ANNUAL REPORT - Asia Pacific Fibers · 3 Annual Report 2007 ... reached cyclical highs and prices...

POLYSINDO Synthetics, Naturally.

PT. POLYSINDO EKA PERKASA Tbk.

ANNUAL REPORT 2007

1 Annual Report 2007 – POLYSINDO EKA PERKASA TBK

Contents

Company Description 2

Financial Highlights 3

Message From The President Commissioner 4

Message to Shareholders 6

Management of the Company 9

Management Report 13

Management Discussion and Analysis 18

Corporate Information 21

Independent Auditor Report 25


Company Description

PT. Polysindo Eka Perkasa Tbk, established in 1984, is a leading polyester manufacturer in Indonesia. Its manufacturing operations span the entire polyester production chain from raw-materials to end products, ensuring quality and consistency. PT Polysindo Eka Perkasa is the only integrated producer of polyester in Indonesia. The manufacturing facilitiy of PTA, continuous Polymer and Staple is located in Karawang, West Jawa. The Filament Yarn, the largest Filament Yarn facility in Indonesia, is located in Semarang, Central Jawa. Its subsidiary Texmaco Jaya’s operations, consisting of weaving and finishing, are located at Karawang West Jawa and Pemalang Central Jawa. Its current products include Purified Terephthalic Acid (PTA), Polyester chips, Polyester Staple Fiber, Polyester Filament Yarn and Fashion & Performance fabrics. The Company’s products are marketed and sold both in domestic and international markets. The following is the report on the business performance of PT. Polysindo Eka Perkasa Tbk in 2007. The term “Company” used throughout the report refers to PT. Polysindo Eka Perkasa Tbk and all its subsidiaries. The term “Polysindo” refers to PT. Polysindo Eka Perkasa Tbk as a stand-alone entity, while the term “Texmaco Jaya” refers exclusively to PT. Texmaco Jaya Tbk.


Financial Highlights

The following table sets forth the financial highlights of the Company for the years ended 31st December 2003 to 2007. The Company’s current auditors are Drs. Hendrawinata Gani & Hidayat (Indonesian Member firm of Grant Thornton International).

(in million Rupiah) 31st December 2007 2006 2005 2004 2003 (2) Current Assets Fixed Assets-Net Total Assets Liabilities Equity Net Sales Gross Profit Operating Profit Net Income Net Working Capital (1) Profit per Share-Net Rp Gross Profit Margin % Net Profit Margin % Return on Investment % Return on Equity % Current Ratio X Debt to Total Assets X Debt to Equity X

1,428,603 3,314,897 5,448,182

12,525,825 (7,077,644)

3,639,104 (174,344) (453,947)

(1,028,032) (10,291,498)

(22) (4,8)

(28,2) (14,5)

NA 0.1

2.30 (1,8)

1,298,542 3,865,702 5,848,629

11,897,173 (6,048,543)

3,060,830 (439,075) (666,126)

(25,430) (9,771,645)

(1) (14.0)

(1.0) (0.4) NA 0.1

2.03 (2.0)

987,166

4,433,969 6,093,780

12,115,829 (6,022,047)

2,937,332 (318,236) (578,353) (841,805)

(10,474,620) (192)

(11.0) (28.7) (13.8)

NA 0.1

1.99 (2.0)

909,390

5,018,172 6,555,484

17,397,239 (10,841,755)

1,893,618 (522,051) (819,264)

(2,047,891) (15,992,349)

(260) (27.6)

(108.1) (31.2)

NA 0.1 2.7

(1.6)

1,094,019 5,626,003 7,212,332

16,007,281 (8,794,950)

1,871,103 (515,661) (914,102)

(1,143,811) (14,415,784)

(260) (27.6) (61.1) (15.9)

NA 0.1 2.4

(1.8)

Notes: (1) Current Assets minus Current Liabilities (2) 2003 Figures have been restated by the Auditors in line with current Regulations


MESSAGE FROM THE PRESIDENT COMMISSIONER

Dear Esteemed Shareholders, In 2007 Polysindo was able to record a significant improvement in revenue and EBITDA profit over 2006. Capacity utilization improved, although the Company continued to operate at sub-optimal rates averaging 70% through the year. The Company managed to post these financial improvements primarily due to the working capital support received from our majority owners, plus financing facilities provided by some customers and suppliers. Significantly, the Company was a able to recover domestic market share to levels last witnessed in the early 2000s. The Company posted revenues of Rp. 3,639.1 billion, EBITDA profit of Rp 119.6 billion, and an operating loss of Rp 453,9 billion. The first half of 2007 started slowly and with gradual increases in raw material pricing, all of which resulted in putting pressure on the margin. However, the second half of the year produced strong results while demand reached cyclical highs and prices surged to three-year highs. Thus two-thirds of the Company’s EBITDA profit occurred in the second half of 2007. The Indonesian economy is predicted to grow at the 6%+ in 2008, with a forecast for slightly higher inflation at 7%-8%. The U.S. recession is expected to have a marginal effect on the economy, however the Indonesian textile industry (the Company’s primary customer base) does expect increased competition from textile imports as producers in China, India, and elsewhere in Southeast Asia seek to find substitute markets for previously-destined shipments to the U.S. Export markets for the Company are expected to continue to remain strong, accounting for at least one-third of its sales. Demand is also increasing for the Company’s products in the non-textile sector mainly in non-woven segments. Thus we expect further growth in revenues and profits in 2008. In 2007, Mr Christhoper Ian Teague, Christhoper Robert Botsford and myself, Mr Rober Clive Appleby joined of the Board Commissioners as representatives of the majority shareholders of Polysindo. Mr Slamet Nugroho has resigned from the Board of Commissioner and the Board placed on record its appreciation of his services as President Commissioner.


The Commissioners wish to extend its utmost appreciation to the Directors and all of its employees for their continued efforts and dedication throughout 2007 which can be deemed a year of restructuring and recovery. The Company has also been able to adhere to various corporate compliance requirements per BAPEPAM and BEI. We also wish to acknowledge our sincere gratitude to our customers, suppliers, and shareholders for their continued support and the confidence they have entrusted to the Company in this critical transition period.

Robert Clive Appleby President Commissioner


Message to Shareholders Dear Shareholders: In 2007 the Indonesian economy exceeded expectations with a GDP growth rate of 6.3%, surpassing the 2006 growth rate of 5.5%. The non-oil sector grew at an even faster pace at 6.9%, with segment strength occurring particularly in transport and communications, electricity, gas and water supply, and the construction sectors. Also of note was the strength in the services sector which, in recent years has continued to build upon a consumer-led mini-boom in the major urban centers of Indonesia. Following 2006 patterns, GDP annual per capita income again grew at nearly 18%, from Rp. 15 million to nearly Rp. 18 million. Exports continued to grow, to US$114 billion in 2007, a 13% growth rate over the previous year, led again by oil & gas, rubber, palm oil, and coal in rapidly expanding international commodities markets. Indonesia’s trade balance remained positive at US$40 billion in 2007, while the current account surplus expanded to over US$11 billion, a 14% increase over 2006. Polyester Industry: Global and Domestic Trends World textile fiber consumption is estimated to have grown by 4.8% to a record 67.7 million tons in 2007. While cotton consumption grew at 3.8% (to 26.9 million tons), non-cotton demand grew by 5.4% in 2007, to 40.7 million tons. Consequently, cotton’s market share of global textile fiber consumption decreased from 40.2% in 2006 to 39.8% in 2007. With reduced acreage applied to cotton cultivation worldwide, cotton prices have risen to above US$1500 per ton, and are forecasted to remain at these levels in the next two years. Cotton industry forecasts indicate that cotton market share of total textile fiber consumption will decline further to 37.5% by 2009. Thus high cotton prices will continue to drive increased fiber substitutions with non-cotton (and primarily polyester) fibers. Global polymer demand in 2007 grew nearly 10% to approximately 45.2 million tons, and is forecasted to continue to grow albeit at a more moderate pace of 6.5%-7.0% in 2008 and 2009. Growth beyond this period is expected to level off at 4.6% growth through 2017. Lower forecasted capacity growth in polymer capacity will be the result of a slowing of expansion, particularly in China, where tight money and factory rationalizations are taking place following a period of reckless expansion over the past 3-5 years. This will result in higher operating rates throughout the industry, to an average of 74.6% in 2008 and 2009. Developing markets are expected to drive polyester demand growth with a foreseeable increase in per capita income, thus global polyester demand is expected to outpace capacity growth for the second consecutive year (demand growth of 8%, capacity addition of 5.6%). Worldwide polyester fiber demand grew at 9.2% during 2007, with filament yarn boasting a 10.6% growth, while staple fiber attained a more moderate growth rate of 7%. The near-future will yield continued growth of 7%-8% in staple fiber as cotton prices are predicted to rise early in 2008. Filament yarn is expected also grow at nearly 7% in the same period. In 2007, the closure of yarn capacities in Taiwan and Korea resulted in higher operating rates in this region for staple fiber and filament yarn. The operating rates


of Yarn and fibre is expected to rise in 2008 and 2009 at a rate of 73% and 76%, respectively, as the rate of capacity expansion in China has slowed sharply during the past 2 years. This will result in a continuation of robust pricing for polyester fibers while still sustaining the gradual fiber substitution of cotton with polyesters. On the domestic front, in 2007 Indonesia’s textile industry (including polyesters) grew in virtually every aspect over 2006: number of firms (5 new), capacity investments (up 2.6%), manpower (up 6,500 to an all time high of 1.201 million), exports (US$10.1 billion, a new record). While staple fiber imports increased 15%, in support of high textile manufacturing rates and exports, yarn imports declined over 35% percent as domestic capacity dominated market share. Recent industry forecasts project a similar year of growth through 2008, particularly since the Government of Indonesia has more than doubled textile investment subsidies to continue expansion in capacity and employment in the sector. There also is evidence of textile capacity migrating from China to Indonesia, as the domestic cost structure becomes increasingly competitive in world markets. Company Performance In 2007, the Company recorded significant gains in terms of profitability, market share, and operational efficiencies. With additional working capital funding from its major shareholder, the Company was able to increase sales by over 30% from the previous year, to Rp. 3,639.10 billion, and far exceeded the previous year’s EBITDA profitability by 130%, or Rp 119,6 billion. Despite yet another surge in raw material pricing, this time with the price of MEG increasing by 50-60% by year end, the Company was able to absorb these pressures and sustain product margins. Significantly, the Company was able to regain and sustain its domestic market share for both stable fiber and filament yarn, combined at over 20% of the domestic market. Export volumes were intentionally reduced to accommodate higher-margined domestic sales, although foreign business still represents nearly 30% of sales. By the Fall of 2007, product pricing/margins were approaching 3-year highs, and shipments were at an all-time high as fiber markets remained strong even during seasonably slow periods such as the Ramadhan holidays. This market strength began to slacken towards the end of December, however it has now recovered and the industry outlook remains cautiously optimistic. The Independent Auditors have expressed a qualified opinion on the financials of the Company for the year ended 31st December 2007 due to inadequate provision for the affiliated receivables. This will be addressed when Polysindo is implementing quassi reorganization along with the completion of the secured debt restructure. Outlook For 2008 the Government of Indonesia has projected a slight moderation of economic growth of 6%, reflecting concerns over consumer price inflation (particularly food, and cooking gas and oil) and a mild economic retrenchment in Asia resulting from the U.S. recession. Much of the negative impact of these phenomena is expected to be moderated by a continued boom in commodity prices and exports, particularly for the Indonesian


resource activities in rubber, palm oil, and coal. While the domestic polyester industry is expected to improve operating rates and continue to benefit from growing markets, there is some uncertainty in the projection of exports markets, as global economies are differentially impacted by the global economic slow down, and as raw material prices, particularly for paraxylene (PX), are impacted by record-breaking oil prices. However, the Company endeavors to recover the raw material cost inflation and maintain its margin through improvement in selling price and cost reduction measures. The Company continues to discuss with government agencies to secure the ratification of its secured debt plan and expects to finalize this important aspect of its general restructuring by the end of 2008. Meanwhile, the Company is continuing its efforts to secure replacement financing, for its working capital requirements, which will allow it to improve operating rates, minimize the impact of potential raw material inflations, increase profitability, and thereby provide for largely internally-funded capital expenditures. The restructuring of the secured debt will also enable a “quasi-reorganization”, whereby adjustments and write downs of some of its liabilities will improve its Balance Sheet. This, in turn, will allow for a more conventional bank financing for its working capital needs. All of these efforts will improve substantially the performance of the Company, and return it to the forefront of polyester manufacturers worldwide. The Board of Directors welcome Mr Peter Stanley Grant and Mr Peter Vinzenz Merkle who have joined as Directors in 2007. The Board will be further strengthened by their experience and knowledge. We would like to take this opportunity to express our sincere gratitude to our Shareholders, Customers, Suppliers, Bankers, Creditors, and Employees who continue to support the Company during this crucial stage of restructuring and re-emergence as a prominent leader in the manufacture of high quality polyester products.

V. Ravi Shankar President Director


MANAGEMENT

Commissioners and Directors In accordance with its Articles of Association, Polysindo is managed by a Board of Directors under the supervision of a Board of Commissioners. The members of the Board of Commissioners and the Board of Directors are chosen and appointed by the shareholders of Polysindo at the Annual General Meeting. The Articles of Association permit the President Director to act alone, or where the President Director is unable to act, any two directors to represent and act on behalf of the Board of Directors. The Current members of the Board of Commissioners of Polysindo are as follows: Name Age Principal Occupation Robert Clive Appleby 46 President Commissioner of Polysindo

since 2007. Director and Chief Investment officer of Asia Debt Management Hongkong Limited (ADM). Prior to joining ADM, he was a Managing Director of the Asian Fixed Income Division at Credit Agricole Indosuez specializing in structured Asian Debt.

Christopher Ian Teague 57 Commissioner of Polysindo since 2007. An Investment Officer with Spinnaker Capital, London,UK headquartered investment fund specializing in investments in emerging markets. Prior to joining Spinnaker, he was an Executive Director with Allco Equity Partners, an Australian investment fund which specialized in private equity and selected public markets opportunities

Christopher Robert Botsford 47 Commissioner of Polysindo since 2007.

Chief Executive Officer and Director of Asia Debt Management Hongkong Limited (ADM). Prior to establishing ADM, he ran the Asia-Pacific regional debt and derivatives operation for Republic National Bank of New York which provided hedging and other debt management structure to regional users.


K.H Sivasubramanian 61 Commissioner of Polysindo since 2002.

Chartered Accountant from India and has been with Polysindo since 1978. Prior to joining Polysindo, he worked with Rhodes & Parks (India) and Dunlop (India) Ltd.

Timbul Thomas Lubis SH, LLM 56 Commissioner of Polysindo since 1990, Partner of Lubis Ganie & Surowidjojo Lawyer Firm since 1982. He is a graduate of University of Indonesia and University of Washington.


The Current members of the Board of Directors of Polysindo are as follows: Name Age Principal Occupation V. Ravi Shankar 45 President Director of Polysindo since

2002. He is a graduate of Production Engineering. He has also completed Advanced Management Programme from Harvard University in 2004. Prior to joining Polysindo, he was managing Textiles Division of the subsidiary Company of Polysindo and also worked in Machinery manufacturing company in Indonesia and India.

Masjhud Ali, MBA 67 Director of Polysindo since 2002.

Prior to joining Polysindo, he was Director of PT Bank Pembangunan Indonesia (Bapindo) and was a Director in Bank Putera.

S. Jegatheesan 59 Director of Polysindo since 2002.

He is a graduate in Electrical Engineering, and has been with Polysindo since 1989. Prior to joining Polysindo, he was General Manager of a yarn producing Company and worked as Project Manager for an Engineering Company in India.

Peter Stanley Grant 56 Director of Polysindo since 2007. He is holding MS in Civil Engineering from MIT, MA-Public Administration and International Development from the University of Oregon and BA Economics and International Relations from Brown University, USA. Joined Polysindo in November 2006 as Chief Financial Officer. Prior to joining Polysindo, he worked in Telecommunication and Media companies worldwide, worked as CFO/COO of a rayon manufacturing company in Lowland, Tennessee and was a partner ion various Power generation plants.


Peter Vinzenz Merkle 51 Director of Polysindo since 2007.

He joined Polysindo in 2000 as head of Karawang unit producing PTA, Polymer and Fibre. Prior to joining Polysindo, he worked in various renowned Chemical & Fibre Companies such as Trevira Group and Hoechst AG as head of R&D Division and the Technology Development Division. He has an MS in Chemical Engineering from University of Stuttgart, Germany specializing in Polymer processing and environmental technologies.


Management Report An overview of the Polyester Industry

The Polyester industry experienced strong growth in the year 2007, with global fibre production estimated to have increased by 4.8%. Of this, the synthetic fibre production is estimated to have increased by10%, compared to year 2006 to 45.2 million tones. Total Indonesian exports reached an all time high level of US$ 106 billion in 2007 as compared to US$. 102 billion in 2006. Textiles exports accounted for US$ 10.1 billion in 2007 as compared to US$ 9 billion in 2006, registering steady growth year-over-year.

There has also been a volatile movement in the oil prices and consequently raw materials prices such as Paraxylene and especially MEG, spiked 30% to 50% in the second semester of 2007. These price fluctuations in the raw material prices in the second semester of 2007 severely affected operating margins in the polyester industry worldwide. PTA (Purified Terephthalic Acid) & Polymer The production of PTA in the year 2007 was higher than in 2006. This was mainly due to improved operating rates and strong domestic demand. Capacity utilization of PTA in 2007 was approximately 70%. Polymer production increased by 12.3% in the year 2007, compared to 2006, due to higher production of yarns and fibres throughout the year. Staple Fibre Global polyester staple fibre production remained more or less at the same level of year 2006 at 11,5 Million tones. The Company’s staple fiber production in the year 2007 was higher than in the year 2006 by 35%. The fibre section operated at higher capacity levels due to improved export demand and increased availability of working capital. Filament Yarn In 2007, the global polyester filament yarn production increased by 9.2% compared to 2006 to 17.4 million tonnes. The Company’s filament yarn production increased by 26% in 2007 compared to 2006. Capacity utilization was approximately 75% during 2007 due to increased availability of working capital.

Fashion Fabrics / Performance Fabrics The fashion fabrics division suspended its operations in September 2004 and retrenched the employees of this division. The Performance Fabric Division operated at a low capacity due to lack of working capital.


Product Range

The Company’s –product range include :

Product Type Utilization

1. PTA (Purified Terephthalic Acid) Manufacture of Polyester Chips

2. Polyester Chips Semi-Dull

Super Bright

Cationic Dyeable

Optical Bright

Polyester Filament yarn/ staple fiber

Filament yarn/ staple fiber

Filament yarn

Polyester staple Fiber

Filament yarn

3. Polyester Staple Fiber Normal

Dope Dyed

Spun Yarn

Non Woven

Fiber Fill

Spun yarn/ Dope dyed yarn

4. Polyester Filament Yarn Normal

Dope Dyed

Cationic

Micro filament

Hi filament

Differential Shrinkage

Tailored Clothing – Formal and Casual

Automotive textiles

Upholstery

Home furnishings

Technical fabrics

Light luminous fabrics for sportswear

Apparel fabrics with mélange effect.

Super fine apparel fabrics with cotton tencel feel

Fine apparel fabrics

Fine apparel fabrics

5. Fabrics Dress Material

Suiting Material

High performance

Fabrics

High quality ladies wear

Men’s wear

Outdoor wear, Winter clothing active wear, sportswear, children’s wear


Marketing & Distribution

Polysindo continues its efforts to maintain and increase its domestic market share for its products – filament yarn and staple fibre. While emphasis is given for maximizing sales in the domestic market segments, Polysindo strives to develop export market globally to optimize sales and product with the specific emphasis on development of specialty products to develop market.

Human Resources

The Company has continuously optimized its work force in line with the capacity utilization of its facilities. The Company continues to maintain good relation with its workforce. The Company has also designed its Human Resources Strategy to be in line with the changes in the external and internal environment. The Company is implementing various schemes to reward performance and improve the career path of all of its employees. The total workforce of Polysindo in 2007 was 2,871. Environment

The Company is fully compliant to all applicable environmental standards of Indonesia with Badan Pengendali Lingkungan (Bapedal) as its regulating authority.

Locaction & Type of Assets Work more than 5% of Total Assets

The Company has certain assets whose values exceed 5% of the company’s total assets. For Polysindo, these assets, which essentially consist of land, machinery and buildings, including the PTA Plant, Polymer facilities, fiber line and yarn equipment, are located in two manufacturing facilities in Kaliwungu, in Central Java and Karawang, in West Java. For Texmaco Jaya, the assets are located in Karawang, in West Java and in Pemalang in Central Java. They include land, buildings and machinery, including weaving looms, preparatory, finishing and other textile machinery.


Hypothecated Fixed Assets

Polysindo has production facilities at Karawang and Kaliwungu. The land totaling 15.9 hectares, buildings, plant and equipment and located in Kaliwungu facilities are hypothecated to IBRA (Indonesian Bank Restructuring Agency). The land totaling 26.62 hectares, building and production facilities at Karawang are secured to the Company’s guaranteed Secured Notes. Dividend Policy Polysindo has historically paid an annual dividend after the approval of the Company’s shareholders at the Annual General Meeting of the shareholders. However in view of the current financial situation, Polysindo did not declare a dividend in the year 2007. Stock Price Performance

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

2006 Highest Lowest Volume 2007 Highest Lowest Volume

(Rp) (Rp) (Shares) (Rp) (Rp) (Shares)

45 45

0

100 30

490,783,000

45 45

0

100 64

1,237,041,500

45 25

18,012,000

132 74

11,395,737,500

35 25

14,162,000

129 50

10,116,348,500


Restructuring Status & Financing Activities Polysindo has substantially implemented the Composition Plan as approved by the unsecured creditors. The New Notes were issued to the extent of 80% in exchange of old Notes. Polysindo has also reissued the ‘Secured Debt Restructure Proposal’ (SDRP) to its secured creditors, including the PPA, in March 2007. To date, Polysindo has been given to understand that a majority of the secured creditors are inclined to approve the proposal and accordingly it is confident of completing the restructure process sometime soon, pending consensus with the PPA.

Damiano Investment BV, a majority shareholders of the company and also a substantial holder of Polysindo’s debts, have provided a working capital facility. They have also arranged a letter of Credit facility to procure raw materials. The Company has four subsidiaries: PT Texmaco Jaya Tbk. (Texmaco Jaya), Polysindo International Finance Company BV. (PIFC), Polysndo Mauritius Ltd., and PT. Eastindo Polymertama (Eastindo). PT. Texmaco Jaya Tbk (Texmaco Jaya). Texmaco Jaya’s production facility consists of weaving, knitting, dying and finishing of Fashion Fabrics and Performance Fabrics. The Fashion Fabric division is not in operation due to lack of working capital. Polysindo owns 92% shares of Texmaco Jaya. Polysindo International Finance Company BV. (PIFC) and Polysindo (Mauritius) Ltd. Polysindo International Finance Company BV (PIFC) and Polysindo (Mauritius) Ltd., are wholly owned subsidiaries of PT. Polysindo Eka Perkasa Tbk. and act as financing vehicle for Polysindo. The double taxation treaty between Indonesia and Mauritius has expired, hence Polysindo intends to wind-up Polysindo (Mauritius) Ltd. PT. Eastindo Polymertama (Eastindo) Eastindo was originally formed to implement the expansion of PTA, Polymer in Karawang which was later on implemented through Polysindo itself. As Eastindo has not engaged in any manufacturing activity, the Company is planning to wind up PT Eastindo Polymertama.


Management Discussion and Analysis Overview The revenue of the Company is derived from the sale of filament yarn, staple fibre, polyester chips and performance fabrics in domestic and export markets. Total sales in the year 2007 increased considerably as compared the previous year due to the availability of higher working capital facility from its majority shareholder and pre financing sources. The company could achieve the higher sales revenue despite operating at low capacity due to lack of adequate working capital. The Rupiah weakened in the last quarter of 2007 and stood at Rp9,419 / US$ on 31st December 2007 as compared to Rp 9,020 / US$ in 2006. Results of operations. Sales Revenue In the year 2007, net sales revenue was Rp3,639.1 billion as compared to Rp3,060,8 billion in the year 2006. The net sales revenue improved marginally by 18.8 % due to higher productions and sales volume of yarn and fiber. The export sales were Rp1,051.4 billion or 28.8 % of the net sales and domestic sales were Rp2,587.7 billion or 71.2 % of the net sales. The other operating revenue in 2007 was Rp4.6 billion realized through sale of indirect materials and waste products. Gross Profit / (Loss) The Company posted a gross loss of Rp174.3 billion in the year 2007 as compared to Rp434.1 billion in the year 2006. The reduction in gross loss was mainly due to higher margins on filament yarn an fiber on account of strength demand for the products in domestic and export market. In addition the sales volume had also increased considerably in 2007. Operating Profit / (Loss) The operating loss in the year 2007 was Rp453.9 billion as compared to Rp666.1 billion in the year 2006. Selling, general and administrative overheads in the year 2007 was Rp279.6 billion as compared to Rp227.1 billion in the year 2006. The company could maintain the overhead expenses at the same percentage levels of sales as compared to the previous year as the cost saving measures were sustained.


Net Loss The Company posted a net loss of Rp1,028.0 billion in the year 2007 as compared to Rp25.4 billion in the year 2006. The increase in net loss, despite a lower operating loss, was mainly due to exchange loss of Rp430.9 billion as compared to exchange gains of Rp713.5 billion in the year 2006. This was on account of depreciation of Rupiah in the year 2007 to Rp 9,419/US$ as compared to Rp 9,020/US$ in 2006. Auditors Opinion The independent accountants have expressed a qualified opinion on the financials of the Company for the year ended 31st December 2007. This was mainly due to non availability of confirmation of balances of its subsidiary and inadequate provision of allowances for doubtful account on trade receivables from related parties. The company would address the provision for allowances on trade and other receivables once the secured debt restructured of the Company is completed. Business Risks Economic Scenario In the year 2007 witnessed a strong demand for the polyester products despite the impact of rising oil price. The polyester fiber has grow quite steadily, world-wide, at average of 6.2% over the past year. Though the raw material prices remained steady in the first semester of 2007, it started increasing in the second semester of 2007 due to increase in the oil price and temporary shut down of facilities of MEG production by a major producer. However, the Company could pass on most of the price increase to its customers, as the demand remained strong in the second semester. The price of Paraxylene and MEG continued to be volatile in the fist quarter of 2008 due to its demand, supply positions and high oil price. Debt Restructuring Polysindo has implemented most of the processes of Composition Plan of the unsecured creditors. Around 80% of unsecured creditors have exchanged their old note for New Notes and equity shares were allotted to them. Regular circulars and notification are being sent to all unsecured creditors for settlement of the reminder of the unallocated New Notes and Equity share as per the Composition Plan. The secured restructure is not yet completed as Polysindo still awaits the response from PPA. Damiano Investment BV, the majority shareholders is also the majority holders of secured debts other than PPA portion. Damiano Investment BV, has provided a working capital facility and letter of credit facility for the procurement of raw materials. This has helped considerably Polysindo in maintain a reasonable capacity utilization of its production facilities.


With continued strong demand for the polyester product coupled with completion of secured debt restructuring, Polysindo expect the improve overall performances in the year 2008. Polysindo is also striving to obtain a formal working capital facility through a formal banking channel. On February 21, 2008, the shareholders approved the reverse stock split with ratio of 20:1 which is part of polysindo’s restructuring plan. The reverse stock split was carried out to consolidated the number of shares as per the market condition and to provide liquidity for its shares.

Good Corporate Governance The Company has been complying with the various requirements Indonesian Corporate Law, Capital Market Law and Stock Exchange Regulations. The Company has also been disclosing the material information to the shareholders, stakeholders and public. The company will continue to strive to bring more transparency, fairness in its reporting to its shareholders, stakeholders and public. Corporate Social Responsibility (CSR) Polysindo has many on going social activities in the vicinity of its two plant locations to improve and impact the livelihood of the communities. Various schemes such as supply of medicines, vaccines, baby food, essential commodities like rice, cooking oil are being done regularly. Local schools upto the secondary level are being run in Karawang and Semarang and scholarships are being provided to the very deserving poor students. Polysindo is very proactive in many of the social and religious activities in the region and always strive to be a responsible corporate contributing to all areas apart from the obvious economic benefits it provides to the towns.


Corporate Information Date of Incorporation

February 15th, 1984 Listing on the Jakarta and Surabaya Stock Exchange

1. Public Offering in February 1991 Partial Listing of 24,000,000,000 shares on 12 March 1991 on the Jakarta and

Surabaya Stock Exchanges. 2. Company Listing in January 1992. Company listed 68,000,000 shares on 3 January 1992 on the Jakarta and Surabaya

Stock Exchanges. The Company’s total number of listed shares was 92,000,000. 3. Rights Issue Offering in October 1993 Between November 1, 1993 and January 3, 1994, the Company launched the first

Rights Issue Offering of 184,000,000 shares. After the rights issued, the number of issued shared shares of the company totaled to 276,000,000.

4. Stock Splits in March 1995. With the stock splits on 27 March 1995 respectively, a total of 552,000,000. 5. Bonus issue and dividend shares in April 1995. On 12 April 1995 and 17 April 1995 respectively, a total of 552,000,000 bonus and

dividend share were listed on Jakarta and Surabaya Stock Exchanges. The total number of listed on both Jakarta and Surabaya Stock Exchanges amounted to 1,104,000.000.

6. Rights Issue Offering II in June 1996 With the second Right Issue Offering on 10 June 1996, 1,104,000,000 shares were listed on Jakarta and Surabaya Stock Exchanges, which gives a total of 2,208,000,000 shares listed on the Stock Exchange Houses.

7. Rights Issue Offering III in December 1997 The third Rights Issue Offering on 24 December 1997 launched a sum of

2,185,920,000 shares on Jakarta and Surabaya Stock Exchanges. Thus, after the completion of rights Issue III, the Company’s total number of listed shares is 4,393,920,000.

8. Debt to Equity Swap in September 2006. Polysindo has received approval from Department of Justice and Human Right for

the issue of 43,144,238,750 shares to its unsecured creditor as a part of debt to equity swap as approved by Jakarta Commercial Court . Out of that as on 31st December 2006, Polysindo has allotted 36,093,831,290 shares to unsecured creditors who have made their claim with the Company. Polysindo has also received approval from Departement of Justice and Human Right for the 40,340,241,250 shares to be issued to its secured creditors as per Secured Debt Resrtucture Proposal (“SDRP”). Polysindo has not allotted any shares so far as at 31st December 2007.


Total Structure as of 31 December 2007 87.878.400.000

Capital Structure as 31 December 2007

Serie A Authorized Capital Rp. 8,500,000,000,000 Nominal Value per share Rp. 500 Paid-up Capital Rp. 2,196,960,000,000 Serie C Authorized Capital Rp.166.968.960.000 Nominal Value per share Rp. 2 Paid-up Capital Rp. 86.288.477.500 Shareholders Damiano Investment BV. 60.70%

PT. Multikarsa Investama* 5.53% Public 33.77%

* Shares transferred by PT. Multikarasa Investama to PT. Bina Prima Perdana under IBRA restructuring. Registration with Indonesia Stock Exchange yet to be completed.

Board of Commissioners President Commissioner Robert Clive Appleby Commissioner Christopher Ian Teague Commissioner Christopher Robert Botsford Commissioner K.H Sivasubramanian Independent Commissioner Timbul T. Lubis, SH, LLM Board of Directors President Director Vasudevan Ravi Shankar Director Drs. Masjhud Ali, MBA Director Seeniappa Jegatheesan Director Peter Stanley Grant Director Peter Vinzenz Merkle Company’s Activities

Engaged in the production of PTA, Polymer, Polyester Fibre & Filament Yarn and Synthetic fabrics.

Production Capacity as of 31 December 2007 Purified Terephthalic Acid (PTA) 340.000 ton/year Polyester Chips 330.400 ton/year Polyester Staple Fiber 140.000 ton/year Polyester Filament Yarn 140.000 ton/year Fabric 78.000.000 yard/year


Representative Office

Sentra Mulia Suite 1001, 10th Floor Jl. H.R. Rasuna Said Kav. X-6 No. 8 Jakarta 12940 Tel : (62-21) 522-9390,2520656 Fax : (62-21) 522-9220/ 522-9411 Registered Office Desa Nolokerto Kecamatan Kaliwungu, Kendal Tel : (62-24) 8660272 Fax : (62-24) 8660275

Manufacturing Facilities

Plant 1 : Plant 2 : Kiara Payung Vilage, Jl. Raya Kaliwungu Km. 19 Klari District, Karawang Kendal, Semarang West Java - Indonesia Central Java - Indonesia Tel : (62-267) 431971 Tel : (62-24) 8660272 Fax: (62-267) 431975 Fax : (62-24) 8660275 Share Registrar PT. Datindo Entrycom Wisma Dinners Club Anex Jl. Jend. Sudirman 34-35 Jakarta 10220 Registered Public Accountant Drs. Hendrawinata Gani & Hidayat Indonesian Member of Grant Thornton International Wisma Dharmala Sakti 18th Floor Jl. Jend. Sudirman 32 Jakarta 10220, Indonesia Tel : (62-21) 5707997 Fax : (62-21) 5707996


The Annual Report is signed by the Boards of Commissioners and Directors of PT. Polysindo Eka Perkasa Tbk.

Robert Clive Appleby President Commissioner

Vasudevan Ravi Shankar President Director

Christopher Ian Teague Commissioner

Drs. Masjhud Ali MBA Director

Christopher Robert Botsford Commissioner

Seeniappa Jegatheesan Director

K.H. Sivasubramanian

Commissioner

Peter Stanley Grant Director

Timbul Thomas Lubis, SH LLM

Independent Commissioner

Peter Vinzenz Merkle Director

Consolidated Financial Statements and Independent Auditor’s Report PT Polysindo Eka Perkasa Tbk and Subsidiaries December 31, 2007 and 2006

CONTENTS Board of Directors’ Statement Independent Auditor’s Report Page Consolidated Financial Statements Consolidated Balance Sheets 1 Consolidated Statements of Income 4 Consolidated Statements of Changes in Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 8

No. : 153a/P.01/08

Independent Auditor’s Report Directors, Commissioners and Stockholders PT POLYSINDO EKA PERKASA Tbk We have audited the accompanying consolidated balance sheet of PT Polysindo Eka Perkasa Tbk and Subsidiaries as of December 31, 2007, and the related consolidated statements of income, changes in equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of PT Polysindo Eka Perkasa Tbk and Subsidiaries as of December 31, 2006, were audited by Hendrawinata Gani & Rekan, whose report dated March 22, 2007 expressed a disclaimer opinion because of the Company’s going concern, non replied confirmation, and inadequate allowance for doubtful accounts from related parties. Except as discussed in the following paragraph, we conducted our audit in accordance with auditing standards established by the Indonesian Institute of Certified Public Accountants. 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 provide a reasonable basis for our opinion. Most of the confirmation replies on trade payables, short term loans, notes payables and leasing transaction of PT Texmaco Jaya Tbk (Subsidiary) and secured debts (PPA) of Company are not obtained. In addition, the allowance for doubtful accounts on trade receivables from related parties and due from related parties of Rp 137 billion and Rp 55 billion respectively as of December 31, 2007 was understated or inadequate to cover possible losses on uncollectible receivables. In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to obtain the confirmation replies and adequate allowance for doubtful accounts, the consolidated financial statements referred to first paragraph above present fairly, in all material respects, the consolidated financial position of PT Polysindo Eka Perkasa Tbk and Subsidiaries as of December 31, 2007 and the consolidated results of their operations and cash flows for the year then ended, in conformity with generally accepted accounting principles in Indonesia.

The accompanying consolidated financial statements have been prepared assuming that the Company and Subsidiaries will continue to operate as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company and Subsidiaries have experienced recurring net loss of Rp 1,028 billion for the year ended December 31, 2007, and have a negative working capital of Rp 10,291 billion and the capital deficiency of Rp 7,078 billion as of December 31, 2007. As per Composition Plan in 2006, the Company’s unsecured debt was restructured into fixed rate notes amounted to Rp 180,4 billion and new shares amounted to Rp 86.2 billion (43.1 billion shares series C) were issued. The Company’s secured debt restructuring is not yet completed though the proposal already has support from majority of secured debt holders, Damiano Investments BV., Netherland. In addition, since 2006 till now, Damiano Investments BV., Netherland, a majority shareholder in the Company (55.46% ownership) and majority secured debt holders, continue to provide the working capital loan facility totaling Rp 273 billion and letter of credit facility of Rp 492 billion for raw material procurement. Further in February 21, 2008, the Company took Corporate action to reverse stock split with ratio 20 : 1 in accordance with the Company’s debt restructuring plan. In PT Texmaco Jaya Tbk (Subsidiary), only fleece division is operating with the short-term working capital facility from Catora International BV., Netherland of Rp 4 billion. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Drs. Achmad Hidayat Registered Accountant No. D – 2460 License No. 98.1.0144 March 24, 2008 The accompanying consolidated financial statements are intended to present the consolidated financial positions, results of operations, and consolidated cash flows in accordance with accounting principles and practices generally accepted in Indonesia and not that of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in Indonesia.

PT POLYSINDO EKA PERKASA Tbk AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

December 31, 2007 and 2006

The accompanying notes to consolidated financial statements are an integral part of the consolidated financial statements

1

A S S E T S

Notes 2 0 0 7 2 0 0 6 Rp Rp CURRENT ASSETS Cash and cash equivalents 3c,4,43 31,509,078,109 40,571,016,492 Short term investments 3d,5 3,500,000,000 3,500,000,000 Trade receivables, net after allowance for doubtful accounts of Rp 195,395,374,838 in 3e,6,42,43 2007 and Rp 193,078,193,862 in 2006 Third parties 283,930,368,355 248,913,908,959 Related parties 431,962,991,840 434,333,939,847 Other receivables, net after allowance for

doubtful accounts of Rp 878,647,275 in 2007 and 2006

7

5,577,096,016

5,841,497,073

Inventories, net after provision for inventory obsolescence of Rp Nil in 2007 and 2006 3f,8 464,524,320,560 375,021,371,653 Purchase advances 42 142,125,934,051 56,555,301,037 Prepaid taxes 3n,20a 57,640,845,467 128,410,824,593 Prepaid expenses 7,832,123,149 5,393,861,039 Total current assets 1,428,602,757,547 1,298,541,720,693 NON-CURRENT ASSETS Due from related parties 9,42,43 634,026,438,215 621,176,485,643 Deferred tax assets 3n,20d 44,448,146,715 37,538,933,890 Restricted cash in banks 3c,10,43 17,675,041,856 17,166,561,708 Fixed assets, net after accumulated depreciation of Rp 7,426,482,113,317 in 2007 and Rp 6,869,516,761,383 in 2006 3g,h,11 3,314,897,325,207 3,865,702,334,465 Advances for investment in a joint venture 12 5,914,525,920 5,914,525,920 Other assets 13 2,617,880,421 2,588,738,090 Total non-current assets 4,019,579,358,334 4,550,087,579,716 TOTAL ASSETS 5,448,182,115,881 5,848,629,300,409

PT POLYSINDO EKA PERKASA Tbk AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)

December 31 2007 and 2006


2

LIABILITIES AND EQUITY (DEFICIENCY)

Notes 2 0 0 7 2 0 0 6 Rp Rp CURRENT LIABILITIES Bank loans 14,43 492,737,107,725 392,385,203,751 Secured Debts 15,43 9,398,371,873,971 9,024,193,904,160 Short term loans 16,43 332,577,300,868 323,925,812,329 Notes payable 17,43 189,059,168,993 182,618,875,962 Trade payables 18,42,43 Third parties 207,971,874,071 168,343,148,762 Related parties 59,725,097,513 58,855,993,276 Liabilities for purchase of fixed assets 19,43 287,055,800 274,895,775 Taxes payable 3n,20b 20,674,632,862 55,936,302,343 Accrued expenses 21,43 823,346,153,230 683,727,405,138 Current maturity of obligation under capital lease 3h,25 40,605,132,818 39,087,916,349 Current maturity of credit financing payable 26 144,999,996 – Other current liabilities 43 154,601,014,430 140,837,260,517 Total current liabilities 11,720,101,412,277 11,070,186,718,362 NON-CURRENT LIABILITIES Unsecured Debts and Notes Payable 22,43 180,369,091,603 169,269,839,721 Working capital loan 23,43 273,373,940,356 269,621,644,406 Due to related parties 24,42 14,868,901,689 14,933,655,337 Deferred tax liabilities 3n,20d 296,052,805,083 334,120,865,114 Credit financing payable 26 169,166,674 – Provision for employee entitlement 3k,30 40,890,401,313 39,039,996,433 Total non-current liabilities 805,724,306,718 826,986,001,011

PT POLYSINDO EKA PERKASA Tbk AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)

December 31 2007 and 2006


3

LIABILITIES AND EQUITY (DEFICIENCY)

Notes 2 0 0 7 2 0 0 6 Rp Rp EQUITY (DEFICIENCY) Capital stock Authorized 247,145,100,800 shares at Rp 500 par value per Series A; Rp 50 par value per Series B; and Rp 2 par value per Series C Issued and paid up 4,393,920,000 Series A and 43,144,238,750 Series C 27 2,283,248,477,500 2,283,248,477,500 Additional paid-in capital 3i,28 5,586,506,149,053 5,586,506,149,053 Difference in the equity transactions of Subsidiaries 3i (4,950,019,100 ) (4,950,019,100) Equity adjustment from translation 3m 11,290,517,935 12,358,338,688 Difference on restructuring among under common control companies 1c (221,924,188 ) (221,924,188) Retained earnings (accumulated deficit) Appropriated 31 8,280,000,000 8,280,000,000 Unappropriated (14,961,796,804,314 ) (13,933,764,440,917) Total equity (deficiency) (7,077,643,603,114 ) (6,048,543,418,964) TOTAL LIABILITIES AND EQUITY (DEFICIENCY) 5,448,182,115,881 5,848,629,300,409

PT POLYSINDO EKA PERKASA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 2007 and 2006


4

Notes 2 0 0 7 2 0 0 6 Rp Rp OPERATING REVENUES Net sales 3l,34,42 3,639,104,333,989 3,060,830,110,492 Other operating revenues 3l,35,42 4,640,838,842 18,997,830,233 Total operating revenues 3,643,745,172,831 3,079,827,940,725 COST OF GOODS SOLD 3l,36,42 (3,818,088,987,554) (3,518,903,189,278) GROSS LOSS (174,343,814,723) (439,075,248,553) OPERATING EXPENSES Selling expenses 3l,37 (151,341,049,894) (113,592,568,270) General and administrative expenses 3l,38 (128,262,256,931) (113,458,508,750) Total operating expenses (279,603,306,825) (227,051,077,020) LOSS FROM OPERATIONS (453,947,121,548) (666,126,325,573) OTHER INCOME (CHARGES) Interest income 40 520,699,708 249,584,878 Gain on sale of fixed assets 11 52,000,000 47,566,637 Interest expense and bank charges 39 (192,900,780,885) (112,614,055,420) Employee entitlement expense 3k,30 (10,335,443,538) (18,056,359,001) Gain (loss) on foreign exchange, net 3m (430,995,450,470) 713,482,350,282 Insurance claim settlement 32 108,597,807 – Miscellaneous income, net 41 14,487,862,673 5,986,000,464 Total other income (charges), net (619,062,514,705) 589,095,087,840

LOSS BEFORE INCOME TAX (1,073,009,636,253) (77,031,237,733)

TAX INCOME (EXPENSE) 3n Current period 20c – – Deferred 20d 44,977,272,856 51,601,705,139 Total tax income 44,977,272,856 51,601,705,139 LOSS FROM NORMAL ACTIVITIES (1,028,032,363,397) (25,429,532,594) EXTRAORDINARY ITEM 3q – – NET LOSS (1,028,032,363,397) (25,429,532,594) BASIC NET LOSS PER SHARE 3o,33 (22) (1)

PT POLYSINDO EKA PERKASA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the years ended December 31, 2007 and 2006


5

Retained earnings (accumulated deficit)

Notes

Capital stock

Additional paid-in capital

Advance for future stock subscription

Difference in the equity

transaction of subsidiaries

Equity adjustment from

translation

Difference on restructuring among under

common control

companies

Appropriated

Unappropriated

Total equity (deficiency)

Rp Rp Rp Rp Rp Rp Rp Rp Balance as of December 31, 2005 2,196,960,000,000 11,992,613,553 5,660,802,013,000 (4,950,019,100) 13,425,213,178 (221,924,188 ) 8,280,000,000 (13,908,334,908,323) (6,022,047,011,880) Equity adjustment from translation – – – – (1,066,874,490) – – – (1,066,874,490) Advance for future stock subscription 86,288,477,500 5,574,513,535,500 (5,660,802,013,000) – – – – – – Net loss for the period – – – – – – – (25,429,532,594) (25,429,532,594) Balance as of December 31, 2006 2,283,248,477,500 5,586,506,149,053 – (4,950,019,100) 12,358,338,688 (221,924,188 ) 8,280,000,000 (13,933,764,440,917) (6,048,543,418,964) Equity adjustment from translation – – – – (1,067,820,753) – – – (1,067,820,753) Net loss for the period – – – – – – – (1,028,032,363,397) (1,028,032,363,397) Balance as of December 31, 2007 2,283,248,477,500 5,586,506,149,053 – (4,950,019,100) 11,290,517,935 (221,924,188) 8,280,000,000 (14,961,796,804,314) (7,077,643,603,114)

PT POLYSINDO EKA PERKASA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS



6

Notes 2 0 0 7 2 0 0 6 Rp Rp CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers 3,196,395,652,257 2,934,922,496,097 Cash paid to suppliers (2,569,963,578,530) (3,657,430,996,010) Cash paid to directors and employees (104,390,116,850) (81,471,432,945) Other operating cash receipts and payments, net (435,297,678,052) 53,220,086,637 Cash provided by (used in) operations 86,744,278,825 (750,759,846,221) Interest received 522,105,721 249,584,878 Interest expense and bank charges paid (9,501,546,367) (52,196,059,706) Cash receipts from insurance claim settlement 324,140,362 – Payments of income tax (48,958,596,024) (78,579,953,860) Refunds of income tax 30,906,063,093 – Net cash provided by (used in) operating activities 60,036,445,610 (881,286,274,909) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of fixed assets 11 52,000,000 134,181,818 Payment to acquire fixed assets 11 (5,678,342,675) (8,153,256,060) Increase in short term investments 5 – (3,500,000,000) Decrease (increase) in other assets 31,790,660 (17,646,837)

Net cash used in investing activities (5,594,552,015) (11,536,721,079)

PT POLYSINDO EKA PERKASA Tbk AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)



7

Notes 2 0 0 7 2 0 0 6 Rp Rp CASH FLOWS FROM FINANCING ACTIVITIES Receipt from bank loans 14 100,351,903,974 392,385,203,751 Payment of short term bank loans 16 8,651,488,539 4,510,000,000 Payment of obligation under capital lease (205,885,000 ) (433,025,000) Payment of due to related parties (427,013,984,399 ) (380,539,410,602) Receipt of due from related parties 257,008,519,548 1,351,201,420,364 Receipt of working capital loan 23 – 245,046,644,406 Payment of credit financing facility (157,090,000 ) – Net cash provided by (used in) financing activities (61,365,047,338 ) 1,612,170,832,919 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(6,923,153,743

) 719,247,836,931

EFFECT OF FOREIGN EXCHANGE RATE (2,138,784,640 ) (693,619,661,871) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

4

40,571,016,492

14,942,841,432

CASH AND CASH EQUIVALENTS AT END OF PERIOD

4

31,509,078,109

40,571,016,492

ADDITIONAL SCHEDULE OF NON–CASH INVESTING AND FINANCING ACTIVITIES : Acquired fixed assets direct acquisition through credit financing facility 11,26 580,000,000 –

PT POLYSINDO EKA PERKASA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8

1. G E N E R A L

a. Establishment and General Information

PT Polysindo Eka Perkasa Tbk (the Company) was established within the framework of the Domestic Capital Investment Law No. 6 year 1968 as amended by Law No. 12 year 1970 based on notarial deed No. 22 dated February 15, 1984 of Januar Tirtaamidjaja, SH, notary public in Jakarta. The deed of establishment was approved by the Minister of Justice of the Republic of Indonesia with decision letter No. C2-6107.HT.01.01.Th.84 dated October 26, 1984 and was published in Supplement No. 3247 of State Gazette No. 72 dated September 7, 1990. The articles of incorporation have been amended several times. The most recent changes in the Company’s articles of incorporation was affected by deed No. 100 dated December 27, 2002 of Aulia Taufani, SH, replacement of Sutjipto, SH, notary public in Jakarta, concerning issuance of the Company’s new shares without pre-emptive rights in the framework of debt restructuring and concerning changes in the Company’s authorized, issued and paid-in capital. The deed was approved by the Minister of Justice and Human Rights of the Republic of Indonesia with decision letter No. C–06824.HT.01.04.TH.2003 dated March 31, 2003 and published in Supplement No. 4599 of State Gazette No. 56 dated March 10, 2003. Further, the Company’s articles of association was amended by notarial deed of Aulia Taufani, SH No. 12 dated July 4, 2006. The deed was approved by the Minister of Justice and Human Right in his decision letter No. C–25038.HT.01.06.TH.2006 dated August 28, 2006 and registered at Department of Industry and Trade under No. 233/BH-1/IX/2006 dated September 1, 2006. In the framework of reverse stock or the deduction in the Company’s number of shares by changing the share par value, so the Company’s articles of association had been amended with notarial deed of Sutjipto SH No. 91 dated February 21, 2008. The deed was approved by the Minister of Justice and Human Rights of the Republic Indonesia with decision letter No. AHU-10588.AH.01.02 Tahun 2008 dated March 3, 2008. In accordance with article 3 of the Company’s articles of incorporation, the scope of the Company’s activities are mainly to engage in the manufacturing of chemical and synthetic fiber, weaving and knitting, and other activities related to the textile industry. The Company is domiciled in Kendal, Central Java with its plants located in Kendal, Central Java and Karawang, West Java. The Company’s head office is located in Sentra Mulia Building Suite 1001, 10th Floor, Jl. H.R. Rasuna Said Kav. X – 6 No. 8, Jakarta. The Company started its commercial operations in 1986. The Company’s products are marketed both domestically and internationally, including Europe, United States of America, Asia and the Middle East. The Company is one of the group of companies owned by Texmaco Group.

PT POLYSINDO EKA PERKASA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


9

1. G E N E R A L (Continued)

b. Public Offering of Shares and Notes Payable of the Company and its Subsidiaries

• On December 14, 1990, the Company offered 12,000,000 shares to the public through the

Jakarta and Surabaya Stock Exchanges. • On October 8, 1993, the Company obtained the notice of effectivity from the Chairman of

the Capital Market Supervisory Agency (BAPEPAM) in his letter No. S-1738/PM/1993 for its limited offering of 184,000,000 shares through rights issue to stockholders. These shares were listed in the Jakarta and Surabaya Stock Exchanges on November 1, 1993.

• On December 15, 1994, the Company obtained the notice of effectivity from the Chairman

of BAPEPAM in his decision letter No. S-2027/PM/1994 for the change of par value from Rp 1,000 to Rp 500 per share.

• On May 20, 1996, the Company obtained the notice of effectivity from the Chairman of

BAPEPAM in his decision letter No. S-778/PM/1996 for its limited offering of 1,104,000,000 shares through rights issue II to stockholders. These shares were listed in the Jakarta and Surabaya Stock Exchanges on June 10, 1996.

• On December 11, 1997, the Company obtained the notice of effectivity from the Chairman

of BAPEPAM in his decision leter No. S-2844/PM/1997 for its limited offering of 2,185,920,000 shares through rights issue III with pre-emptive rights to stockholders. These shares were listed in the Jakarta and Surabaya Stock Exchanges on January 5, 1998.

• In 1994, the Company issued US$ 125,000,000 Unsecured Senior Notes which are listed in

Luxembourg. In 1996, the Company offered to the holders of the said unsecured notes to exchange their notes with US$ 125,000,000 Guaranteed Senior Notes issued by PIFC with the Company as the guarantor. These notes were also listed in the Luxembourg Stock Exchange.

• In 1996, PIFC with the Company as the guarantor also issued US$ 50,000,000 Secured

Floating Rate Notes and US$ 260,000,000 Guaranteed Secured Notes which were listed in the Luxembourg Stock Exchange.

• In 1997, PIFC with the Company as the guarantor issued US$ 250,000,000 Guaranteed

Secured Notes which were listed in the Luxembourg Stock Exchange. • Prior to January 2000, the above notes were delisted from Luxembourg Stock Exchange.



10


b. Public Offering of Shares and Notes Payable of the Company and its Subsidiaries (Continued)

• Beginning December 2004, all of the Company’s outstanding shares totaling 4,393,920,000 shares were suspended and it continued to be suspended due to the pendancy of bankruptcy proceedings against the Company and the delay in submitting the required financial statements. The shares remained suspended eventhough the Company is out of bankruptcy. However, the Company is taking efforts to remove its suspention by submitting Company’s future plan of actions. Further, in July 2006, all of the Company’s shares have been traded.

• In 2006, The Company converted the unsecured debt amounted to 43,144,238,750 shares as

implementation of Peace Plan which have been approved and ratified by Commercial Court. Based on Indonesian Stock Exchange, the new shares can not be traded for 1 (one) year. Further, in Oktober 2007, the new Company’s shares have been traded.

• Based on the Extraordinary General Shareholders Meeting (RUPSLB) held on February 21,

2008, the shareholders approved the reverse stock split with ratio 20:1. It means 20 old shares will become 1 new share. Reverse stock split are conducted for more liquid the Company’s shares and in line with the Company’s performance. Due to the changes in the Company’s nimber of shares and par value, so the Company should amend its articles of association and the notarial deed was approved by the Minister of Justice and Human Rights on March 3, 2008.

• Further, based on notarial deed of Sutjipto SH No 122 dated February 27, 2008 about

shares purchase as the result of reverse stock stated that PT Trimegah Securities Tbk as stand by Buyer. In addition, all shares from reverse stock had been traded on March 14, 2008.

c. Consolidated Subsidiaries The Company has ownership interest of more than 50%, directly or indirectly, in the following subsidiaries :

Commercial Percentage of Total Assets Subsidiary Domicile Nature of Business Operation Ownership 2007 2006

% Rp Rp (in million) (in million)

PT Texmaco Jaya Tbk (TJ) Karawang Trading, weaving, knitting and processing

1972 92.00 395,025 444,567

PT Texmaco Graha Busana Trading of textile, and (TGB)-99% owned by TJ Jakarta producing ready to wear garments and accessories 1994 91.08 1,345 1,697

Polysindo International Finance Company B.V. (PIFC)

Netherlands Financial services 1994 100.00 7,151,076 6,848,147

Polysindo (Mauritius) Ltd. (PML)

Republic of Mauritius

Financial services Pre-operating 100.00 – –



11


c. Consolidated Subsidiaries (Continued)

In 2001, the Company had acquired 10,000 shares which represent 100% ownership at the amount of US$ 10,000 in Polysindo (Mauritius) Ltd. The difference between acquisition cost and the net assets of PML amounted to Rp 221,924,188 was recorded as difference on restructuring among under common control companies account in the equity. There were no transactions between the Company and Polysindo (Mauritius) Ltd during the year 2007 and 2006, and the Company has intention to close the operations of Polysindo (Mauritius) Ltd. There was no transactions between the Company and Polysindo International Finance Company BV during year 2007 and 2006 and the Company has intention to close the operations along with the restructure of the Company.

d. Employees, Directors and Commissioners • The members of the Company’s board of commissioners and directors as of December 31,

2007 and 2006 are as follows :

2 0 0 7 2 0 0 6 Board of commissioners : President Commissioner Mr. Robert Clive Appleby Mr. Slamet Nugroho Commissioners Mr. Christopher Ian Teague Mr. Kalpathi Hari Haran Sivasubramanian Mr. Christopher Robert Botsford Mr. Timbul Thomas Lubis SH Mr. Kalpathi Hari Haran Sivasubramanian (Independent commissioner) Mr. Timbul Thomas Lubis SH (Independent commissioner) Board of directors : President Director Mr. Vasudevan Ravishankar Mr. Vasudevan Ravishankar Directors Mr. Masjhud Ali Mr. Masjhud Ali Mr. Seeniappa Jegatheesan Mr. Seeniappa Jegatheesan Mr. Peter Stanley Grant Mr. Peter Vinzenz Merkle

• The Company’s total number of permanent employees as of December 31, 2007 and 2006 were 2,871 and 2,722 peoples respectively. The Subsidiaries’ total number of permanent employees as of December 31, 2007 and 2006 were 399 and 455 peoples respectively.



12

2. GOING CONCERN, DEBT RESTRUCTURING AND ECONOMIC CONDITIONS

a. Going Concern

In the year 2007, the Company has made a substantial improvement in its operations. Its operating capacity has improved and along with strong market condition for its products, the Company posted an EBITDA of US$ 13.6 million in the year 2007. Barring unforeseen circumtances, the Company expects to perform better in the year 2008. The Company has also plans to conduct a quasi reorganization of its balance sheet after the completion of its secured debts restructure. The Company emerged from bankruptcy following approval by Unsecured Creditors of a Composition Plan ("CP"), which was ratified by the Commercial Court on 16 November 2005. Full control of the Company has now been returned to the Directors and Commissioners of the Company and provisions of the Composition Plan have now been successfully implemented including the restructuring of unsecured creditor debt in exchange for New Notes and New Shares. As per the terms of the Composition Plan, the investors had already provided working capital facility to the Company. The Company had fully availed the Working Capital Loan of US$ 15 million and an additional loan of US$ 10.68 million from Damiano Investments BV, Netherland. Damiano Investments BV had also provided Letter of Credit facility of US$ 52 million to the Company for raw material procurement and the limit is fully availed as on date. The Company, after complying with various legal and Bapapem requirements, issued the 1st batch of new notes in exchange of the old unsecured debts as per the terms of the Composition Plan. The Company had also allotted the equity shares to the unsecured creditors in accordance with the Debt/Equity swap as per the terms of the Composition Plan. In an effort to also restructure its secured indebtedness, the Company also circulated a Secured Debt Restructuring Plan ("SDRP") dated November 29, 2005 to its Secured Creditors. Unfortunately, that proposal was not approved by all the Secured Creditors before the expiry date on December 14, 2005 and hence the proposed restructure could not be effective. The Company has once again circulated the Secured Debt Restructuring Plan (SDRP) to all secured creditors on March 14, 2007. The last date for acceptance of the SDRP is June 30, 2007, but till March 2008 the Company has not obtained the approval from the secured creditors, particularly from PPA (28% of the total secured debt) has not given their decision on restructuring settlement. However, Damiano Investments BV, Netherland, the majority shareholder, is also the majority holder of secured debt comprising of secured bonds and banks. Currently, Damiano Investments BV., Netherland holds approximately 90% of the secured bonds and banks other PPA. Even after completing the secured debt restructure as per the proposed envisaged, Damiano Investments BV., Netherland will be the majority shareholders and debt holders of the Company.



13


(Continued)

a. Going Concern (Continued) The major terms of the Secured Debt Restructuring Plan (SDRP) are given below: Proposed Restructuring Date July 1, 2007 Interest on New Notes Interest shall be payable on the New Notes quarterly in arrears and

calculated on the outstanding principal amount of the New Notes during the quarter at the per annum rates shown in the table below :

Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 0.0% 2.0% 2.0% 2.0% 4.0% 4.0% 4.0% 4.0% 4.0%

Amortisation Principal repayments shall be made at the end of each 12-month period beginning on the fourth anniversary of the Restructuring Date. The amount payable shall be equal to the percentages of the restructured principal amount shown in the table below:

Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 0% 0% 0% 5.0% 17.5% 17.5% 17.5% 20.0% 22.5%

Debt Restructuring New Secured Notes will be exchanged at 10.73 Cents per USD.

40.90% of the expanded equity will be allotted to the Secured Creditors as per the Debt /Equity swap indicated in the SDRP

In April 2007, Babbington Development Limited (Babbington) requested the Commercial Court (Pengadilan Niaga) to cancel of Peace Plan (Rencana Perdamaian) dated on October 20, 2005 which had been approved by the Company and majority unsecured. The Peace Plan were approved and ratified by Commercial Court on November 16, 2005. The request from Babbington to cancel of Peace Plan was refused by the judges on September 17, 2007. In addition, the company’s financial condition in 2006 showing the following : • Net loss amounting to Rp 1,028,032,363,397. In the net loss include loss on exchange rate

of Rp 430,995,450,470. • Negative working capital amounting to Rp 10,291,498,654,730. • Capital deficiency amounting to Rp 7,077,643,603,114.



14


(Continued)

a. Going Concern (Continued) The accompanying consolidated financial statements have been prepared on a going concern basis, and do not include any adjustment that might result from the outcome of this uncertainties. Related effects will be reported in the consolidated financial statements as they become known and can be estimated. Until to now, the Company in running its operation are supported by pre-finance from his customers, letter of credit facilities and working capital loan from Damiano Investments BV, Netherland and confident and understanding from suppliers. In addition, the Company had obtained confirmation letter from Damiano Investments BV, Netherland will assist the Company in provide letter of credit facilities until the Company able to letter of credit facilities from Bank. In year 2007, the net sales of Company and its Subsidiaries increased by Rp 578,274,223,497 (approx 19%) compared to year 2006.

b. Debt Restructuring

Debt Restructuring – the Company The following are the Salient features of the “Unsecured Restructure Proposal” of the Company: (i) Principal amount to be restructured to 2.961%. (ii) Interest and penalty will be waived. (iii) The restructured principle amount will be repaid over a period of 9 years. (iv) The unsecured creditors will get on equity of 19.2% of fully diluted equity shares of the

Company. (v) The rate of interest will be 2% p.a. and going up to 4% p.a. The Company has incorporated the restructure agreement with the unsecured creditors as approved by the Creditors and ratified by the Court. Accordingly, the total unsecured loans after the restructure stands at US$ 18,670,630 plus unpaid capitalized interest for 2007 and 2006 were US$ 478,865 and US$ 95,428 respectively so totaling amounts as of December 31, 2007 and 2006 were US$ 19,149,495 and US$ 18,766,058 respectively. The Company has also submitted restructure proposal to the secured creditors (SDRP). Further, the Company



15


(Continued)

b. Debt Restructuring (Continued) Debt Restructuring – the Company (Continued) reissued the SDRP proposal to all its secured creditors including PPA in the month of March 2007, as the earlier SDRP proposal has time barred. But no response has been received from PPA on the proposal. The proposal has the support of Damiano Investment BV., Netherland who are the majority holders of the other secured debts of the Company. The Company is taking all requisite corporate actions towards the implementation of the Composition Plan (“Peace Plan”) as approved by the unsecured creditors of the Company and ratified by the Commercial Court. The steps involve the issuance of the new debts in exchange of the old unsecured debts and issuance of the shares for the reduction of the principal amount as per the terms of the Composition Plan. The Company has reduced its unsecured debts as per the Composition Plan and increased its share capital as additional capital pending allotment to the creditors. The Company has appointed The Hongkong and Shanghai Banking Corporation Limited, Hong Kong to act as its Fiscal Agent, Paying Agent and Trustees for its new unsecured notes which are eurocleared. On February 21, 2008, the shareholders approved the reverse stock split with ratio 20: 1 which is part of the Company’s restructuring plan. The Company also had obtained the approval from the Minister of Justice and Human Rights with decision letter No. AHU-10588.AH.01.02 Tahun 2008 dated March 3, 2008 and the shares are traded in Regular Market on March 14, 2008. Debt Restructuring – the Subsidiary (TJ) On November 30, 2001, PT Polysindo Eka Perkasa Tbk (Polysindo) and Polysindo International Finance Company B.V. (PIFC) entered into Definitive Memorandum of Agreement (MOA) with the Bondholders and IBRA regarding the restructuring plan of Polysindo and its subsidiary, including into the debt restructuring of the MOA is the debt of the subsidiary which has agreed by Polysindo to include as part of the restructuring plan. Pursuant to the MOA, the old debt shall be exchanged with the New Debt Securities and New Common Shares of Polysindo and it is contemplated occur no later than June 30, 2002 (Closing). Based on the extraordinary stockholders’ meeting held on July 25, 2001which was covered by notarial deed No. 108 of Soetjipto, SH, also dated July 25, 2001, the independent stockholders approved to transfer the debt restructuring of the Company to Polysindo, however the transfer of the debt will be done with the consent of the creditors of the Company.



16


(Continued)

b. Debt Restructuring (Continued) Debt Restructuring – the Subsidiary (TJ) (Continued) Following are the debt instruments of the “New Debt Securities” relevant to the subsidiary’s debt which has agreed by Polysindo to include as part of the restructuring plan : • IBRA Secured Debt will receive the New Senior 1st Lien Secured Notes issued by

Polysindo. • IBRA Unsecured Debt and Trade Claim Debt will receive the New Senior 2nd Lien Secured

Notes – Series A, Rupiah debt issued to IBRA and Trade Claim Debt issued by Polysindo, while for USD debt issued to IBRA shall be issued by Polysindo Mauritius II and guaranteed by Polysindo, Portion of USD Trade Claim Debt will be issued by Polysindo Mauritius.

• Promissory Notes Debt and Unsecured Bond Debt will receive the New Senior 2nd Lien

Secured Notes – Series B, Rupiah debt of PNs will be issued by Polysindo, USD debt of PNs and Unsecured Bond will be issued by Polysindo Mauritius and guaranteed by Polysindo.

Conditions of each instruments of ‘New Debt Securities” relevant to the Company debt which have been agreed by Polysindo to include as part of the restructuring plan are as follows :

• New Senior 1st Lien Secured Notes

o Principal is the entire principal of IBRA secured debt ex. PT Bank Negara Indonesia (Persero) Tbk, PT Bank Dharmala and PT Bank Duta with total amount equivalent to US$ 27,894,293.33.

o Accrued and unpaid interest will be restructured into 66.65% new common shares of the fully diluted equity of Polysindo,

o Interest for 2001 amounted to US$ 730,527.79 will be paid to IBRA on Closing. o Issuance date : January 1, 2001. o The New Senior Secured Bonds have repayment dates on the first business day of

January of each year starting from January 1, 2005 up to January 1, 2011.

• New Senior 2nd Lien Secured Notes – Series A: o The principal is 24% of BPPN Unsecured Debt ex. PT Bank Putera Multikarsa,

Bank Arya and Bank Bira with total amount of US$ 2,077,053.04 and 24% unsecured Trade Claim Debt ex. PT Bank Sumitomo Mitsui Indonesia or amounted to US$ 457,556.16, The remaining principal amount will be restructured into New Common Shares approx 3.45% of fully diluted equity of Polysindo.



17


(Continued)

b. Debt Restructuring (Continued) Debt Restructuring – the Subsidiary (TJ) (Continued)

o Unpaid and accrued interest for 1998 up to 2002 shall be deemed forgiven. o Interest for 2001 of US$ 67,975.10 will be paid on Closing. o Issuance date : January 1, 2001. o The new Senior 2nd Lien Secured Notes – Series A have repayment dates on the

first business day of January of each year starting from January 1, 2005 up to January 1, 2009.

• New Senior 2nd Lien Secured Notes – Series B:

o The Principal is 24% of PN’s Debt or in the amount of US$ 3,153,860.47. The remaining principal amount will be restructured approx 11.90% into New Common Shares of the fully diluted equity of Polysindo.

o Denomination in US Dollar. o Unpaid and accrued interest for 1998 up to 2002 shall be deemed forgiven. o Interest for 2001 of US$ 47,548.72 will be paid on Closing. o Issuance date : January 1, 2001. o The New Senior 2nd Lien Secured Notes – Series B have repayment dates on the

first business day of January of each year starting from January 1, 2005 up to January 1, 2009.

On November 22, 2002 the Subsidiary and Polysindo have proposed Revised Term Sheet to creditors for changes in debt restructuring terms such as but not limited to issuance date of “New Debt Securities”, changes in the rate of interests and installment composition for principal repayment. However, the draft of Revised Term Sheet had not yet been approved by the creditors. Until March 2008, there were no further development on the Subsidiary’s debt restructuring.

c. Economic Condition The year 2007 has been very challenging for the polyester fibers market on the whole due to the impact of rising energy, MEG raw material cost and a relatively weak downstream textile demand. Polyester fiber has grown quite steadily at an average of 6.2% over the past few years and the production in 2007 had reached close to 29 million metric tons. Globally, polyester fiber will still account for 64 percent of the total polyester production in 2007. Northeast Asia has been the center of growth polyester textile filament production. In 2007, the production from this region should account for 78 percent of the total world production. China should extend its global market share to about 58 percent.



18


(Continued)

c. Economic Condition (Continued) Taking into consideration all aspects of the selection criteria (i.e., physical properties and prices), polyester fibers are not expected to face significant competition in commodity applications. Polyester fiber comprising of Filament yarn and Staple fiber, will continue to grow at the expense of natural fibers. Low operating rates and depressed margins in most countries will not justify the economics to add new capacities, except in china, India and Vietnam. Polyester fiber production outlook for 2008 is expected to grow at the same pace of 2007. Most demand for polyester fiber will still be in the textile applications. Looking at the different types of polyester fibers in textile application, demand for POY/DTY will continue to be strong, driven by fast expansion of downstream fabric capacities especially in Asia. Texturised polyester yarn however is expected to remain strongest fiber markets in West Europe. The Indonesia’s GDP growth had surpassed 6 percent per annum level for the first time after the Asian Economic crisis, reaching 6.3 percent in 2007. The growth accomplished is one that is more balanced, as reflected by the resilience of consumption expenditure followed by favorable growth in Investment. Investment to GDP ration had risen from 19 % in 2003 up to 23% in 2007. It is expected that the Economic growth will continue to rise in 2008 and 2009 supported by increasing investment to GDP ratio, improving public’s buying power, BoP surplus, a stable exchange rate and lowering inflation. While the economy is set to maintain a steady growth, the related economic factors and its stability generate greater optimism to the Industrial the sectors to maintain the pace of growth supported by domestic consumption and demand. The performance of the Company though will be greatly influenced by the growth in the domestic consumption, is much dependant on the raw material prices driven by the oil price movement and the demand supply of polyester products. With the crude oil prices expected to remain easy and the polyester growth to continue at the same level, the performance of the Company is expected to improve significantly.

3. ACCOUNTING POLICY

A summary of significant accounting policies adopted by the Company and its subsidiaries, which affect the determination of its consolidated financial position and result of its operations is presented below :



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3. ACCOUNTING POLICY (Continued)

a. Presentation of Consolidated Financial Statement

The Company’s consolidated financial statements which have been presented according Generally Accepted Accounting Principles in Indonesia, such as Financial Accounting Standard which established by the Indonesian Institute of Accountants, Capital Market Supervisory Board (BAPEPAM) regulation and BAPEPAM’s guidelines in the Presentation of public financial statement for public companies. The Company’s consolidated financial statements have been prepared on the historical cost basis of accounting, except for certain accounts which are measured on the basis described in the related accounting policies. The Company’s consolidated financial statements have also been prepared under the accrual basis of accounting, except for the Company’s consolidated statements of cash flows. The consolidated statements of cash flows are prepared using direct method which classified into operating, investing and financing activities. The reporting currency used in the consolidated financial statements is Rupiah. All figures presented in the notes to the Company’s consolidated financial statements are expressed in full amount of Rupiah unless otherwise stated.

b. Principles of Consolidation The consolidated financial statements include the accounts of the Parent Company and all subsidiaries that are controlled by the parent company, other than those excluded because control is assumed to be temporary or due to long term restrictions significantly impairing a subsidiary’s ability to transfer funds to the parent company. When a subsidiary either began or ceased to be controlled during the year, the results of the subsidiary’s operations are included only from the date of control commenced or up to the date of control ceased. Control is presumed to exist where more than 50% of a subsidiary’s voting power is directly or indirectly controlled by the parent company; or the parent company able to govern the financial and operating policies of a subsidiary; or control the removal or appointment of a majority of a subsidiary’s board of directors. All inter-company balances and transactions have been eliminated.



20


b. Principles of Consolidation (Continued) The minority interest in the net assets of consolidated subsidiaries are presented as “Minority Interest” in the consolidated balance sheets. When cumulative losses applicable to minority interest exceed the minority stockholders’ interest in the Subsidiary’s equity, the excess is charged against the majority stockholders’ interest and should not be reflected as an assets except in rare cases when minority stockholders have a binding obligation to make good on such losses. Subsequent profits earned by a Subsidiary under such circumstances that are applicable to the minority interests should be allocated to the majority interest to the extent minority losses have been previously absorbed. In 2007 and 2006, the minority interest in the accumulated losses of the Subsidiary has exceeded its equity interest in the Subsidiary and, accordingly, such excess losses have been absorbed by the Company being as the majority stockholder.

c. Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held on call with banks and other short term highly liquid investments with original maturities of three months or less. Restricted cash in banks are not classified as component of cash.

d. Short term investments

Time deposits are stated at par value, and with original maturities of more than three months. e. Trade Receivables

Trade receivables are recorded net of allowance for doubtful accounts, based on a review of the collectibility of outstanding amounts. Accounts are written-off as bad debts during the period in which they are determined to be not collectible.

f. Inventories Inventories are stated at cost or net realizable value which ever is lower. Cost of the Company’s inventories are carried on the weighted average method. Cost includes expenditures incurred in acquiring the inventories and bringing them to their present location and condition. The Company provides an allowance for inventory obsolescence based on a review of the status of the individual inventory items at end of the period.



21


g. Fixed Assets Fixed assets are stated at cost, net after accumulated depreciation. In 2003, the estimated economic useful life of certain machinery and equipment used in the operations that are acquired during 1997 up to 2001 have been changed from 10 years to 20 years. The changes were effected considering the estimated useful life of the similar assets by competitors, consistent quality that those machines are producing, technology, as well as proper preventive maintenance of those particular machines. Depreciation of fixed assets is computed using the straight-line method, based upon the estimated economic useful lives of the related fixed assets, as follows :

Years

Buildings and land improvements 20 Machinery and equipment 10 – 20 Transportation 5 Office equipment 5 Store equipment 5 Land is stated at cost and is not depreciated.

Expenditures for repair or maintenance of fixed assets to keep the future economic benefits are charged to the consolidated statement of income at the time of the transactions. Improvements which increase the value (utility) and the estimated of useful life of the assets, and significant renewals are capitalized. When assets are retired or otherwise disposed of, the carrying value and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the consolidated statement of income in the current period.

h. Leases Lease transactions are accounted for under the capital lease method if the following criteria are met : i. The lessee has an option to purchase the leased assets at the end of the lease period at a

price mutually agreed upon at the commencement of the lease agreement.

ii. Total periodic payments plus residual value fully cover the acquisition cost of leased capital goods plus interest thereon which is the lessor’s profit.



22


h. Leases (Continued) iii. Lease period covers a minimum of 2 years.

Leases that do not meet any of the aforementional criteria are accounted for under operating lease. Assets under capital lease are presented 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. Each lease payment is allocated between the principal repayment and lease interest expense. Based on the capital lease method, assets under capital lease is presented under “Fixed assets” account, and lease obligation is presented under “Obligation under capital lease” account. Assets under capital lease are depreciated using the same method and estimated useful lives used for the directly acquired of fixed assets.

i. Deferred Charges

Expenses related to the issuance of the Company’s shares to the public were deferred and are amortized over a ten year period using the straight-line method. In 1997, the Company opted to amortize the remaining balance of this account over five years. Further, based on BAPEPAM’s decision letter KEP-No.06/PM/2000 dated March 13, 2000 the share issuance costs were retroactively recorded into “Additional Paid-in Capital”. The share issuance cost of the subsidiaries is presented in the equity and the consolidated statements of changes in equity as “difference in the equity transactions of subsidiaries”. Expenses incurred in connection with the issuance of bonds and long-term notes to the public are charged to the respective debt and are amortized over the term of the debts using the straight-line method.

j. Retirement Benefits

The Company and its Subsidiaries established defined benefit pension plans covering all their local permanent employees. Current service cost is charged to operations in the current period. Past service cost, actuarial adjustment and the effect of changes in assumptions for active participants are amortized using the fixed annuity method over the estimated average residual employment period that has been determined by the actuary. The method used by the actuary for actuarial calculation is the Projected Benefits Entry Age Normal method.



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k. Provision for Employee Entitlement

Employee entitlements to service and compensation payments relating to an employee’s voluntary resignation, and employee retirement benefits for those who do not join the pension plans are recognized on accrual basis. A provision is made for the estimated liability as a result of past services rendered by employees up to the consolidated balance sheet date and is calculated based on the Ministry of Manpower regulation No. 150/Men/2000 dated June 20, 2000. Further, in April 2003, the Government of the Republic Indonesia issued Labour Law No. 13/2003 replacing the Manpower Decree No. Kep. 150/Men/2000.

l. Revenue and Expense Recognition Local sales are recognized when the goods are delivered to the customers, while export sales are recognized when the goods are shipped. Expenses are recognized when incurred.

m. Foreign Currency Transaction and Balances The Company’s books and records are maintained in Indonesian Rupiah. Transactions involving foreign currencies are recorded at the rates of exchange prevailing at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at balance sheet date are translated in Rupiah at the middle rate of Bank Indonesia are as follows : Foreign currencies December 31, 2007 December 31, 2006 Rp Rp US$ 1 9,419 9,020YEN 1 83 76CHF 1 8,261 7,382SGD 1 6,502 5,879NOK 1 1,723 1,590GBP 1 18,804 17,697EUR 1 13,760 11,848

Gains or losses arising from foreign exchange transactions are credited or charged to the consolidated statement of income in the current period. The Subsidiaries domiciled outside of Indonesia i.e. PIFC and PML maintain their accounting records in US Dollar respectively. For consolidation purposes, the financial statements of foreign domiciled subsidiaries are translated into Rupiah as follows :



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m. Foreign Currency Transaction and Balances (Continued)

• Balance sheet items, except for equity accounts, are translated at the exchange rate as of the

balance sheet date. • Profit and loss items are translated at the average rates of exchange for the year. The

difference resulting from this translation is presented in the consolidated balance sheets as part of stockholders’ equity.

Foreign exchange presented as part of equity in “Equity adjustment from translation”.

n. Income Tax

Income tax is computed on the basis of taxable income for the period. Deferred income tax is provided for the timing differences in the recognition of income and expenses for financial reporting and income tax purposes. The accounting treatment is in conformity with the Financial Accounting Standard No. 46 concerning accounting for income taxes.

Deferred tax is accounted for using the current tax tariff or substantially applicable at the balance sheet date. Deferred tax are charged or credited to the consolidated statement of income in the current period.

o. Basic Earnings (loss) per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during the year. The weighted average number of shares as of December 31, 2007 and 2006 was 47,538,158,750 and 18,775,332,916 shares respectively.

p. Segment Information In 2000, The Indonesian Institute of Accountants issued the revision of Financial Accounting Standard (PSAK) No. 5 about “Segment Reporting”. According to PSAK, effective January 1, 2002 the Company and its Subsidiaries classified segment reporting as follows : 1) A business segment (primary), which the Company and its Subsidiary business activity are

divided into weaving and knitting, also trading and producing ready to wear garments. 2) A geografis segment (secondary), consist of domestic and abroad business activities.



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q. Debt Restructuring

Net gains on debt restructuring after calculated income tax are recognized in the statement of income in the period of restructuring and classified as “extraordinary item”.

r. Impairment of Assets The Company and its Subsidiaries recognize impairment losses on assets if the recoverable amount of an asset is lower than its carrying amount. At each balance sheet date, the Company and its Subsidiaries assess whether there is an indication of impairment or reversal of an impairment loss. Any impairment loss or the reversal of impairment loss is recognized in the consolidated statement of income in the current period.

4. CASH AND CASH EQUIVALENTS

2 0 0 7 2 0 0 6 Rp Rp

Cash on hand : Rupiah 327,426,354 355,450,762 US Dollar 231,256,607 240,606,696 Singapore Dollar 9,231,363 9,712,250 Norwegia Kron 1,908,752 1,761,587

569,823,076 607,531,295

Cash in banks : Third parties : PT Bank Negara Indonesia (Persero) Tbk Rupiah account 232,097,256 175,099,860 US Dollar account 28,504,343 84,773,784 Credit Industriel Et Commercial US Dollar account 1,318,660 1,262,800 Deutsche Bank US Dollar account 7,473,035 8,937,287 ING Bank US Dollar account 27,339,684 26,181,542

Carried forward 296,732,978 296,255,273



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4. CASH AND CASH EQUIVALENTS (Continued)

2 0 0 7 2 0 0 6 Rp Rp

Brought forward 296,732,978 296,255,273 PT Bank Tabungan Negara Rupiah account 7,453,896 7,604,039 PT Bank Central Asia Tbk Rupiah account 752,544,441 554,133,154 US Dollar account 846,630,206 2,075,742,924 PT Bank Niaga Tbk Rupiah account 5,935,480,176 5,219,149,703 US Dollar account 23,084,126,741 21,766,817,554 PT Bank Mandiri Tbk Rupiah account 10,194,507 10,665,115 PT Bank Rakyat Indonesia Rupiah account 6,092,088 6,134,430 Bank Chinatrust Indonesia US Dollar account – 2,509,635 PT Bank Sumitomo Mitsui Indonesia Rupiah account – 13,102,307 US Dollar account – 11,371,063 30,939,255,033 29,963,485,197 Time Deposits : PT Bank Niaga Tbk – 10,000,000,000 Total 31,509,078,109 40,571,016,492

In 2006, time deposit with PT Bank Niaga Tbk of Rp 10,000,000,000 represents monthly time deposit with interest rate 10.25% per annum, and the time deposit was liqudated on January 26, 2007.

5. SHORT TERM INVESTMENTS

Time deposits with PT Bank Niaga Tbk of Rp 3,500,000,000 represents one year time deposit with interest rate 10.50% per annum, due on September 12, 2007. Further, on due date, time deposit was roll-over for 1 (one) year with interest rate of 8.25% per annum and due on September 12, 2008.



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6. TRADE RECEIVABLES

This account consists of : Third parties : 2 0 0 7 2 0 0 6 Rp Rp Local debtors 302,540,673,381 233,470,082,003 Foreign debtors 38,937,079,543 72,035,591,705 Total 341,477,752,924 305,505,673,708 Less : Allowance for doubtful accounts (57,547,384,569) (56,591,764,749) Net 283,930,368,355 248,913,908,959 A summary of the aging of trade receivables from third parties which were computed since the date of invoice is as follows : 2 0 0 7 2 0 0 6 Rp Rp Up to 1 month 209,471,677,252 199,597,921,908 > 1 month – 3 months 73,164,134,808 31,207,753,976 > 3 months – 6 months – 15,735,310,359 > 6 months – 1 year 1,294,556,295 2,372,922,716 > 1 year 57,547,384,569 56,591,764,749 Total 341,477,752,924 305,505,673,708 Changes in the allowance for doubtful accounts from third parties are as follows : 2 0 0 7 2 0 0 6 Rp Rp Beginning balance 56,591,764,749 56,569,334,990 Movement during the period : Additions 3,827,663,679 2,283,161,677 Deductions (2,872,043,859) (2,260,731,918) Ending balance 57,547,384,569 56,591,764,749

Based on the review of the status of the individual receivable accounts at the end of each period, the management has the opinion that the allowance for doubtful accounts is adequate to cover possible losses on uncollectible receivables.

Additions in allowance for doubtful accounts in 2007 and 2006 were Rp 3,827,663,679 and Rp 2,283,161,677 respectively were due to the addition of uncollectible receivables from third parties.



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6. TRADE RECEIVABLES (Continued)

Deductions in allowance for doubtful accounts in 2007 and 2006 were Rp 2,872,043,859 and Rp 2,260,731,918 respectively due to the collectible of the trade receivables from related parties The details of trade receivables from third parties based on currencies are as follows :

2 0 0 7 2 0 0 6 Rp Rp Rupiah 65,161,686,694 73,727,188,173 United States Dollar US$ 29,336,030 in 2007 and US$ 25,696,063 in 2006 276,316,066,230 231,778,485,535 Total 341,477,752,924 305,505,673,708

Related parties : 2 0 0 7 2 0 0 6 Rp Rp PT Multikarsa Investama 272,448,064,189 276,963,021,353 PT Wastra Indah 137,503,756,066 137,503,756,066 PT Raja Busana Mahameru 29,566,633,189 29,566,633,189 PT Mutiara Persada Inti 29,050,809,556 29,050,809,556 PT Sumatex Subur 25,655,601,950 25,655,601,950 Polysindo (UK) Ltd, England 23,208,995,551 22,225,835,001 Drapper Texmaco Inc, Co, United States of America 19,451,203,838 18,627,227,797 Coastal Group Ltd, South Africa 8,171,262,621 7,825,118,255 Norfil Ltd, England 6,858,830,935 6,568,282,728 Commonwealth Holdings Pte. Ltd., Singapore 4,679,986,317 4,481,736,552 PT Texmaco Perkasa Engineering 3,383,722,710 3,342,227,792 Polysindo (USA) Inc, United States of America 2,573,492,241 2,464,476,060 PT Elok Prima Mitra Busana 1,825,862,400 1,825,862,400 PT Texmaco Taman Synthetics 1,625,242,797 1,625,242,797 PT Citra Abadi Sejati 1,354,384,678 1,262,614,865 PT Ungaran Sari Garments 991,607,596 272,774,745 PT Supermitory Utama Tbk 756,192,410 661,402,410 PT Busana Perkasa Garments 414,404,447 606,816,826 PT Perkasa Heavyndo Engineering 141,187,416 141,187,416 PT Wahana Perkasa Auto Jaya 89,068,435 89,068,435 PT Perkasa Indobaja 60,672,767 60,672,767 Total 569,810,982,109 570,820,368,960 Less : Allowance for doubtful accounts (137,847,990,269) (136,486,429,113) Net 431,962,991,840 434,333,939,847



29


The Company and its Subsidiaries does not provide additional allowance for doubtful accounts in 2007 due to the Company and its Subsidiaries plan to do quasi reorganization after the completion of the secured debt restructuring. A summary of the aging of trade receivables from related parties which were computed since the date of invoice is as follows : 2 0 0 7 2 0 0 6 Rp Rp Up to 1 month 40,061,920 – > 1 month – 3 months 24,404,090 273,894,758 > 3 months – 6 months 352,205,768 295,721,188 > 6 months – 1 year 18,506,160 388,595,779 > 1 year 569,375,804,171 569,862,157,235

Total 569,810,982,109 570,820,368,960

Changes in the allowance for doubtful accounts from related parties are as follows : 2 0 0 7 2 0 0 6 Rp Rp Beginning balance 136,486,429,113 141,325,057,966 Movement during the period : Additions 2,706,644,081 929,554,575 Deductions (1,345,082,925) (5,768,183,428)

Ending balance 137,847,990,269 136,486,429,113 Additions in allowance for doubtful accounts in 2007 of Rp 2,706,644,081 due to the addition of uncollectible receivables from related parties of Rp 1,268,322,984 and foreign exchange of Rp 1,438,321,097. Additions in allowance for doubtful accounts in 2006 of Rp 929,554,575 due to the addition of uncollectible receivables from related parties. Deductions in allowance for doubtful accounts in 2007 of Rp 1,345,082,925 due to the foreign exchange. Deductions in allowance for doubtful accounts in 2006 of Rp 5,768,183,428 was due to the collectible of the trade receivables from related parties of Rp 183,253,509 and foreign exchange of Rp 5,584,929,919.



30


The details of trade receivables from related parties based on currencies are as follows : 2 0 0 7 2 0 0 6 Rp Rp Rupiah 504,867,210,606 525,027,825,813

United States Dollar US$ 6,894,975 in 2007 and US$ 5,076,779 in 2006 64,943,771,503 45,792,543,147

Total 569,810,982,109 570,820,368,960 In 2007, trade receivables are used as collateral for the Company’s working capital loan received from Damiano Investments BV., Netherland (Notes 23), and in 2006, trade receivables are used as collateral for the Company’s secured debts (Notes 15).

7. OTHER RECEIVABLES

2 0 0 7 2 0 0 6 Rp Rp Yayasan Pengembangan Science & Technology 1,845,187,382 1,845,187,382 Receivables from employees 2,317,930,510 2,735,332,681 PT Cipta Busana Jaya 878,647,275 878,647,275 Receivables from import clearance 192,205,501 277,447,505 Interest receivables from time deposits 13,094,792 23,484,931 Others 1,208,677,831 960,044,574 Total 6,455,743,291 6,720,144,348 Less : Allowance for doubtful accounts (878,647,275) (878,647,275) Net 5,577,096,016 5,841,497,073 Other receivables from employees represent loans gave to employees both individually and advances. Other receivables from Yayasan Pengembangan Science & Technology represent loans for operational expenses, these loans are not subject to interest and have no term of repayment.



31

7. OTHER RECEIVABLES (Continued)

The management has the opinion that the allowance for doubtful accounts is adequate to cover possible losses on uncollectible other receivables and no additional of allowance for doubtful accounts was provided due to the Company and its Subsidiaries plan to do quasi reorganization after the completion of the secured debt restructuring. The details of other receivables based on currencies are as follows : 2 0 0 7 2 0 0 6 Rp Rp Rupiah 6,455,743,291 6,720,144,348

8. INVENTORIES

2 0 0 7 2 0 0 6 Rp Rp Finished goods 217,096,342,047 113,732,466,963 Work in process 64,748,022,808 61,609,898,835 Raw materials 71,392,585,815 98,088,482,566 Indirect materials 111,287,369,890 101,590,523,289 Total 464,524,320,560 375,021,371,653 Less : Provision for inventory obsolescence – – Net 464,524,320,560 375,021,371,653

Based on the review of the physical condition of the inventories at the end of each period, the management has the opinion that no provision for inventory obsolescence is deemed necessary. As at December 31, 2007 and 2006, the Company’s inventories are covered by insurance, with PT Asuransi Rama Satria Wibawa against fire loss and other risks totaling of US$ 23,500,000 and US$ 18,700,000 respectively, which in the opinion of management were adequate to cover losses arising from such risks. And the Subsidiary’s inventories are covered by insurance against fire loss and other risks in 2007 and 2006 were US$ 1,500,000 and US$ 2,000,000 respectively. In 2007, inventories are used as collateral for the Company’s working capital loan received from Damiano Investments BV., Netherland (Notes 23), and in 2006, inventories are used as collateral for short term loans and secured debts (Notes 15 and 16).



32

9. DUE FROM RELATED PARTIES

2 0 0 7 2 0 0 6 Rp Rp PT Multikarsa Investama 476,473,038,201 475,401,574,152 PT Texmaco Perkasa Engineering Tbk 76,558,388,056 75,550,536,405 PT Wahana Perkasa Auto Jaya 53,032,861,512 50,872,214,861 PT Texmaco Taman Synthetics 32,655,587,127 29,727,433,305 PT Wastra Indah 25,186,725,133 22,299,007,715 PT Sumatex Subur 8,668,450,520 7,726,767,920 PT Saritex Jaya Swasthi 6,287,301,899 6,176,832,362 PT Supermitory Utama Tbk 1,818,999,265 1,663,067,052 PT Ungaran Sari Garments 1,789,449,941 769,944,967 PT Perkasa Heavindo Engineering 1,742,346,440 1,608,346,440 PT Perkasa Indosteel 1,555,808,912 1,555,808,912 PT Raja Busana Mahameru 1,210,000,000 1,210,000,000 PT Perkasa Indobaja 852,266,129 852,266,129 PT Kreasi Kekar 448,500,000 448,500,000 PT Citra Indah Textile 400,094,657 67,565,000 PT Mahkota Indah Sentosa 377,832,876 377,832,876 PT Devrindo Widya 332,282,365 332,282,365 PT Elok Prima Indah Sentosa 100,000,000 – PT Wahana Jaya Perkasa 99,820,513 99,820,513 PT Sarana Daycrown Industri 99,820,511 99,820,511 PT Bina Peranan Busana 21,000,000 21,000,000 PT Kreasi Indah Textile 18,250,000 18,250,000 Total 689,728,824,057 676,878,871,485 Less : Allowance for doubtful accounts (55,702,385,842) (55,702,385,842) Net 634,026,438,215 621,176,485,643 Changes in the allowance for doubtful accounts are as follows : 2 0 0 7 2 0 0 6 Rp Rp Beginnning balance 55,702,385,842 55,702,385,842 Movement during the period : Additions – – Deductions – – Ending balance 55,702,385,842 55,702,385,842 Receivables from related parties represent advances and are not subject to interest and have no term of repayment.



33

9. DUE FROM RELATED PARTIES (Continued)

Receivables from PT Multikarsa Investama derived from the cash receipts from AR International Limited, Hong Kong of Rp 51,421,394,625 due to refund on advances for purchase of fixed assets (machinery and equipment) and the remaining balance represent advance payments for expenses of Rp 425,051,643,576 as of December 31, 2007 and Rp 423,980,179,527 as of December 31, 2006 represent advance payments for salary and other expenses. The Company and its Subsidiaries does not provide additional allowance for doubtful accounts in 2007 due to the Company and its Subsidiaries plan to do quasi reorganization after the completion of the secured debt restructuring. The detail of due from related parties based on currencies are as follows : 2 0 0 7 2 0 0 6 Rp Rp Rupiah 637,236,661,021 626,547,355,100 United States Dollar (US$ 5,573,008 in 2007 and US$ 5,579,991 in 2006) 52,492,163,036 50,331,516,385 Total 689,728,824,057 676,878,871,485

10. RESTRICTED CASH IN BANKS

2 0 0 7 2 0 0 6 Rp Rp IBRA (PPA) :

PT Bank Dharmala Rupiah account 64,056,133 64,056,133

PT Bank Putera Multikarsa Rupiah account 5,569,629,066 5,569,629,066 US Dollar account 11,985,290,476 11,477,579,369

PT Bank Papan Sejahtera Rupiah account 37,356,312 37,356,312

PT Bank Umum Nasional US Dollar account 18,154,369 17,385,328

PT Bank Asia Pacific Rupiah account 555,500 555,500

Total 17,675,041,856 17,166,561,708



34

10. RESTRICTED CASH IN BANKS (Continued)

As the Company is under restructuring process with the Indonesian Bank Restructuring Agency (IBRA), the aggregate balance of cash in the banks was restricted by IBRA. Restricted cash in PT Bank Sociate Generale Indonesia due to the fact that some companies of Texmaco Group are under restructuring process with PT Bank Sociate Generale Indonesia. As a result, the cash in banks are restricted and presented under non-current assets in the consolidated balance sheets. Further, in January 2003, the balance of cash in PT Bank Sociate Generale Indonesia has been closed and transferred to the Company’s bank account. The Indonesian government through IBRA suspended the bank operating licences of PT Bank Putera Multikarsa, a related party, on January 28, 2000; PT Bank Dharmala, PT Bank Asia Pacific and PT Bank Papan Sejahtera on March 13, 1999; and PT Bank Umum Nasional on August 21, 1998. In addition, the operations of PT Bank Duta and PT Bank Nusa International were taken over by the Government on March 13, 1999. As a result, the balance of cash amounting to Rp 17,675,041,856 and Rp 17,166,561,708 in the said banks is shown as restricted cash in banks under non-current assets as of December 31, 2007 and 2006 consolidated balance sheets respectively. Management believes that an allowance for probable losses on such restricted cash is not deemed necessary, as the cash in banks can be off-set with the loans of the Company and its Subsidiaries.

11. FIXED ASSETS

2 0 0 7 2 0 0 6 Rp Rp Carrying cost : Direct acquisition 10,687,355,068,815 10,681,194,726,139 Assets under capital lease 54,024,369,709 54,024,369,709 Total carrying cost 10,741,379,438,524 10,735,219,095,848

Accumulated depreciation : Direct acquisition 7,372,457,743,608 6,816,316,443,165 Assets under capital lease 54,024,369,709 53,200,318,218 Total accumulated depreciation 7,426,482,113,317 6,869,516,761,383 Book value 3,314,897,325,207 3,865,702,334,465



35

11. FIXED ASSETS (Continued)

The details of fixed assets are as follows : Direct acquisition :

2 0 0 7 Beginning Addition Deduction Ending Rp Rp Rp Rp

Carrying cost : Land 113,121,034,510 221,982,000 – 113,343,016,510 Buildings and land improvements 224,197,956,439 – – 224,197,956,439 Machinery and equipment 10,294,516,842,581 5,438,640,676 – 10,299,955,483,257 Transportation equipment 14,668,986,361 580,000,000 98,000,000 15,150,986,361 Office equipment 29,911,213,126 17,720,000 – 29,928,933,126 Store equipment 4,778,693,122 – – 4,778,693,122 10,681,194,726,139 6,258,342,676 98,000,000 10,687,355,068,815 Accumulated depreciation : Buildings and land improvements 125,024,690,616 10,311,632,942 – 135,336,323,558 Machinery and equipment 6,643,646,239,893 544,907,876,253 – 7,188,554,116,146 Transportation equipment 13,741,504,153 555,481,330 98,000,000 14,198,985,483 Office equipment 29,125,315,381 464,309,918 – 29,589,625,299 Store equipment 4,778,693,122 – – 4,778,693,122 6,816,316,443,165 556,239,300,443 98,000,000 7,372,457,743,608 Book value 3,864,878,282,974 3,314,897,325,207

2 0 0 6 Beginning Addition Deduction Ending Rp Rp Rp Rp

Carrying cost : Land 113,121,034,510 – – 113,121,034,510 Buildings and land improvements 224,197,956,439 – – 224,197,956,439 Machinery and equipment 10,286,386,674,751 8,130,167,830 – 10,294,516,842,581 Transportation equipment 14,914,036,361 – 245,050,000 14,668,986,361 Office equipment 29,958,747,146 23,088,230 70,622,250 29,911,213,126 Store equipment 4,778,693,122 – – 4,778,693,122 10,673,357,142,329 8,153,256,060 315,672,250 10,681,194,726,139 Accumulated depreciation : Buildings and land improvements 114,580,301,354 10,444,389,262 – 125,024,690,616 Machinery and equipment 6,081,728,625,720 561,917,614,173 – 6,643,646,239,893 Transportation equipment 13,513,730,147 399,124,006 171,350,000 13,741,504,153 Office equipment 28,364,643,443 818,379,007 57,707,069 29,125,315,381 Store equipment 4,778,693,122 – – 4,778,693,122 6,242,965,993,786 573,579,506,448 229,057,069 6,816,316,443,165 Book value 4,430,391,148,543 3,864,878,282,974



36


Assets under capital lease : Changes during the current period 2 0 0 7 Beginning Addition Deduction Ending Rp Rp Rp Rp Carrying cost : Machinery and equipment 46,159,844,782 – – 46,159,844,782 Transportation equipment 7,864,524,927 – – 7,864,524,927 54,024,369,709 – – 54,024,369,709

Accumulated depreciation : Machinery and equipment 45,372,403,291 787,441,491 – 46,159,844,782 Transportation equipment 7,827,914,927 36,610,000 – 7,864,524,927 53,200,318,218 824,051,491 – 54,024,369,709

Book value 824,051,491 –

Changes during the current period 2 0 0 6 Beginning Addition Deduction Ending Rp Rp Rp Rp Carrying cost : Machinery and equipment 46,159,844,782 – – 46,159,844,782 Transportation equipment 7,864,524,927 – – 7,864,524,927 54,024,369,709 – – 54,024,369,709

Accumulated depreciation : Machinery and equipment 42,681,503,244 2,690,900,047 – 45,372,403,291 Transportation equipment 7,765,154,927 62,760,000 – 7,827,914,927 50,446,658,171 2,753,660,047 – 53,200,318,218 Book value 3,577,711,538 824,051,491

Deduction on fixed assets represents sales of fixed asset with details as follows : 2 0 0 7 2 0 0 6 Rp Rp Book value – 86,615,181 Selling price 52,000,000 134,181,818 Gain on sales of fixed assets 52,000,000 47,566,637



37


2 0 0 7 2 0 0 6 Rp Rp Depreciation expenses are allocated to :

Direct acquisitions : Manufacturing expense 555,219,509,195 572,362,003,435 Operating expenses 1,019,791,248 1,217,503,013

556,239,300,443 573,579,506,448 Assets under capital lease : Manufacturing expense 787,441,491 2,690,900,047 Operating expenses 36,610,000 62,760,000

824,051,491 2,753,660,047

Total 557,063,351,934 576,333,166,495 The Company and its Subsidiaries own several pieces of land located in Karawang, Kendal and Pemalang amounted to 1,297,579 square meters with certificate Building Use Right (Hak Guna Bangunan or HGB) for a period of 20 – 30 years which will be expired between 2006 and 2029. For the ownership certificate of the land were located in Semarang of 78,111 square meters have been extended up to November 29, 2027. The certificate of ownership for remaining of 100,548 square meters is still in process. Management believes that there will be no difficulty in the extension of the certificate of landrights since all the landrights were acquired legally and supported by sufficient evidence of ownership. In 2002 and 2001, the addition of land of Rp 258,585,580 and Rp 1,753,645,426 consist of land located in Semarang of 24,120 square meters and in Karawang 1,962.60 square meters. The ownership certificate of the land is still in process. As of December 31, 2007 and 2006, all of the Company’s fixed assets, except land are insured with PT Asuransi Rama Satria Wibawa from loss and other risks including earthquake valuing in total US$ 558,000,000 and US$ 600,000,000 respectively. In the opinion of Company’s management, the sum insured as stated above is adequate to cover possible losses arising from such risks.

As of December 31, 2007 and 2006, the Subsidiary’s fixed assets in fleece division are insured with PT Asuransi Rama Satria Wibawa against fire and other risks of US$ 23,000,000 respectively. Land, machinery and equipment are used as collateral for the Company’s short term loans to BPP and secured debts (Notes 15 and 16).



38

12. ADVANCES FOR INVESTMENT IN A JOINT VENTURE

This account consist of advances for investment in land to be used for a joint venture project between the Company and Eastman Kodak Company, USA to manufacture special types of polyester chips and fiber in Karawang, West Java which represents 17% of the joint venture’s subscribed capital (Note 45). However the necessity for continuing with the joint venture is being assessed by both joint venture partners.

13. OTHER ASSETS 2 0 0 7 2 0 0 6 Rp Rp Deposits 2,608,380,421 2,574,382,590 Deposit for house rental 9,500,000 14,355,500 2,617,880,421 2,588,738,090

14. BANK LOANS

According to the amendment loan agreement dated March 3, 2006 and August 31, 2006 between PT Polysindo Eka Perkasa Tbk (Borrower), and Damiano Investments BV, Netherland (Lender), and PT Ferrier Hodgson (Monitoring Agent), the lender agreed to provide the letter of credit facility in the aggregate principal amount of US$ 50,000,000. Accordingly, Polysindo can also use the lender name as guarantor for opening letter of credit in Barclays Bank Plc, Hongkong (Barclays). This letter of credit is used by the Polysindo to purchase raw materials totaling US$ 52,313,102 (equivalent to Rp 492,737,107,725) in 2007 and US$ 43,501,586 (equivalent to Rp 392,385,203,751) in 2006. In 2007, the excess of letter of credit facility of US$ 2,313,192 on the agreed limit due to the increased in raw material purchase prices and purchace movement. In addition, the Company should pay a financing fee of 2,25% per months on the aggregate amounts of the this facility in Barclays to Damiano Investments BV, Netherland. For the year ended December 31, 2007 and 2006, the interest charge on the letter of credit facility from Damiano Investments BV, Netherland were Rp 135,423,160,702 and Rp 75,999,948,192 respectively. However, Damiano Investments BV., Netherland has not received any interest on letter of credit from the Company for the year 2007. The management understand that Damiano Investments BV., Netherland at its discretion, may alter, reduce or waive the interest on letter of credit at a later date subject to certain conditions and the successful completion of its secured debt restructure.



39

15. SECURED DEBTS

2 0 0 7 2 0 0 6 Rp Rp Bonds :

A. 13% Guaranteed Secured Notes US$ 122,526,000 1,154,072,394,000 1,105,184,520,000

B. US$ 50,000,000 Secured Floating Rate Notes 470,950,000,000 451,000,000,000

C. 9.375% Guaranteed Secured Notes US$ 250,000,000 2,354,750,000,000 2,255,000,000,000

D. 11.375% Guaranted Secured Notes US$ 260,000,000 2,448,940,000,000 2,345,200,000,000

Total 6,428,712,394,000 6,156,384,520,000

Less : Net book value of debt issuance cost – (1,042,298,961)

Net 6,428,712,394,000 6,155,342,221,039 PT Bina Prima Perdana : PT Bank Negara Indonesia (Persero) Tbk. Rupiah 1,302,583,907,331 1,302,583,907,331 US$ 29,055,834 273,676,900,446 262,083,622,680 EUR 849,872 11,694,078,592 10,077,962,986 YEN 3,001,711,400 249,330,273,562 227,515,616,076

1,837,285,159,931 1,802,261,109,073 Banks : PT Bank Finconesia EUR 7,471,539 102,807,032,099 88,599,153,488

Union Europeene de CIC, Singapore EUR 5,941,395 81,752,523,807 70,454,367,344

Credit Agricole Indosuez, Singapore US$ 12,117,088 114,130,855,073 109,296,136,825

Bangkok Bank, Singapore US$ 3,303,097 31,111,874,223 29,793,938,368

329,802,285,202 298,143,596,025 Tim Pemberesan (TP) : PT Bank Negara Indonesia (Persero) Tbk. US$ 78,628,322 740,600,168,877 709,227,468,232 Rupiah 41,968,807,083 41,968,807,083 EUR 1,426,173 19,623,877,629 16,911,867,911 CHF 45,902 379,181,249 338,834,797

802,572,034,838 768,446,978,023 Total 9,398,371,873,971 9,024,193,904,160



40

15. SECURED DEBTS (Continued)

On November 30, 2001, the Company entered into Definitive Memorandum of Agreement (MOA) with the noteholders regarding the restructuring plan of the Company and its Subsidiaries. However, it has not yet been executed by the Company and its Subsidiaries, and the MOA could be automatically terminated. However, on March 14, 2007, the Company has issued a new SDRP (Secured Debt Restructure Proposal) to its secured creditors for the restructure of its Secured debts including the bonds. Up to March 2008, the Company has not obtained the approval from the secured creditors, particularly from PPA (28% of total secured debt) has not given their decision on restructuring settlement. However, Damiano Investments BV, Netherland, the majority shareholder, is also the majority holder of secured debt comprising of secured bonds and banks. Currently, Damiano Investments BV., Netherland holds approximately 90% of the secured bonds and banks other PPA. Even after completing the secured debt restructure as per the proposed envisaged, Damiano Investments BV., Netherland will be the majority shareholders and debt holders of the Company. A. 13% Guaranteed Secured Notes, US$ 122,526,000.

The Company issued US$ 125,000,000 Unsecured Senior Notes in June 1994 carrying an interest rate of 13% per annum. The notes are due for repayment in 2001. In May 1996, the Company offered to the holders of the said unsecured notes to exchange their notes with 13% Guaranteed Senior Notes due in 2001 which were listed in Luxembourg Stock Exchanges and issued by PIFC with the Company as the guarantor. All holders of the unsecured notes exchanged their notes with the new secured notes except for the holders of unsecured notes amounting to US$ 2,474,000. In August 1997, the Company paid part of the 13% Unsecured Senior Notes amounting to US$ 1,250,000.

B. Secured Floating Rates Notes, US$ 50,000,000. In February 1996, PIFC, with the Company as the guarantor, issued the US$ 50,000,000 Secured Floating Rate Notes which were listed in Luxembourg Stock Exchanges with carrying an interest rate of 3% above LIBOR and were due in 1999.

C. 9.375% Guaranteed Secured Notes, US$ 250,000,000. In July 1997, PIFC issued the US$ 250,000,000 Guaranteed Secured Notes due in 2007 which were listed in Luxembourg Stock Exchange with the Company as the guarantor. The notes carry an interest rate of 9.375% per annum. The proceeds from issuance of these notes were used to finance a portion of phase I of the Company’s expansion program.



41

15. SECURED DEBTS (Continued)

D. 11.375% Guaranteed Secured Notes, US$ 260,000,000.

In June 1996, PIFC issued the US$ 260,000,000 Guaranteed Secured Notes due in 2006 which were listed in Luxembourg Stock Exchange, with the Company as the guarantor. The notes carry an interest rate of 11.375% per annum. The proceeds from issuance of these notes were used to pay off other debts and loans.

Currently these notes have been delisted from Luxembourg Stock Exchanges and are secured by liens of the collateral, which consist of real property, movable assets (other than inventories) and proceeds of collateral on a pari-passu basis with the other notes payable and obligations of the Company and its Subsidiaries. Loans to PT Bina Prima Perdana (BPP) represents loans to PT Bank Negara Indonesia (Persero) Tbk had been defaulted and transferred to IBRA. Further, pursuant to debt restructuring scheme in Master Restructuring Agreement (MRA) dated May 23, 2001, in 2002 the Company’s debts to IBRA have been transferred to BPP. For this transfer, BPP issued Exchangeable Bond (EB) to IBRA. However, on February 26, 2004, IBRA issued a letter of default notice to PT Bina Prima Perdana. The letter stated that PT Bina Prima Perdana as the textile holding company had failed to pay the Exchangeable Bond (EB) coupons due on August 18, 2003. The amortization expenses of debt issuance cost for the year ended December 31, 2007 and 2006 amounted to Rp 1,042,298,961 and Rp 2,963,726,735 respectively.

16. SHORT TERM LOANS

2 0 0 7 2 0 0 6 Rp Rp Working Capital Loan Facility : PT Bina Prima Perdana : PT Bank Negara Indonesia (Persero) Tbk Rupiah 53,211,451,624 53,211,451,624 Dollar Amerika Serikat (US$ 18,587,500 in 2007 and 2006 ) 175,075,662,500

167,659,250,000

PT Bank Dharmala 8,000,000,000 8,000,000,000 PT Bank Putera Multikarsa 1,197,490,480 1,197,490,480 Catora International BV, Netherland 4,238,550,000 4,510,000,000 Total working capital facility 241,723,154,604 234,578,192,104



42

16. SHORT TERM LOANS (Continued)

2 0 0 7 2 0 0 6 Rp Rp Letter of Credit Facility : PT Bina Prima Perdana : PT Bank Putera Multikarsa Dollar Amerika Serikat ( US$ 1,670,669.38 in 2007 and 2006) 15,736,034,891 15,069,437,808 PT Bank Duta Rupiah 28,175,026,153 28,175,026,153 43,911,061,044 43,244,463,961 Working Capital Loan Facility :

Others : PT Bank Negara Indonesia (Persero) Tbk Rupiah 27,115,346,119 27,115,346,119 US Dollar (US$ 198,595 in 2007 and 2006) 1,870,566,305 1,791,326,900

PT Bank Sumitomo Mitsui Indonesia (US$ 1,906,484 in 2007 and 2006) 17,957,172,796 17,196,483,245

46,943,085,220 46,103,156,264 Total letter of credit facility 90,854,146,264 89,347,620,225 Total 332,577,300,868 323,925,812,329

Loans to PT Bina Prima Perdana (BPP) represents loans PT Bank Negara Indonesia (Persero) Tbk had been defaulted and transferred to IBRA. Further, pursuant to debt restructuring scheme in Master Restructuring Agreement (MRA) dated May 23, 2001, in 2002 the Company’s debts to IBRA have been transferred to BPP. For this transfer, BPP issued Exchangeable Bond (EB) to IBRA.

On February 26, 2004, IBRA issued a letter of default notice to PT Bina Prima Perdana. The letter stated that PT Bina Prima Perdana as the textile holding company had failed to pay the Exchangeable Bond (EB) coupons due on August 18, 2003. On February 27, 2004, IBRA was dissolved by the Government. The outstanding or unfinished affairs under the handling of IBRA were transferred to a company called PT. Perusahaan Pengelola Assets (Assets Management Company) for further management and restructuring process under the supervision of the Ministry of Finance.



43

16. SHORT TERM LOANS (Continued)

On January 27, 2006, the Subsidiary obtained a short term working capital loan facility amounting US$ 500,000 from Catora International BV, Netherland (“CIBV”) for the purchase of raw materials (import and local) and to meet some of critical operational expenses such as wages, electricity etc. This facility bears interest rate 18% p.a. with the final repayment due on August 31, 2006, and is secured by inventories under fiduciary in favour of CIBV at minimal amount of US$ 750,000. Then, the facility had been amended on August 2006 to provide the Subsidiary with total facility up to US$ 750,000 and the final repayment due on May 31, 2007. During 2007, the Subsidiary has paid US$ 200,000 on August 14, 2007 and US$ 100,000 on September 13, 2007. As of December 31, 2007, the Subsidiary has not paid the remaining US$ 400,000 of working capital loan that has been due because of financial difficulties or cash flow problem. Beside that, the Subsidiary has not renewed this agreement.

17. NOTES PAYABLE

As of December 31, 2007 and 2006, the Subsidiary notes payable are as follows :

2 0 0 7 2 0 0 6 Rp Rp PT Bina Prima Perdana (BPP) : Rupiah Nominal value 37,026,286,647 37,026,286,647

US Dollar Nominal value (US$ 5,000,000 in 2007 and 2006) 47,095,000,000 45,100,000,000

Total BPP 84,121,286,647 82,126,286,647

Others : US Dollar Nominal value (US$ 11,141,085.29 in 2007 and 2006) 104,937,882,346 100,492,589,315

Total others 104,937,882,346 100,492,589,315

Total 189,059,168,993 182,618,875,962



44

17. NOTES PAYABLE (Continued)

Due to operations suspension of some of the banks as noteholders in 1999, they have been transferred to IBRA for the administration. Pursuant to debt restructuring scheme in Master Restructuring Agreement (MRA) dated May 23, 2001, in 2002 the Company’s debts to IBRA have been transferred to BPP. For this transfer, BPP issued Exchangeable Bond (EB) to IBRA. The above mentioned notes payable are unsecured and PT Asia Kapitalindo Securities is the arranger. On November 30, 2001, the Company entered into Definitive Memorandum of Agreement (MOA) with the noteholders and IBRA regarding the restructuring plan of the Company and its Subsidiaries. However, it has not yet been executed by the Company and its Subsidiaries, and the MOA could be automatically terminated (Note 2b). On February 26, 2004, IBRA issued a letter of default notice to PT Bina Prima Perdana. The letter stated that PT Bina Prima Perdana as the textile holding company had failed to pay the Exchangeable Bond (EB) coupons due on August 18, 2003. On February 27, 2004, IBRA was dissolved by the Government. The outstanding or unfinished affairs under the handling of IBRA were transferred to a company called PT. Perusahaan Pengelola Assets (Assets Management Company) for further management and restructuring process under the supervision of the Ministry of Finance. Until March 2008, there were no further development on the notes payable status.

18. TRADE PAYABLES

This account consist of : Third parties : 2 0 0 7 2 0 0 6 Rp Rp Local suppliers 92,268,577,582 127,017,314,524 Foreign suppliers 115,703,296,489 41,325,834,238 Total 207,971,874,071 168,343,148,762



45

18. TRADE PAYABLES (Continued)

A summary of the aging of trade payables to third parties which were computed since the date of invoice is as follows : 2 0 0 7 2 0 0 6 Rp Rp Up to 1 month 138,486,251,667 20,906,107,195 > 1 month – 3 months 28,057,198,959 96,351,281,652 > 3 months – 6 months 4,967,834,380 5,746,606,044 > 6 months – 1 year 3,419,549,494 5,221,142,255 > 1 year 33,041,039,571 40,118,011,616 Total 207,971,874,071 168,343,148,762

The details of trade payables to third parties based on currencies are as follows : 2 0 0 7 2 0 0 6 Rp Rp Rupiah 52,669,709,092 52,171,952,056 Unites States Dollar (US$ 16,393,080 in 2007 and US$ 12,492,607 in 2006)

154,406,424,746

112,683,314,669

European Euro (EUR 8,547 in 2007 and EUR 207,392 in 2006) 118,149,280 2,456,964,195

Singapore Dollar (SGD 19,418 in 2007 and SGD 32,461 in 2006) 126,263,215 190,834,741

Japan Yen (Yen 3,782,056 in 2007 and Yen 6,926,512 in 2006)

314,165,533

525,031,894

Great Brithish Poundsterling (GBP 17,930 in 2007 and GBP 14,964 in 2006) 337,162,205 264,809,187

Swiss Franc (CHF 6,676 in 2006) – 50,008,337

Denmark Krone (DKK 147 in 2006) – 233,683

Total 207,971,874,071 168,343,148,762

Trade payables to third parties local suppliers represent payables for purchase of raw materials and trade payables to third parties foreign suppliers represent payables for purchase of indirect materials.



46

18. TRADE PAYABLES (Continued)

Related parties : 2 0 0 7 2 0 0 6 Rp Rp

PT Citra Indah Textiles 39,491,541,493 39,493,541,493 PT Wismakarya Prasetya 20,153,098,252 19,281,994,015 PT Texmaco Micro Indoutama 80,457,768 80,457,768

Total 59,725,097,513 58,855,993,276

A summary of the aging of the trade payables to related parties which were computed since the date of invoice is as follows :

2 0 0 7 2 0 0 6 Rp Rp

Up to 1 month 692,219,928 9,139,131,362 > 1 month – 3 months 176,884,309 671,156,493 > 3 months – 6 months – 3,522,223,649 > 6 months – 1 year – 1,846,768,834 > 1 year 58,855,993,276 43,676,712,938

Total 59,725,097,513 58,855,993,276 The details of trade payables to related parties based on currencies are as follows : 2 0 0 7 2 0 0 6 Rp Rp Rupiah 59,725,097,513 58,855,993,276 Trade payables to related parties represent payables for purchase of raw materials, indirect materials and maklon fee.

19. LIABILITIES FOR PURCHASE OF FIXED ASSETS

This account represents liabilities for purchase of machinery in relation to the Company’s subsidiary project expansion : 2 0 0 7 2 0 0 6 Rp Rp Third party : Juki Singapore Pte. Ltd., Singapore US$ 30,476.25 287,055,800 274,895,775



47

20. TAXATIONS

a. Prepaid Taxes

2 0 0 7 2 0 0 6 Rp Rp Overpayment of corporate income tax 2005 – 33,873,378,753 2006 13,535,686,178 13,535,686,178 2007 23,486,171,326 – Income tax article 26 – 162,883,322 Value added tax 20,618,987,963 80,838,876,340

Total 57,640,845,467 128,410,824,593

b. Taxes Payable

2 0 0 7 2 0 0 6 Rp Rp Income tax article 21 1,210,913,777 1,023,008,084 Income tax article 23 497,811,823 451,016,536 Income tax article 26 1,635,931,006 10,061,277,251 Income tax article 4 (final) 3,782,093 3,782,093 Value added tax 14,456,887,093 23,388,588,187 Tax penalty 2,869,307,070 21,008,630,192 Total 20,674,632,862 55,936,302,343

c. Corporate Income Tax A reconciliation between loss before income tax, as shown in the consolidated statements of income and estimated taxable loss which were calculated by the Company for the years ended December 31, 2007 and 2006 are as follows : 2 0 0 7 2 0 0 6 Rp Rp Loss before income tax as per consolidated statements of income (1,073,009,636,253) (77,031,237,733)Loss before income tax of the Subsidiaries 79,316,718,679 73,378,740,225

Loss before income tax of the Company (993,692,917,574) (3,652,497,508)



48

20. TAXATIONS (Continued)

c. Corporate Income Tax (Continued)

2 0 0 7 2 0 0 6 Rp Rp Fiscal adjustments consisted of : Permanent difference : Non deductible expenses/ (non taxable income) : Tax expense 10,598,665,002 4,782,256,818 Entertainment and representation 503,358,255 426,806,943 Donation 312,436,500 271,305,710 Bad debt expenses – 84,583,001 Interest income (364,464,223) (114,570,055) 11,049,995,534 5,450,382,417 Timing differences : Depreciation expense of fixed assets 118,619,420,478 134,940,015,532 Amortization of deferred charges 1,042,298,961 2,582,413,075 Provision for employee entitlement 7,231,813,997 18,056,359,001 Lease expense – 615,636,706 126,893,533,436 156,194,424,314

Estimated taxable loss of the Company for the period before loss carry forward (855,749,388,604) 157,992,309,223 Fiscal loss carry forward (1,383,005,338,591) (1,540,997,647,814) Total estimated taxable loss (2,238,754,727,195) (1,383,005,338,591) Estimated corporate income tax – – Prepaid taxes : Income tax article 22 (19,825,723,417) (4,494,631,237) Income tax article 23 – (5,270,703,710)

Total prepaid taxes (19,825,723,417) (9,765,334,947)

Estimated overpayment of corporate income tax (19,825,723,417) (9,765,334,947) Estimated overpayment of corporate income tax of subsidiaries (3,660,447,909

) (21,438,744

)



49


c. Corporate Income Tax (Continued)

Taxable loss for the year ended December 31, 2006 as reported in the 2006 corporate income tax return amounted to Rp 1,444,138,353,185. For this discrepancy, the Company did not make any correction to the corporate income tax return.

d. Deferred Tax The calculation of deferred tax assets and deferred tax liabilities is as follows :

2 0 0 7

As of December 31, 2006

Credited (charged) to consolidated

statement of income

As of

December 31, 2007

Rp Rp Rp The Company Deferred tax assets (liabilities) : Fiscal loss carry forward 414,901,601,577 256,724,816,581 671,626,418,158 Valuation allowance (414,901,601,577) (256,724,816,581) (671,626,418,158) Depreciation expense of fixed assets (343,498,779,585) 35,585,826,144 (307,912,953,441) Amortization of deferred charges 2,311,903,550 312,689,688 2,624,593,238 Provision for employee entitlements 9,285,030,309 2,169,544,199 11,454,574,508 Lease expense (2,219,019,388) – (2,219,019,388) Total – the Company (334,120,865,114) 38,068,060,031 (296,052,805,083) Subsidiaries TJ 37,538,933,890 6,909,212,825 44,448,146,715 TGB – – – Total – Subsidiaries 37,538,933,890 6,909,212,825 44,448,146,715 Total deferred tax liabilities, net (296,581,931,224) 44,977,272,856 (251,604,658,368)



50


d. Deferred Tax (Continued)

2 0 0 6

As of December 31, 2005

Credited (charged) to consolidated

statement of income

As of

December 31, 2006

Rp Rp Rp The Company Deferred tax assets (liabilities) : Fiscal loss carry forward 1,966,836,177,336 (1,551,934,575,759) 414,901,601,577 Valuation allowance (1,966,836,177,336) 1,551,934,575,759 (414,901,601,577) Depreciation expense of fixed assets (383,980,784,245) 40,482,004,660 (343,498,779,585) Amortization of deferred charges 1,537,179,628 774,723,922 2,311,903,550 Provision for employee entitlements 3,868,122,609 5,416,907,700 9,285,030,309 Lease expense (2,403,710,400) 184,691,012 (2,219,019,388)

Total – the Company (380,979,192,408) 46,858,327,294 (334,120,865,114) Subsidiaries TJ 32,179,775,174 5,359,158,716 37,538,933,890 TGB 615,780,871 (615,780,871) –

Total – Subsidiaries 32,795,556,045 4,743,377,845 37,538,933,890 Total deferred tax liabilities, net (348,183,636,363) 51,601,705,139 (296,581,931,224) The recognition of the Company’ deferred tax assets is based on management’s estimates of the results of future operations including an estimate of output levels and commodity prices for the Company’s products, the timing and extent of the reversal certain of the Company’s deferred tax liabilities, and certain tax planning strategies. Based on these estimates, management believes that the Company will not realize its deferred tax asset arising from fiscal loss carry forward. Accordingly, the management had made a valuation allowance of Rp 671,626,418,158 and Rp 414,901,601,577 at December 31, 2007 and 2006, respectively.

A reconciliation between the total tax income (expense) and the amounts computed by applying the effective tax rate to profit (loss) before income tax is as follows : 2 0 0 7 2 0 0 6 Rp Rp

Loss before income tax as per consolidated statements of income (1,073,009,636,253) (77,031,237,733)Loss before income tax of the Subsidiaries 79,316,718,679 73,378,740,225

Loss before income tax of the Company (993,692,917,574) (3,652,497,508)



51


d. Deferred Tax (Continued)

2 0 0 7 2 0 0 6 Rp Rp Tax benefit at effective tax rate of 30% (298,107,875,272) (1,095,749,252)

Valuation allowance 256,724,816,581 (47,397,692,767)

Tax effect of non-deductible expense /

(non-taxable income) 3,314,998,660 1,635,114,725

Tax income of the Company (38,068,060,031) (46,858,327,294)Tax income of the Subsidiaries (6,909,212,825) (4,743,377,845)

Total tax income (44,977,272,856) (51,601,705,139)

e. Tax Income (Expense) 2 0 0 7 2 0 0 6 Rp Rp

Current income tax expense: The Company – – Subsidiaries – –

– – Deferred tax income (expense) : The Company 38,068,060,031 46,858,327,294 Subsidiaries 6,909,212,825 4,743,377,845

44,977,272,856 51,601,705,139

Tax income 44,977,272,856 51,601,705,139

f. Tax Assessment Letter a. The Company

• On June 8, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor Pelayanan Pajak Besar Dua) issued a Value Added Tax assessment letter for fiscal period July 2006 No. 00006/507/06/092/07 stated that the Company had no additional tax liability.



52


f. Tax Assessment Letter

a. The Company

• On June 8, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor Pelayanan Pajak Wajib Pajak Besar Dua) issued a Value Added Tax assessment letter for fiscal period August up to December 2006 No. 00021/207/07/092/07 stated that the Company had additional tax liability of Rp 79,148,778. The tax liability had been compensated in June 8, 2007 with the overpayment of January 2007 value added tax.

• On June 8, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor

Pelayanan Pajak Wajib Pajak Besar Dua) issued a Value Added Tax assessment letter for fiscal period June 2007 No. 00020/207/07/092/07 stated that the Company had additional tax liability of Rp 21,100,000. The tax liability had been compensated in June 8, 2007 with the overpayment of January 2007 value added tax.


Pelayanan Pajak Wajib Pajak Besar Dua) issued a Value Added Tax assessment letter for fiscal period January 2007 No. 00003/407/07/092/07 stated that the Company had an overpayment of value added tax of Rp 14,831,306,547. The overpayment of value added tax has been compensated in June 2007 with the 2005 and 2006 value added tax payable of Rp 21,100,000 and Rp 79,148,778 respectively. And the remaining of its overpayment had been received on September 13, 2007.

• On May 4, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor

Pelayanan Pajak Karawang) issued an Income Tax Article 4(2) assessment letter for 2005 No. 00023/240/05/408/07 stated that the Company had additional tax liability of Rp 1,335,988. The tax liability had been paid on October 7, 2007.


Pelayanan Pajak Karawang) issued an Income Tax Article 21 assessment letter for 2005 No. 00075/201/05/408/07 stated that the Company had additional tax liability of Rp 22,575,748. The tax liability had been paid on July 10, 2007.

• On April 25, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor

Pelayanan Pajak Wajib Pajak Besar Dua) issued an Income Tax Article 21 assessment letter for fiscal year 2005 No. 00036/201/05/092/07 stated that the Company had additional tax liability of Rp 333,391,288. The tax liability had been compensated in May 2007 with the overpayment of 2005 corporate income tax.



53


f. Tax Assessment Letter (Continued)

a. The Company (Continued)

• On April 25, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor Pelayanan Pajak Wajib Pajak Besar Dua) issued a Value Added Tax assessment letter for fiscal year 2005 No. 00023/207/05/092/07 stated that the Company had additional tax liability of Rp 12,514,186. The tax liability had been compensated in May 2007 with the overpayment of 2005 corporate income tax.


Pelayanan Pajak Wajib Pajak Besar Dua) issued an Income Tax Article 23 assessment letter for 2005 No. 00031/203/05/092/07 stated that the Company had additional tax liability of Rp 3,578,958,623. The tax liability had been compensated in June 8, 2007 with the overpayment of 2005 corporate income tax.


Pelayanan Pajak Wajib Pajak Besar Dua) issued a Corporate Income Tax assessment letter for fiscal year 2005 No. 00033/406/05/092/07 stated that the Company had an overpayment of corporate income tax of Rp 33,671,115,816 based on the taxable loss of Rp 275,922,590,909. The overpayment of corporate income tax has been compensated in May 2007 with other tax liabilities.


Pelayanan Pajak Wajib Pajak Besar Dua) issued an Income Tax Article 4 (2) assessment letter for fiscal year 2005 No. 00033/540/05/092/07 stated that the Company had no additional tax liability.


Pelayanan Pajak Wajib Pajak Besar Dua) issued an Income Tax Article 26 assessment letter for fiscal year 2005 No. 00020/504/05/092/07 stated that the Company had no additional tax liability.


Pelayanan Pajak Wajib Pajak Besar Dua) issued a Value Added Tax assessment letter for fiscal period January up to May 2006 No. 00018/407/06/092/07 stated that the Company had an overpayment of value added tax of Rp 22,672,038,441. The overpayment of value added tax has been compensated in May 2007 with other tax liabilities.



54




• On April 25, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor Pelayanan Pajak Wajib Pajak Besar Dua) issued a Value Added Tax assessment letter for fiscal period December 2005 No. 00008/407/05/092/07 stated that the Company had an overpayment of value added tax of Rp 29,927,359,578. The overpayment of value added tax has been compensated in May 2007 with other tax liabilities.


Pelayanan Pajak Wajib Pajak Besar Dua) issued a Value Added Tax assessment letter for fiscal year 2004 No. 00022/207/04/092/07 stated that the Company had additional tax liability of Rp 136,807,858. The tax liability had been compensated in June 8, 2007 with the overpayment of 2007 value added tax.

• On October 16, 2006, the Indonesian Tax Authorities (Direktorat Jenderal Pajak

Kantor Pelayanan Pajak Wajib Pajak Semarang Barat) issued an Income Tax Article 23 assessment letter for fiscal year 2004 No. 00027/503/04/503/06 stated that the Company had no additional tax liability.

• On October 16, 2006, the Indonesian Tax Authorities (Direktorat Jenderal Pajak

Kantor Pelayanan Pajak Wajib Pajak Semarang Barat) issued an Income Tax Article 21 assessment letter for fiscal year 2004 No. 00086/201/04/503/06 stated that the Company had additional tax liability of Rp 281,628. The tax liability has not been paid yet.

• On October 4, 2006, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor

Pelayanan Pajak Wajib Pajak Besar Dua) issued a Corporate Income Tax assessment letter for fiscal year 2004 No. 00049/406/04/092/06 stated that the Company had an overpayment of corporate income tax of Rp 22,334,583,735 based on the taxable loss of Rp 614,614,345,945. The overpayment of corporate income tax has been compensated with other tax liabilities.

• On October 4, 2006, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor

Pelayanan Pajak Wajib Pajak Besar Dua) issued an Income Tax Art 21 assessment letter for fiscal year 2004 No. 00029/201/04/092/06 stated that the Company had additional tax liability of Rp 11,513,586. The tax liability had been paid on December 29, 2006.



55




• On October 4, 2006, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor Pelayanan Pajak Wajib Pajak Besar Dua) issued a Value Added Tax assessment letter for fiscal year 2004 No. 00022/277/04/092/06 stated that the Company had additional tax liability of Rp 136,807,858. The tax liability had been paid on January 2007.


Pelayanan Pajak Semarang Barat) issued an Income Tax Article 23 assessment letter for fiscal year 2003 No. 00060/203/03/503/05 stated that the Company had additional tax liability of Rp 33,263,567. The tax liability had been paid in February 2006.


Pelayanan Pajak Wajib Pajak Besar Dua) issued an Income Tax article 26 assessment letter for fiscal period January up to December 2002 No. 00015/204/02/092/04 stated that the Company had additional tax liability of Rp 43,794,145,373. The tax liability had been compensated on October 4, 2006 with the overpayment of 2004 corporate income tax of Rp 22,334,583,735 and the remaining of its tax liability had been compensated on May 2007 with the overpayment of 2005 and 2006 value added tax.

b. Subsidiaries (TJ and TGB) :

• On August 9, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor

Wilayah DJP Jakarta Khusus Kantor Pelayanan Pajak Perusahaan Masuk Bursa) issued a Value Added Tax assessment letter for the fiscal period April 2007, No. 00007/407/07/054/07 stated that the Subsidiary (TJ) has overpayment of Rp 1,353,522,886. The tax receivable has been received of Rp 1,353,482,886 through BCA bank account Rasuna Said branch on September 10, 2007 and bank charges of Rp 40,000.


Wilayah DJP Jakarta Khusus Kantor Pelayanan Pajak Perusahaan Masuk Bursa) issued an Income Tax article 21 assessment letter for the fiscal year 2005, No. 00039/501/05/408/07 stated that the Subsidiary (TJ) had no additional tax liability.



56


f. Tax Assessment Letters (Continued)

b. Subsidiaries (TJ and TGB) (Continued)

• On May 6, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor Wilayah DJP Jakarta Khusus Kantor Pelayanan Pajak Perusahaan Masuk Bursa) issued a Value Added Tax assessment letter for the fiscal period December 2006, No. 00086/408/06/054/07 stated that the Subsidiary (TJ) has overpayment of Rp 902,249,946. The tax receivable has been received on May 16, 2007 by compensating of Rp 15,023,589 with other subdisidiary’s tax liability. The remaining amount of Rp 887,186,357 has been received through BCA bank account Rasuna Said branch on June 15, 2007 and bank charges of Rp 40,000.


Pelayanan Pajak Pekalongan) issued an Income Tax article 21 collection letter for the fiscal period January up to December 2005, No. 000167/101/05/052/07 stated that the Subsidiary (TJ) has additional tax liability of Rp 15,023,589. The tax liability has been compensated on may 16, 2007 with the overpayment of 2006 Value Added Tax.


Pelayanan Pajak Pekalongan) issued an Income Tax article 21 assessment letter for the fiscal year 2005, No. 00027/501/05/052/07 stated that the Subsidiary (TJ) had no additional tax liability.

• On March 26, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak

Kantor Wilayah DJP Jakarta Khusus Kantor Pelayanan Pajak Perusahaan Masuk Bursa) issued an Income Tax article 21 collection letter for the fiscal period January up to December 2005, No. 00002/101/05/054/07 stated that the Subsidiary (TJ) has additional tax liability of Rp 700,000. The tax liability has been compensated on March 29, 2007 with the overpayment of 2005 Value Added Tax.


Kantor Wilayah DJP Jakarta Khusus Kantor Pelayanan Pajak Perusahaan Masuk Bursa) issued a Value Added Tax collection letter for the fiscal period January up to December 2005, No. 00020/107/05/054/07 stated that the Subsidiary (TJ) had additional tax liability of Rp 3,885,492. The tax liability has been compensated on March 29, 2007 with the overpayment of 2005 Value Added Tax.



57




• On March 26, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor Wilayah DJP Jakarta Khusus Kantor Pelayanan Pajak Perusahaan Masuk Bursa) issued a Value Added Tax assessment letter for the fiscal period January up to December 2005, No. 00072/407/05/054/07 stated that the Subsidiary (TJ) has overpayment of Rp 2,364,234,759. The tax receivable has been settled on March 29, 2007 by compensating of Rp 384,586,386 with other subsidiary’s tax liability and the remaining of Rp 1,979,386,226 has been received through BCA Bank account Rasuna Said branch on April 27, 2007 and tax expense of Rp 126,147.


Kantor Wilayah DJP Jakarta Khusus Kantor Pelayanan Pajak Perusahaan Masuk Bursa) issued a Corporated Income Tax assessment letter for the fiscal year 2005, No. 00086/406/05/054/07 stated that the Subsidiary (TJ) had overpayment of Rp 26,181,427. The tax receivable has been received of Rp 26,171,427 through BCA bank account Rasuna Said branch on April 30, 2007 and tax expense of Rp 10,000.


Kantor Wilayah DJP Jakarta Khusus Kantor Pelayanan Pajak Perusahaan Masuk Bursa) issued a Value Added Tax assessment letter for fiscal period January up to December 2005, No. 00029/237/05/054/07 stated that the Subsidiary (TJ) had additional tax liability of Rp 2,600,000. The tax liability has been compensated on March 29, 2007 with the overpayment of 2005 Value Added Tax.


Kantor Wilayah DJP Jakarta Khusus Kantor Pelayanan Pajak Perusahaan Masuk Bursa) issued an Income Tax article 4(2) assessment letter for the fiscal period January up to December 2005, No. 00023/240/05/054/07 stated that the Subsidiary (TJ) had additional tax liability of Rp 41,103,542. The tax liability has been compensated on March 29, 2007 with the overpayment of 2005 Value Added Tax.


Kantor Wilayah DJP Jakarta Khusus Kantor Pelayanan Pajak Perusahaan Masuk Bursa) issued an Income Tax article 23 assessment letter for the fiscal period January up to December 2005, No. 00071/203/05/054/07 stated that the Subsidiary (TJ) had additional tax liability of Rp 118,069,996. The tax liability has been compensated on March 29, 2007 with the overpayment of 2005 Value Added Tax.



58




• On March 26, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor Wilayah DJP Jakarta Khusus Kantor Pelayanan Pajak Perusahaan Masuk Bursa) issued an Income Tax article 21 assessment letter for the fiscal year 2005, No. 00043/201/05/054/07 stated that the Subsidiary (TJ) had no additional tax liability.

• On January 10, 2007, the Indonesian Tax Authorities (Direktorat Jenderal Pajak

Kantor Pelayanan Pajak Karawang) issued an Income Tax article 21 collection letter for fiscal period January up to November 2005, No. 00162/101/05/408/07 stated that the Subsidiary (TJ) has additional tax liability of Rp 218,226,906. The tax liability has been compensated on March 29, 2007 with the overpayment of 2005 Value Added Tax.

• On September 13, 2006, the Indonesian Tax Authorities (Direktorat Jenderal Pajak

Kantor Pelayanan Pajak Masuk Bursa) issued a Value Added Tax assessment letter for fiscal year 2004, No. 00014/407/04/054/06 stated that the Subsidiary (TJ) has overpayment of Rp 52,051,610,446. The tax receivable has been settled on September 29, 2006 at amount of Rp 22,255,736,691 with other Texmaco Group Companies’s tax liabilities and other Company’s tax liabilities. The remaining amount of Rp 29,795,873,755 has been received through BCA bank account Rasuna Said branch on October 13, 2006.

• On September 13, 2006, the Indonesian Tax Authorities (Direktorat Jenderal Pajak

Kantor Pelayanan Pajak Masuk Bursa) issued a Value Added Tax assessment letter for fiscal year 2004, No. 00043/237/04/054/06 stated that the Subsidiary (TJ) had additional tax liability of Rp 15,296,984. The tax liability had been compensated on September 29, 2006 with the overpayment of 2004 value added tax.

• On July 3, 2006, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor

Pelayanan Pajak Masuk Bursa) issued an Income Tax Article 21 assessment letter for fiscal year 2004, No. 00105/201/04/408/06 stated that the Subsidiary (TJ) had additional tax liability of Rp 2,042,775,032. The tax liability had been compensated on September 29, 2006 with the overpayment of 2004 value added tax.



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• On June 16, 2006, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor Pelayanan Pajak Masuk Bursa) issued a Corporate Income Tax assessment letter for fiscal year 2004, No. 00104/406/04/054/06 stated that the Subsidiary (TJ) has overpayment of Rp 118,015,242. The tax overpayment has been compensated with other tax liabilities.


Pelayanan Pajak Masuk Bursa) issued an Income Tax Article 21 assessment letter for fiscal year 2004, No. 00058/201/04/054/06 stated that the Subsidiary (TJ) had additional tax liability of Rp 834,502,680. The tax liabilities had been compensated on September 29, 2006 with the overpayment of 2004 value added tax.


Pelayanan Pajak Masuk Bursa) issued an Income Tax Article 23 assessment letter for fiscal year 2004, No. 00080/203/04/054/06 stated that the Subsidiary (TJ) had additional tax liability of Rp 349,947,196. The tax liabilities had been compensated on September 29, 2006 with the overpayment of 2004 value added tax.


Pelayanan Pajak Masuk Bursa) issued an Income Tax Article 4(2) assessment letter for fiscal year 2004, No. 00034/240/04/054/06 stated that the Subsidiary (TJ) had additional tax liability of Rp 123,755,343. The tax liabilities had been compensated on September 29, 2006 with the overpayment of 2004 value added tax.

• Under the taxation laws of Indonesia, the Company submits tax returns on the basis

of self assessment. The tax authorities may access or amend taxes within 10 years of the taxes becoming payable.



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21. ACCRUED EXPENSES

2 0 0 7 2 0 0 6 Rp Rp Interest 790,697,863,145 637,516,267,557 Electricity 18,106,714,235 23,436,510,773 Transportation 7,280,297,925 11,071,133,537 Salary 4,591,361,139 8,971,515,758 Rent 1,564,010,049 1,497,081,286 Others 1,105,906,737 1,234,896,227 Total 823,346,153,230 683,727,405,138

22. UNSECURED DEBTS AND NOTES PAYABLE

2 0 0 7 2 0 0 6 Rp Rp The Hongkong and Shanghai Banking Corporation Limited (US$ 19,149,495 in 2007 and (US$ 18,766,058 in 2006) 180,369,091,603 169,269,839,721

The Company has taking steps to implement the Composition Plan (Rencana Perdamaian) as approved by the unsecured creditors of the Company and ratified by the Commercial Court. On September 29, 2006, the unsecured creditors comprising of Banks, PT Bina Prima Perdana, Leasing, and Notes stand at US$ 18,670,630 was restructured into fixed rate notes under custodian of the Hongkong and Shanghai Banking Corporation Limited, Hong Kong. As of December 31, 2007 and 2006, the total restructured unsecured debt were US$ 19,149,495 (equivalent to Rp 180,369,091,603) and US$ 18,766,058 (equivalent to Rp 169,269,839,721) respectively which are comprising of principal notes at US$ 18,670,630 (equivalent to Rp 175,858,663,970 for the year ended December 31, 2007 and Rp 168,409,082,228 for the year ended December 31, 2006) plus unpaid capitalized interest of US$ 478,865 (equivalent to Rp 4,510,427,633) in 2007 and US$ 95,428 (equivalent to Rp 860,757,493) in 2006. There is repayable over a period of 9 years beginning 4th years from the date of restructure as below :

Year

2009 5,0% 2010 17,5% 2011 17,5% 2012 17,5% 2013 20,0% 2014 22,5%



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22. UNSECURED DEBTS AND NOTES PAYABLE (Continued)

The interest rate for the restructured debt is as below :

Year Interest

2006 2% p.a. 2007 2% p.a. 2008 2% p.a.

2009 and onwards 4% p.a.

For the year ended December 31, 2007 and 2006, the interest charge on the unsecured debts were Rp 3,471,551,686 and Rp 2,947,158,940 respectively.

23. WORKING CAPITAL LOANS

2 0 0 7 2 0 0 6 Rp Rp Related party : Damiano Investments BV, Netherland (US$ 29,023,669 in 2007 and US$ 29,891,535 in 2006) 273,373,940,356 269,621,644,406

According to the Composition Plan approved by the creditors, Damiano Investments BV, Netherland has provided US$ 15,000,000 working capital loans for the Company. The interest chargeable on this loan is 9% p.a.till the implementation of the Composition Plan. Upon implementation of the Composition Plan, the rate of interest and repayment of the principal amount are as per the terms of the “New Notes / Loan restructure” (Note 22). In addition to the above working capital loan, Damiano Investments BV, Netherland has also provided US$ 10,687,669.23 as working capital loans to the Company with interest rate of 15% per annum. And the addition amounts of US$ 867,856.64 (equivalent to Rp 7,882,823,608) have been write-off by the Company and recorded as miscellaneous income in current year consolidated statement of income. Damiano Investments BV, Netherland has also provided of US$ 3,336,000 (equivalent to Rp 31,421,784,000 in 2007 and Rp 30,090,719,999 in 2006) as advance. For the years ended December 31, 2007 and 2006, the interest charge on the working capital loans from Damiano Investments BV, Netherland were Rp 20,214,908,872 and Rp 17,670,098,669 respectively.



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24. DUE TO RELATED PARTIES

2 0 0 7 2 0 0 6 Rp Rp PT Bima Peranan Busana 13,653,484,229 13,653,484,229 PT Perkasa Heavyndo Engineering 1,062,557,586 1,062,557,586 PT Waniaindah Busana Tbk 128,200,000 128,200,000 PT Kreasi Kekar 24,659,874 89,413,522 Total 14,868,901,689 14,933,655,337 Payables to related parties represent advances to the Company in Rupiah currency and are non interest bearing with no terms of payment.

25. OBLIGATION UNDER CAPITAL LEASE

Lessors Type of asset 2 0 0 7 2 0 0 6 Rp Rp PT Perjahl Leasing Indonesia Machinery 11,620,389,927 11,128,136,441 PT Piranti Mulia Bisnisindo Machinery 10,974,894,754 10,509,985,209 PT Hanil Bakrie Finance Corporation Machinery 9,233,167,707 9,044,904,850 PT Koexim Mandiri Finance Vehicle, Machinery 5,673,430,850 5,433,097,598 PT GE Astra Finance Machinery 3,103,249,580 2,971,792,251

Total 40,605,132,818 39,087,916,349 Less : Current maturity of obligation under capital lease (40,605,132,818) (39,087,916,349)

Long-term portion – –

As of December 31, 2007 and 2006, the interest rate and lease period are as follows :

Lessor Interest rate Ended

Subsidiary (TJ) PT Hanil Bakrie Finance Corp SIBOR + 2% 2007 PT Koexim Mandiri Finance SIBOR + 2.55% 2004 PT Perjahl Leasing Indonesia SIBOR + 2.8125% 2003 PT Piranti Mulia Bisnisindo SIBOR + 2% 2005 PT GE Astra Finance SIBOR + 4.75% for 1999 2002 SIBOR + 2.75% from 2000 until

2002



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25. OBLIGATION UNDER CAPITAL LEASE (Continued)

The future minimum lease payments under capital lease as of December 31, 2007 and 2006 are as follows : 2 0 0 7 2 0 0 6 Rp Rp Year ending December 31, 2007 46,166,257,072 675,976,840 2006 – 43,734,650,980 Total minimum lease payments 46,166,257,072 44,410,627,820 Less : amount representing interest (5,561,124,254) (5,322,711,471) Obligation under capital lease 40,605,132,818 39,087,916,349 Less : current maturity of obligation under capital lease (40,605,132,818) (39,087,916,349) Long-term portion – –

Based on Sale and Purchase Agreement dated March 21, 2006 and Assignment Agreement dated July 12, 2006, PT Exim SB Leasing (in liquidation) has sold its receivables to PT Piranti Mulia Bisnisindo.

26. CREDIT FINANCING

Based on agreement dated March 28, 2007, the Company obtained a credit financing from PT Astra Sedaya Finance for purchasing of a car (Mercedes E-Class 240 Elegance Sedan Luxury) amounting to Rp 580,000,000 with interest rate of 10% per annum, repayable in monthly installments from March 30, 2007 up to February 28, 2010. As of December 31, 2007, the outstanding credit financing payable balance was Rp 314,166,670.

2 0 0 7 2 0 0 6 Rp Rp Credit financing 314,166,670 – Deduction : current maturity of credit financing (144,999,996) – Long-term portion 169,166,674 –



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26. CREDIT FINANCING (Continued)

The interest expense on this credit financing during the year 2007 amounting to Rp 36,256,668. 27. CAPITAL STOCK

Pursuant to notarial deed of Januar Tirtaamidjaja SH dated February 15, 1984, the authorized capital of the Company amounts to Rp 2,196,960,000,000 consisting of 4,393,920,000 shares with a par value of Rp 500 each. Issued and fully paid up capital were 4,393,920,000 shares. Pursuant to General Shareholders Meeting with notarial deed of Aulia Taufani, SH, No. 100 dated December 27, 2002, the shareholders agreed to approve changes of the Company’s Article of Association for authorized share capital from Rp 8,500,000,000,000 to become Rp 16,000,000,000,000 and, issued and paid-in capital from Rp 2,196,960,000,000 to become Rp 4,174,224,000,000. Pursuant to the notarial deed of Aulia Taufani, SH, No. 12 dated July 4, 2006 about the amendment of the Company’s Article Association and Extraordinary Shareholders’ Meeting with notarial deed of the same notary No. 111 dated June 21, 2006, the shareholders had approved the followings : • The authorized capital of the Company amounts to Rp 16,000,000,000,000 and issued and paid

up capital amounts to Rp 4,174,224,000,000. • The allocation of 83,484,480,000 new shares (series C) par value Rp 2 each in regard the debt to

equity conversion. The new shares of 43,144,238,750 shares for the unsecured creditors and new working capital lender and 40,340,241,250 shares for secured creditors.

• To record the paid in capital in excess of par value from debt to equity conversion of Rp 5,574,513,535,500.

The deed was approved by Minister of Justice and Human Right in his decision letter No. C-25038 HT.01.04.TH.2006 dated August 28, 2006 and registered in Department of Industry and Trade under No. 233/BH-1/IX/2006 dated September 1, 2006. As of December 31, 2006, the authorized capital of the Company amounts to Rp 16,000,000,000,000 consisting of 247,145,100,800 shares with the followings classification.

• Series A of 17,000,000,000 shares with par value Rp 500 each. • Series B of 146,660,620,800 shares with par value Rp 50 each. • Series C of 83,484,480,000 shares with par value Rp 2 each. And issued and paid up capital was Rp 2,283,248,477,500 consisting of series A of 4,393,920,000 shares, series C of 43,144,238,750 shares.



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27. CAPITAL STOCK (Continued)

In February 2008, The Company has amended its Articles of Association in connection with the reverse stock split with ratio 20 : 1. And based on notarial deed of Sutjipto SH No. 91 dated February 21, 2008 about the changes of Articles of Association, the authorized capital of the Company amounts to Rp 16,000,000,000,000 consisting of 12,357,255,040 shares with followings classification : • Series A of 850,000,000 shares with par value of Rp 10,000 each. • Series B of 7,333,031,040 shares with par value of Rp 1,000 each. • Series C of 4,174,224,000 shares with par value of Rp 40 each. The deed was approved by Minister of Justice and Human Right in his decision letter No. AHU-10588.AH.01.02 Tahun 2008 dated March 3, 2008. Issued and paid in capital amounted to Rp 4,174,224,000,000 (26%) consist of : • 219,696,000 shares with par value of Rp 10,000 each or totaling of Rp 2,196,960,000,000. • 1,890,975,522 shares with par value of Rp 1,000 each or totaling of Rp 1,890,975,522,000. • 2,157,211,950 shares with par value of Rp 40 each or totaling of Rp 86,288,478,000. The composition of stockholders as of February 21, 2008 based on notarial deed is as follows : Numbers of Percentage of Total Stockholders Shares ownership Rp % Shares Series A 219,696,000 5.15 2,196,960,000,000Shares Series B 1,890,975,522 44.30 1,890,975,522,000Shares Series C 2,157,211,950 50.55 86,288,478,000 Total 4,267,883,472 100.00 4,174,224,000,000 The composition of stockholders as of December 31, 2007 and 2006 based on the stockholder’s list issued by the Stock Administrative Office of listed shares of the Company, PT Datindo Entrycom are as follows :



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2 0 0 7 Numbers of Percentage of Total Stockholders Shares ownership Rp % Shares Series A: PT Multikarsa Investama 2,627,894,390 5.53 1,313,947,195,000Public (below 5% each) 1,766,025,610 3.71 883,012,805,000 Subtotal 4,393,920,000 9.24 2,196,960,000,000 Shares Series B: – – – Shares Series C: Damiano Investments BV, Netherland 28,854,346,410 60.70 57.708,692,820Others 9,834,214,193 20.69 19,668,428,386Unsettled 4,455,678,147 9,37 8,911,356,291 Subtotal 43,144,238,750 90.76 86,288,477,500 Total 47,538,158,750 100.00 2,283,248,477,500

2 0 0 6 Numbers of Percentage of Total Stockholders Shares ownership Rp % Shares Series A: PT Multikarsa Investama 2,627,894,390 5.53 1,313,947,195,000Public (below 5% each) 1,766,025,610 3.71 883,012,805,000 Subtotal 4,393,920,000 9.24 2,196,960,000,000 Shares Series B: – – –

Shares Series C: Damiano Investments BV, Netherland 32,752,516,409 68.90 65,505,032,818Others 3,341,314,881 7.03 6,682,629,768Unsettled 7,050,407,460 14,83 14,100,814,914 Subtotal 43,144,238,750 90.76 86,288,477,500 Total 47,538,158,750 100.00 2,283,248,477,500



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According to notarial deed of DR. H. Teddy Anwar, SH. Spn. No. 111 dated August 16, 2002; total shares of 2,454,081,290 own by PT Multikarsa Investama were sold to PT Bina Prima Perdana. But based on the data are issued by PT Datindo Entrycom, the share are still registered under the name of PT Multikarsa Investama. Mr. Slamet Nugroho, M. Kalpathi Hari Haran Sivasubramanian and Mr. Seeniappa Jegatheesan represents Commissioner and Director of the Company for 2007 and 2006 with ownership of 47,760 ; 23,880 and 47,760 shares respectively of the paid-in capital for 2007 and 2006.

The new shares are issued as the results of the debt to equity conversion had been traded in the Indonesian Stock Exchange since October 1, 2007.

28. ADDITIONAL PAID-IN CAPITAL

2 0 0 7 2 0 0 6 Rp Rp Paid-in capital in excess of par value from public offering in 1990 25,800,000,000 25,800,000,000 Shares issuance cost (13,807,386,447) (13,807,386,447)

11,992,613,553 11,992,613,553

Paid-in capital in excess of par value from

Conversion of debt to equity in 2006 5,574,513,535,500 5,574,513,535,500

Total 5,586,506,149,053 5,586,506,149,053 29. RETIREMENT BENEFITS

The Company and TJ, a consolidated subsidiary, established defined benefit pension plans covering all of their local permanent employees. These plans provide pension benefits based on years of service and salaries of the employees. The pension plans are managed by Dana Pensiun Texmaco Group (DPTG), which deed of establishment was approved by the Minister of Finance of the Republic of Indonesia in his decision letter No. Kep.239/KM.17/1993, dated October 22, 1993. DPTG was established by the Texmaco Group as founder and the Company and TJ as cofounders.



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29. RETIREMENT BENEFITS (Continued)

The pension plans are funded by the contributions from both employers and employees. Employees’ contributions in 2006 amounted to 5% of their gross salaries and the remaining amounts were contributed by the employers. Pension expense for 2007 dan 2006 are as follows : 2 0 0 7 2 0 0 6 Rp Rp Current service cost – total – 1,268,824,938 Current service cost – employees – (634,412,469) Total current service cost – the Company and TJ – 634,412,469 The actuarial liability and net assets based on the actuarial report of DPTG as of December 31, 2007 and 2006 are as follows :

2 0 0 7 2 0 0 6 Rp Rp

Net assets – 9,012,090,038 Actuarial liability – (8,205,068,468) Excess of net assets over actuarial liability – 807,021,570 The assets of pension fund mainly consist of time deposits, marketable securities, long-term investments in shares, land and buildings. The key actuarial assumptions used by PT Sienco Aktuarindo Utama, an independent actuary, are as follows : Mortality : 1949 annuity Mortality Table Normal pension age : 55 years old Disability rate : 1% of probability of death on each level of age Salary increase : 6% per annum Technical interest rate : 11% per annum Pension management expense : 10% of the receipts of pension fee Pension benefits formula : 2.5% x work period x salary Actuarial calculation method : Projected Benefits Entry Age Normal Based on the decision letter of the Minister of Finance pf the Republic of Indonesia No. KEP-026/KM.10/2007 dated February 22, 2007, Dana Pensiun Texmaco Group was dissolved effective December 31, 2006.



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30. PROVISION FOR EMPLOYEES’ ENTITLEMENT

On June 20, 2000, the Ministry of Manpower issued Decree No. KEP/150/Men/2000 regarding the settlements of work dismissal and determination of separation, appreciation and compensation payment by companies, which requires companies to pay their employees gratuity and compensation benefits in case of employees resignation based on the employee’s number of years of service and salaries provided the conditions set forth in the decree are met. Further, in April 2003, the Government of the Republic Indonesia issued Manpower Law No. 13/2003 replacing the Decree No. KEP-150/Men/2000. In relation to this, as of December 31, 2007 and 2006, the Company and Subsidiaries have recorded provision for employees entitlement as follows : 2 0 0 7 2 0 0 6 Rp Rp Current service cost 3,829,747,259 5,292,069,626 Interest costs 4,719,119,544 1,465,984,777 Past service cost 1,665,322,019 1,665,322,019 Net actuarial losses (gains) – 743,560,116 Losses (gains) of curtailments and settlements 121,254,716 8,889,422,463 Total 10,335,443,538 18,056,359,001

The amounts included in the consolidated balance sheets arising from the Company’s obligation in respect of the employees’ entitlement is as follows : 2 0 0 7 2 0 0 6 Rp Rp Present value of obligations 73,718,655,829 66,451,484,066 Unrecognized past service cost (19,018,443,719 ) (20,683,765,738) Unrecognized actuarial gains (losses) (13,809,810,797 ) (6,727,721,895) Net liability 40,890,401,313 39,039,996,433 Movements in the net liability recognized in consolidated balance sheet are as follows : 2 0 0 7 2 0 0 6 Rp Rp Beginning balance 39,039,996,433 47,480,243,118 Benefit payment (8,485,038,658 ) (26,496,605,686) Charge to statement of income 10,335,443,538 18,056,359,001 40,890,401,313 39,039,996,433



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30. PROVISION FOR EMPLOYEES’ ENTITLEMENT (Continued)

The above actuarial assessments were made by PT Sienco Aktuarindo Utama for calculating the Company’s provision for employees’ entitlement as at December 31, 2007 and 2006 with the following assumptions:

Discount rate : 10% p.a. in 2007 and 11% p.a. in 2006 Mortality rate : The 1958 Commissioners’ Standard Ordinary Mortality Table. Salary growth rate : 8% p.a. in 2007 and 8% p.a. in 2006 Normal retirement age : 55 years old Probability of resigned : 0% - 1% Fund method : Projected Unit Credit Management had reviewed the assumptions used and is in the opinion that the assumptions are reasonable, and also believed that the provision for severance provided is adequate to cover the potential liability required by the Labour Law No. 13/2003. As of December 31, 2007 and 2006, the Subsidiaries have recorded provision for employees’ entitlement of Rp 16,617,173,416 and Rp 21,998,582,533 respectively based on the amount payable to the employees pursuant to the Labor Law No. 13/2003 and in calculating, the Subsidiaries did not engage independent actuaries to calculate the provision for employee entitlements.

31. APPROPRIATION FOR GENERAL RESERVE

Based on the annual general stockholders’ meeting as stated in notarial deed No. 351 dated June 23, 1997 and No. 402 dated June 24, 1996 of Adam Kasdarmadji, SH, notary public in Jakarta, the stockholders agreed to appropriate a general reserve aggregating to Rp 8,280,000,000 from retained earnings in accordance with article 61 of the Corporate Law No. 1 year 1995 for limited liability companies. In 2007 and 2006 the Company was exempted from reserving additional amounts due to its operating losses.

32. INSURANCE CLAIM SETTLEMENT, NET

• In 2007, this account represent the settlement of insurance claim for inventory damage of

Rp 108,597,807.



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33. BASIC NET LOSS PER SHARE

2 0 0 7 2 0 0 6 Rp Rp Weighted average number of shares outstanding 47,538,158,750 18,775,332,916Net loss for computing the loss per share (1,028,032,363,397) (25,429,532,594) Basic net loss per share (22) (1)

34. NET SALES

2 0 0 7 2 0 0 6 Rp Rp Lokal Yarn 1,289,772,790,687 700,320,976,116 Fibre 834,237,686,559 495,868,742,887 Chips 286,036,934,693 680,414,195,812 Polyester 146,180,575,627 – Knitting 15,028,691,452 35,721,211,199 Coating 10,989,968,745 3,885,998,916 Garment 238,441,517 435,738,231 PTA 39,144,940 – Others 5,152,193,568 20,385,308,975 2,587,676,427,788 1,937,032,172,136 Export Yarn 831,589,936,396 819,372,530,892 Fibre 131,951,951,941 158,923,501,294 Knitting 41,983,522,989 17,619,107,793 Chips 28,811,093,834 65,154,277,000 PTA 13,876,599,600 58,374,592,356 Garment 3,214,801,441 4,353,929,021 1,051,427,906,201 1,123,797,938,356 Total 3,639,104,333,989 3,060,830,110,492 In 2007 and 2006, net sales were made to related parties amounted to Rp 5,002,065,073 and Rp 384,926,283,753 or 0.14% and 12.50% respectively of total operating revenues (Note 42).



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34. NET SALES (Continued)

In 2007 and 2006, no sales to third parties exceeded 10% of total operating revenues.

35. OTHER OPERATING REVENUES

2 0 0 7 2 0 0 6 Rp Rp Waste 4,640,838,842 5,151,187,291 Indirect materials – 9,985,815,572

Makloon – 3,860,827,370

Total 4,640,838,842 18,997,830,233 In 2006, other operating revenues were made to related parties amounted to Rp 8,913,111,572 or 0.29% respectively of total operating revenues (Note 42). In 2007 and 2006, no sales to third parties exceeded 10% of total operating revenues.

36. COST OF GOODS SOLD

2 0 0 7 2 0 0 6 Rp Rp Raw materials used 2,276,968,929,948 1,818,229,392,701 Direct labour 59,173,240,554 65,129,094,091 Manufacturing expense 1,387,829,044,151 1,188,651,970,284 Total manufacturing cost 3,723,971,214,653 3,072,010,457,076 Work in process At beginning of year 61,609,898,835 35,802,334,019 Purchases 771,716,869 – At end of year (64,748,022,808) (61,609,898,835) Cost of goods manufactured 3,721,604,807,549 3,046,202,892,260



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36. COST OF GOODS SOLD (Continued)

2 0 0 7 2 0 0 6 Rp Rp Finished goods At beginning of year 113,732,466,963 71,918,313,414 Purchases 199,848,055,089 514,514,450,567 At end of year (217,096,342,047) (113,732,466,963)

Cost of goods sold 3,818,088,987,554 3,518,903,189,278 In 2007 and 2006, total purchase of raw materials, work in process, indirect materials, spare parts and finished goods were made from related parties amounted to Rp 26,496,763,124 and Rp 478,433,629,409 or 1.08% and 20.26% respectively of total purchases (Note 42). In 2007 and 2006, no purchase to third parties exceeded 10% of total purchases.

37. SELLING EXPENSES 2 0 0 7 2 0 0 6 Rp Rp Export charges 59,918,621,786 47,645,401,610 Marketing expenses 47,751,556,747 36,675,098,449 Freight 42,607,740,212 28,027,617,705 Advertising and promotion 146,977,550 232,020,300 Others 916,153,599 1,012,430,206 Total 151,341,049,894 113,592,568,270

38. GENERAL AND ADMINISTRATIVE EXPENSES

2 0 0 7 2 0 0 6 Rp Rp Salaries, wages and benefits 33,918,752,265 26,379,408,727 Rent 10,398,107,841 8,925,982,768 Business traveling expenses 7,809,153,440 8,578,908,228 Professional fees 7,228,246,589 7,341,960,991 Bad debt expenses 6,534,307,759 3,297,299,253 Communication 6,129,949,619 5,091,838,465 Carried forward 72,018,517,513 59,615,398,432



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38. GENERAL AND ADMINISTRATIVE EXPENSES (Continued)

2 0 0 7 2 0 0 6 Rp Rp Brought forward 72,018,517,513 59,615,398,432 Insurance 5,976,587,186 4,032,804,170 Tax penalties 5,481,242,492 4,989,813,382 Repairs and maintenance 3,681,902,136 4,361,496,525 Stationery 3,157,963,369 1,761,010,611 Depreciation expense of fixed assets 1,056,401,248 1,280,263,013 Amortization 1,042,298,964 2,963,726,735 Electricity and water 727,858,192 1,271,042,713 Entertainment and representation 627,513,153 426,806,943 Others 34,491,972,678 32,756,146,226

Total 128,262,256,931 113,458,508,750 39. INTEREST EXPENSE AND BANK CHARGES

2 0 0 7 2 0 0 6 Rp Rp Interest expense on : Bank loan (letter of credit facility) 135,423,160,702 75,999,948,192 Taxation late 28,776,733,821 – Working capital loan 20,214,908,872 17,670,098,669 Unsecured loan and notes payable 3,471,551,686 2,947,158,940 Short term loans 1,094,506,929 624,536,786 Credit financing 36,256,668 – Obligation under capital lease 2,873,766 139,788,443 Claim from custom – 11,130,021,337 Others 31,375,000 –

Total interest expense 189,051,367,444 108,511,552,367 Bank charges 3,849,413,441 4,102,503,053 Total 192,900,780,885 112,614,055,420



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40. INTEREST INCOME

2 0 0 7 2 0 0 6 Rp Rp Current accounts and others 520,699,708 249,584,878

41. MISCELLANEOUS INCOME, NET

2 0 0 7 2 0 0 6 Rp Rp Write-off in working capital loan 7,882,823,608 – Collectible from allowance for doubtful accounts 2,872,043,859 2,443,985,427 Rebate on purchasing chemicals 2,597,270,603 1,606,357,467 Others 1,135,724,603 1,935,657,570 Total 14,487,862,673 5,986,000,464

42. NATURE AND TRANSACTION WITH RELATED PARTIES

Nature of relationships and transaction with related parties : Nature of the Name of the related parties related parties Transaction PT Multikarsa Investama Major stockholder Loan PT Perkasa Indobaja Affiliated company Loan PT Texmaco Perkasa Engineering Tbk Affiliated company Sales, purchase of machinary PT Texmaco Taman Synthetics Affiliated company Sales, purchase of raw materials PT Wastra Indah Affiliated company Sales, purchase PT Bima Peranan Busana Affiliated company Sales, purchase PT Citra Indah Tekstil Affiliated company Sales, purchase of raw materials Polysindo (UK) Ltd., England Affiliated company Sales Polysindo (USA) Inc., USA Affiliated company Sales Polysindo (Japan) Inc., Japan Affiliated company Purchase Polysindo (Singapore) Ltd., Singapore Affiliated company Purchase PT Saritex Jaya Swasthi Affiliated company Loan PT Wismakarya Prasetya Affiliated company Sales PT Busana Perkasa Garments Affiliated company Sales PT Ungaran Sari Garments Affiliated company Sales PT Citra Abadi Sejati Affiliated company Sales Pacific Textiles s.a. Affiliated company Sales



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42. NATURE AND TRANSACTION WITH RELATED PARTIES (Continued)

Nature of relationships and transaction with related parties (Continued)

Nature of the Name of the related parties related parties Transaction PT Sumatex Subur Affiliated company Sales PT Perkasa Heavyndo Engineering Affiliated company Sales PT Bridgeport Perkasa Machine Tools Affiliated company Sales Commonwealth Holdings Pte. Ltd., Singapore

Affiliated company

Sales

Norfil Ltd., England Affiliated company Sales Drapper Texmaco Inc. Co. Affiliated company Sales PT Raja Busana Mahameru Affiliated company Sales Coastal Group Limited, South Africa Affiliated company Sales PT Texmaco Mikro Indoutama Affiliated company Purchase of furniture and fixtures Texmaco Mechatronics Pte. Ltd. Affiliated company Purchase PT Devrindo Widya Affiliated company Service PT Asuransi Prima Perkasa International Affiliated company Insurance PT Wahana Perkasa Auto Jaya Affiliated company Loan PT Waniaindah Busana Tbk Affiliated company Loan PT Wahana Jaya Perkasa Affiliated company Loan PT Super Mitory Utama Affiliated company Loan PT Bina Prima Perdana Affiliated company Loan Damiano Investments BV, Netherland Affiliated company Loan

PT Sarana Daycrown Industri Affiliated company Loan PT Perkasa Indosteel Affiliated company Loan PT Mahkota Indah Sentosa Affiliated company Loan PT Kreasi Indah Taxtile Affiliated company Loan Related parties transaction In the normal course of business, the Company and its subsidiaries entered into certain business and financial transactions with its related parties. These transactions are as follows : Percentage to total Assets/ Liabilities Revenue/Expenses 2 0 0 7 2 0 0 6 2007 2006 Rp Rp % %

Trade receivables 431,962,991,840 434,333,939,847 7.93 7.42



77


Related parties transaction (Continued)

Percentage to total Assets/ Liabilities Revenue/Expenses 2 0 0 7 2 0 0 6 2007 2006 Rp Rp % %

Purchase advance 108,782,672,790 41,329,419,067 2.00 0.71 Due from related parties 634,026,438,215 621,176,485,643 11.64 10.61 Trade payables 59,725,097,513 58,855,993,276 0.48 0.49 Due to related parties 14,868,901,689 14,933,655,337 0.12 0.13 Net sales 5,002,065,073 384,926,283,753 0.14 12.50 Other operating revenues – 8,913,111,572 – 0.29 Manufacturing Expenses – 1,320,726,002 – 0.06 Purchase of raw material, indirect materials, work in process, spare parts and finished goods 26,496,763,124

478,433,629,409

1.08

20.26

• Sales of finished goods to related parties accounted for 0.14% and 12.50% from total operating

revenue for the years ended December 31, 2007 and 2006 respectively. The details of sales to related parties are as follows :

2 0 0 7 2 0 0 6 Rp Rp

PT Wismakarya Prasetya 3,545,846,275 – PT Busana Perkasa Garments 1,306,021,557 989,140,160 PT Citra Abadi Sejati 93,815,705 183,971,280 PT Texmaco Perkasa Engineering 54,883,880 25,704,000 PT Ungaran Sari Garments 1,497,656 5,710,444,371 PT Multikarsa Investama – 378,017,023,942

Total 5,002,065,073 384,926,283,753

• Other operating revenue to related parties accounted for 0.00% and 0.29% from total operating revenue for the years ended December 31, 2007 and 2006 respectively.



78


Related parties transaction (Continued)

The details of other operating revenue to related parties are as follows : 2 0 0 7 2 0 0 6 Rp Rp PT Multikarsa Investama – 8,913,111,572 Total – 8,913,111,572

• Purchases of raw materials, indirect materials, work in process, spare parts and fixed assets from

related parties accounted for 1.08% and 20.26% for total purchases for the years ended December 31, 2007 and 2006, respectively.

The details of purchases from related parties are as follows : 2 0 0 7 2 0 0 6 Rp Rp Raw material, indirect material work in process and spare parts

Polysindo (Japan) Inc., Japan 6,552,632,327 9,798,581,360 PT Multikarsa Investama 4,727,883,446 – PT Texmaco Taman Synthetics – 56,381,700 11,280,515,773 9,854,963,060 Finished goods PT Multikarsa Investama 15,216,247,351 468,578,666,349 Others (Fabrication) PT Multikarsa Investama – 1,320,726,002 Total 26,496,763,124 479,754,355,411

• Compensation representing salary, was given to Commissioners and Directors for the years

ended December 31, 2007 and 2006 amounted to Rp 2,311,141,840 and Rp 1,316,558,400 respectively. No contribution to retirement benefits, entitlement benefits and or any other special benefits were given during the year 2007 and 2006.



79

43. ASSETS AND LIABILITIES IN FOREIGN CURRENCY

The Company and its Subsidiaries had monetary assets and liabilities in foreign currencies as of December 31, 2007 and 2006 as follows :

2 0 0 7 2 0 0 6 Foreign Equivalent in Foreign Equivalent in Currency Rupiah Currency Rupiah Rp Rp Assets

Cash and cash equivalents US$ 2,572,104 24,226,649,276 2,684,945 24,218,203,285 SGD 1,420 9,231,363 1,652 9,712,250 NOK 1,108 1,908,752 1,108 1,761,587

Trade receivables : Third parties US$ 29,336,030 276,316,066,230 25,696,063 231,778,485,535 Related parties US$ 6,894,975 64,943,771,503 5,076,779 45,792,543,147

Due from related parties US$ 5,573,008 52,492,163,036 5,579,991 50,331,516,385

Restricted cash in bank US$ 1,274,386 12,003,444,845 1,274,386 11,494,964,697

Total assets 429,993,235,005 363,627,186,886

Liabilities

Bank loans Third parties US$ 52,313,102 492,737,107,725 43,501,586 392,385,203,751

Secured Debts Third parties US$ 805,630,342 7,588,232,192,619 805,630,342 7,266,785,686,105 EUR 15,688,978 215,877,512,127 15,688,978 186,043,351,729 YEN 3,001,711,400 249,330,273,562 3,001,711,400 227,515,616,076 CHF 45,902 379,181,249 45,902 338,834,797

Short term loans US$ 22,813,238 214,877,986,491 22,363,248 201,716,497,953

Trade payables : Third parties US$ 16,393,080 154,406,424,746 12,492,607 112,683,314,669 YEN 3,782,056 314,165,533 6,926,512 525,031,894 SGD 19,418 126,263,215 32,641 190,834,741 CHF – – 6,676 50,008,337 GBP 17,930 337,162,205 14,964 264,809,187 EUR 8,586 118,149,280 207,392 2,456,964,195 DKK – – 147 233,683

Unsecured debts and notes payable

US$ 19,149,495 180,369,091,603

18,766,058

169,269,839,721

Working Capital Loan US$ 29,023,669 273,373,940,356 29,891,535 269,621,644,406

Other current liabilities Third parties US$ 3,179,036 29,943,336,887 2,453,571 22,131,210,420 Related parties US$ 4,000,000 37,676,000,000 4,000,000 36,080,000,000

Accrued expenses US$ 32,964,703 310,494,540,548 28,822,177 259,976,035,924

Notes payable US$ 16,141,085 152,032,882,347 16,141,085 145,592,589,315

Liabilities for purchase of fixed assets US$ 30,476 287,055,800 30,476 274,895,775

Total liabilities (9,900,913,266,293) (9,293,902,602,678)

Net liabilities (9,470,920,031,288) (8,930,275,415,792)



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44. BUSINESS SEGMENT INFORMATION

The Company and its Subsidiaries had classified its business into primary and secondary segments as follows :

Chemical Weaving Textile industry and And And Finance

2007 synthetic fibre knitting Trading Service Elimination Total (In Thousands Rupiah) Rp 000 Rp 000 Rp 000 Rp 000 Rp 000 Rp 000

BUSINESS SEGMENT INFORMATION (PRIMARY)

SEGMENT SALES :

External sales 3,423,742,969 220,002,203 – – – 3,643,745,172Inter segment sales 2,875,235 – – – 2,875,235 –

Total segment sales 3,426,618,204 220,002,203 – – 2,875,235 3,643,745,172 RESULT

Segment result (174,343,815)

Unallocated operating expenses

(279,603,307

)

Loss from operations (453,947,122)

Other income, net (619,062,514)

Loss before income tax (1,073,009,636)

Tax income 44,977,273

Loss from ordinary activities (1,028,032,363)

Extraordinary item –

Net loss (1,028,032,363) BUSINESS SEGMENT INFORMATION (PRIMARY)

BALANCE SHEET :

Segment assets (6,102,507,435) (395,509,555) (1,344,780) (7,151,075,529) 8,202,255,183 (5,448,182,116) Segment liabilities 11,555,304,051 2,049,313,728 12,160,697 7,176,696,890 (8,267,649,647) 12,525,825,719 OTHER INFORMATION :

Capital expenditures (6,240,623) (17,720) – – – (6,258,343) Depreciation and amortization (500,477,946) (56,585,406) – – – (557,063,352) GEOGRAPHIC SEGMENT INFORMATION (SECONDARY)

SEGMENT SALES :

Local 2,420,736,772 174,803,879 – – 2,875,235 2,592,665,416Export 1,005,881,432 45,198,324 – – – 1,051,079,756

Total 3,426,618,204 220,002,203 – – 2,875,235 3,643,745,172



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44. BUSINESS SEGMENT INFORMATION (Continued)


2007 synthetic fibre knitting Trading Service Elimination Total (In Thousands Rupiah) Rp 000 Rp 000 Rp 000 Rp 000 Rp 000 Rp 000

SEGMENT ASSETS :

Local 6,013,566,601 355,130,843 1,344,780 – (1,051,179,654 ) 5,318,862,570 Export 88,940,834 40,378,712 – 7,151,075,529 (7,151,075,529 ) 129,319,546

Total 6,102,507,435 395,509,555 1,344,780 7,151,075,529 (8,202,255,183 ) 5,448,182,116 CAPITAL EXPENDITURES :

Local (6,240,623 ) (17,720) – – – (6,258,343)


2006 synthetic fibre Knitting Trading Service Elimination Total (In Thousands Rupiah) Rp 000 Rp 000 Rp 000 Rp 000 Rp 000 Rp 000

BUSINESS SEGMENT INFORMATION (PRIMARY)

SEGMENT SALES :

External sales 3,015,586,523 64,241,418 – – – 3,079,827,941Inter segment sales 79,639 – – – 79,639 –

Total segment sales 3,015,666,162 64,241,418 – – 79,639 3,079,827,941

RESULT

Segment result (382,162,746) (56,912,502) – – – (439,075,248)

Unallocated operating expenses (201,175,757) (25,833,612

)

–

(41,708

)

–

(227,051,077

)

Loss from operations (666,126,325)

Other income, net 589,095,088

Loss before income tax (77,031,237 )

Tax income 51,601,705

Loss from ordinary activities (25,429,532)

Extraordinary item –

Net loss (25,429,532) BUSINESS SEGMENT INFORMATION (PRIMARY)

BALANCE SHEET : Segment assets (5,694,085,951 ) (440,637,736) (1,697,991) (6,848,147,497) 7,135,939,875 (5,848,629,300) Segment liabilities 10,950,867,987 1,262,938,148 12,160,785 6,836,663,296 (7,165,457,497) 11,897,172,719



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44. BUSINESS SEGMENT INFORMATION (Continued)


2006 synthetic fibre Knitting Trading Service Elimination Total (In Thousands Rupiah) Rp 000 Rp 000 Rp 000 Rp 000 Rp 000 Rp 000

OTHER INFORMATION : Capital expenditures (8,063,256) (90,000) – – – (8,153,256) Depreciation and amortization (510,716,400) (68,580,493) – – – (579,296,893) GEOGRAPHIC SEGMENT INFORMATION (SECONDARY)

SEGMENT SALES :

Local 1,913,841,260 42,268,381 – – 79,639 1,956,030,002 Export 1,101,824,902 21,973,037 – – – 1,123,797,939

Total 3,015,666,162 64,241,418 – – 79,639 3,079,827,941

SEGMENT ASSETS : Local 5,573,007,220 403,127,118 1,697,991 – (263,431,298) 5,714,401,031 Export 121,078,731 37,510,618 – 6,848,147,497 (6,872,508,577) 134,228,269

Total 5,694,085,951 440,637,736 1,697,991 6,848,147,497 (7,135,939,875) 5,848,629,300 CAPITAL EXPENDITURES:

Local (8,063,256) (90,000) – – – (8,153,256)

45. COMMITMENTS AND CONTINGENCIES

The Company signed a Memorandum of Understanding, dated May 14, 1990, with Eastman Kodak Company, USA, to establish a joint venture company to manufacture certain special types of polyester chips and fiber in Indonesia with the name of PT Eastindo Polymertama. This joint venture company was established based on the notarial deed No. 68 of Esther Daniar Iskandar, SH, notary in Jakarta, dated October 17, 1991 as approved by the Minister of Justice of the Republic of Indonesia in his decision letter No. C2–1990.HT.01.01.TH.92 dated February 28, 1992. The Company along with Eastman Kodak Company, USA decided to postpone the commencement of the operations of PT Eastindo Polymertama to a later date. Such date, as well as the commercial terms would be mutually agreed upon by both parties. Until then, both the subscribers have decided to postpone paying on their unpaid subscriptions.



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46. RECLASSIFICATION OF ACCOUNTS

Certain accounts in the 2006 consolidated financial statements have been reclassified in line with the presentation of the 2007 consolidated financial statements. The detail is a follows :

Previous report As restated Amount Description

Rp Finished goods Raw materials 25,501,445,420 More appropriate presentation

47. PRONOUNCEMENT OF NEW ACCOUNTING STANDARD

The Indonesian Institute of Accountants issued some of financial accounting standards (SFAS). The standards will affect the Company’s financial accounting are as follows :

• SFAS 13 (Revised 2007) – Investment Property (effective applicable for financial statements

covering periods beginning on or after 1 January 2008). • SFAS 16 (Revised 2007) – Fixed Assets (effective applicable for financial statements covering

periods beginning on or after 1 January 2008). • SFAS 30 (Revised 2007) – Lease (effective applicable for financial statements covering periods

beginning on or after 1 January 2008). • SFAS 50 (Revised 2006) – Financial Instruments : Presentation and Disclosures (effective

applicable for financial statements covering periods beginning on or after 1 January 2009). Earlier application is encouraged. Entity is not permitted to implement the statement on the period prior January 1, 2009 unless the entity has also applied the SFAS 55 (Revised 2006).

• SFAS 55 (Revised 2006) – Financail Instruments : Recognition and Measurement (effective

applicable for financial statements covering periods beginning on or after 1 January 2009). Earlier application is encouraged.

The Company’s management is currently evaluating the effects of the new revised SFAS to the Company, and has not determined the effects of this revised SFAS on financial positions, results of operation, changes in shareholders’ equity and cash flow of the Company.

48. PREPARATION AND COMPLETION OF THE FINANCIAL STATEMENTS

The Company’s directors are responsible for the preparation of the financial statements and completed on March 24, 2008.

P O L Y S I N D O Synthetics, Naturally.

www.polysindoworld.com © 1/2007

PT. POLYSINDO EKA PERKASA Tbk. Corporate Office:

Suite 1001, 10th floor, Sentra Mulia, Jl. HR Rasuna Said,

Kav. X-7, No. 8, Jakarta 12940. INDONESIA Tel: + 62 21 2522414 Fax: + 62 21 5229380

ANNUAL REPORT - Asia Pacific Fibers · 3 Annual Report 2007 ... reached cyclical highs and prices...

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Transcript of ANNUAL REPORT - Asia Pacific Fibers · 3 Annual Report 2007 ... reached cyclical highs and prices...