ptcl accounts 2009 (parent)
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Financial StatementsFor the year ended June 30, 2009
Pakistan Telecommunication Company Limited
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Annual Report 2009 35
Auditors Report to the Members
We have audited the annexed balance sheet of Pakistan Telecommunication Company Limited as at June 30, 2009 and the related
profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof, for the
year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and
belief, were necessary for the purposes of our audit.
It is the responsibility of the companys management to establish and maintain a system of internal control, and prepare and present
the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance,
1984. Our responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement.
An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the above said statements. An
audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the
overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due
verification, we report that:
(a) In our opinion, proper books of account have been kept by the company as required by the Companies Ordinance, 1984;
(b) In our opinion:
(i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with
the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with
accounting policies consistently applied;
(ii) the expenditure incurred during the year was for the purpose of the companys business; and
(iii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the
objects of the company;
(c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit
and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof
conform with approved accounting standards as applicable in Pakistan, and give the information required by the Companies
Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the companys affairs as at
June 30, 2009 and of the profit, its cash flows and changes in equity for the year then ended; and
(d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the
company and deposited in the Central Zakat Fund established under Section 7 of that Ordinance.
A. F. Ferguson & Co. Ford Rhodes Sidat Hyder & Co.
Chartered Accountants Chartered Accountants
Lahore. Islamabad.
Name of engagement partner: Name of engagement partner:
Muhammad Masood Sajjad Hussain Gill
Dated
September 29, 2009
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Pakistan Telecommunication Company Limited36
Balance Sheetas at June 30, 2009
Note 2009 2008
(Rupees in thousand)
Equity and liabilitiesShare capital and reserves
Authorized capital
11,100,000,000 A class ordinary shares of Rs 10 each 111,000,000 111,000,000
3,900,000,000 B class ordinary shares of Rs 10 each 39,000,000 39,000,000
150,000,000 150,000,000
Issued, subscribed and paid up capital 5 51,000,000 51,000,000
Revenue reserves
Insurance reserve 6 1,683,074 1,683,074
General reserve 30,500,000 30,500,000
Unappropriated profit 16,206,485 14,705,30099,389,559 97,888,374
Non current liabilities
Payable to PTA against WLL license fee 7 1,768,839
Long term security deposits from
customers non interest bearing 8 990,055 951,618
Deferred taxation 9 2,379,000 590,000
Employees retirement benefits 10 14,142,099 14,240,062
Deferred government grants 11 1,061,044 95,000
18,572,198 17,645,519
Current liabilities
Trade and other payables 12 26,114,171 21,731,667
Current portion of payable to PTA against
WLL license fee 7 1,953,971
Taxation 3
Dividend payable 7,650,000
36,086,322 21,913,959
Contingencies and commitments 13
154,048,079 137,447,852
The annexed notes from 1 to 47 form an integral part of these financial statements.
Chairman
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Annual Report 2009 37
Note 2009 2008
(Rupees in thousand)
AssetsNon current assets
Property, plant and equipment 14 77,730,763 82,800,178
Capital workinprogress 15 9,836,588 7,892,823
Intangible assets 16 3,320,670 3,149,063
Long term investments 17 5,607,439 3,607,439
Long term loans 18 3,332,378 394,943
99,827,838 97,844,446
Current assets
Stores and spares 19 5,201,991 4,954,085
Trade debts 20 10,760,974 13,3
Loans and advances 21 590,061 888,309
Accrued interest 22 821,027 315,817
Recoverable from tax authorities 23 1,059,608 1,383,766
Other receivables 24 698,270 1,641,617
Receivable from Government of Pakistan 25 2,164,072 2,164,072
Short term investments 26 21,017,790 10,344,379
Cash and bank balances 27 11,906,448 4,545,145
54,220,241 39,603,406
154,048,079 137,447,852
President & CEO
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Pakistan Telecommunication Company Limited38
Profit and Loss Accountfor the year ended June 30, 2009
Note 2009 2008
(Rupees in thousand)
Revenue 28 59,239,001 66,336,042Cost of services 29 (37,732,282) (37,346,869)
Gross profit 21,506,719 28,989,173
Administrative and general expenses 30 (8,935,261) (10,823,555)
Selling and marketing expenses 31 (1,817,071) (1,799,946)
Operating profit 10,754,387 16,365,672
Voluntary separation scheme 32 (92,118) (23,937,854)
Other operating income 33 4,267,172 3,957,539
Finance cost 34 (908,524) (847,973)
Profit / (loss) before tax 14,020,917 (4,462,616)
Taxation 35 (4,869,732) 1
Profit / (loss) after tax 9,151,185 (2,824,890)
(Rupees)
Earnings / (loss) per share basic and diluted 41 1.79 (0.55)
The annexed notes from 1 to 47 form an integral part of these financial statements.
Chairman President & CEO
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Annual Report 2009 39
Cash Flow Statementfor the year ended June 30, 2009
Note 2009 2008
(Rupees in thousand)
Cash flows from operating activitiesCash generated from operations 38 34,337,391 28,091,249
Long term security deposits 38,437 (244,166)
Employees retirement benefits paid (1,470,335) (17,373,671)
Payment of other VSS components (840,927) (21,444,052)
Received from Government of Pakistan 15,264,928
Finance cost paid (265,232) (360,407)
Income tax paid (2,894,844) (2,833,459)
Net cash inflow from operating activities 28,904,490 1,100,422
Cash flows from investing activities
Capital expenditure (9,455,527) (11,411,216)
Intangible assets (397,979) (109,270)Proceeds from disposal of property, plant and equipment 206,039 19,651
Short term investments other than cash equivalents 26 (1,221,886)
Advance to the wholly owned subsidiary
against issue of ordinary shares (2,000,000)
Long term loansnet 62,565 1,214,991
Loan to the wholly owned subsidiary (3,000,000)
Return on bank placements / loan to subsidiary 2,751,824 2,860,719
Government grants received 966,044 95,000
Dividend income 350,000
Net cash outflow from investing activities (12,088,920) (6,980,125)
Cash flows from financing activities
Repayment of suppliers credit (172,961)
Dividend paid (2,742) (10,195,524)
Net cash outflow from financing activities (2,742) (10,368,485)
Net increase / (decrease) in cash and cash equivalents 16,812,828 (16,248,188)
Cash and cash equivalents at beginning of the year 14,889,524 31,137,712
Cash and cash equivalents at end of the year 39 31,702,352 14,889,524
The annexed notes from 1 to 47 form an integral part of these financial statements.
Chairman President & CEO
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Pakistan Telecommunication Company Limited40
Statement of Changes in Equityfor the year ended June 30, 2009
Issued, subscribed and Revenue reserves
paidup capital
Class A Class B Insurance General Unappropriated Totalreserve reserve profit
(Rupees in thousand)
Balance as at July 01, 2007 37,740,000 13,260,000 1,749,047 30,500,000 27,664,217 110,913,264
Net loss for the year (2,824,890) (2,824,890)
Transfer from insurance reserve (65,973) 65,973
Final dividend for the year ended
June 30, 2007 Rs. 2 per share (10,200,000) (10,200,000)
Balance as at June 30, 2008 37,740,000 13,260,000 1,683,074 30,500,000 14,705,300 97,888,374
Net profit for the year 9,151,185 9,151,185Interim dividend for the year ended
June 30, 2009 Rs. 1.5 per share (7,650,000) (7,650,000)
Balance as at June 30, 2009 37,740,000 13,260,000 1,683,074 30,500,000 16,206,485 99,389,559
The annexed notes from 1 to 47 form an integral part of these financial statements.
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Annual Report 2009 41
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
1. Legal status and nature of business
1.1 Constitution and ownership
Pakistan Telecommunication Company Limited (the Company) was incorporated in Pakistan on December 31, 1995 and
commenced business on January 1, 1996. The Company is listed on Karachi, Lahore and Islamabad stock exchanges. The
Company was established to undertake the telecommunication business formerly carried on by Pakistan Telecommunication
Corporation (PTC). The business was transferred to the Company on January 1, 1996 under the Pakistan Telecommunication
(Reorganization) Act, 1996 at which date the Company took over all the properties, rights, assets, obligations and liabilities of
PTC except those transferred to National Telecommunication Corporation (NTC), Frequency Allocation Board (FAB), Pakistan
Telecommunication Authority (PTA) and Pakistan Telecommunication Employees Trust (PTET). The registered office of the
Company is situated at PTCL Headquarters, G8/4, Islamabad.
1.2 Activities
The Company provides telecommunication services in Pakistan. It owns and operates telecommunication facilities and
provides domestic and international telephone services and other communication facilities throughout Pakistan. The
Company has also been licensed to provide such services to territories in Azad Jammu and Kashmir and Northern Areas.
2. Basis of preparation
2.1 Statement of compliance
These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan.
Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions of and directives issued under
the Companies Ordinance, 1984. In case requirements differ, the provisions or directives of the Companies Ordinance, 1984
shall prevail.
2.2 Standards, interpretations and amendments to published approved accounting standards that are effective in
current year
During the year ended June 30, 2009, IFRS 7 Financial Instruments: Disclosures became effective. IFRS 7 has superseded IAS 30
and disclosure requirements of IAS 32. Adoption of this standard has only resulted in additional disclosures which have beenset out in note 42 to these financial statements.
Further, interpretations of accounting standards, namely IFRIC 12 Service Concession Arrangements, IFRIC 13 Customer
Loyalty Programmes and IFRIC 14 IAS 19 The Limit on Defined Benefit Asset, Minimum Funding Requirements and their
Interaction also become effective during the year. However, these interpretations do not affect the Companys financial
statements.
2.3 Amendments and Interpretations to publish standards applicable to the Company not yet effective
The following amendments and interpretations to existing standards have been published and are mandatory for the
Companys accounting periods beginning on or after their respective effective dates:
IAS 1 (Revised), Presentation of financial statements (effective for annual periods beginning on or after July 1, 2009), wasissued in September 2007. The revised standard requires an entity to present, in a statement of changes in equity, all owner
changes in equity. All nonowner changes in equity (i.e. comprehensive income) will be required to be presented separately
from owner changes in equity, either in one statement of comprehensive income or in two statements (a separate income
statement and a statement of comprehensive income). When the entity applies an accounting policy retrospectively or makes
retrospective statement or reclassifies items in the financial statements, they will be required to present a restated financial
position (balance sheet) as at beginning of comparative period in addition to the current requirement to present the balance
sheet as at the end of the current and the comparative period. The adoption of this standard will only impact the presentation
of the financial statements.
IAS 39 (Amendment), Financial Instruments: Recognition and Measurement Reclassification of Financial Assets (effective
from July 1, 2009). This amendment to the Standard permits an entity to reclassify nonderivative financial assets (other than
those designated at fair value through profit or loss by the entity upon initial recognition) out of the fair value through profit
or loss category in particular circumstances. The amendment also permits an entity to transfer from the availableforsalecategory to the loans and receivables category, a financial asset that would have met the definition of loans and receivables
(if the financial asset had not been designated as availableforsale), if the entity has the intention and ability to hold that
financial asset for the foreseeable future. The management is in the process of assessing the impact of its adoption on the
Companys financial statements.
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Pakistan Telecommunication Company Limited42
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
IFRS 7 (Amendment), Financial Instruments: Disclosure. There are a number of minor amendments to IFRS 7 in respect of
enhanced disclosures about liquidity risk and fair value measurements. These amendments are unlikely to have an impact on
the Companys financial statements and have therefore not been analyzed in detail.
IAS 38 (Amendment), Intangible Assets (effective from July 1, 2009). The amended standard states that a prepayment may
only be recognized in the event that payment has been made in advance of obtaining right of access of goods or receipt of
services. This amendment is not expected to have a significant effect on the Companys financial statements.
2.4 Standards and interpretations to existing standards that are not applicable to the Company and not yet effective
Standards or Interpretation Effective date
(accounting periods
beginning on or after)
IFRS 4 Insurance Contracts January 01, 2009
IFRS 8 Operating Segments January 01, 2009
IFRIC 15 Accounting for Agreements for the Construction of Real Estate January 01, 2009
IFRIC 16 Hedge of Net Investment in a Foreign Operation July 01, 2009IFRIC 17 Distribution of Noncash Assets to Owners July 01, 2009
IAS 23 Borrowing Costs (Revised) January 01, 2009
IAS 27 Consolidated and Separate Financial Statements January 01, 2009
IAS 32 Financial Instruments: Presentation Amendments
regarding puttable Financial Instruments January 01, 2009
IFRS 2 Share Based Payments Amendments Regarding Vesting
Conditions and Cancellation January 01, 2009
IFRS 3 Business Combinations (Revised) July 01, 2009
IFRIC 18 Transfer of Assets of Customers July 01, 2009
IFAS 2 IJARAH January 01, 2009
3. Basis of measurement
These financial statements have been prepared under the historical cost convention, except for revaluation of certain financial
instruments at fair value and recognition of certain employee retirement benefits and license fee payable at present value.
The Companys significant accounting policies are stated in note 4. Not all of these significant policies require the management
to make difficult, subjective or complex judgments or estimates. The following is intended to provide an understanding of the
policies the management considers critical because of their complexity, judgment of estimation involved in their application
and their impact on these financial statements. Estimates and judgments are continually evaluated and are based on historical
experience, including expectations of future events that are believed to be reasonable under the circumstances. These
judgments involve assumptions or estimates in respect of future events and the actual results may differ from these estimates.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to
the financial statements are as follows:
a) Employees retirement benefitsThe Company uses the valuation performed by an independent actuary as a present value of its retirement benefits obligations.
The valuation is based on assumptions as mentioned in note 4.4.
b) Provision for taxation
The Company takes into account the current income tax law and the decisions taken by appellate authorities. Instances
where the Companys view differs from the view taken by the Income Tax department at the assessment stage and where the
Company considers that its view on items of material nature is in accordance with law, the amounts are shown as contingent
liabilities.
c) Useful life and residual values of property, plant and equipment
The Company reviews the useful lives of property, plant and equipment on regular basis. Any change in estimates in future
years might affect the carrying amounts of the respective items of property, plant and equipment with the correspondingeffect on the depreciation charge and impairment.
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Annual Report 2009 43
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
d) Provision for doubtful receivables
Provision against overdue receivable balances is recognized after considering the receipt pattern and the future outlook of the
concerned receivable party. It is reviewed by the management on a regular basis.
4. Significant accounting policies
The significant accounting policies adopted in the preparation of these financial statements are set out below. These policies
have been consistently applied to all the years presented unless otherwise stated.
4.1 Insurance reserve
The assets of the Company are self insured. The Company has created an insurance reserve. Appropriation out of profits are
made on discretion of the Board of Directors. The reserve is to be utilized to meet any loss resulting from theft, fire or natural
disasters.
4.2 Borrowings
Borrowings are initially recorded at the proceeds received. Finance cost is accounted for on an accrual basis and is either
added to the carrying amount of the instrument or disclosed as interest and markup accrued to the extent of amount
remaining unpaid.
4.3 Taxation
Current
Provision of current tax is based on the taxable income for the year determined in accordance with the prevailing law for
taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit
for the year if enacted. The charge for current tax also includes adjustments, where considered necessary, to provision for tax
made in previous years arising from assessments framed during the year for such years.
Deferred
Deferred tax is accounted for using the balance sheet liability method in respect of all temporary differences arising from
differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases
used in the computation of taxable profit.
Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to
the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused
tax losses and tax credits can be utilized.
Deferred tax is calculated at the rates that are expected to apply to the period when the differences reverse based on tax rates
that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income
statement, except in the case of items credited or charged to equity in which case it is included in equity.
4.4 Employees retirement benefits and other obligations
(a) Pension obligations
The Company operates an approved funded pension scheme through a separate trust called the Pakistan Telecommunication
Employees Trust (PTET) for its employees recruited prior to January 1, 1996 when the Company took over the business from
PTC.
The Company also operates an unfunded pension scheme for employees recruited on regular basis after December 31,
1995.
Provisions are made annually to cover the obligations under the schemes on the basis of actuarial valuations and are charged
to profit. The most recent valuation was carried out as at June 30, 2009 using the Projected unit credit method.
The amount recognized in the balance sheet represents the present value of the defined benefit obligations as adjusted
for unrecognized actuarial gains and losses and unrecognized past service cost and as reduced by the fair value of the planassets.
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Pakistan Telecommunication Company Limited44
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
Cumulative net unrecognized actuarial gains and losses at the end of the previous year which exceed 10% of the greater of the
present value of the Companys pension obligations and the fair value of plan assets are amortized over the expected average
working lives of the participating employees.
The principal actuarial assumptions used in the valuation as at June 30, 2009 were as follows:
Expected rate of return per annum on plan assets 13% (2008: 10%)
Discount rate 12% (2008: 12%)
Indexation of pension 8% (2008: 8%)
Expected increase in salary 9% for first five years
and then 11% (2008: 11%)
Average expected remaining working lives of participating employees funded 13 years (2008: 13 years)
Average expected remaining working lives of participating employees unfunded 17 years (2008: 17 years)
Expected mortality rate EFU 61 66 Mortality Table
adjusted for Companys
experience
Expected withdrawal rate Based on experience
The expected rate of return is based on complex mathematical model which takes into account the maturity of high yielding
DSCs and other investments present at the beginning of the financial year. It considers the expected returns on the re
investments of maturity proceedings in similar instruments up to the life of related obligations. The expected rate of return
also considers the changes of plan assets during the year on account of contributions and benefit payments. The model
results in expected rate of return of 13% (2008: 10%). The rounded expected rate of return used for the Fund Assets is 13%
during 200809 (200708: 10%)
(b) Medical benefits
The Company provides post retirement medical benefits to pensionable employees and their families. Under the unfunded
scheme all such employees, their spouses, children up to the age of 21 and parents residing with and dependent on the
employee are entitled to the benefit. Unmarried daughters are not subject to 21 years age limit. The pensioner and the familyare entitled to the facility up to the life of the pensioner and spouse. There are no annual limits to the cost of drugs, hospital in
patient treatment and consultation fees.
Provisions are made annually to cover the obligations under the scheme on the basis of actuarial valuation and are charged
to profit. The most recent valuation was carried out as at June 30, 2009 using the Projected unit credit method.
The amount recognized in the balance sheet represents the present value of the defined benefit obligations as adjusted for
unrecognized actuarial gains and losses and unrecognized past service cost.
Cumulative net unrecognized actuarial gains and losses at the end of the previous year which exceed 10% of the present value
of the Companys obligations are amortized over a period of fourteen years.
The principal assumptions used in the valuation as at June 30, 2009 were as follows:
Discount rate 12% (2008: 12%)
Expected rate of increase in medical costs 11% (2008: 11%)
Expected mortality rate EFU 61 66 Mortality Table adjusted for Companys
experience
(c) Accumulating compensated absences
The Company provides a facility to its employees for accumulating their annual earned leave. Under the unfunded scheme,
regular employees are entitled to four days of earned leave per month. Unutilized leave can be accumulated without limit
and can be used at any time subject to the Companys approval up to 120 days in a year without medical certificate, 180
days with medical certificate and 365 days during the entire service of the employee. Up to 180 days of accumulated leave
can be encashed on retirement provided the employee has a minimum leave balance of 365 days. Leaves are encashed atemoluments applicable for monthly pension.
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Annual Report 2009 45
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
New Terms and Conditions (NTC) / contractual employees are entitled to 3 days earned leave per month. Unutilized leave
can be accumulated without limit. Up to 180 days of accumulated leaves can be encashed on departure at gross pay. New
Compensation Pay Grade (NCPG) employees are entitled to 20 leaves after completion of one year of service. Leaves can be
accumulated after completion of second year of service, to a maximum of 28 days. Current year was the first year in which,PTCL calculated the obligation for accumulated compensated absences for NTC/contractual and NCPG employees.
Provisions are made annually to cover the obligation for accumulating compensated absences based on actuarial valuation
and are charged to profit. The most recent valuation was carried out as at June 30, 2009 using the Projected unit credit
method.
The amount recognized in the balance sheet represents the present value of the defined benefit obligations.
Actuarial gains and losses are charged to profit immediately in the period when these occur.
The principal assumptions used in the valuation as at June 30, 2009 were as follows:
Expected increase in salary 9% in first five years and then 11% (2008: 11%)Discount rate 12% (2008: 12%)
Expected mortality rate EFU 61 66 Mortality Table adjusted for Companys
experience
(d) Provident fund
The Company operates approved funded provident fund covering permanent employees. For the purposes of the scheme
a separate trust titled as PTCL Employees GPF Trust has been established. Monthly contributions are deducted from the
salaries of employees and are to be paid to the Trust by the Company. Interest is paid at the rate announced by the Federal
Government. Such rate for the year was 15% (2008: 12.5%) per annum. The Company contributes to the fund the differential,
if any, of the interest charge for the year and the income earned on the investments made by the Trust. The contributions
deducted from the employees during the year and interest payable by the Company for the year, if any, appear as other
liabilities.
(e) Gratuity
The Company operates an unfunded gratuity scheme for its NTC / contractual employees. Provisions are made annually
to cover the obligation under the scheme on the basis of actuarial valuations and are charged to profit. The most recent
valuation was carried out as at June 30, 2009 using the Projected unit credit method.
The amount recognized in balance sheet represents the present value of the defined benefit obligation as on June 30, 2009
as adjusted for unrecognized actuarial gains and losses.
Cumulative net unrecognized actuarial gains and losses at the end of the previous year which exceed 10% of the present value
of the Companys obligations are amortized over the expected average working lives of the participating employees.
The principal assumptions used in the valuation as at June 30, 2009 were as follows:
Discount rate 12% (2008: 12%)
Expected increase in salaries 9% for first five years and then 11% (2008: 11%)
Average expected remaining working lifetime of NTC / 6 years (2008: 5 years)
contractual employees
Retirement benefits are payable to staff on completion of prescribed qualifying period of service under these schemes.
4.5 Trade and other payables
Liabilities for creditors and other amounts payable are carried at cost which is the fair value of the consideration to be paid in
the future for the goods and / or services received, whether or not billed to the Company.
Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it isprobable that an outflow of resources embodying economic benefits will be required to settle the obligation and reliable
estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current
best estimate.
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Pakistan Telecommunication Company Limited46
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
4.6 Property, plant and equipment
Property, plant and equipment, except freehold land are stated at cost less accumulated depreciation and any identified
impairment loss. Freehold land is stated at cost less any identified impairment loss. Cost includes direct cost, related overheads,
mark up and interest referred to in note 4.19.
Depreciation on all property, plant and equipment is charged to profit on the straight line method so as to write off the
depreciable amount of an asset over its estimated useful life at the annual rates mentioned in note 14 after taking into account
their residual values.
Depreciation on additions to property, plant and equipment is charged from the month in which an asset is acquired or
capitalized while no depreciation is charged for the month in which the asset is disposed off. Impairment loss or its reversal,
if any, is also charged to profit. Where an impairment loss is recognized, the depreciation charge is adjusted in future periods
to allocate the assets revised carrying amount over their estimated useful life.
The assets residual values and useful lives are reviewed at each financial year end, and adjusted if impact on depreciation is
significant.
The Company assesses at each balance sheet date whether there is any indication that property, plant and equipment may
be impaired. If such indication exists, the carrying amounts of such assets are reviewed to assess whether they are recorded in
excess of their recoverable amount. Where carrying values exceed the respective recoverable amount, assets are written down
to their recoverable amounts and the resulting impairment loss is recognized in income currently. The recoverable amount is
the higher of an assets fair value less costs to sell and value in use. Where an impairment loss is recognized, the depreciation
charge is adjusted in the future periods to allocate the assets revised carrying amount over its estimated useful life.
Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can
be measured reliably. All other repairs and maintenance costs are charged to income during the period in which they are
incurred.
The gain or loss on disposal or retirement of an asset represented by the difference between the sale proceeds and the
carrying amount of the asset is recognized as an income or expense.
4.7 Intangible assets
These are stated at cost less accumulated amortization and any identified impairment loss. Intangible assets are amortized
using the straight line method over the period of the license or useful life of the software.
Amortization on additions to intangible assets is charged from the month in which an asset is acquired or capitalized while no
amortization is charged for the month in which the asset is disposed off.
The Company assesses at each balance sheet date whether there is any indication that intangible asset may be impaired.
If such indication exists, the carrying amounts of such assets are reviewed to assess whether they are recorded in excess
of their recoverable amount. Where carrying values exceed the respective recoverable amount, assets are written down to
their recoverable amounts and the resulting impairment loss is recognized in income currently. The recoverable amount is
the higher of assets fair value less costs to sell and value in use. Where an impairment loss is recognized, the amortization is
adjusted in the future periods to allocate the assets revised carrying amount over its estimated useful life.
4.8 Capital workinprogress
Capital workinprogress is stated at cost less any identified impairment loss.
4.9 Investments
Investments intended to be held for less than twelve months from the balance sheet date or to be sold to raise operating
capital, are included in current assets, all other investments are classified as noncurrent. Management determines the
appropriate classification of its investments at the time of the purchase and reevaluates such designation on a regular
basis.
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Annual Report 2009 47
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
4.9.1 Investments in equity instruments of subsidiaries and associated companies
Investments in subsidiaries and associates where the Company has significant influence are measured at cost in the Companys
financial statements. Cost in relation to investments made in foreign currency is determined by translating the considerationpaid in foreign currency into rupees at exchange rates prevailing on the date of transactions.
The Company is required to issue consolidated financial statements along with its separate financial statements, in accordance
with the requirements of IAS 27 Consolidated and Separate Financial Statements. Investments in associated undertakings, in
the consolidated financial statements, are being accounted for using the equity method.
4.9.2 Other investments
The other investments made by the Company are classified for the purpose of measurement into the following category:
4.9.2.1 Available for sale
The financial assets including investments in associated undertakings where the Company does not have significant influence
that are intended to be held for an indefinite period of time or may be sold in response to the need for liquidity are classifiedas available for sale.
Investments classified as available for sale are initially measured at cost, being the fair value of consideration given. At
subsequent reporting dates, these investments are remeasured at fair value (quoted market price), unless fair value cannot be
reliably measured. The investments for which a quoted market price is not available, are measured at cost as it is not possible
to apply any other valuation methodology. Unrealized gains and losses arising from the changes in the fair value are included
in fair value reserves in the period in which they arise.
All purchases and sales of investments are recognized on the trade date which is the date that the Company commits to
purchase or sell the investment. Cost of purchase includes transaction cost.
At each balance sheet date, the Company reviews the carrying amounts of the investments to assess whether there is any
indication that such investments have suffered an impairment loss. If any such indication exists, the recoverable amountis estimated in order to determine the extent of the impairment loss, if any. Impairment losses are recognized as expense.
In respect of available for sale financial assets, cumulative impairment loss less any impairment loss on that financial asset
previously recognized in profit and loss account, is removed from equity and recognized in the profit and loss account.
Impairment losses recognized in the profit and loss account on equity instruments are not reversed through the profit and
loss account.
4.9.2.2 Heldtomaturity
Heldtomaturity investments are financial assets with fixed or determinable payments and fixed maturities that management
has the positive intention and ability to hold to maturity. These are recorded at amortized cost using the effective interest rate
method, less any amounts written off to reflect impairment.
4.10 Stores and spares
Usable stores and spares are valued principally at moving average cost, while items considered obsolete are carried at nil
value. Items in transit are valued at cost comprising invoice value plus other charges paid thereon.
4.11 Trade debts
Trade debts are carried at original invoice amount less an estimate made for doubtful debts based on a review of all outstanding
amounts at the year end. Bad debts are written off when identified.
4.12 Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of cash flow statement cash and cash
equivalents comprise cash in hand, demand deposits, other short term highly liquid investments that are readily convertible
to known amounts of cash and which are subject to an insignificant risk of change in value and short term borrowings.
4.13 Government grants
Government grants are recognized at their fair value and included in noncurrent liabilities as deferred income when there is
reasonable assurance that the grant will be received and the Company will comply with the conditions associated with the
grant.
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Pakistan Telecommunication Company Limited48
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
Grants that compensate the Company for expenses incurred are recognized in profit and loss account on a systematic basis
in the same period in which the expenses are recognized. Grants that compensate the Company for the cost of an asset
are recognized in the profit and loss account on a systematic basis over the expected useful life of the related asset upon
capitalization.
4.14 Financial instruments
Financial assets and financial liabilities are recognized at the time when the Company becomes a party to the contractual
provisions of the instrument and derecognized when the Company loses control of contractual rights that comprise the
financial assets and in the case of financial liabilities when the obligation specified in the contract is discharged, cancelled or
expired. Any gain or loss on derecognition of financial assets and financial liabilities is included in the profit and loss account
for the year.
Financial instruments carried on the balance sheet include long term investments, long term loans, trade debts, loans, advances,
deposits and other receivables, cash and bank balances, long term security deposits from customers, trade and other payables
and interest . All financial assets and liabilities are initially measured at cost, which is the fair value of consideration given and
received respectively. These financial assets and liabilities are subsequently measured at fair value or cost as the case may be.
The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.
4.15 Offsetting of financial assets and liabilities
Financial assets and liabilities are offset and the net amount is reported in the financial statements only when there is a legally
enforceable right to set off the recognized amount and the Company intends either to settle on a net basis or to realize the
assets and to settle the l iabilities simultaneously.
4.16 Derivative financial instruments
These are initially recorded at cost value on the date a derivative contract is entered into and are remeasured to fair value at
subsequent reporting dates.
4.17 Foreign currencies
All monetary assets and liabilities in foreign currencies are translated into Rupees at exchange rates prevailing at the balance
sheet date. Transactions in foreign currencies are translated into Rupees at the spot rate. All nonmonetary items are
translated into Rupees at exchange rates prevailing on the date of transaction or on the date when fair values are determined.
Exchange differences are included in income currently. Revenue from international calling services and foreign operating cost
is translated into local currency at the month end rate.
The financial statements are presented in Pak Rupees, which is the Companys functional and presentation currency.
4.18 Revenue recognition
Revenue from telecommunication services is recognized when services have been rendered.
Return on deposits is accrued on a time proportion basis with reference to the principal outstanding and the applicable rate
of return.
Dividend income and return from investments are recognized when the Companys right to receive payment has been
established.
4.19 Borrowing costs
Markup and other borrowing costs are capitalized up to the date of commissioning of the respective qualifying asset. All
other markup, interest and other charges are charged to profit.
4.20 Dividend
Dividend distribution to the Companys shareholders is recognized as a liability in the period in which the dividends are
approved.
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Annual Report 2009 49
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
5. Issued, subscribed and paid up capital
2009 2008 2009 2008
(Numbers in thousand) (Rupees in thousand)
note 5.1 3,774,000 3,774,000 A class ordinary shares of Rs 10 each 37,740,000 37,740,000
issued as fully paid for consideration
other than cash
note 5.1 1,326,000 1,326,000 B class ordinary shares of Rs 10 each 13,260,000 13,260,000
issued as fully paid for consideration
other than cash
5,100,000 5,100,000 51,000,000 51,000,000
5.1 These shares were initially issued to the Government of Pakistan in consideration for the assets and liabilities transferred from
Pakistan Telecommunication Corporation (PTC) to Pakistan Telecommunication Company Limited (PTCL) under the Pakistan
Telecommunication (Reorganization) Act, 1996 as referred to in note 1.1.
5.2 Except for voting rights the A and B class ordinary shares rank pari passu in all respects. A class ordinary shares carry one
vote and B class ordinary shares carry four votes save for the purposes of election of directors. A class ordinary shares can
not be converted into B class ordinary shares. However, B class ordinary shares may be converted into A class ordinary
shares at the option exercisable in writing submitted to the Company by the holders of three fourths of the B class ordinary
shares. In the event of termination of the license issued to the Company under the provisions of Pakistan Telecommunication
(Reorganization) Act, 1996 or at any time within three years from April 12, 2006, if there is any change of control of any member
holding B class ordinary shares without the prior written approval of Government of Pakistan, the B class ordinary shares
shall be automatically converted into A class ordinary shares.
5.3 The Government of Pakistan through an Offer for Sale document, dated July 30, 1994 issued to domestic investors a first
tranche of vouchers exchangeable for A class ordinary shares of the Company and through an Information Memorandum
dated September 16, 1994 issued a second tranche of vouchers to the international investors also exchangeable, at the optionof voucher holder for A class ordinary shares or Global Depository Receipts ( GDRs ) representing A class ordinary shares of
the Company. Out of 3,774,000 thousand A class ordinary shares, vouchers against 601,084 thousand A class ordinary shares
were issued to general public. Till June 30, 2009, 599,500 thousand (2008: 599,476 thousand) A class ordinary shares had been
exchanged for vouchers.
5.4 In pursuance of the privatization of the Company, a bid was held by the Government of Pakistan on June 8, 2005 for sale of B
class ordinary shares of Rs 10 each along with management control. Emirates Telecommunication Corporation(Etisalat) was
the successful bidder. The shares along with management control were transferred with effect from April 12, 2006 to Etisalat
International Pakistan (EIP), UAE which is a subsidiary of Etisalat.
2009 2008
(Number of shares)
5.5 Ordinary shares of the Company held by the related parties
as at year end are as follows:
Etisalat International Pakistan (LLC) SE (B class ordinary shares) 407,809,524 407,809,524
Etisalat International Pakistan (LLC) (B class ordinary shares) 918,190,476 918,190,476
1,326,000,000 1,326,000,000
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Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
2009 2008
(Rupees in thousand)
6. Insurance reserve
Balance as at July 01 1,683,074 1,749,047
Utilized during the year (65,973)
Balance as at June 30 1,683,074 1,683,074
7. Payable to PTA against WLL license fee
Payable to PTA against WLL license fee note 7.1 2,105,500 2,105,500
Present value adjustment (631,756) (631,756)
Present value of license fee payable 1,473,744 1,473,744
Imputed interest charged to profit and loss account to date 480,227 295,095
1,953,971 1,768,839
Current portion shown under current liabilities (1,953,971)
1,768,839
7.1 In previous years the Company had paid to PTA Rs 4,278,639 thousand in respect of license to provide Wireless Local Loop
(WLL) services. Previously PTA allowed the Company to adjust Rs 2,105,500 thousand out of Rs. 4,278,639 thousand already
paid against the amount payable to Universal Service Fund (USF). The balance amount of Rs 2,105,500 thousand in respect
of license fee is payable to PTA in March 2010 and carries no interest. The license fee payable has been discounted to present
value of future cash flows using effective interest rate of 10% per annum and the corresponding adjustment was made to
the cost of license included in intangible assets. Difference between the amount payable and the present value of cash
equivalents being recognized as imputed interest over the remaining credit period.
2009 2008
(Rupees in thousand)
8. Long term security deposits from customers
non interest bearing note 8.1 990,055 951,618
8.1 During the current year, the Company adjusted security deposits amounting to Rs Nil (2008: Rs 40,711 thousand) against
defaulter receivable balances.
2009 2008
(Rupees in thousand)
9. Deferred taxation
The liability for deferred taxation comprises of timing
differences relating to:Accelerated tax depreciation / amortization 8,719,515 8,322,099
Provision for doubtful trade debts (6,284,901) (5,730,635)
Provision for doubtful advances and receivables (58,720) (8,439)
Available tax losses (1,996,138)
Others 3,106 3,113
2,379,000 590,000
The gross movement in deferred tax liability during
the year is as follows:
Balance as at July 01 590,000 2,373,223
Charge / (reversal) during the year note 35 1,789,000 (1,783,223)
Balance as at June 30 2,379,000 590,000
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10.1 Employees retirement benefits
Pension Gratuity Accumulating Post Total
compensated retirement 2009Funded Unfunded absences medical facility
(Rupees in thousand)
Present value of defined
benefit obligations note 10.2 53,610,885 932,231 314,871 1,025,164 6,448,686 62,331,837
Fair value of assets note 10.5 (50,096,598) (50,096,598)
3,514,287 932,231 314,871 1,025,164 6,448,686 12,235,239
Unrecognized actuarial gains / (losses) 1,035,921 (90,359) 76,738 884,560 1,906,860
Liability as at June 30 4,550,208 841,872 391,609 1,025,164 7,333,246 14,142,099
Liability as at July 01 5,389,026 630,417 267,106 833,006 7,120,507 14,240,062
Charge for the year
Current service cost 445,896 131,893 108,135 33,234 64,052 783,210
Interest cost 6,012,673 85,125 30,147 117,419 623,452 6,868,816
Expected return on plan assets (6,297,387) (6,297,387)
Actuarial losses / (gains) recognized
during the year 472 (27,825) (100,395) (127,748)
Liability for NCPG / contractual employees 145,482 145,482
161,182 217,490 138,282 268,310 587,109 1,372,373
Contributions (1,000,000) (1,000,000)
Benefits paid during the year (6,035) (13,779) (76,152) (374,370) (470,336)
Liability as at June 30 4,550,208 841,872 391,609 1,025,164 7,333,246 14,142,099
10.1.1 Charge for the year 2008 was as follows (669,566) 232,604 99,286 186,473 282,072 130,869
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
2009 2008
(Rupees in thousand)
10. Employees retirement benefits
Liabilities for pension obligations
Funded note 10.1 4,550,208 5,389,026
Unfunded note 10.1 841,872 630,417
5,392,080 6,019,443
Gratuity note 10.1 391,609 267,106
Accumulating compensated absences note 10.1 1,025,164 833,006
Post retirement medical facility note 10.1 7,333,246 7,120,507
14,142,099 14,240,062
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10.2 Changes in the present value of the defined benefit obligations
(Pension Funded)
2009 2008
(Rupees in thousand)
Balance as at July 01 50,105,610 36,529,541
Current service cost 445,896 1,035,152
Interest cost 6,012,673 3,232,783
Benefits paid (3,906,371) (14,033,816)
Actuarial losses 953,077 778,679
Curtailment / settlement losses 22,563,271
Balance as at June 30 53,610,885 50,105,610
(Pension Unfunded)
2009 2008
(Rupees in thousand)
Balance as at July 01 709,378 1,180,770
Current service cost 131,893 127,477
Interest cost 85,125 102,687
Benefits paid (6,035)
Actuarial losses 11,870 1,764
Curtailment / settlement (gains) (703,320)
Balance as at June 30 932,231 709,378
(Gratuity)
2009 2008
(Rupees in thousand)
Balance as at July 01 251,226 111,444
Current service cost 108,135 97,290
Interest cost 30,147 11,164
Benefits paid (13,779) (9,798)
Actuarial (gains) / losses (60,858) 41,126
Balance as at June 30 314,871 251,226
(Accumulating
Compensated Absences)
2009 2008
(Rupees in thousand)
Balance as at July 01 833,006 1,871,553
Current service cost 33,234 13,125
Interest cost 117,419 160,358
Benefits paid (76,152) (1,382,160)
Actuarial (gains) / losses (27,825) 12,990
Curtailment / settlement losses 157,140
Recognition of NCPG / contractual liabilities 145,482
Balance as at June 30 1,025,164 833,006
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
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Annual Report 2009 53
(Post Retirement
Medical Facility)
2009 2008
(Rupees in thousand)
Balance as at July 01 5,195,430 4,798,947
Current service cost 64,052 126,931
Interest cost 623,452 423,508
Benefits paid (374,369) (2,664,434)
Actuarial losses / (gains) 940,121 (51,761)
Curtailment / Settlement losses 2,562,239
Balance as at June 30 6,448,686 5,195,430
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
10.3 Historical Information
2009 2008 2007 2006 2005
(Rupees in thousand)
Defined benefit pension
plan funded
Present value of defined benefit
obligations at year end 53,610,885 50,105,610 36,529,541 31,413,488 28,134,077
Fair value of plan assets at year end (50,096,598) (48,441,436) (45,158,318) (39,243,528) (34,241,407)
Deficit / (Surplus) in the Plan 3,514,287 1,664,174 (8,628,777) (7,830,040) (6,107,330)
Experience adjustment on
plan liabilities losses 953,077 778,679 2,581,597 603,337 2,538,991
Experience adjustment on
plan assets gains / (losses) (1,735,854) (522,664) 3,776,675 2,611,253 2,339,398
Defined benefit pension
plan unfunded
Present value of defined benefit
obligations at year end 932,231 709,378 1,180,770 1,050,561 805,823
Experience adjustment
on pension liabilities (gains) / losses 83,101 1,764 (96,454) 47,981 156,338
Defined benefit gratuity plan
Present value of defined benefit
obligations at year end 314,871 251,226 111,444 136,265 38,128
Experience adjustment on
gratuity liability (gains) / losses (51,220) 41,126 (77,172) 10,089 909
Accumulating compensated absences
Present value of defined benefit
obligations at year end 1,025,164 833,006 1,871,553 1,735,238 2,972,819
Experience adjustment on
accumulating compensated
absences liability (gains) / losses 39,239 12,990 21,748 (235,937) (91,581)
Defined benefit post
retirement medical facility
Present value of defined benefit
obligations at year end 6,448,686 5,195,430 4,798,947 4,583,853 4,723,962
Experience adjustment on post retirement
medical liability (gains) / losses 940,121 (51,761) (274,176) (673,407) (890)
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Pakistan Telecommunication Company Limited54
10.4 Major categories of plan assets of defined benefit pension planfunded as percentage of total plan assets are as follows:
2009 2008
(Percentage)
Defence saving certificates 43 71
Term finance and other certificates 47 14
Pakistan investment bonds 6 7
Fixed & other assets 4 8
100 100
2009 2008
(Rupees in thousand)
10.5 Changes in the fair value of plan assets
Balance as at July 01 48,441,436 45,158,318
Expected return on plan assets 6,297,387 4,515,832Contributions made by the Company during the year 1,000,000 1,569,879
Contributions made by the employees deputationists 6,487
Benefits paid (3,906,371) (2,286,416)
Actuarial (losses) on plan assets (1,735,854) (522,664)
Balance as at June 30 50,096,598 48,441,436
Actual return on plan assets 4,561,533 3,993,168
10.6 Effect of increase / decrease in medical cost trend rate
Effect of 1 % increase in medical cost trend rate in current service cost and interest cost is Rs 18,181 thousand (2008: Rs 44,426
thousand) and effect of 1% decrease is Rs 15,063 thousand (2008: Rs 36,810 thousand).
Effect of 1 % increase in medical cost trend rate in present value of defined benefit obligations for medical cost is Rs 1,892,189thousand (2008: Rs 1,792,423 thousand) and effect of 1% decrease is Rs 1,563,113 thousand (2008: Rs 1,480,697 thousand).
10.7 In the next financial year expected contribution to be paid to the funded pension plan by the Company is Rs 463,242 thousand
(2008: Rs 740,975 thousand).
2009 2008
(Rupees in thousand)
11. Deferred government grants
Balance as at July 01 95,000
Received during the year note 11.1 966,044 95,000
Balance as at June 30 1,061,044 95,000
11.1 These represent grants received from Universal Service Fund ( a government formed agency ) mainly relating to property,
plant and equipment received as assistance towards development of the telecommunication infrastructure in rural areas
and include telecom infrastructure project for (i) basic telecom access in Pishin, Mansehra, Dadu and Larkana; (ii) Optical fibre
extension Baluchistan Package 2; (iii) Broadband projects in Faisalabad, Sargodha Civil Division, Multan, Bahawalpur, Dera
Ghazi Khan Civil Division and Hyderabad Civil Division.
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
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2009 2008
(Rupees in thousand)
12. Trade and other payables
Trade creditors note 12.1 5,414,955 5,964,893
Accrued liabilities note 12.2 1,315,240 1,875,019
Receipts against third party works 499,556 617,706
Taxes payable
Income tax collected from subscribers 366,426 498,389
Income tax deducted at source 13,017 24,466
379,443 522,855
Sales tax payable 1,061,915 731,611
Advances from customers 1,856,153 973,204
Technical services fee payable to related party note 30.2 503,467 563,187
Retention money payable to contractors / suppliers 5,914,707 6,540,698
Payable to:
Research and Development Fund note 30.4 2,397,144 1,980,131
Universal Service Fund related party note 12.3 6,122,799 719,263
Pakistan Telecommunication Authority 34,542 20,216
Due to satellite companies 51,703
Unclaimed dividend 120,342 123,084
VSS benefits payable 61,057 729,563
Other liabilities 432,851 318,534
26,114,171 21,731,667
12.1 Included in trade creditors are amounts due to the
following related parties :
Telecom Foundation Pipes Limited 2,232 2,344
Etisalat UAE 170,990Etisalat Afghanistan 81
Thuraya
11,161 201,436
These relate to the normal business of the Company and are interest free.
12.2 This includes Rs. 573,155 thousand (2008: Rs 519,851 thousand) representing provision against EOBI contribution payable
under EOBI Act 1976, for employees hired subsequent to PTCLs incorporation. The Company has withheld the payment of
EOBI pending the settlement of court case as discussed in note 13.7. The amount of provision made during the year is Rs.
53,304 thousand (2008: Rs 59,830 thousand).
12.3 This includes an amount of Rs 3,458,866 thousand (2008: Nil) payable to Universal Service Fund for the period from May 01,2008 to December 31, 2008. As per agreement between the Company and the Pakistan Telecommunication Authority, this
amount is payable in 15 equal monthly installments starting from May 2009.
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
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13. Contingencies and commitments
Commitments
13.1 Commitments in respect of contracts for capital expenditure amounting to Rs 12,352,378 thousand (2008: Rs 11,026,561
thousand).
Contingencies
13.2 1,850 cases (2008: 1,666 cases) have been filed against the Company primarily by subscribers and employees. Because of the
number of cases involved and their uncertain nature, it is not possible to quantify their financial effect at present. However,
the management and the Companys legal advisor are of the view that the outcome of these cases is expected to be favorable
and a liability, if any, arising on the settlement of these cases is not likely to be material.
13.3 In previous years the Income Tax Authorities served show cause notices under section 52 and section 86 of the repealed
Income Tax Ordinance 1979 for the assessment years 199697 to 199899 on failure to withhold/deduct tax under section
50(3) while making payments to non resident satellite companies. The Company filed a writ petition before Honourable
Lahore High Court against the said notices which was dismissed. An appeal was filed against the dismissal before Honourable
Supreme Court of Pakistan which was also dismissed and the Company was advised by the Honourable Court to file an appealbefore the Income Tax Appellate Authorities. Subsequently, the Company filed an appeal with the Commissioner Income Tax
(CIT) Appeals who has annulled the order of the Taxation Officer. The department has filed an appeal with the Income Tax
Appellate Tribunal (ITAT) against the order of CIT (Appeals).
Pending final outcome of the appeal, no provision has been made in these financial statements for the demands aggregating
Rs 1,599,557 thousand (2008: Rs 1,599,557 thousand) . The management and the Companys tax advisor are of the view that
the outcome of the appeal is expected to be favourable.
13.4 In 1995 the Government of Pakistan, in the interest of public safety, passed an order to close transmission of all messages,
inter alia, through card phone services and mobile telephone services within and outside the city of Karachi. Telecard
Limited, a pay card service provider, served a legal notice to the Government of Pakistan seeking restoration of its services
and claimed damages from the Government amounting to Rs 2,261,924 thousand. The Government of Pakistan ordered for
immediate restoration of Pay Card services including rebate relief and discount to all pay phone service providers. In view of
relief and discount offered by the Government, Telecard Limited withheld payments on account of their monthly bills to the
Company and obtained a stay order from the Honourable Sindh High Court for an amount of Rs 110,033 thousand against the
Company.
On the instructions of Honourable Court, external consultants calculated the rebate and discount amounting to Rs 349,953
thousand payable by the Company to Telecard Limited for the period from January 1997 to August 2001. In the suit, final
arguments of the parties are to be reheard. The Company has also filed a claim against Telecard Limited for an amount of Rs
324,683 thousand receivable up to December 31, 2001 and Rs 9,416 thousand rebate refund claim.
In another case, identical to the above matter M/s Telefon has claimed Rs 97,337 thousand from the Company. In the last
hearing held on May 9, 2006 issues have been framed and evidence will be recorded in the next hearing. The management
and the Companys tax advisor are of the view that the outcome of the appeal is expected to be favourable.
13.5 M/s Televoice has filed a suit with Honourable Sindh High Court for arbitration claiming Rs 409,125 thousand for breach of
interconnect agreement by the Company. A counter claim for Rs 120,000 thousand has been lodged by the Company in the
same court. The arbitrator announced an award of Rs.115,000 thousand on April 25, 2006 in favour of PTCL for which execution
has been filed by the Company with the court. However, pending the outcome of the execution application, no adjustment
has been made in these financial statements for the above amounts.
13.6 Consequent to an audit of central excise duty collected by the Company from subscribers for the years 199899 and 19992000
the Rawalpindi Collectorate of Central Excise Department raised a demand for excise duty along with additional duties and
penalties amounting to Rs 2,043,268 thousand. The matter was taken up by the Company with the Federal Board of Revenue
(FBR), Government of Pakistan for resolution. A committee was formed comprising representatives from the Company and
FBR. As a result of the negotiations, the Company deposited an amount of Rs 466,176 thousand on account of central excise
duty.
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
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It was agreed that the Company would retain the right to contest the additional duties and penalties at all appellate forums
and in the event of favourable decision the amount would be refunded to the Company by Collectorate of Central Excise.
The Company has filed an appeal to contest the additional duties and penalties levied by the Collectorate. During the year
ended June 30, 2008 appeals amounting to Rs 1,468,806 thousand had been decided by Custom, Central Excise and Sales TaxAppellate Tribunal in favour of PTCL subject to submission of proof. Pending the final outcome, no provision has been made in
these financial statements for the above demand, since the management and the Companys lawyer are of the view that the
outcome of the appeal is expected to be favourable.
13.7 The Employees OldAge Benefits Institute (EOBI) served a demand notice on the Company under section 12(3) of Employees
Old Age Benefits (EOBI) Act, 1976 for payment of Companys and employees contribution amounting to Rs 1,496,829
thousand for the period January 1, 1996 to May 31, 2005. The management has filed a writ petition against the demand before
Honourable High Court which is pending for hearing. However, the management and legal advisor are of the view that case
would be decided in the favour of the Company.
13.8 In respect of tax years 2006 and 2007, Additional Commissioner of Income Tax (ACIT) inter alia amended the assessment
on the grounds that Companys claim of concessional rate of tax at 1% of revenues received from international customers,
provided for through Clause 3 of Part II of Second Schedule to the Income Tax Ordinance, 2001 is not in accordance with suchlegal provisions, as underlying telecommunication services have not been rendered outside Pakistan. The overall impact of
this amendment is approximately Rs 2,250,000 thousand. The Commissioner of Income Tax (CIT Appeals) and Income Tax
Appellate Tribunal (ITAT) have endorsed the departmental view and presently Companys reference against the judgment of
ITAT, in this respect, is pending before the Rawalpindi Bench of the Honourable Lahore High Court.
Provision in connection with above amendment of assessment has not been incorporated in these financial statements owing
to the fact that management and the Companys tax advisor consider that underlying legal and factual position favours the
Companys stance and that the litigation would eventually settle in companys favour.
2009 2008
(Rupees in thousand)
13.9 Bank guarantees and bid bonds issued in favour of:
Universal Service Fund (USF) against Government grants 2,030,337 190,000
Others 5,000
2,035,337 190,000
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
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Pakistan Telecommunication Company Limited58
14. Property, plant and equipment
2009
Cost as at Additions/ Cost as at Accumulated Depreciation Accumulated Net book Annual
July 1, (deletions) June 30, depreciation for the year/ depreciation value as at rate of2008 2009 as at July 1, (on disposals) as at June 30, June 30, depreciation
2008 2009 2009 %
(Rupees in thousand)
Land Freehold 1,643,226 555 1,643,781 1,643,781
Leasehold 74,151 3,267 77,418 21,821 1,178 22,999 54,419 1 3.3
Buildings on Freehold land 9,838,254 210,065 10,048,319 2,701,091 247,328 2,948,419 7,099,900 2.5
Leasehold land 1,009,184 1,009,184 351,389 25,230 376,619 632,565 2.5
Lines and wires 102,895,985 1,677,423 104,573,408 71,323,741 4,630,990 75,954,731 28,618,677 7
Apparatus, plant and equipment 118,024,486 5,240,150 123,264,636 80,785,132 6,995,979 87,781,111 35,483,525 10
Office equipment 1,008,318 183,575 1,189,925 518,677 103,480 620,971 568,954 10
(1,968) (1,186)
Furniture and fittings 444,310 15,801 455,345 296,127 24,642 316,003 139,342 10
(4,766) (4,766)
Vehicles 1,566,821 180,926 1,359,277 1,335,671 114,854 1,076,706 282,571 20
(388,470) (373,819)
Submarine cables 5,715,407 5,715,407 2,086,315 422,063 2,508,378 3,207,029 6.67 8.33
Total 242,220,142 7,511,762 249,336,700 159,419,964 12,565,744 171,605,937 77,730,763
(395,204) (379,771)
2008
Cost as at Additions/ Cost as at Accumulated Depreciation Accumulated Net book Annual
July 1, (deletions) June 30, depreciation for the year/ depreciation value as at rate of
2008 2009 as at July 1, (on disposals) as at June 30, June 30, depreciation
2008 2009 2009 %
(Rupees in thousand)
Land Freehold 1,641,805 1,421 1,643,226 1,643,226
Leasehold 74,114 37 74,151 20,868 953 21,821 52,330 1 3.3
Buildings on Freehold land 9,568,729 286,079 9,838,254 2,463,469 242,575 2,701,091 7,137,163 2.5
(16,554) (4,953)
Leasehold land 1,009,184 1,009,184 326,159 25,230 351,389 657,795 2.5
Lines and wires 98,704,981 4,191,004 102,895,985 66,291,133 5,032,608 71,323,741 31,572,244 7
Apparatus, plant and equipment 108,244,220 10,188,181 118,024,486 74,849,887 6,294,774 80,785,132 37,239,354 10
(407,915) (359,529)
Office equipment 883,871 130,410 1,008,318 430,402 91,553 518,677 489,641 10
(5,963) (3,278)
Furniture and fittings 394,832 52,965 444,310 273,243 26,009 296,127 148,183 10
(3,487) (3,125)
Vehicles 1,590,906 21,270 1,566,821 1,265,600 108,241 1,335,671 231,150 20
(45,355) (38,170)Submarine cables 5,464,910 250,497 5,715,407 1,664,252 422,063 2,086,315 3,629,092 6.67 8.33
Total 227,577,552 15,121,864 242,220,142 147,585,013 12,244,006 159,419,964 82,800,178
(479,274) (409,055)
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
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Annual Report 2009 59
2009 2008
(Rupees in thousand)
14.1 The depreciation charge for the year has
been allocated as follows:
Cost of services note 29 12,314,429 11,999,126
Administrative and general expenses note 30 188,486 183,660
Selling and marketing expenses note 31 62,829 61,220
12,565,744 12,244,006
14.2 As explained in note 1.1 the property and rights in the above assets at January 1, 1996 were transferred to the Company
from Pakistan Telecommunication Corporation under the Pakistan Telecommunication (Reorganization) Act, 1996. However,
the title to such freehold land was not formally transferred in the name of the Company in the land revenue records. The
Company initiated the process of transfer of title of land in its name in previous year which is still ongoing and shall be
completed in due course of time.
14.3 Disposal of property, plant and equipment2009
Particulars Sold to Cost Accumulated Book Sale Mode of
of assets depreciation value proceeds disposal
(Rupees in thousand)Office Equipment
TV Miscellaneous parties 120 54 66 260 Auction
Computer Accessories Miscellaneous parties 151 63 88 38 Auction
Printers, CPUs Miscellaneous parties 847 581 266 275 Auction
ACs Miscellaneous parties 178 51 127 88 Auction
Photocopiers Miscellaneous parties 648 428 220 115 Auction
Miscellaneous items Miscellaneous parties 24 9 15 97 Auction
1,968 1,186 782 873
Furniture & fittings 4,766 4,766 477 Auction
Motor Vehicles
Gul Muhammad 567 453 114 283 Company Policy
M. Iqbal Waseem 887 710 177 169 Company Policy
Syed Abid Hussain 1,314 1,226 88 250 Company Policy
Zubair Assadullah Tunio 880 704 176 167 Company Policy
Nafees Ahmed Siddique 849 679 170 161 Company Policy
Bashir Hussain 759 455 304 304 Company Policy
Nawazish Ali Anjum 866 693 173 173 Company PolicyRizwan Ahamd Bhutto 323 158 165 152 Company Policy
Hussain Ahmad 585 468 117 293 Company Policy
M. Amjad Ali 772 617 155 154 Company Policy
M. Iqbal Siyal 568 454 114 284 Company Policy
Atiq Nawaz 583 466 117 291 Company Policy
Mazhar Amin 570 456 114 285 Company Policy
Ehsan Ul Haq 563 305 258 338 Company Policy
Rao Abdul Raqeeb Khan 563 225 338 321 Company Policy
M. Roshan Awan 563 225 338 338 Company Policy
Sana Ullah Shaikh 563 225 338 321 Company Policy
Dr. Tahir Saeed 563 225 338 338 Company Policy
Zakir Hussain Satti 563 225 338 338 Company Policy
Anwer Jamil 834 333 500 500 Company Policy
Mian Muhammad Bilal 568 454 114 270 Company Policy
Fuad Enver 563 300 263 338 Company Policy
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
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Pakistan Telecommunication Company Limited60
2009
Particulars Sold to Cost Accumulated Book Sale Mode of
of assets depreciation value proceeds disposal
(Rupees in thousand)Imran Ul Haq 834 333 500 500 Company Policy
Mubashir Naseer Ch. 582 466 116 291 Company Policy
Iftikhar Ahmed Cheema 582 466 116 291 Company Policy
Kanwar Ghulam Mustafa Khan 867 693 174 403 Company Policy
Shakeel Ahmed 585 468 117 293 Company Policy
Aftab Ahmad Chishti 866 693 173 411 Company Policy
Col (Retd) Zamir Hussain Bhatti 567 453 114 283 Company Policy
Zomma Mohiuddin 1,141 913 228 542 Company Policy
Sajjad Ahmad 759 384 375 455 Company Policy
Shahid Ahmad 773 618 155 309 Company Policy
Gohar Malik 563 305 258 338 Company Policy
S. M. Imran Ali 866 693 173 433 Company PolicyM. Amir Hussain 755 604 151 378 Company Policy
Brig (R) Waqar Ahmed Malik 773 618 155 386 Company Policy
Syed Ali Qadir Jillani 955 764 191 454 Company Policy
Noor Ahmed Noor 563 225 338 338 Company Policy
Javed Iqbal 757 606 151 144 Company Policy
Tariq Qamar 759 405 354 432 Company Policy
Sohail Anwar 585 469 116 293 Company Policy
Zia Ud Din Barki 367 220 147 220 Company Policy
Badar Ul Zaman 367 232 135 220 Company Policy
Behram Shahrokh Aslam 404 222 182 283 Company Policy
Shaukat Ali 759 304 455 329 Company Policy
Muhammad Siddique Afridi 562 450 112 281 Company Policy
Faheem Ul Hassan 323 173 150 153 Company Policy
Abrar Ahmed 775 620 155 147 Company Policy
Fazle Mabood 834 413 420 317 Company Policy
Ghulam Shabbir 416 242 173 188 Company Policy
Mehboob Iqbal Qadir 568 454 114 284 Company Policy
Mudassar Hafeez Dar 563 225 338 321 Company Policy
M. Aamir 563 305 258 321 Company Policy
M. Afzal Kharal 563 305 258 338 Company Policy
Muhammad Umar 569 454 115 270 Company Policy
Wajeeh Anwar 563 305 258 321 Company Policy
Muhammad Saleem Akhtar 746 599 147 142 Company Policy
Mushtaq Ahmed Afridi 610 486 124 305 Company Policy
Sardar Ali 640 512 127 304 Company Policy
S. Mazhar Hussain 886 709 177 443 Company Policy
Syed Shafqat Mehdi 597 478 119 298 Company Policy
Zulfiqar Ali Shah 563 225 338 338 Company Policy
Sher Bahader Khan 367 202 165 244 Company Policy
Saleem 367 202 165 209 Company Policy
Mudassar Hafeez Dar 563 390 173 338 Company Policy
Muhammad Azam 759 417 342 455 Company Policy
Mujeeb Ur Rehman 404 222 182 283 Company Policy
Israr Ahmed Abro 626 502 124 250 Company Policy
Muhammad Anwar 568 454 114 284 Company Policy
Tariq Mehmood 604 484 120 229 Company Policy
M. Hatam Shad 344 201 143 202 Auction
Others 342,634 342,577 57 183,330 Company Policy
388,470 373,819 14,651 204,689
Total 395,204 379,771 15,433 206,039
Others represent vehicles disposed off during the year having a book value of less than Rs 50,000.
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
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Annual Report 2009 61
2008
Particulars Sold to Cost Accumulated Book Sale Mode of
of assets depreciation value proceeds disposal
(Rupees in thousand)Apparatus, plant and
equipment
Exchanges 394,740 354,248 40,492 Write Off
DRS Links 8,708 3,562 5,146 Write Off
BTS 4,466 1,720 2,746 Write Off
407,914 359,530 48,384
Buildings
Civil Work / Electrification 16,554 4,953 11,601 Write Off
Furniture and fittings
Office furniture & fixture 3,487 3,125 362 Write Off
Office equipment 5,963 3,278 2,685 Write Off
Motor Vehicles 5,950 5,663 287 Write Off
Sher Bahadur Khan 866 520 346 347 Company Policy
Javaid Akhtar 755 466 289 290 Company Policy
Gul Ahmed 759 293 466 472 Company Policy
Pervaiz Akhtar 866 520 346 347 Company Policy
Naveed Iqbal 755 466 289 289 Company Policy
S Ubaid Hussain Shah 894 551 343 343 Company Policy
Naeem Ul Haq 753 464 289 289 Company Policy
Pervaz Ahmed Mehtab 1,168 720 448 448 Company PolicyRehmat Ullah 1,185 711 474 474 Company Policy
Nawab Khan Afridi 759 291 468 468 Company Policy
M Hanif Khan 787 590 197 197 Company Policy
Muhammad Iqbal Bangish 815 611 204 204 Company Policy
5,714 3,062 2,652 Theft
22,026 14,928 7,098 4,168
Others 23,330 23,241 89 15,483
Total 479,274 409,055 70,219 19,651
Others represent property, plant and equipment disposed off during the year having a book value of less than Rs 50,000.
The amounts written off during the year represent the book value of assets that were partially or completely destroyed under the countrywide riots that took place in December 2007.
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
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Pakistan Telecommunication Company Limited62
2009 2008
(Rupees in thousand)
15. Capital workinprogress
Buildings 118,413 127,435
Lines and wires 1,589,605 2,245,182
Apparatus, plant and equipment 3,613,242 4,329,873
Intangibles 38,632 68,517
Advances to suppliers note 15.1 4,476,696 1,121,816
note 15.2 9,836,588 7,892,823
15.1 Advances to suppliers include an amount of Rs 1,685,532 thousand (2008: Rs 449,000 thousand) given to Emirates
Telecommunication Corporation, a related party, in respect of a project called India Middle East Western Europe (IMEWE).
15.2 Capital work in progress includes an amount of Rs 443,426 thousand (2008: Rs 704,271 thousand) in respect of overheads
relating to the development regions capitalized during the year.
2009 2008
(Rupees in thousand)
16. Intangible assets
Cost
Licenses 4,015,397 4,015,397
Softwares 397,979
note 16.1 4,413,376 4,015,397
Accumulated amortization
Licenses (1,062,749) (866,334)
Softwares (29,957)
note 16.2 (1,092,706) (866,334)
3,320,670 3,149,063
16.1 Cost
Balance as at July 01 4,015,397 3,906,127
Additions during the year
Bill printing software 8,201
Billing and automation of broadband 46,065
Enterprise Resource Planning (ERP)SAP system note 16.6 343,713
WLL and LDI License note 16.5 109,270
397,979 109,270
Balance as at June 30 4,413,376 4,015,397
16.2 Accumulated amortization
Balance as at July 01 866,334 675,385
Amortization for the year
Licenses 196,415 190,949
Softwares 29,957
note 29 226,372 190,949
Balance as at June 30 1,092,706 866,334
16.3 The Pakistan Telecommunication Authority (PTA) has issued a license to the Company to provide telecommunication services
in Pakistan for a period of 25 years commencing January 1, 1996 for an agreed license fee of Rs 249,344 thousand. In the year
ended June 30, 2005, PTA modified the previously issued license to provide telecommunication services to include spectrumlicense at an agreed license fee of Rs 4,278,639 thousand. This license allowed the Company to provide the Wireless Local Loop
services in Pakistan over a period of 20 years commencing October 2004. The cost of the license is being amortized on straight
line basis over the period of the license.
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
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Annual Report 2009 63
16.4 PTCL acquired the IPTV license from PEMRA on October 1, 2006 for the agreed price of Rs. 9,900 thousand. The cost of license
is being amortized on straight line basis over the period of 5 years.
16.5 The Pakistan Telecommunication Authority (PTA) has issued a license under section 5 of the Azad Jammu and KashmirCouncil Adaptation of Pakistan Telecommunication (Reorganization) Act, 1996, Northern Areas Telecommunication (Re
organization) Act, 2005 and Northern Areas Telecommunication (Reorganization) (Adaptation and Enforcement) Order, 2006
to the Company to establish, maintain and operate a telecommunication system in Azad Jammu and Kashmir and Northern
Areas for a period of 20 years commencing May 28, 2008 for an agreed license fee of Rs. 109,270 thousand. The cost of the
license is being amortized on straight line basis over the period of the license.
16.6 This represents Enterprise Resource Planning (ERP) SAP system with a useful life of 10 years.
2009 2008
(Rupees in thousand)
17. Long term investments at cost
Subsidiaries unquoted
Pak Telecom Mobile Limited
350,000,000 (2008: 350,000,000 ) ordinary shares of Rs 10 each
Ordinary shares held 100% (2008: 100% ) 3,500,000 3,500,000
Paknet Limited
Nil (2008: 20,000,000) ordinary shares of Rs 10 each
Ordinary shares held Nil (2008: 100% ) 200,000
Provision for impairment note 17.1 (200,000)
Associate unquoted
Telecom Foundation Pipes Limited1,658,520 (2008: 1,658,520) ordinary shares of Rs 10 each
Ordinary shares held 40% (2008: 40% )
(MD: Gul Bahadur Yousafzai) 23,539 23,539
3,523,539 3,523,539
Other investments
Available for sale Unquoted
New ICO Global Communications (Holdings) Limited
218,207 (2008: 218,207) ordinary shares of US $ 0.01 per share
(Acting Chief Executive: Mr. Michael P. Corkery) note 17.2
Alcatel Lucent Pakistan Limited2,000,000 (2008: 2,000,000) ordinary shares of Rs 10 each 20,000 20,000
(Chief Executive: Mr. Ben Verwaayen)
Thuraya Satellite Company
3,670,000 (2008: 3,670,000) ordinary shares of 1 Dirham each 63,900 63,900
(Chief Executive: Mr. Yousuf Al Syed)
World Tel Assembly of Governors
Participation Fund investment of US $ 100,000
(2008: US $ 100,000) 6,390 6,390
Provision for impairment (6,390) (6,390)
Advance against purchase of shares note 17.3 2,000,000
5,607,439 3,607,439
Notes to and forming part of the Financial Statementsfor the year ended June 30, 2009
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Pakistan Telecommunication Company Limited64
17.1 The investment has been written off during the year upon dissolution of Paknet Limited.
17.2 New ICO Global Communications (Holdings) Limited acquired the assets of ICO Global Communications (Holdings) Limited,
established in January 1995 to provide global mobile personal communication services by satellite. ICO Global Communications(Holdings) Limited was suspended from trading when the Company filed for Chapter 11 protection on August 27, 1999.
The business was renamed New ICO Global Communications (Holdings) Limited following its emergence from Chapter 11
protection on May 16, 2000. According to the reorganization plan, the shareholders of ICO Global Communications (Holdings)
Limited received one class A ordinary shares of US $ 0.01 in New ICO Global Communications (Holdings) Limited for every
103.8 shares and an option to exchange one warrant of US $ 90 for exchange with 13.84 shares at any time on or after May 16,
2000 (the effective date) on which the reorganization plan becomes effective until 5 p.m. New York City time, on May 17, 2006,
which was extended by the Company up to August 3, 2006. The Company did not exercise the option before expiry.
17.3 This represents an advance given to Pakistan Telecom Mobile Limited, the wholly owned subsidiary, for issuance of ordinary
shares.
2009 2008
(Rupees in thousand)
18. Long term loans considered good
Loan to subsidiary: PTML unsecured note 18.1 3,000,000
Loans to employees secured note 18.2 455,599 524,556
Current portion shown under current assets note 21 (123,421) (129,613)
332,178 394,943
Others 200
3,332,378 394,943
18.1 This represents an unsecured loan given during the year to Pak Telecom Mobile Limited, a wholly owned subsidiary of the
Company, under
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