABLE
<TABLE>
<S> <C>
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
-------------------- ------------------- ----------------------
Income tax
Article 21 Rp 268,692,322 Rp 583,665,864 Rp 584,726,973
Article 23 361,833,151 542,096,601 350,071,854
Article 25 and 29 4,118,810,524 4,071,033,731 -
Article 26 174,618,857 2,618,090,566 8,974,052,016
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
1995
(As Restated,
see Note 2) 1996 1997
--------------------- -------------------- --------------------
<S> <C> <C>
Value added tax Rp - Rp 901,578,801 Rp 214,274,398
--------------------- -------------------- --------------------
Total Rp 4,923,954,854 Rp 8,716,465,563 Rp 10,123,125,241
===================== ==================== ====================
</TABLE>
No provision for income tax was made for the years ended December 31, 1996
and 1997 since the Company is in a fiscal loss position.
A reconciliation between loss before provision for income tax, as shown in
the consolidated statements of income and deficit, and estimated taxable
income for the year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Loss before provision for income tax (Rp 4,399,384,009)
Loss of Subsidiary before provision for income tax 1,089,167,264
Gain on sale of telecommunication network 10,967,490,528
------------------------
Income before provision for income tax of the Company 7,657,273,783
Timing differences:
Amortization of deferred charges 4,819,331,622
Provision for inventory obsolescence 2,967,643,196
Difference in beginning balance of equipment as regulated
by Directorate General of Taxes Circular Letter No. 44/1995 1,211,445,061
Depreciation 473,000,943
Provision for doubtful accounts 62,739,169
Gain on disposals of telecommunication network (5,856,159,247)
Gain on disposals of equipment (401,162,201)
Permanent differences:
Non-deductible expenses:
Donations 2,090,349,100
Employees' benefits in kind 599,409,987
Entertainment 461,698,721
Interest expense 206,746,361
Tax penalty and interest 17,415,989
Non-taxable income
Interest already subjected to final income tax (368,942,024)
-------------------------
Estimated taxable income Rp 13,940,790,460
=========================
The provision for income tax and the computation of the estimated corporate
income tax payable for the year ended December 31, 1995 are as follows:
Estimated taxable income (rounded-off) Rp 13,940,790,000
=========================
Provision for income tax Rp 4,173,487,000
=========================
F-37
<PAGE>
<CAPTION>
Prepayments of income tax
Article 22 Rp 52,898,433
Article 23 1,350,000
Article 25 43,535,883
-------------------------
Total prepayments 97,784,316
-------------------------
Estimated corporate income tax payable (Article 29) Rp 4,075,702,684
=========================
</TABLE>
- --------------------------------------------------------------------------------
13. ACCRUED EXPENSES
<TABLE>
<S> <C>
This account represents accruals for the following expenses:
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
--------------------- -------------------- ----------------------
Interest Rp 572,321,782 Rp 1,459,250,366 Rp 16,217,141,417
Rental fees for transmission lines and
infrastructure - 14,687,618,112 13,334,038,261
Civil work - - 1,098,343,402
Professional fees 444,936,735 440,019,520 1,094,641,448
Advertising and promotion - 416,638,705 987,648,369
Employee benefits - 395,259,928 387,540,029
Others 666,687,319 551,765,623 852,287,808
---------------------- -------------------- --------------------
Total Rp 1,683,945,836 Rp 17,950,552,254 Rp 33,971,640,734
====================== ==================== ====================
</TABLE>
- -------------------------------------------------------------------------------
14. LONG-TERM DEBTS
<TABLE>
<S> <C>
The details of long-term debts are as follows:
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
---------------- -------------- ---------------------
Bank loans
Rupiah
PT Bank Internasional
Indonesia Tbk. Rp - Rp - Rp 25,000,000,000
PT Bank Indonesia Raya 1,718,555,179 1,718,555,179 -
PT Bank Tamara 676,853,686 - -
PT Bank Lippo 350,942,390 - -
Others (for amounts below
Rp 100 million each) 211,173,942 121,204,368 457,223,058
U.S. Dollar
Nissho Iwai International Pte.,
Ltd., Singapore - 142,980,000,000 318,000,000,000
Svenska Handelsbanken,
Singapore 7,971,795,072 - -
-------------- --------------- ---------------
Total Bank Loans 10,929,320,269 144,819,759,547 343,457,223,058
</TABLE>
F-38
<PAGE>
<TABLE>
<S> <C>
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
---------------------- -------------------- -----------------------
Obligations under capital lease Rp - Rp - Rp 376,749,176
---------------------- -------------------- ----------------------
Total Long-term Debts 10,929,320,269 144,819,759,547 343,833,972,234
Less current maturities:
Bank loans 8,638,028,690 1,809,565,256 318,313,648,058
Obligations under capital lease - - 143,173,304
---------------------- --------------------- --------------------
Long-term portion Rp 2,291,291,579 Rp 143,010,194,291 Rp 25,377,150,872
====================== ==================== ====================
</TABLE>
The Subsidiary obtained a fixed loan facility from PT Bank Internasional
Indonesia Tbk. amounting to Rp 25,000,000,000. This fixed loan bears
interest at an annual rate of 20% and was used to finance the purchases of
handsets, installation of Radio Base Station (RBS) and network equipment
and construction of tower and building.
In 1998, the Subsidiary has successfully negotiated with PT Bank
Internasional Indonesia Tbk to reschedule repayment of the loans until
1999.
On March 12, 1996, the Subsidiary obtained a loan facility from Nissho Iwai
International Pte., Ltd., Singapore (Nissho Iwai) with maximum credit limit
amounting to U.S.$ 60,000,000 to finance the construction and
implementation of the NMT-450 Network in Bandar Lampung in Sumatra, Java,
Bali and Lombok. The loan, which has a term of five years, inclusive of a
two-year grace period, is repayable in six equal semi-annual installments.
Proceeds from collections of the Subsidiary's receivables are deposited
directly into escrow accounts maintained with certain banks as chosen and
agreed-upon by both parties. Based on a Resolution in Writing in Lieu of
Shareholders' Meeting issued in June 1997, Telkom, one of the Subsidiary's
stockholders, was released from any liability related to the indebtedness
of this loan.
In 1997, the Subsidiary was unable to pay a portion of interest due on the
loan from Nissho Iwai which was due during the year, and therefore, is in a
default position. The Subsidiary is negotiating to reschedule payment of
such interest and principal due in 1998. Based on the latest correspondence
from Nissho Iwai dated March 18, 1998, the creditor unofficially
reconsidering the rescheduling of the Subsidiary's loan subject to certain
conditions imposed on the Subsidiary which include, among others, injection
of fresh capital by the Company and its stockholder, International Wireless
Communications, Inc. (IWC) amounting to U.S.$ 10 million by June 1998. The
conditions imposed, being unofficial, are still subject to the approval of
the management of Nissho Iwai.
Based on the loan agreement, Nissho Iwai may declare all the outstanding
loan together with accrued interest and any and all sums of whatsoever
nature due from the Company to be immediately due and payable (without
demand, protest or notice upon the Company) in the event that the Company
shall fail to comply with its obligations (see Note 22). In this regard,
the whole outstanding amount of loan from Nissho Iwai is reclassified as
current liabilities as of December 31 1997.
The Subsidiary is attempting to secure additional funding from, inter alia,
IWC. If funding from IWC or some other sources becomes available, Nissho
Iwai is willing to consider the Subsidiary's request
F-39
<PAGE>
to reschedule its interest and principal obligations. In the mean time,
Nissho Iwai has decided not to immediately declare an Event of Default.
Pursuant to the Joint Venture Agreement No. PKS 234/HK.810/UTA-00/95 dated
November 30,1995 entered into by the Company, Telkom and Yayasan Dana
Pensiun Pegawai Telkom (YDPP Telkom), the Company transferred to the
Subsidiary the balance of the loan from Svenska Handelsbanken, Singapore,
amounting Rp 10,752,598,140 as of June 30, 1995. The loan was repaid in
1996.
The above bank loans are collateralized by cash and cash equivalents,
receivables, and property and equipment of the Company and Subsidiary, and
are also secured by corporate guarantees from the Company and pledges of
capital stock of the Subsidiary. The Rupiah loans bear interest at rates
ranging from 20% to 23% per annum. The loan from Nissho Iwai bears annual
interest at LIBOR plus 2.5%, while the loan from Svenska Handelsbanken,
Singapore, bears annual interest at one month SIBOR plus 0.55%.
Certain loan agreements contain terms and conditions restricting the
Company and Subsidiary from taking additional loans, entering into any
investment, merger, consolidation or reorganization and changing their
ownership structure, without prior consent from the lenders. In addition,
the Company has to maintain certain financial ratios.
The covering loan agreement provides for certain covenants which stipulate,
among others, the maintenance of good operating condition of the
Subsidiary. In accordance with the said agreement, in view of the recurring
losses incurred by the Company and Subsidiary and uncertainty discussed in
Note 21, the Subsidiary is deemed to be in default. The Subsidiary has
requested for waiver from the bank in respect of the said non-compliance
with the loan covenant. As of audit report date, the Subsidiary has not
obtained approval from the bank yet.
- -------------------------------------------------------------------------------
15. DUE TO STOCKHOLDERS
<TABLE>
<S> <C>
As of December 31, 1996 and 1997, the amount due to stockholders represents
unsecured and non-interest bearing loans with details as follows:
1996 1997 (unaudited)
------------------------- --------------------------
PT Bina Reksa Perdana (BRP) Rp 2,383,000,000 Rp 1,590,000,000
International Wireless Communications, Inc.
(IWC) 2,345,613,250 1,672,865,606
PT Deltona Satya Dinamika (DSD) 1,274,905,000 1,287,900,000
------------------------- -------------------------
Total Rp 6,003,518,250 Rp 4,550,765,606
========================= =========================
</TABLE>
- -------------------------------------------------------------------------------
16. CAPITAL STOCK
The stockholders and their respective stockholdings as of December 31, 1995
and 1996 are as follows:
<TABLE>
<S> <C>
Stockholder Number of Shares % of Ownership Amount
------------------------ ------------------ --------------- --------------------
PT Bina Reksa Perdana 12,500 50% Rp 12,500,000,000
International Wireless
Communications, Inc. 6,250 25 6,250,000,000
F-40
<PAGE>
<CAPTION>
PT Deltona Satya Dinamika 6,250 25 6,250,000,000
------------------ --------------- ----------------------
Total 25,000 100% Rp 25,000,000,000
================== =============== ======================
</TABLE>
Based on notarial deed No. 106 of Sinta Susikto, S.H. dated January 24,
1997, certain amendments were made to the Company's articles of
association, including the change in the Company's authorized and issued
capital stock from Rp 25,000,000,000 to Rp 25,773,000,000 and the change in
share ownership. These amendments were made in connection with the
participation of Nissho Iwai Singapore which subscribed for 773 new shares
at a total subscription price of U.S.$ 8,500,000 in 1996. As of December
31, 1996, the Company had received U.S.$ 4,400,000 from Nissho Iwai as a
prepayment, which was temporarily treated as an interest bearing loan until
MOJ's approval was received (see Note 10).
These amendments were approved by the MOJ in its decision letter No.
C2-1331.HT.01.04.Th.97 dated February 27, 1997. With the approval by the
MOJ, the stockholders and their respective stockholdings became as follows:
<TABLE>
<S> <C>
Stockholder Number of Shares % of Ownership Amount
-------------------------- ----------------- ---------------- ---------------------
PT Bina Reksa Perdana 11,450 44.43% Rp 11,450,000,000
International Wireless
Communications, Inc. 7,300 28.32 7,300,000,000
PT Deltona Satya Dinamika 6,250 24.25 6,250,000,000
Nissho Iwai International Pte.
Ltd., Singapore 773 3.00 773,000,000
----------------- ----------------- --------------------
Total 25,773 100.00% Rp 25,773,000,000
================= ================== ====================
</TABLE>
As of December 31, 1997, the Company has received all of the payments from
Nissho Iwai, resulting in additional paid-in capital of Rp 19,572,700,000
which represents the excess of the actual amount of proceeds received over
the par value of the shares issued.
- -------------------------------------------------------------------------------
17. OPERATING REVENUES
<TABLE>
<S> <C>
Operating revenues are as follows:
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
--------------------- --------------------- --------------------
Pulse sharing, monthly subscription
charges and airtime Rp 12,249,170,887 Rp 23,149,038,764 Rp 30,346,681,966
Sales of outstations 4,113,518,256 811,013,167 1,139,366,752
Repairs and maintenance fees and
others 323,174,655 167,209,102 525,445,939
Connecting fee 126,500,000 342,000,000 206,900,000
--------------------- -------------------- --------------------
Total Rp 16,812,363,798 Rp 24,469,261,033 Rp 32,218,394,657
===================== ==================== =====================
</TABLE>
F-41
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
18. OPERATING EXPENSES
The details of operating expenses are as follows:
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
--------------------- -------------------- --------------------
General and administrative Rp 8,528,253,439 Rp 17,687,487,371 Rp 33,820,657,965
Marketing 1,489,733,117 2,504,229,029 29,973,516,678
Personnel 1,759,743,397 6,687,188,987 15,371,672,735
Other telecommunication services 5,775,718,684 3,389,868,181 12,162,948,263
Depreciation of telecommunication
network assets - 5,636,825,303 11,957,781,950
Rental of transmission lines - 14,229,000,000 10,656,870,648
Cost of outstations 2,055,407,793 2,365,219,867 1,316,129,149
---------------------- --------------------- --------------------
Total Rp 19,608,856,430 Rp 52,499,818,738 Rp 115,259,577,388
====================== ===================== ====================
</TABLE>
- --------------------------------------------------------------------------------
19. AGREEMENTS
The Subsidiary has agreements with several parties, mostly in connection
with the installation and development of infrastructure of the STKB-C
(cellular mobile telephone network) project. The agreements, made prior to
the approval of the Subsidiary's articles of association by MOJ, were
entered into by the Company on behalf of the Subsidiary. These agreements
are as follows:
a. Supply contract and technical support agreement with Nokia
Telecommunications Oy, Finland, in connection with NMT-470 Network
Expansion and Transmission System in order to provide new network
coverage for NMT mobile telephone system. These contracts were made on
January 19, 1996. The supply contract has a total contract price of
U.S.$ 20.9 million, while the technical support is charged on a fixed
annual fee basis as defined and set forth in the agreement, which
amounted to U.S.$ 91,871 and U.S.$ 969,525 for the years 1996 and 1997,
respectively, and will approximate U.S.$ 1 million per year for the
years 1998 - 2001. On June 27, 1997, the Subsidiary entered into Supply
and Service Contract Amendment No. 5 with Nokia. The said additional
supply contract for 1997 has a total contract price of U.S.$ 1,576,162,
while the additional service contract amounted to U.S.$ 551,600.
b. Service contract with Nokia Telecommunications Pte. Ltd., Singapore,
dated January 19, 1996, for a contract price of U.S.$ 4.54 million.
This is also in connection with NMT-470 Network Expansion and
Transmission System as mentioned in Item (a) above. Additional services
amounting to U.S.$ 443,521 were also executed on April 18, 1997.
c. Cooperation agreement on network interconnection of the Subsidiary's
Mobile Cellular Phone (STBS) with Telkom's Public Service Telephone
Network (PSTN). This agreement contains the interconnection
configuration points and capacities, operation and maintenance of
interconnection equipment, other facilities and services, joint
services and financial settlement. This agreement was entered into on
August 21, 1996 and may be terminated at any time subject to the
expressed written approval of both parties or their respective
successors and permitted assignees.
F-42
<PAGE>
d. Cooperation agreements with Telkom's regional divisions on supply of
structure and infrastructure on interconnection of Subsidiary's STBS
with Telkom's PSTN.
e. The Subsidiary has paid PT Compact Microwave Indonesia an amount of Rp
1,531,562,003, which is equivalent to 20% of cost for obtaining the
frequency permit for 2 GHZ radio link. As of December 31, 1997, the
contract between the Subsidiary and PT Compact Microwave Indonesia has
not yet been signed.
f. The Subsidiary also has several agreements with suppliers and
contractors which among others include agreements for establishing
telecommunication towers, radio links, gensets and other infrastructure
in East Java, Central Java, West Java and Lombok with an aggregate cost
of approximately Rp 7 billion.
g. The Subsidiary has several promotion agreements, such as Trade-in
Program (Orbit & Nokia Joint Promotion) which started in January 1997,
Joint Promotion Program with MBf Mastercard Center which began on May
2, 1997 and Marketing Cooperation Program with PT Bank Internasional
Indonesia Tbk. These promotional programs resulted in significant
promotional expenses amounting to approximately Rp 23 billion for the
year ended December 31, 1997.
h. As of December 31, 1997, the Company and Subsidiary have assets and
liabilities denominated in foreign currency, as follows: In US Dollars
Assets US$ 3,588,549
Liabilities 66,851,572
i. The Company appointed CV Aporindo Consultant to assist the Company in
handling the settlement of the corporate income tax for the year 1995
which was settled for a total amount of Rp 3,800,000,000, inclusive of
the consultant's fee.
Fees related to the installation and development of infrastructure of
STKB-C are capitalized and recorded under "Property and Equipment" in the
consolidated balance sheet (see Note 7).
- --------------------------------------------------------------------------------
20. COMMITMENTS
As result of certain promotional programs, the Subsidiary has commitments
to give free handsets. Based on a summary meeting of the Subsidiary and
BII, MBf and Marks & Spencer, the Subsidiary will not able to fullfill and
deliver handsets to all waiting list customers of BII, MBf and Marks &
Spencer - Orbit joint program. Therefore, the Subsidiary will inform all
waiting list customers by phone and will send an apology letter.
- -------------------------------------------------------------------------------
21. DEFICIT
The consolidated financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. Despite the
significant net capital deficiency as of December 31, 1997, management
strongly believes that the Company will still be able to continue as a
going concern.
F-43
<PAGE>
IWC, a stockholder is considering making a capital contribution to the
Company in 1998 of approximately 10 million U.S. Dollars, subject to
success of a planned public offering.
- -------------------------------------------------------------------------------
22. ECONOMIC ENVIRONMENT
Many Asia Pacific countries, including Indonesia, are experiencing adverse
economic conditions mainly resulting from currency devaluation in the
region, the principal consequences of which have been an extreme lack of
liquidity and highly volatile exchange and interest rates. The crisis has
also involved declining prices in shares listed in the Indonesian Stock
Exchanges, tightening of available credit, stoppage or postponement of
certain construction projects, and a growing oversupply of real property.
Volatility in exchange and interest rates has adversely affected the
Company's and the Subsidiary's cost of funds, as well as their capacity to
service their debts, given that balances of the Company's and the
Subsidiary's borrowings denominated in U.S. Dollar have increased
significantly in Rupiah terms, and interest rates on Rupiah-denominated
loans have increased significantly. The effects of the adverse economic
conditions on the financial condition of the Company's and the Subsidiary's
customers has reduced income and increased credit risk inherent in
receivables from customers.
In response to these economic events, the Subsidiary's management initiated
the following:
-- The Subsidiary has renegotiated its short-term loan agreements with
banks, as well as its agreements with suppliers.
-- The Subsidiary is attempting to secure additional funding from, inter
alia, IWC, a stockholder in 1998.
-- The Company and Subsidiary are negotiating with prospective investors
for additional funding for the Subsidiary.
Resolution of the adverse economic conditions is dependent on the fiscal
and monetary measures that will be taken by the Indonesian government,
actions which are beyond the Company's and the Subsidiary's control, to
achieve economic recovery. It is not possible to determine the future
effect a continuation of the adverse economic conditions may have on the
Company's and the Subsidiary's liquidity and earnings, including the effect
flowing through from the Company's and the Subsidiary's investors,
customers, and suppliers.
- -------------------------------------------------------------------------------
23. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES APPLIED BY
THE COMPANY AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with Indonesian
GAAP which differ in certain respects from U.S. GAAP.
The differences are reflected in the approximations provided in Note 24 and
arise due to the items discussed in the following paragraphs:
a. Capitalization of Foreign Exchange Loss
Indonesian GAAP allow, as part of the acquisition cost of property and
equipment, capitalization of foreign exchange losses on debts incurred
to fund construction projects. Under U.S. GAAP, such losses are
included in earnings during the period in which they arise.
F-44
<PAGE>
b. Income Taxes
Under Indonesian GAAP, it is acceptable to recognize income tax expense
based upon the estimated current income tax liability on the current
period's earnings. When income and expense recognition for financial
reporting and income tax purposes do not occur in the same year, the
resulting temporary differences are not considered in the computation
of income tax expense for the period.
Under U.S. GAAP, the liability method is used to calculate the
provision for income tax. Under the liability method, deferred tax
assets or liabilities are recognized for the differences between the
financial reporting and tax bases of assets and liabilities at each
reporting date.
c. Regulation
The Company provides telephone service in Indonesia and, therefore, is
subject to the regulatory control of the Ministry of Tourism, Posts and
Telecommunications of the Republic of Indonesia. Rates for services are
tariff-regulated. Although changes in rates for services are authorized
and computed based on a decree issued by the said Ministry, these are
not based on a fixed rate of return and are not designed to provide for
the recovery of the Company's cost of services. Accordingly, the
requirements of U.S. GAAP related to a business whose rates are
regulated on the basis of its actual costs are not applicable to the
Companies' financial statements.
d. Presentation of the Statements of Stockholders' Equity
Under Indonesian GAAP, only public companies, are not required to
present statements of retained earnings. Under U.S. GAAP, companies are
required to present statements of stockholders' equity.
- -------------------------------------------------------------------------------
25. RECONCILIATION BETWEEN NET INCOME AND STOCKHOLDERS' EQUITY DETERMINED UNDER
INDONESIAN AND U.S. GAAP
The following is a summary of the significant adjustments to net income for
the years ended December 31, 1995, 1996 and 1997 and to stockholders'
equity (capital deficiency) as of December 31, 1995, 1996 and 1997 which
would be required if U.S. GAAP had been applied instead of Indonesian GAAP
in the consolidated financial statements:
<TABLE>
<S> <C>
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
------------- ----------- -------------------------------
Rp Rp Rp U.S.$ (See Note 3)
------------- ----------- --------------------------------
Net loss as shown in the consolidated
financial statements prepared under
Indonesian GAAP (8,246,120,830) (28,620,590,602) (253,570,874,893) (47,843,561)
Adjustments due to:
Capitalization of foreign exchange
losses - net of depreciation - - (28,937,782,860) (5,459,959)
Income tax 4,245,298,915 11,253,159,872 86,031,489,812 16,232,356
Valuation allowance (4,245,298,915) (11,400,961,024) (87,234,308,248) (16,459,303)
---------------- ---------------- ---------------- -------------
F-45
<PAGE>
<CAPTION>
Approximate net loss in accordance
with U.S. GAAP (8,246,120,830) (28,768,391,754) (283,711,476,189) (53,530,467)
================ ============== =============== ===========
</TABLE>
F-46
<PAGE>
<TABLE>
<S> <C>
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
------------ --------- --------------------------------
Rp Rp Rp U.S.$ (See Note 3)
------------ --------- --------------------------------
Stockholders' equity (capital deficiency)
as shown in the consolidated
financial statements prepared under
Indonesian GAAP 6,691,139,967 (21,929,450,635) (255,154,625,528) (48,142,382)
Adjustments due to:
Capitalization of foreign exchange
losses - net of depreciation - - (28,937,782,860) (5,459,959)
Income tax 5,127,282,969 16,380,442,841 102,411,932,653 19,323,006
Valuation allowance (5,127,282,969) (16,528,243,993) (103,762,552,241) (19,577,840)
Approximate stockholders' equity
(capital deficiency) in
accordance with U.S. GAAP 6,691,139,967 (22,077,251,787) (285,443,027,976) (53,857,175)
</TABLE>
In respect of the consolidated balance sheets and statements of income and
deficit, the following are the balances of the significant financial
statement captions determined under U.S. GAAP:
<TABLE>
<S> <C>
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
----------- -------------- --------------------------------
Rp Rp Rp U.S.$ (See Note 3)
----------- -------------- --------------------------------
Consolidated balance sheets:
Current assets 12,270,504,214 31,822,048,701 22,644,615,110 4,272,569
Total assets 61,512,948,397 185,659,151,379 239,165,809,801 45,125,624
Current liabilities 40,380,349,030 55,621,155,510 195,720,793,231 36,928,452
Total liabilities 54,821,808,430 207,736,403,166 524,608,837,777 98,982,799
Consolidated statements of
income and deficit:
Loss from operations 2,796,492,632 28,030,557,705 81,133,618,327 15,308,230
</TABLE>
- -------------------------------------------------------------------------------
25. ADDITIONAL FINANCIAL STATEMENT DISCLOSURES REQUIRED BY U.S. GAAP
The following information is presented on the basis of U.S. GAAP:
Income Tax
The tax effect on significant temporary differences is as follows:
<TABLE>
<S> <C>
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
------------ ------------ --------------------------------
Rp Rp Rp U.S.$ (See Note 3)
------------ ------------- ---------------------------------
Deferred tax assets - current:
Allowance for inventory
obsolescence 1,157,619,784 684,667,517 684,667,517 129,183
Allowance for doubtful accounts 170,545,199 2,280,170,922 5,963,176,847 1,125,128
--------------- --------------- -------------- ---------
F-47
<PAGE>
<CAPTION>
Total 1,328,164,983 2,964,838,439 6,647,844,364 1,254,311
Valuation allowance (1,328,164,983) (2,964,838,439) (6,647,844,364) (1,254,311)
================ ================ ============== ===========
Net deferred tax assets - current - - - -
================ ================ ============== ===========
</TABLE>
<TABLE>
<S> <C>
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
------------- ----------- --------------------------------
Rp Rp Rp U.S.$ (See Note 3)
------------- ----------- ---------------------------------
Deferred tax assets - non-current:
Tax loss carryforwards 98,024,916 10,453,429,119 94,294,496,027 17,776,963
Property and equipment 3,701,093,070 3,105,626,435 2,820,211,850 532,115
Preoperating expenses 4,350,000 - -
------------- --------------- --------------- -----------
Total 3,799,117,986 13,563,405,554 97,114,707,877 18,309,078
Valuation allowance (3,799,117,986) (13,563,405,554) (97,114,707,877) (18,309,078)
-------------- --------------- --------------- ------------
Net deferred tax assets - non-
current - - - -
-------------- -------------- ------------- ----------
Deferred tax liabilities
- non-current:
Property and equipment - 51,079,045 1,143,495,200 215,754
Prepaid long-term rent - 96,722,107 207,124,388 39,080
------------- --------------- ------------ ---------
Deferred tax liabilities - non
current - 147,801,152 1,350,619,588 254,834
------------- ---------------- ------------ --------
Deferred tax - net - 147,801,152 1,350,619,588 254,834
============= ================ ============= ========
</TABLE>
The temporary differences, on which deferred tax assets have been computed
are not deductible for income tax purposes until the provision for
inventory obsolescence and provision for uncollectible trade receivable are
written-off. The differences between the book and tax bases of property and
equipment, prepaid long-term rent and preoperating expenses are due to the
differences in methods of recognition for income tax and financial
reporting purposes.
The income tax provision recorded under U.S. GAAP differs from the expected
provision at U.S. statutory rates due to certain permanent differences
detailed below:
<TABLE>
<S> <C>
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
------------- ----------- ---------------------------------
Rp Rp Rp U.S.$ (See Note 3)
------------- ----------- ----------------------------------
Approximate loss before income
tax in accordance with U.S.
GAAP (4,399,384,009) (37,817,024,460) (285,462,391,716) (53,860,829)
--------------- --------------- --------------- ----------
Effect of permanent differences:
Donations 2,090,349,100 34,041,756 172,137,900 32,479
Expenses incurred during
preoperating stage
of the Subsidiary 762,417,085 - - -
Employees' benefits in kind 599,499,987 47,837,543 - -
Entertainment 461,698,721 33,906,969 43,338,921 8,177
Rent expense - - (329,750,824) (62,217)
Interest expense 206,746,361 2,114,346,227 - -
Tax penalty and interest 17,415,989 104,353,376 - -
Interest income which was
already subjected to
final tax (368,942,024) (2,027,994,320) (1,194,966,988) (225,466)
F-48
<PAGE>
<CAPTION>
Total 3,769,185,219 306,491,551 (1,309,240,991) (247,027)
============== ============== =============== ========
Approximate loss before income
tax in accordance with U.S.
GAAP (630,198,790) (37,510,532,909) (286,771,632,707) (54,107,856)
------------- ---------------- ----------------- ------------
</TABLE>
F-49
<PAGE>
<TABLE>
<S> <C>
1995
(As Restated,
see Note 2) 1996 1997 (unaudited)
------------ ------- ------------------------------
Rp Rp Rp U.S.$ (See Note 3)
Provision for income tax
(on tax loss) in accordance
with U.S.
GAAP before adjustment (197,809,637) (11,253,159,872) (86,031,489,812) (16,232,357)
Adjustment for enacted changes in
tax rates 125,997,722 - - -
Increase in valuation allowance 4,245,298,915 11,400,961,024 87,234,308,248 16,459,304
------------- -------------- -------------- ----------
Provision for income tax (on tax
loss) in accordance with U.S.
GAAP after adjustment 4,173,487,000 147,801,152 1,202,818,436 226,947
============= =========== ============= =======
Valuation and Qualifying Accounts
The changes in the Company's allowance for doubtful accounts for the years
ended December 31, 1995, 1996 and 1997 are as follows:
Balance at Charged to Write-offs
Balance at
Beginning of Costs and and End of
For the Year Ended Year Expenses Deductions Year
------------------ ------------ -------- ---------- ------
Rp Rp Rp Rp
-- -- -- --
December 31, 1995 505,744,829 62,739,169 - 568,483,998
December 31, 1996 568,483,998 8,102,437,967 1,070,352,224 7,600,569,741
December 31, 1997 7,600,569,741 12,276,686,414 606,276,768 19,270,979,387
The changes in the Company's allowance for inventory obsolescence for the
years ended December 31, 1995, 1996 and 1997 are as follows:
Balance at Charged to Write-offs
Balance at
Beginning of Costs and and End of
For the Year Ended Year Expenses Deductions Year
------------------ ------------ -------- ---------- ------
Rp Rp Rp Rp
-- -- -- --
December 31, 1995 891,089,416 2,967,643,196 - 3,858,732,612
December 31, 1996 3,858,732,612 - 1,576,507,555 2,282,225,057
December 31, 1997 2,282,225,057 - 2,282,225,057 -
</TABLE>
F-50
<PAGE>
ATTACHMENT I
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
Capital Stock Additional Stockholders' Equity
(Issued and Fully paid) Paid-in Capital Deficit (Capital Deficiency)
----------------------- --------------- --------------- --------------------
Description Rp Rp Rp Rp
- ----------------------------- ----------------------- --------------- --------------- --------------------
<S> <C> <C> <C>
Balance as of January 1, 1995 1,000,000,000 - (10,062,739,203) (9,062,739,203)
Increase in the issued and fully paid-up
capital from Rp 1,000,000,000 to
Rp 25,000,000,000 (as approved
during the Extraordinary General
Meeting of the Stockholders on
November 9, 1995) 24,000,000,000 - - 24,000,000,000
Net loss for 1995 (as restated) - - ( 8,246,120,830) (8,246,120,830)
----------------------- ---------------- --------------- --------------------
Balance as of December 31, 1995
(as restated) 25,000,000,000 - (18,308,860,033) 6,691,139,967
Net loss for 1996 - - (28,620,590,602) (28,620,590,602)
----------------------- ---------------- --------------- --------------------
Balance as of December 31, 1996 25,000,000,000 - (46,929,450,635) (21,929,450,635)
Increase in the issued and fully paid-up
capital from Rp 25,000,000,000 to
Rp 25,773,000,000 (as approved
during the Extraordinary General
Meeting of the Stockholders on
January 24, 1997) 773,000,000 19,572,700,000 - 20,345,700,000
Net loss for the 1997 - - (253,570,874,893) (253,570,874,893)
----------------------- ---------------- --------------- --------------------
Balance as of December 31, 1997 25,773,000,000 19,572,700,000 (300,500,325,528) (255,154,625,00)
======================= ================ ================ ====================
</TABLE>
F-51
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
*3(a) Articles of Incorporation of Registrant as amended through July 25,
1995, filed as Exhibit 1 to the Registrant's Form 8-A/A dated July
25, 1995.
*3(b) Bylaws of Registrant (compilation of July 25, 1995), filed as
Exhibit 2 to the Registrant's Form 8-A/A dated July 25, 1995.
*4(a) Specimen Common Stock Certificate, filed as Exhibit 4(a) to the
Registrant's Registration Statement on Form S-1 (File No. 33-18067).
*4(b)(1) Amended and Restated Loan Agreement between the Registrant and
various lenders led by The Bank of New York and The Toronto-Dominion
Bank as agents, dated as of December 23, 1994, filed as Exhibit 2(a)
to the Registrant's Current Report on Form 8-K dated as of December
23, 1994.
*4(b)(2) Security Agreement between the Registrant and various lenders led by
The Bank of New York and The Toronto-Dominion Bank, as Secured
Party, dated as of December 23, 1994, filed as Exhibit 2(b) to the
Registrant's Current Report on Form 8-K dated as of December 23,
1994.
*4(b)(3) Master Subsidiary Security Agreement between the Registrant, certain
of its subsidiaries and various lenders led by The Bank of New York
and The Toronto-Dominion Bank, as Secured Party, dated as of
December 23, 1994, filed as Exhibit 2(c) to the Registrant's Current
Report on Form 8-K dated as of December 23, 1994.
*4(b)(4) Second Amended and Restated Loan Agreement between Vanguard Cellular
Operating Corp. and various lenders led by The Bank of New York and
The Toronto-Dominion Bank as agents, dated as of April 10, 1996,
filed as Exhibit 4(d)(1) to the Registrant's Form 10-Q/A dated March
31, 1996.
*4(b)(5) VCOC Security Agreement between Vanguard Cellular Operating Corp.
and various lenders led by The Bank of New York and The
Toronto-Dominion Bank as Secured Party, dated as of April 10, 1996,
filed as Exhibit 4(d)(2) to the Registrant's Form 10-Q/A dated March
31, 1996.
*4(b)(6) Second Amended and Restated Master Subsidiary Security Agreement
between certain subsidiaries of the Registrant and various lenders
led by The Bank of New York and The Toronto-Dominion Bank, as
Secured Party, dated as of April 10, 1996, filed as Exhibit 4(d)(3)
to the Registrant's Form 10-Q/A dated March 31, 1996.
*4(b)(7) Assignment, Bill of Sale and Assumption Agreement by and between
Registrant and Vanguard Cellular Financial Corp., dated as of April
10, 1996, filed as Exhibit 4(d)(4) to the Registrant's Form 10-Q/A
dated March 31, 1996.
*4(b)(8) Indenture dated as of April 1, 1996 between Registrant and The Bank
of New York as Trustee, filed as Exhibit 4(e)(1) to the Registrant's
Form 10-Q/A dated March 31, 1996.
*4(b)(9) First Supplemental Indenture, dated as of April 1, 1996 between
registrant and The Bank of New York as Trustee, filed as Exhibit
4(e)(2) to the Registrant's Form 10-Q/A dated March 31, 1996.
*4(b)(10) First Amendment to Second Amended and Restated Loan Agreement
between Vanguard Operation Corp. and various lenders led by the Bank
of New York and The Toronto-Dominion Bank as agents, dated as of
July 31, 1996, filed as Exhibit 4(d)(5) to the Registrant's Form
10-Q dated September 30, 1996 and confirmed electronically as
Exhibit 4(d)(5) to the Registrant's 10-Q/A dated September 30, 1996.
*4(b)(11) Second Amendment to Second Amended and Restated Loan Agreement
between Vanguard Cellular Operating Corp. and various lenders led by
the Bank of New York and The Toronto-Dominion Bank as agents, dated
as of October 30, 1996 and confirmed electronically as Exhibit
4(d)(6) to the Registrant's 10-Q/A dated September 30, 1996.
*4(b)(12) Third Amendment to Second Amended and Restated Loan Agreement
between Vanguard Cellular Operating Corp. and various lenders led by
the Bank of New York and The Toronto-Dominion Bank as agents, dated
as of March 31, 1997 and filed as Exhibit 4(b)(7) to the
Registrant's Form 10-Q dated September 30, 1996.
*4(b)(13) Third Amended and Restated Facility A Loan Agreement between
Vanguard Cellular Financial Corp. and various lenders led by the
Bank of New York, and The Toronto-Dominion Bank, and NationsBank
of Texas, N.A. as agents, dated February 20, 1998, filed as Exhibit
4(b)(8) to the Registrant's Form 10-Q dated March 31, 1998.
*4(b)(14) Facility B Loan Agreement between Vanguard Cellular Financial
Corp. and various letters led by The Bank of New York, and The
Toronto-Dominion Bank, and NationsBank of Texas, N.A. as agents,
dated February 20, 1998, filed as Exhibit 4(b)(9) to the
Registrant's Form 10-Q dated March 31, 1998.
*4(b)(15) Borrower Pledge Agreement between Vanguard Cellular Financial
Corp. and Toronto-Dominion (Texas), Inc. as collateral agent,
dated February 20, 1998, filed as Exhibit 4(b)(10) to the
Registrant's Form 10-Q dated March 31, 1998.
*4(b)(16) VCOC Guaranty between Vanguard Cellular Operating Corp. and
various lenders led by The Bank of New York, and The Toronto-
Dominion Bank, and NationsBank of Texas, N.A. as Secured Parties,
dated February 20, 1998, filed as Exhibit 4(b)(11) to the
Registrant's Form 10-Q dated March 31, 1998.
*4(b)(17) Vanguard Guaranty between Vanguard Cellular Operating Corp. and
various lenders led by the Bank of New York, and the Toronto-
Dominion Bank, and NationsBank of Texas, N.A. as Secured Parties,
dated February 20, 1998, filed as Exhibit 4(b)(12) to the
Registrant's Form 10-Q dated March 31, 1998.
*4(b)(18) Vanguard Pledge Agreement between Registrant and Toronto-
Dominion (Texas), Inc. as collateral agent, dated February 20, 1998,
filed as Exhibit 4(b)(13) to the Registrant's Form 10-Q dated
March 31, 1998.
*10(a)(1) Amended and Restated Stock Compensation Plan of the Registrant
approved April 22, 1987 by the Shareholders of the Registrant, with
forms of stock bonus and stock option agreements attached, filed as
Exhibit 10 (a) to the Registrant's Registration Statement, on Form
S-1 (File No. 33-18067).
*10(a)(2) Amendment to Amended and Restated Stock Compensation Plan of the
Registrant approved May 2, 1989 by the Shareholders of the
Registrant, filed as Exhibit 4(h)(2) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1989.
*10(a)(3) Form of Restricted Stock Bonus Agreements dated March 23, 1987
between the Registrant and Stuart S. Richardson, Haynes G. Griffin,
L. Richardson Preyer, Jr., Stephen R. Leeolou and Stephen L.
Holcombe, and form of amendments dated October 12, 1987 to
agreements with Messrs. Richardson, Griffin, Preyer and Leeolou,
filed as Exhibit 10(a)(3) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1988.
*10(a)(4) Form of Restricted Stock Bonus Agreements dated October 12, 1987
between the Registrant and Haynes G. Griffin, Stephen R. Leeolou and
L. Richardson Preyer, Jr., filed as Exhibit 10(a)(4) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.
*10(1)(5) Form of Amendment to Restricted Stock Bonus Plan Agreements dated as
of March 1, 1990 by and between Haynes G. Griffin, L. Richardson
Preyer, Jr., Stephen R. Leeolou, and Stephen L. Holcombe and the
Registrant, amending the Restricted Stock Bonus Plan Agreements
dated as March 23, 1987, filed as Exhibit 10(a)(5) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
*10(1)(6) Form of Amendment to Restricted Stock Bonus Plan Agreements dated as
of March 1, 1990 by and between Haynes G. Griffin, L. Richardson
Preyer, Jr. and Stephen R. Leeolou and the Registrant, amending the
Restricted Stock Bonus Plan Agreements dated as October 12, 1987,
filed as Exhibit 10(a)(6) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990.
*10(a)(7) Form of Second Amendment to Restricted Stock Bonus Plan Agreements
dated February 22, 1991 between the Registrant and Haynes G.
Griffin, Stephen R. Leeolou, and L. Richardson Preyer, Jr., amending
the Restricted Stockx Bonus Agreements dated October 12, 1987, filed
as Exhibit 10(a)(7) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990.
*10(a)(8) Form of Third Amendment to Restricted Stock Bonus Plan Agreements
dated February 22, 1991 between the Registrant and Haynes G.
Griffin, Stephen R. Leeolou, L. Richardson Preyer, Jr., and Stephen
L. Holcombe, amending the Restricted Stock Bonus Agreements dated
March 23, 1987, filed as Exhibit 10(a)(8) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990.
*10(a)(9) Form of Third Amendment to Restricted Stock Bonus Plan Agreement
dated February 22, 1991 between the Registrant and Stuart S.
Richardson, amending the Restricted Stock Bonus Plan Agreement dated
March 23, 1987, filed as Exhibit 10(a)(9) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990.
*10(a)(10) Employment Agreement dated March 1, 1995 by and between the
Registrant and Haynes G. Griffin, filed as Exhibit 10(a)(10) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
*10(a)(11) Employment Agreement dated March 1, 1995 by and between the
Registrant and L. Richardson Preyer, Jr., filed as Exhibit 10(a)(11)
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
*10(a)(12) Employment Agreement dated March 1, 1995 by and between the
Registrant and Stephen R. Leeolou, filed as Exhibit 10(a)(12) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
*10(a)(13) Executive Officer Long-Term Incentive Compensation Plan adopted
October 1, 1990 by the Registrant, filed as Exhibit 10(a)(13) to the
Registrant's Annual Report on Form 10-K to the fiscal year ended
December 31, 1990.
<PAGE>
Exhibit No. Description
- ----------- -----------
*10(a)(14) Form on Nonqualified Option Agreements dated October 12, 1987
between the Registrant and Stephen L. Holcombe, Ralph E. Hiskey,
John F. Dille, Jr., Charles T. Hagel, L. Richardson Preyer, Sr. and
Robert A. Silverberg, filed as Exhibit 10(a)(5) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988.
*10(a)(15) Nonqualified Option Agreements dated October 12, 1987 between the
Registrant and Robert M. DeMichele, John F. Dille, Jr., L.
Richardson Preyer, Sr., Robert A. Silverberg and Thomas I. Storrs,
filed as Exhibit 10(a)(8) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1988.
*10(a)(16) Form of Incentive Stock Option Agreements dated March 3, 1988
between the Registrant and Stephen L. Holcombe and Richard C.
Rowlenson, filed as Exhibit 10(a)(9) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988.
*10(a)(17) Form of Incentive Stock Option Agreements dated June 23, 1988
between the Registrant and Charles T. Hagel, Haynes G. Griffin, L.
Richardson Preyer, Jr., and Stephen R. Leeolou, filed as Exhibit
10(a)(10) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988.
*10(a)(18) Amended and restated 1994 Long-Term Incentive Plan, approved by the
Registrant's Board of Directors on February 26, 1997.
*10(a)(19) Senior Management Severance Plan of the Registrant adopted March 8,
1995, filed as Exhibit 10(a)(19) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
*10(a)(20) Form of Severance Agreement for Senior Management Employees of the
Registrant, filed as Exhibit 10(a)(20) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
*10(a)(21) Form of Incentive Stock Agreement dated March 7, 1995 between the
Registrant and Haynes G. Griffin, Steven L. Holcombe, Richard C.
Rowlenson and Stuart S. Richardson filed as Exhibit 10(a)(21) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1995.
*10(a)(22) Form of Nonqualified Option Agreement dated March 7, 1995 between
the Registrant and Haynes G. Griffin, Stephen R. Leeolou, L.
Richardson Preyer, Jr., Stephen L. Holcombe, Richard C. Rowlenson
and Stuart S. Richardson, filed as Exhibit 10(a)(22) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1995.
*10(b))(1) Loan Agreement between the Registrant and various lenders led by The
Bank of New York and The Toronto-Dominion Bank as agents, dated as
of December 23, 1994, filed as Exhibit 2(a) to the Registrant's
Current Report on Form 8-K dated as of December 23, 1994.
*10(b)(2) Security Agreement between the Registrant and various lenders led by
The Bank of New York and The Toronto-Dominion Bank, as Secured
Party, dated as of December 23, 1994, filed as Exhibit 2(b) to the
Registrant's Current Report on Form 8-K dated as of December 23,
1994.
*10(b)(3) Master Subsidiary Security Agreement between the Registrant, certain
of its subsidiaries and various lenders led by The Bank of New York
and The Toronto-Dominion Bank, as Secured Party, dated as of
December 23, 1994 filed as Exhibit 2(c) to the Registrant's Current
Report on Form 8-K dated as of December 23, 1994.
*10(d))(1) 1989 Stock Option Plan of the Registrant approved by the Board of
Directors of the Registrant on December 21, 1989, and approved by
Shareholders at a meeting held on May 10, 1990, filed as Exhibit
10(h)(1) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989.
*10(d)(2) Form of Nonqualified Stock Option Agreements dated March 1, 1990
between the Registrant and Haynes G. Griffin, L. Richardson Preyer,
Jr., Stephen R. Leeolou, Stephen L. Holcombe and Stuart S.
Richardson, filed as Exhibit 10(h)(2) to the Registrant's annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
*10(d)(3) Form of Incentive Stock Option Agreement dated March 1, 1990 between
the Registrant and Richard C. Rowlenson, filed as Exhibit 10(h)(2)
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989.
<PAGE>
Exhibit No. Description
- ----------- -----------
*10(d)(4) Form of Incentive Stock Option Agreement dated July 30, 1990 between
the Registrant and Stephen L. Holcombe, Richard C. Rowlenson, Sunir
Kochhar and Timothy G. Biltz, filed as Exhibit 10(f)(4) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
*10(d)(5) Stock Option Agreement dated November 28, 1990 between the
Registrant and Stuart Smith Richardson, filed as Exhibit 10(f)(5) to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990.
*10(d)(6) Form of Stock Option Agreements dated November 28, 1990 between the
Registrant and Haynes G. Griffin, Stephen R. Leeolou, L. Richardson
Preyer, Jr. and Stephen L. Holcombe, filed as Exhibit 10(f)(6) to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990.
*10(d)(7) Incentive Stock Option Agreements dated November 28, 1990 between
the Registrant and Richard C. Rowlenson, filed as Exhibit 10(f)(7)
to the Registrant's December 31, 1990.
*10(e)(1) Joint Venture Agreement by and among W&J Metronet, Inc., Vanguard
Cellular Systems of Coastal Carolina, Inc., Providence Journal
Telecommunications and the Registrant dated as of January 19, 1990,
filed as Exhibit 10(j) to the Registrant's Registration Statement on
Form S-4 (File No. 33-35054).
*10(e)(2) First Amendment and Assumption Agreement dated as of the 28th day of
December, 1990 to Joint Venture Agreement by and among W&J Metronet,
Inc., Vanguard Cellular Systems of Coastal Carolina, Inc.,
Providence Journal Telecommunications and the Registrant dated as of
January 19, 1990, filed as Exhibit 10(g)(2) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990.
*10(f)(1) Stockholders Voting Agreement dated as of February 23, 1994, filed
as Exhibit 7 to Amendment 1 of Schedule 13D dated February 23, 1994
with respect to the Common Stock of Geotek Communications,
*10(g)(1) Nonqualified Deferred Compensation Plan with Form of Salary
Reduction Agreement filed as Exhibit 10(g(1) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
**11 Calculation of diluted net income per share for the years ended
December 31, 1997, 1996, and 1995.
**22 Subsidiaries of the Registrant.
**23(a) Consent of Arthur Andersen LLP
**23(b) Consent of KPMG Peat Marwick LLP
**23(c) Consent of Prasetio, Utomo & Co.
**27 Financial Data Schedule.
- -------
* Incorporated by reference to the statement or report indicated.
** Previously filed as Exhibits to Form 10-K.
EXHIBIT 23(C)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vanguard Cellular Systems, Inc.:
As independent public accountants, we hereby consent to the incorporation
of our report dated March 24, 1997 included in this Form 10-K, into the
Company's previously filed Form S-4 Registration Statement No. 33-35054, Form
S-3 Registration Statement No. 33-61295, Form S-8 Registration Statement No.
33-22866, Form S-8 Registration Statement No. 33-36986, Form S-8 Registration
Statement No. 33-53559, Form S-8 Registration Statement No. 33-69824, Form S-8
Registration No. 333-34771, Form S-8 Registration Statement No. 333-34785 and
Form S-8 Registration Statement No. 333-34787. It should be noted that we have
performed no audit procedures subsequent to March 24, 1997, the date of our
report. Furthermore, we have not made an audit of any financial statements of
RHP as of any date or for any period subsequent to December 31, 1996, the date
of the latest financial statements covered by our report.
PRASETIO, UTOMO & CO.
Jakarta, Indonesia
June 30, 1998
