TLK

Business Context and Reporting Period

This Form 6-K filing presents the unaudited consolidated financial statements for Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (Telkom) and its subsidiaries for the nine months ended September 30, 2003. The report compares these results to the same period in 2002. The financial statements are prepared in accordance with Indonesian GAAP, with reconciliations to U.S. GAAP provided in the notes. The reporting period includes the consolidation of additional subsidiaries acquired or significantly controlled after September 30, 2002, including Napsindo, PII, Metra, Ariawest, and KSO 3.

Key Financial Metrics

Note: Figures are in millions of Rupiah unless otherwise noted. Net Income for 2003 is significantly lower due to the absence of a one-time gain recorded in 2002.

Material Changes vs. Prior Period

• Net Income Decline: Net income decreased by 42.2% to Rp4,372 billion. This decline is primarily attributed to the absence of a one-time gain of Rp3,196 billion recognized in the prior year from the sale of 12.72% ownership in Telkomsel.
• Revenue Growth: Operating revenue grew 27.9% to Rp19,977 billion. Significant growth drivers included:
  • Data and Internet: +100.2%
  • Network: +46.8%
  • Interconnection: +43.8%
  • Cellular: +38.0%
• Expense Increase: Operating expenses rose 30.8% to Rp10,402 billion. The primary driver was a 44.5% increase in Personnel Expenses, caused by the adjustment of liabilities for long-term employee benefits and awards in the third quarter.
• Acquisitions: The company closed the buyout of KSO 3 by acquiring Aria West (AWI) in July 2003 and increased ownership in Pramindo Ikat Nusantara (PIN) to 45% in September 2003.

Outlook, Risks, and Contingencies

• Management Commentary: Management highlighted strong growth in cellular and data information sectors. However, they noted the significant impact of personnel cost adjustments on the bottom line.
• Regulatory Risks: The company operates under a complex regulatory framework in Indonesia. Tariffs for fixed-line and mobile services are subject to government regulation and price caps. The filing notes that tariff adjustments planned for 2003 were postponed by the Minister of Communication.
• Economic Conditions: The company faces ongoing challenges from the regional economic environment, including currency volatility and high interest rates, which increase the cost of servicing foreign currency-denominated debt.
• Contingencies:
  • Audit Status: As of September 30, 2003, the Annual Report on Form 20-F had not been filed with the SEC because the audit process by PricewaterhouseCoopers (PwC) was not yet complete. The audit may result in adjustments to previously published reports.
  • Derivatives: Telkomsel holds forward agreements to hedge foreign currency liabilities (USD and EUR).

Key Facts for Investor Verification

• One-Time Gain Impact: Verify the sustainability of earnings by excluding the Rp3,196 billion gain from the 2002 Telkomsel share sale when comparing year-over-year profitability.
• Personnel Cost Adjustments: Confirm the nature and timing of the long-term employee benefit liability adjustments that drove the 44.5% increase in personnel expenses.
• Acquisition Integration: Assess the financial impact and integration status of the newly consolidated subsidiaries (AWI, PIN, Napsindo, Metra) on future cash flows.
• Debt Servicing: Review the company's ability to service its significant foreign currency debt (Two-step loans, supplier credits) amidst potential Rupiah volatility.
• Audit Adjustments: Monitor the final audited figures for the fiscal year, as the current unaudited statements are subject to potential adjustments by the external auditor.