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1 Annual Report 2006 – POLYSINDO EKA PERKASA TBK

Contents

Company Description 2

Financial Highlights 3

Message From The President Commissioner 4

Message to Shareholders 5

Management of the Company 6

Management Report 10

Management Discussion and Analysis 15

Good Corporate Governance 18

Corporate Information 19

Independent Auditor Report 24


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. The upstream manufacturing facilities of fiber and filament yarn are located at two sites namely Karawang and Semarang. Its subsidiary Texmaco Jaya’s downstream operations, consisting of weaving and finishing, are located at Karawang and Pemalang. 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 2006. 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 2002 to 2006. The Company’s current auditors are Drs. Hendrawinata Gani & Rekan (Indonesian Member firm of Grant Thornton International).

(in million Rupiah) 31st December 2006 2005 2004 2003 (2) 2002 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

1,298,542 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)

1,852,064 6,218,612 8,459,075

16,110,144 (7,651,069)

3,733,368 (203,576) (721,794)

477,401 (13,689,670)

109 (5.45) 12.79 5.64 NA 0.1 1.9

(2.1)

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 2006 Polysindo has posted a moderate growth in revenues. Though the capacity utilization was low in 2006, however, it showed an improvement in 2006 over 2005 due to continued support of customers and founders of pre financing facility. The Company posted an operating loss of Rp666.12 Billion due to unprecedented increase in raw material through the second semester of 2006 which could not be fully absorbed by the market. Polysindo was at a disadvantageous position as it was procuring raw materials on spot prices due to working capital constraints. However during the end of 2006 the raw material prices started softening coupled with stable selling price of finished goods. The Indonesian economy is also expected to grow at about 6% in 2007, along with inflation being controlled at the range of 6% - 7%, it is bound to improve the domestic purchasing power of people. With the stable raw material prices, we hope that the company, will take full advantage of these factors to improve the performance of the company in 2007 with better results. The Commissioners wish to extend its utmost appreciation to the Directors and all of its employees for their continued hard work and dedications throughout 2006 even in difficult and trying circumstances. The Company has also adhered to various corporate compliance requirements as per BEJ and Bapepam. We also wish to place on record our sincere thanks to our customers, and other parties for their continued support and to our shareholders for their confidence and trust given to the company.

Slamet Nugroho, MBA President Commissioner


Message to Shareholders Dear Shareholders, The Indonesian economy showed improved stability throughout 2006, growing by 5.5% and setting the stage for further expansion in 2007 onwards. Of particular note was the growth of the non-oil and gas sector at 6.1%, with strength in the transportation and communications sectors being the highlight of the year. Much of this growth was consumer-lead, which makes up 60% of GDP, reflecting the nearly 20% growth in per capita GDP, from Rp12.7 million in 2005 to Rp15 million in 2006. Exports exceeded US$100 billion for the first time, lead by a 20% growth in non-oil and gas product exports, mostly occurring in the rubber, palm oil, and coal markets which are experiencing high international commodity prices. This drove international reserves to $43 billion in 2006, up from $35 billion in 2005, while the current account surplus rose to US$9.6 billion, a six-fold increase over 2005. The increasing strength in the economy and the improved outlook was underpinned by a lower-than-expected inflation rate of 6.6%, well below the 7%-9% targeted by Bank Indonesia, and a considerable improvement from the 18.3% inflation rate experienced in 2005. While inflation worries remain with the further reduction of fuel subsidies and flood-induced price increases for rice in early 2007, the outlook for inflation remains in the 6%-8% range. With increasing confidence arising from these strong developments in the general economy, the Rupiah stabilized in a narrow band of 9000-9100 against the dollar, a level that seems to be comfortable for both importers and exporters. And unemployment has stabilized to slightly over 10%, with the improved economic forecasts predicting further reductions in the coming years. The World Bank’s GDP growth forecast for 2007 and 2008 is 6.3% and 6.5%, respectively, this strength due in part to Indonesia’s relatively lower dependency on export market strength than with other regional economies. Polyester Industry – Global and Domestic Scenarios World-wide fiber production/demand reached an all-time high in 2006, increasing by 4% over 2005 to 63.5 million tons, with man-made fibers growing by 5% and cotton by 2%. Man-made fiber production of 37 million tons now represents 58.3% of all fiber production, up 0.8 percent compared to 2005. Of this, polyester filament yarn and polyester staple fiber grew 7% and 6%, respectively, to 27.2 million tons, or 74% of all man-made fibers and 43% of world-wide fiber production/demand, the latter representing a 1.0% share increase over the previous year (from a 42% share in 2005). The centers of production of man-made fibers continued to shift to China and India, with the former total share increasing from 47% in 2005 to over 50% in 2006. And India has overtaken Taiwan and the United States to become the second largest MMF producer after China. Correspondingly, polyester production in 2006 was reduced 11% and 5% in Korea and Taiwan, respectively, while production in ASEAN declined 2%. U.S. and W. European production declined 8% and 2%, respectively. Thus nearly 83% of staple fiber capacity now resides in Asia.


During 2006 polyester margins in Indonesia continued to be under pressure as raw material prices remained high, particularly for paraxylene (PX) and especially in the third and fourth quarters of the year, following on surges in benchmark crude oil prices which exceeded US$65 per barrel in the second half of the year. However, margins began to improve late in the year, as both PX prices eased and as rumours of polyester plant closings in Korea and Taiwan tightened market pricing. Thus textile exports from Indonesia grew more than 10% by value to over US$9 billion in 2006. Cheap imports, mainly from China, grew over 5% and continue to plague the domestic Indonesia textile industry, however profitability largely has been restored and reinvestment and modernization is occurring. There are also reports of the relocation of textile manufacturing capacity to Indonesia from less competitive markets in the post quota regime. With increasing consumption rates in China, the feared threat of capacity excess and a consequential rise in textile exports from that country have been reduced. Company Performance In the year 2006, the Company made significant gains both in terms of its operations and its financial recovery. With new financing provided under the terms of the Composition Plan, the Company has been able to increase its operating rate to approximately 70% (from 55% in 2005) and thereby was able to improve its financial performance for much of the year. However, a late-year surge in raw material prices, particularly with regards PX, caused a loss for the year of Rp25.4 billion. While this was a considerable improvement from the 2005 loss of Rp841.8 billion, the improvement was largely attributable to a foreign exchange gain as the Rupiah strengthened by 8% during the year. The Company continued to pursue aggressive cost savings programs, optimization of its product mix, and better terms from suppliers. The Company has sustained its relationships with supportive customers, has found new markets and customers and, despite weakening prices, was able to post a 2.0% year-on-year increase in sales, to Rp3,079.8 billion By year-end 2006 staple and yarn prices improved and raw material prices began dropping, resulting in a restoration of profitability in December. This trend continues. The Independent Auditors have expressed a disclaimer opinion on the financials of the Company for the year ended 31st December 2006, pending ratification of the Secured Debt Restructuring Plan (SDRP) and the restructure of its subsidiary company-PT Texmaco Jaya. The shares of the Company remain suspended from trading in the Stock Exchange. Outlook The Government of Indonesia has projected a continuation of a strengthening economy with an estimated GDP growth rate of 5.5%-6.0%, driven primarily by strong domestic consumption and a lower sustaining inflation rate of 6%. With the growth of polyester demand of 6%, and with a continuation of the wider trend of increasing share of polyester applications, the industry is expected to perform well in the coming years. With additions in paraxylene (PX) capacity in the next two years, raw material prices are expected to gradually reduce in the near term. Margins, therefore, are expected to improve as cost pressures ease and textile markets continue to strengthen.


The company is taking the necessary steps to secure ratification of the SDRP which then will allow for the necessary adjustments to its debt liabilities on the Balance Sheet. Coupled with improving profitability, the Company expects to secure a refinancing of its working capital at a level which will allow fulsome operating rates and increased profitability. These measures will ensure that the Company will return to the group of leading polyester manufacturers and marketers in this region. We would like to take this opportunity to place on record our sincere gratitude to our Shareholders, Customers, Suppliers, Bankers, Creditors, and Employees who continue to support the Company during this phase of restructuring and re-emergence as a prominent purveyor 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 Slamet Nugroho, MBA 65 President Commissioner of Polysindo

since 2001. Director of PT Ungaran Sari Garments, PT Citra Abadi Sejati and PT Busana Perkasa Garment,

K.H Sivasubramanian 60 Commissioner of Polysindo since 2002.

Mr. Siva, a Chartered Accountant, has been with Polysindo since 1978. Prior to joining Polysindo, Mr Siva worked with Ford Rhodes & Parks (India) and Dunlop (India) Ltd.

Timbul Thomas Lubis SH, LLM 55 Commissioner of Polysindo since 1990,

Partner of Lubis Ganie & Surowidjojo Lawyer Firm since 1982. Mr Lubis is a graduate of University of Indonesia and Washington University.


The Current members of the Board of Directors of Polysindo are as follows: Name Age Principal Occupation V. Ravi Shankar 44 President Director of Polysindo since

2002. Mr. Ravi Shankar is a graduate of Production Engineering. He has also completed his Advanced Management Programme from University of Harvard in 2004. Prior to joining Polysindo, Mr. Ravi has managerial experience in Textile and Machinery manufacturing both in India and in Indonesia.

Masjhud Ali, MBA 66 Mr. Masjhud Ali is a graduate of Trisakti

University. Director of Polysindo since 2002. Director of PT Bank Pembangunan

Indonesia (Bapindo) from 1991 to 1994. Director of PT Bank Putera from 1995 to 2000.

S. Jegatheesan 58 Mr Jegatheesan, a graduate in Electrical

Engineering, has been with Polysindo since 1989.

Director of Polysindo since 2002. , General Manager of PT Texmaco Taman Synthetics – 1978 to 1988. Project Manager for an Engineering Company in India – Prior to 1978..


Management Report An overview of the Polyester Industry The Polyester industry has experienced steady growth in the year 2006. Global fibre production is estimated to have increased by 4% in 2006. Of this, the synthetic fibre production is estimated to have increased by 5%, compared to year 2005 to 34.1 Million tones. Total Indonesian exports reached an all time high level of US$102.3 Billion in 2006 as compared to US$85.7 Billion in 2005. The textiles exports accounted for US$9 Billion in 2006 as compared to US$8.6 Billion in 2005 registering a moderate growth in 2006. There has also been a volatile movement in the oil prices and consequently raw materials prices such as Paraxylene and MEG, especially spiked 30%+ in the second semester of 2006. These price fluctuations in the raw material prices in the second semester of 2006 severely affected operating margins in the polyester industry. PTA (Purified Terephthalic Acid) & Polymer The production of PTA in the year 2006 was lower than production in the year 2005. This was mainly due to lack of export orders in 2006 for PTA. Capacity utilization of PTA in 2006 was approximately 60%. Polymer production increased by 14% in the year 2006, as compared to 2005, due to higher production of yearn and fibre in 2006. Staple Fibre The staple fibre production in the year 2006 was higher than in the year 2005 by 16%. The fibre section continued to operate at lower capacity levels due to lack of export demand and also a lack of adequate working capital. Global polyester staple fibre production decreased by 6% in 2006 from the previous year to 11.3 Million tones. Filament Yarn In 2006, the global polyester filament yarn production increased by 7% compared to 2005 to 15.9 Million tonnes. Polysindo’s filament yarn production increased by 30% in 2006 compared to 2005. Capacity utilization was approximately 50% during the year 2006 due to lack of adequate working capital.

Fashion Fabrics / Performance Fabrics The fashion fabric division suspended its operations in September 2004 and the employees of this division were retrenched.

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 Terepthalic Acid) Manufacture of Polyester Chips

2. Polyester chips Semi-Dull

Super Bright

Cationic Dye able

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

Popular clothing

Automotive textiles

Upholstery

Home furnishings

Technical fabrics

Light luminous fabrics for sportswear

Two-tone suiting, Dress Material with mélange effect

Super fine clothing with silk feel, silky apparel

Fine clothing

Soft fold clothing

5. Fabrics Dress Material

Suiting Material

High performance

Fabrics

Light weight woven Fabrics

High quality ladies wear

Men’s wear

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

High quality ladies dress material


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 export market segments, Polysindo strives to develop new niche export market for the speciality products.

Human Resources

Polysindo has lost some of its key personnel during the year. It maintained a cordial relationship with its work force. Polysindo has also reduced its work force in line with operating capacity of its plant. The total workforce of Polysindo in 2006 was 3029. 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 and Floating Rate 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 2006. Stock Price Performance

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

2005 Highest Lowest Volume 2006 Highest Lowest Volume

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

45 45 0 45 45 0

45 45 0 45 45 0

45 45 0 45 25 18,012,000

45 45 0 35 25 14,162,000


Restructuring Status & Financing Activities Polysindo is in the process of implementing the Compositions Plan (CP) as approved by the unsecured creditors and ratified by the Commercial Court at Jakarta. Polysindo has issued a New Global Unsecured Notes through its Fiscal Agent, Honkong and Shanghai Banking Corporation Limited, Hong kong. Polysindo is in the process of allotting new unsecured notes and equity shares to individual creditors in exchange for their old unsecured debt. Polysindo has also reissued the ‘Secured Debt Restructure Proposal’ (SDRP) to its secured creditors, including PPA in March 2007. To date, Polysindo has been given to understand that a majority of the secured creditors have approved the proposal and accordingly it is confident of completing the restructure process soon. 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 to domestic and export markets. Total sales in the year 2006 were marginally higher than in the year 2005. Polysindo continued its operations, despite the lack of formal working capital facility, utilising the pre financing support. The Rupiah strengthened in the year 2006 and closed at Rp9,020 / US$ as compared to Rp9,830 / US$ in 2005. Results of operations. Sales Revenue In the year 2006, net sales revenue was Rp3,060.8 Billion as compared to Rp2,937.3 Billion in the year 2005. The net sales revenue improved marginally by 4.2 % due to marginally higher production and sales volume of yarn and fibre. The export sales were Rp1,123.8 Billion or 36.7 % of the net sales and domestic sales were Rp1,937.0 Billion or 63.3 % of the net sales. The other operating revenue in 2006 was Rp18.9 Billion realized through sale of indirect materials and waste products. Gross Profit / (Loss) The Company posted a gross loss of Rp439.1 Billion in the year 2006 as compared to Rp318.2 Billion in the year 2005. The increase in gross loss was mainly on account of increased raw material cost due to spot purchases, which could not be absorbed by the market and also due to lower capacity utilization. Operating Profit / (Loss) The operating loss in the year 2006 was Rp666.1 Billion as compared to Rp578.4 Billion in the year 2005. Selling, general and administrative overheads in the year 2006 was Rp227.1 Billion as compared to Rp260.1 Billion in the year 2005 and the reduction was due to vigorous cost saving measures taken by the Company. The higher operating loss in the year 2006, despite lower selling, general and administrative overheads, was due to lower margins driven by higher raw material prices. Net Loss The Company posted a net loss of Rp25.4 Billion in the year 2006 as compared to Rp841.8 Billion in the year 2005. The reduction in net loss in the year 2006 was mainly due to exchange gain position of Rp713.5 Billion as compared to Rp331.3 Billion of


exchange loss in the year 2005. This was on account of strengthening of Rupiah in the year 2006 to Rp9,020/US$ as compared to Rp 9,830/US$ in 2005. Auditors Opinion The independent accountants have expressed disclaimer opinion on the financials of the Company for the year ended 31st December 2006. The disclaimer opinion was mainly due to the loss situations, negative working capital position as the secured debt restructure of Polysindo was not completed, and capital deficiency position and its non operating subsidiary condition. Business Risks Economic Scenario In the year 2006, the Rupiah strengthened considerably vis-à-vis US Dollar by 9%. The economy grew by 5.5% in 2006. The inflation fell to 6.6% at the end of 2006 from the level of around 15% in the year 2005. However, the polyester industry suffered considerably in 2006, especially in the second semester, due to higher oil prices and the consequent increase in the price of raw materials which could not be fully absorbed by the market. The first quarter of 2007, however, witnessed a stable raw material price levels and strong demand levels for polyester products. Debt Restructuring Polysindo is in the process of implementing the Composition Plan of the unsecured creditors as approved by the Commercial Court. Accordingly, new global unsecured Notes were issued to replace old unsecured debts, and individual new promissory notes and equity shares are being allotted to the unsecured creditors in exchange of their old unsecured debt claims. Polysindo has also submitted the ‘Secured Debt Restructuring Proposal’ (SDRP) to all its secured creditor and expected to complete the process by July 2007. The SDRP involves conversion of a substantial portion of principal secured debt into equity shares, a waiver of interest, a reduced rate of interest going forward, and repayment of principal amounts over 9 years. The majority shareholders, who are also holding a substantial portion of the debts of Polysindo, have provided a working capital facility and arranged a letters of credit facility for the procurement of raw materials. This has helped considerably Polysindo in maintaining a reasonable capacity utilization of its production facilities. With stable raw material prices and continued strong demand for the polyester products, coupled with completion of the secured debt restructuring, Polysindo expects to improve overall performance in the year 2007.


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 and public. The company will continue to strive to bring more transparency, fairness in its reporting to its shareholders and public.


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 2006.


Total Structure as of 31 December 2006 87.878.400.000

Capital Structure as 31 December 2006

Serie A Authorized Capital Rp. 8,500,000,000,000 Nominal Vale per share Rp. 500 Paid-up Capital Rp. 2,196,960,000,000 Serie C Authorized Capital Rp.166.968.960.000 Nominal Vale per share Rp. 2 Paid-up Capital Rp. 86.288.477.500 Shareholders PT. Multikarsa Investama* 5.53% Damiano Investment 68.90% Public 25.57%

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

Board of Commissioners President Commissioner Slamet Nugroho, MBA 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 Company’s Activities

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

Production Capacity as of 31 December 2006 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 & Rekan 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. Slamet Nugroho Vasudevan Ravi Shankar President Commissioner President Director K.H Sivasubramanian Drs. Masjhud Ali MBA Commissioner Director Timbul Thomas Lubis, SH LLM Seeniappa Jegatheesan Independent Commissioner Director

INDEPENDENT AUDITOR REPORT

Consolidated Financial Statements and Independent Auditor’s ReportPT Polysindo Eka Perkasa Tbk andSubsidiariesDecember 31, 2006 and 2005

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

PT POLYSINDO EKA PERKASA Tbk AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2006 and 2005

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 6 2 0 0 5

Rp Rp

CURRENT ASSETS

Cash and cash equivalents 3c,4,43 40,571,016,492 14,942,841,432

Short term investments 3d,5 3,500,000,000 –

Trade receivables, net after allowance for

doubtful accounts of Rp 193,078,193,862 in

2006 and Rp 197,894,392,956 in 2005 3e,6,42,43

Third parties 248,913,908,959 89,779,291,244

Related parties 434,333,939,847 445,501,255,933

Other receivables, net after allowance for

doubtful accounts of Rp 878,647,275 in 2006

and 2005 7 5,841,497,073 4,226,663,868

Inventories, net after provision for inventory

obsolescence of Rp Nil in 2006 and 2005 3f,8 375,021,371,653 256,661,927,877

Purchase advances 42 56,555,301,037 21,407,412,523

Prepaid taxes 3n,20a 128,410,824,593 146,359,769,354

Prepaid expenses 5,393,861,039 12,188,555,607

Total current assets 1,298,541,720,693 991,067,717,838

NON-CURRENT ASSETS

Due from related parties 9,42,43 621,176,485,643 609,263,621,978

Deferred tax assets 3n,20d 37,538,933,890 32,795,556,045

Restricted cash in banks 10,43 17,166,561,708 18,198,820,024

Fixed assets, net after accumulated

depreciation of Rp 6,869,516,761,383

in 2006 and Rp 6,293,412,651,957 in 2005 3g,h,11,42 3,865,702,334,465 4,433,968,860,082

Advances for investment in a joint venture 12 5,914,525,920 5,914,525,920

Other assets 13 2,588,738,090 2,571,091,254

Total non-current assets 4,550,087,579,716 5,102,712,475,303

TOTAL ASSETS 5,848,629,300,409 6,093,780,193,141


CONSOLIDATED BALANCE SHEETS (Continued)

December 31 2006 and 2005



2

LIABILITIES AND EQUITY (DEFICIENCY)

Notes 2 0 0 6 2 0 0 5

Rp Rp

CURRENT LIABILITIES

Bank loans 14,43 392,385,203,751 –

Secured Debts 15,43 9,024,193,904,160 9,693,579,929,112

Short term loans 16,43 323,925,812,329 337,530,043,298

Notes payable 17,43 182,618,875,962 195,693,155,048

Trade payables 18,42,43

Third parties 168,343,148,762 211,873,294,852

Related parties 58,855,993,276 68,447,032,488

Liabilities for purchase of fixed assets 19,42,43 274,895,775 299,581,538

Taxes payable 3n,20b 55,936,302,343 84,997,139,933

Accrued expenses 21,43 683,727,405,138 684,405,486,661

Current maturity of obligation under

capital lease 3h,25,43 39,087,916,349 42,328,270,370

Other current liabilities 140,837,260,517 142,631,694,613

Total current liabilities 11,070,186,718,362 11,461,785,627,913

NON-CURRENT LIABILITIES

Unsecured Debts and Notes Payable 22,43 169,269,839,721 183,532,292,495

Working capital loan 23,43 269,621,644,406 24,575,000,000

Due to related parties 24,42 14,933,655,337 16,738,165,885

Deferred tax liabilities 3n,20d 334,120,865,114 380,979,192,408

Obligation under capital lease 3h,25,43 – 736,683,202

Provision for employee entitlement 3k,30 39,039,996,433 47,480,243,118

Total non-current liabilities 826,986,001,011 654,041,577,108


CONSOLIDATED BALANCE SHEETS (Continued)

December 31 2006 and 2005



3

LIABILITIES AND EQUITY (DEFICIENCY)

Notes 2 0 0 6 2 0 0 5

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 in 2006, and authorized

17,000,000 shares at Rp 500 par value

each in 2005

Issued and paid up 4,393,920,000 Series A

and 43,144,238,747 Series C in 2006,

and 4,393,920,000 shares in 2005 26 2,283,248,477,500 2,196,960,000,000

Additional paid-in capital 3i,27 5,586,506,149,053 11,992,613,553

Advance for future stock subscription 28 – 5,660,802,013,000

Difference in the equity transactions of

Subsidiaries 3i (4,950,019,100 ) (4,950,019,100) Equity adjustment from translation 3m 12,358,338,688 13,425,213,178

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 (13,933,764,440,917 ) (13,908,334,908,323)

Total equity (deficiency) (6,048,543,418,964 ) (6,022,047,011,880)

TOTAL LIABILITIES AND EQUITY

(DEFICIENCY) 5,848,629,300,409 6,093,780,193,141


CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31, 2006 and 2005



4

Notes 2 0 0 6 2 0 0 5

Rp Rp

OPERATING REVENUES

Net sales 3l,34,42 3,060,830,110,492 2,937,331,666,538

Other operating revenues 3l,35,42 18,997,830,233 67,213,050,520

Total operating revenues 3,079,827,940,725 3,004,544,717,058

COST OF GOODS SOLD 3l,36,42 (3,518,903,189,278) (3,322,780,968,389)

GROSS LOSS (439,075,248,553) (318,236,251,331)

OPERATING EXPENSES

Selling expenses 3l,37 (113,592,568,270) (141,912,079,074)

General and administrative expenses 3l,38 (113,458,508,750) (118,204,508,018)

Total operating expenses (227,051,077,020) (260,116,587,092)

LOSS FROM OPERATIONS (666,126,325,573) (578,352,838,423)

OTHER INCOME (CHARGES)

Interest income 40 249,584,878 49,231,149

Gain on sale of fixed assets 47,566,637 –

Interest expense and bank charges 39 (112,614,055,420) (16,640,842,742 )

Employee entitlement expense 2b,3k,30 (18,056,359,001) (6,811,035,990)

Loss on foreign exchange, net 3m 713,482,350,282 (331,309,200,125)

Insurance claim settlement 32 – 128,915,625

Miscellaneous income, net 5,986,000,464 53,889,975,781

Total other charges, net 589,095,087,840 (300,692,956,302)

LOSS BEFORE INCOME TAX (77,031,237,733) (879,045,794,725)

TAX INCOME (EXPENSE) 3n

Current period 20c – –

Deferred 20d 51,601,705,139 35,816,592,715

Total tax income 51,601,705,139 35,816,592,715

LOSS FROM NORMAL ACTIVITIES (25,429,532,594) (843,229,202,010)

EXTRAORDINARY ITEM 3q,41 – 1,423,797,000

NET LOSS (25,429,532,594) (841,805,405,010)

BASIC NET LOSS PER SHARE 3o,33 (1) (192)


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY




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, 2004 2,196,960,000,000 11,992,613,553 – (4,950,019,100) 12,713,963,518 (221,924,188 ) 8,280,000,000 (13,066,529,503,313) (10,841,754,869,530)

Equity adjustment from translation – – – – 711,249,660 – – – 711,249,660

Advance for future stock subscription 28 – – 5,660,802,013,000 – – – – – 5,660,802,013,000

Net loss for the period – – – – – – – (841,805,405,010) (841,805,405,010)

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 28 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)


CONSOLIDATED STATEMENTS OF CASH FLOWS




6

Notes 2 0 0 6 2 0 0 5

Rp Rp

CASH FLOWS FROM OPERATING ACTIVITIES

Cash receipts from customers 2,934,922,496,097 1,645,283,598,757

Cash paid to suppliers (3,657,470,996,010) (1,387,310,901,678)

Cash paid to directors and employees (81,471,432,945) (90,696,002,395)

Other operating cash receipts and payments, net 53,220,086,637 (231,281,290,337)

Cash used in operations (750,799,846,221) (64,004,595,653)

Interest received 249,584,878 49,231,149

Interest expense and bank charges paid (52,196,059,706) (3,612,615,613)

Cash receipts from insurance claim settlement – 186,819,095

Payments of income tax (78,579,953,860) (32,122,203,375)

Net cash used in operating activities (881,326,274,910) (99,503,364,397)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of fixed assets 11 74,181,818 –

Payment to acquire fixed assets 11 (8,153,256,060) (1,898,284,680)

Increase in short term investments 5 (3,500,000,000) –

Increase in other assets (17,646,837) –

Net cash used in investing activities (11,596,721,079) (1,898,284,680)


CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)




7

Notes 2 0 0 6 2 0 0 5

Rp Rp

CASH FLOWS FROM FINANCING ACTIVITIES

Receipt from bank loans 14 392,385,203,751 –

Payment of short term bank loans 16 4,510,000,000 –

Payment of obligation under capital lease (433,025,000 ) (1,302,401,267)

Receipt (payment) of due to related parties (380,539,410,602 ) 2,071,746,330

Receipt of due from related parties 1,351,201,420,364 12,866,868,120

Receipt of working capital loan 23 245,046,644,406 24,700,000,000

Proceeds from pre-financing agreement – 65,601,407,692

Net cash provided by financing activities 1,612,170,832,919 103,937,620,875

NET INCREASE IN CASH AND CASH

EQUIVALENTS

719,247,836,931 2,535,971,798

EFFECT OF FOREIGN EXCHANGE RATE (693,619,661,871 ) 1,970,143,622

CASH AND CASH EQUIVALENTS AT BEGINNING

OF PERIOD 4 14,942,841,432 10,436,726,012

CASH AND CASH EQUIVALENTS AT END

OF PERIOD 4 40,571,016,492 14,942,841,432

ADDITIONAL SCHEDULE OF NON–CASH

INVESTING AND FINANCING ACTIVITIES :

Acquired fixed assets direct acquisition through related

parties payable and other current liabilities 11 – 495,098,463

Reclassification from assets under capital lease to

fixed assets direct acquisition 11 – 453,900,000

Reclassification from lease deposit to fixed assets direct

acquisition 11,13 – 302,600,000

Extraordinary item from restructured loans 41 – 1,423,797,000


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 Taufan,

SH No. 12 dated July 4, 2006. The deed was approved by 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 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.

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.


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 (Continued)

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 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 offering of 2,185,920,000

shares through rights issue III 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.

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.




10


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 2006 2005

% Rp Rp

(in million) (in million)

PT Texmaco Jaya Tbk (TJ) Karawang Trading, weaving,

knitting and

processing

1972 92.00 442,471 553,333

PT Texmaco Graha Busana Trading of textile, and

(TGB)-99% owned by TJ Jakarta producing ready to wear

garments and accessories 1994 91.08 1,697 2,389

Polysindo International

Finance Company B.V.

(PIFC)

Netherlands Financial services 1994 100.00 6,848,147 7,463,114

Polysindo (Mauritius) Ltd.

(PML)

Republic of

Mauritius

Financial services Pre-operating 100.00 – –

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 2006 and 2005, 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 2006 and 2005 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 board of directors as of

December 31, 2006 and 2005 are as follows :

2 0 0 6 2 0 0 5

Board of commissioners :

President Commissioner Mr. Slamet Nugroho Mr. Slamet Nugroho

Commissioners Mr. Kalpathi Hari Haran

Sivasubramanian

Mr. Kalpathi Hari Haran

Sivasubramanian

Mr. Timbul Thomas Lubis SH Mr. Timbul Thomas Lubis SH

(Independent Commissioner) (Independent Commissioner)




11


d. Employees, Directors and Commissioners

The members of the Company’s board of commissioners and board of directors as of


2 0 0 6 2 0 0 5

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. Bambang Luksiono Margoadi

Soedibyo

Based on the Annual General Shareholders’ Meeting of the Company on March 22, 2006,

the shareholders approved the resignation of Mr. Bambang Luksiono Margoadi Soedibyo.

The Company’s total number of permanent employees as of December 31, 2006 and 2005

were 2,722 and 3,480 people respectively. The Subsidiaries’ total number of permanent

employees as of December 31, 2006 and 2005 were 455 and 613 peoples respectively.

2. GOING CONCERN, DEBT RESTRUCTURING AND ECONOMIC CONDITIONS

a. Going Concern

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$ 47 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.




12


(Continued)

a. Going Concern (Continued)

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 accepted by all the Secured Creditors before the expiry

date on December 14, 2005 and hence without adequate acceptances received on or prior to

that date to allow that SDRP to become unconditional. Hence 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 and the Company is hopeful

of obtaining the approval from the secured creditors and implement the same during the year

2007.

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




13


(Continued)

a. Going Concern (Continued)

In addition, the company’s financial condition in 2006 showing the following :

Net loss amounting to Rp 25,429,532,594

Negative working capital amounting to Rp 9,771,644,997,669

Capital deficiency amounting to Rp 6,048,543,418,964

As a result of matters described, there is significant uncertainty whether the Company and its

Subsidiaries will be able to continue as a going concern and therefore whether they will realize

their assets and extinguish their liabilities in the normal course of business and at the amounts

stated in the consolidated financial statements. 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.

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 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 the quarter

ending November 2006 of US$ 95,428 or totaling US$ 18,766,058. The Company has also

submitted restructure proposal to the secured creditors (SDRP). As on date, the Company was

given to understand that majority of the secured creditors have approved the proposal. Then,

the Company has 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.




14


(Continued)

b. Debt Restructuring (Continued)

Debt Restructuring – the Company (Continued)

The Company is taking 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.

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.

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.




15


(Continued)


Debt Restructuring – the Subsidiary (TJ) (Continued)

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.

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 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.




16


(Continued)


Debt Restructuring – the Subsidiary (TJ) (Continued)

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.

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 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.

c. Economic Condition

The year 2006 has witnessed a significant growth in the polyester production at 7 % despite

high volatility in the crude prices and a very tight situation on the raw materials front. The

operating rates have dropped to the bottom in 2006 due to mega expansions taken place in

2004 to 2006 in Asia. The raw materials prices had shown steep increase until third quarter,

2006 and started softening from the last quarter 2006. The lower capacity utilization and the

erratic movement in the raw materials prices had impacted the margins severely during the

year 2006 despite overall growth in the Demand and Supply. However the growth of the

polyester industry had been quite stable at an average of 6.5 % during past 5 years and is

expected to grow at 6.2 % in the next five years.

The Indonesia’s GDP growth, following a record high of over seven percent in 2004 has been

moderated to over five percent in 2005 and 2006. The removal of Government fuel subsidies

in late 2005 led to a sharp rise in inflation up to 18% in 2005 , and forced Indonesia’s Central

Bank to increase interest rates by over 5% to more than 12.5%.




17


(Continued)

c. Economic Condition (Continued)

Higher borrowing rates and the fuel prices dampened the consumer spending and capital

investment during the major part of the year 2006. However following the inflation moderated

to the level up to 6.6% in December 2006 as projected earlier, allowed central bank to reverse

the previous the interest rate hikes, thereby allowing the domestic consumption and investment

to begin to recover.

In this background, Indonesian Government is sketching an upbeat picture for 2007 and

onwards. The economic growth in 2007 is projected to be robust recording a growth rate in

excess of 6% surpassing the economic growth in 2005 and 2006. The inflation is expected to

ease out further in 2007 boosting the domestic consumption. The main thrust of the economic

growth stem from growth in consumption, more private investment encouraged by greater

confidence and higher governmental expenditure on infrastructure development. In contrast to

most of the other Asian currencies, the Indonesian Rupiah strengthened vis-à-vis US Dollar and

remain relatively less volatile and more stable as compared to previous years.

While the economy is set firm in the right path of lasting recovery, the related economic factors

and its stability generate greater optimism to all the sectors to follow suit. 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 decline and remain easy and

the polyester growth to be maintained over 6% in 2007, the performance of the Company is

expected to improve significantly.

For economic conditions to improve, fiscal and monetary action needs to be undertaken by the

Government and others, such action is beyond of the control of the Company. It is not possible

to determine the future effect that the ongoing Company’s conditions and current economic

conditions may have on the Company liquidity and earnings as well as the Company’s

customers and suppliers.

3. ACCOUNTING POLICY

A summary of significant accounting policies adopted by the Company, which affect the

determination of its financial position and result of its operations is presented below :




18

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. 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 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.

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.




19


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 2006 and 2005, 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 equivalent

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.




20


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 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 :

a. 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.

b. Total periodic payments plus residual value fully cover the acquisition cost of leased capital

goods plus interest thereon which is the lessor’s profit.




21


h. Leases (Continued)

c. 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.




22


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 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, 2006 December 31, 2005

Rp Rp

US$ 1 9,020 9,830

YEN 1 76 83

CHF 1 7,382 7,491

SGD 1 5,879 5,907

NOK 1 1,590 1,010

GBP 1 17,697 16,947

EUR 1 11,848 11,660

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 Netherland Guilders and US Dollar respectively. For consolidation purposes, the

financial statements of foreign domiciled subsidiaries are translated into Rupiah as follows :




23


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, 2006 and 2005 was 18,775,332,916 and 4,393,920,000 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.




24


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 6 2 0 0 5

Rp Rp

Cash on hand :

Rupiah 355,450,762 488,195,252

US Dollar 240,606,696 42,900,269

Singapore Dollar 9,712,250 23,507,144

Norwegia Kron 1,761,587 1,119,080

Japanesse Yen – 8,342

607,531,295 555,730,087

Cash in banks :

Third parties :

PT Bank Sumitomo Mitsui Indonesia

Rupiah account 13,102,307 13,121,930

US Dollar account 11,371,063 12,463,850

PT Bank Negara Indonesia (Persero) Tbk

Rupiah account 175,099,860 264,935,151


Credit Industriel Et Commercial


Carried forward 285,609,814 501,333,380




25

4. CASH AND CASH EQUIVALENTS (Continued)

2 0 0 6 2 0 0 5

Rp Rp

Brought forward 285,609,814 501,333,380

Deutsche Bank


ING Bank


PT Bank Tabungan Negara

Rupiah account 7,604,039 7,718,061

PT Bank Central Asia Tbk

Rupiah account 554,133,154 645,116,991

US Dollar account 2,075,742,924 6,955,456,747

PT Bank Niaga Tbk

Rupiah account 5,219,149,703 743,411,968


PT Bank Mandiri Tbk

Rupiah account 10,665,115 8,936,442

PT Bank Rakyat Indonesia

Rupiah account 6,134,430 5,924,620

Bank Chinatrust Indonesia

US Dollar account 2,509,635 64,780

PT Bank Pembangunan Daerah

Rupiah account – 70,281

29,963,485,197 14,387,111,345

Time Deposits :

PT Bank Niaga Tbk 10,000,000,000 –

Total 40,751,016,492 14,942,841,432

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 due on January 27, 2007.




26

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, and due on September 12, 2007.

6. TRADE RECEIVABLES

This account consists of :

Third parties :

2 0 0 6 2 0 0 5

Rp Rp

Local debtors 233,470,082,003 122,667,563,825

Foreign debtors 72,035,591,705 23,681,062,409

Total 305,505,673,708 146,348,626,234

Less : Allowance for doubtful accounts (56,591,764,749) (56,569,334,990)

Net 248,913,908,959 89,779,291,244

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 6 2 0 0 5

Rp Rp

Up to 1 month 199,597,921,908 65,482,888,507

> 1 month – 3 months 31,207,753,976 13,276,798,798

> 3 months – 6 months 15,735,310,359 9,470,084,904

> 6 months – 1 year 2,372,922,716 599,248,908

> 1 year 56,591,764,749 57,519,605,117

Total 305,505,673,708 146,348,626,234

Changes in the allowance for doubtful accounts from third parties are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Beginning balance 56,569,334,990 53,222,045,477

Movement during the period :

Additions 2,283,161,677 6,274,487,274

Deductions (2,260,731,918) (2,927,197,761)

Ending balance 52,662,093,118 56,569,334,990




27

6. TRADE RECEIVABLES (Continued)

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 2006 and 2005 of Rp 2,283,161,677 and

Rp 6,274,487,274 were due to the addition of uncollectible reveivales from third parties.

Deduction in allowance for doubtful accounts in 2006 and 2005 of Rp 2,260,731,918 and

Rp 2,927,197,761 were due to the collectible of trade receivables from third parties.

The details of trade receivables from third parties based on currencies are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Rupiah 73,727,188,173 69,735,820,927

United States Dollar

US$ 25,696,063 in 2006 and

US$ 7,793,774 in 2005 231,778,485,535 76,612,805,307

Total 305,505,673,708 146,348,626,234

Related parties : 2 0 0 6 2 0 0 5

Rp Rp

PT Multikarsa Investama 276,963,021,353 286,839,774,744

PT Wastra Indah 137,503,756,066 137,060,116,066

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 22,225,835,001 24,221,724,840

Drapper Texmaco Inc, Co, United States of America 18,627,227,797 20,299,961,114

Coastal Group Ltd, South Africa 7,825,118,255 8,527,817,344

Norfil Ltd, England 6,568,282,728 7,158,117,431

Commonwealth Holdings Pte. Ltd., Singapore 4,481,736,552 4,884,198,481

PT Texmaco Perkasa Engineering 3,342,227,792 3,960,030,422

Polysindo (USA) Inc, United States of America 2,464,476,060 2,685,787,103

PT Elok Prima Mitra Busana 1,825,862,400 1,825,862,400

PT Texmaco Taman Synthetics 1,625,242,797 1,662,428,519

PT Citra Abadi Sejati 1,262,614,865 1,261,897,094

PT Supermitory Utama Tbk 661,402,410 –

PT Busana Perkasa Garments 606,816,826 –

Carried forward 570,256,665,597 584,660,760,253




28


Related parties (Continued) : 2 0 0 6 2 0 0 5

Rp Rp

Brought forward 570,256,665,597 584,660,760,253

PT Ungaran Sari Garments 272,774,745 1,874,625,027

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 60,672,768

Total 570,820,368,960 586,826,313,899


Net 434,333,939,847 445,501,255,933

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 6 2 0 0 5

Rp Rp

Up to 1 month – 775,506,720

> 1 month – 3 months 273,894,758 1,099,118,307

> 3 months – 6 months 295,721,188 –

> 6 months – 1 year 388,595,779 355,729,301

> 1 year 569,862,157,235 584,595,959,571

Total 570,820,368,960 586,826,313,899

Changes in the allowance for doubtful accounts from related parties are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Beginning balance 141,325,057,966 135,386,400,212


Additions 929,554,575 5,938,657,754

Deductions (5,768,183,428) –

Ending balance 136,486,429,113 141,325,057,966

Additions in allowance for doubtfull accounts in 2006 of Rp 929,554,575 due to the addition of

uncollectible receivables from related parties.




29


Deductions in allowance for doubtfull 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.

Additions in allowance for doubtfull accounts in 2005 of Rp 5,938,657,754 due to the addition of

uncollectible receivables from related parties of Rp 2,215,375,488 and foreign exchange of

Rp 3,723,282,266.

The details of trade receivables from related parties based on currencies are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Rupiah 525,027,825,813 519,048,707,586


US$ 5,076,779 in 2006 and

US$ 6,894,975 in 2005 45,792,543,147 67,777,606,313

Total 570,820,368,960 586,826,313,899

Trade receivables are used as collateral for the Company’s short-term loans and secured debts (Notes

15 and 16).

7. OTHER RECEIVABLES

2 0 0 6 2 0 0 5

Rp Rp

Yayasan Pengembangan Science & Technology 1,845,187,382 1,945,187,382

Receivables from employees 2,735,332,681 1,420,161,363

PT Cipta Busana Jaya 878,647,275 878,647,275

Receivables from import clearance 277,447,505 22,725,216

Interest receivables from time deposits 23,484,931 –

Others 960,044,574 838,589,907

Total 6,720,144,348 5.105.311.143

Less : Allowance for doubtful accounts (878,647,275) (878.647.275)

Net 5,841,497,073 4,226,663,868

Other receivables from employees represent loans gave to employees both individually and advances.




30

7. OTHER RECEIVABLES (Continued)

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.

Based on the review of the status of the individual other receivables 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.

The details of other receivables based on currencies are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Rupiah 6,720,144,348 5,105,311,143

8. INVENTORIES

2 0 0 6 2 0 0 5

Rp Rp

Finished goods 139,233,912,383 71,918,313,414

Work in process 61,609,898,835 35,802,334,019

Raw materials 72,587,037,146 49,102,620,862

Indirect materials 101.590,523,289 99,838,659,582

Total 375,021,371,653 256,661,927,877

Less : Provision for inventory obsolescence – –

Net 375,021,371,653 256,661,927,877

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, 2006 and 2005, the Company’s inventories are covered by insurance, with PT.

Asuransi Rama Satria Wibawa against fire loss and other risks totaling of US$ 41,400,000 and

US$ 19,400,000 respectively, which in the opinion of management were adequate to cover losses

arising from such risks except for the subsidiaries’ inventories are not covered by insurance due to the

Subsidiaries facing financial difficulties or cash flows problem.

Inventories are used as collateral for the Company’s short-term loans and secured debts (Notes 15 and

16).




31

9. DUE FROM RELATED PARTIES

2 0 0 6 2 0 0 5

Rp Rp


PT Texmaco Perkasa Engineering Tbk 75,550,536,405 68,083,493,229

PT Wahana Perkasa Auto Jaya 50,872,214,861 55,392,007,333

PT Texmaco Taman Synthetics 29,727,433,305 23,648,330,450

PT Wastra Indah 22,299,007,715 14,885,011,715

PT Sumatex Subur 7,726,767,920 5,019,381,570

PT Saritex Jaya Swasthi 6,176,832,362 4,713,354,162

PT Perkasa Heavindo Engineering 1,608,346,440 1,608,346,440

PT Perkasa Indosteel 1,555,808,912 1,268,808,912

PT Supermitory Utama Tbk 1,663,067,052 1,235,049,652

PT Raja Busana Mahameru 1,210,000,000 1,210,000,000

PT Perkasa Indobaja 852,266,129 852,266,129

PT Ungaran Sari Garments 769,944,967 769,944,967

PT Merauke Rayon Jaya 448,500,000 448,500,000

PT Mahkota Indah Sentosa 377,832,876 377,832,876

PT Devrindo Widya 332,282,365 315,282,365

PT Wahana Jaya Perkasa 99,820,513 99,820,513

PT Sarana Daycrown Industri 99,820,511 99,820,511

PT Citra Indah Textile 67,565,000 8,855,000

PT Bina Peranan Busana 21,000,000 668,840

PT Kreasi Indah Textile 18,250,000 13,750,000

PT Kreasi Kekar – 1,230,111,000

Total 676,878,871,485 664,966,007,820


Net 621,176,485,643 609,263,621,978

Changes in the allowance for doubtful accounts are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Beginnning balance 55,702,385,842 55,702,385,842


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.




32

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 423,980,179,527 as of December 31, 2006 and Rp 432,263,977,531 as of December 31, 2005

represent advance payments for salary and other expenses.

The detail of due from related parties based on currencies are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Rupiah 626,547,355,100 609,574,000,487


(US$ 5,579,991 in 2006 and US$ 5,634,996 in 2005) 50,331,516,385 55,392,007,333

Total 676,878,871,485 664,966,007,820

10. RESTRICTED CASH IN BANKS

2 0 0 6 2 0 0 5

Rp Rp

IBRA :

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


PT Bank Papan Sejahtera

Rupiah account 37,356,312 37,356,312

PT Bank Umum Nasional


PT Bank Asia Pacific

Rupiah account 555,500 555,500

Total 17,166,561,708 18,198,820,024




33

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 17,166,561,708

and Rp 18,198,820,024 in the said banks is shown as restricted cash in banks under non-current assets

in the 2006 and 2005 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 6 2 0 0 5

Rp Rp

Carrying cost :

Direct acquisition 10,681,194,726,139 10,673,357,142,330

Assets under capital lease 54,024,369,709 54,024,369,709

Total carrying cost 10,735,219,095,848 10,727,381,512,039

Accumulated depreciation :

Direct acquisition 6,816,316,443,165 6,242,965,993,786

Assets under capital lease 53,200,318,218 50,446,658,171

Total accumulated depreciation 6,869,516,761,383 6,293,412,651,957

Book value 3,865,702,334,465 4,433,968,860,082




34

11. FIXED ASSETS (Continued)

The details of fixed assets are as follows :

Direct acquisition :

2 0 0 6 Beginning Addition Deduction Reclassification Ending

Rp 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

10,673,357,142,330 8,153,256,060 315,672,250 – 10,681,194,726,139


Buildings and land improvements 114,580,301,354 10,444,389,262 – – 125,024,690,616


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 4,430,391,148,544 3,864,878,282,974

2 0 0 5 Beginning Addition Deduction Reclassification Ending

Rp Rp Rp Rp Rp

Carrying cost :

Land 113,121,034,510 – – – 113,121,034,510

Buildings and land improvements 224,140,351,189 57,605,250 – – 224,197,956,439


Transportation equipment 14,157,536,361 – – 756,500,000 14,914,036,361

Office equipment 29,483,709,939 475,037,207 – – 29,958,747,146

Store equipment 4,778,693,122 – – – 4,778,693,122

10,670,169,715,195 2,430,927,136 – 756,500,000 10,673,357,142,330


Buildings and land improvements 103,799,621,223 10,780,680,131 – – 114,580,301,354


Transportation equipment 12,753,601,992 381,878,155 – 378,250,000 13,513,730,147

Office equipment 26,876,678,624 1,487,964,819 – – 28,364,643,443

Store equipment 3,285,840,595 1,492,852,527 – – 4,778,693,122

5,659,588,795,025 582,998,948,761 – 378,250,000 6,242,965,993,786

Book value 5,010,580,920,170 4,430,391,148,544




35


Assets under capital lease :

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


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

Changes during the current period

2 0 0 5 Beginning Addition Deduction Ending

Rp Rp Rp Rp

Carrying cost :

Machinery and equipment 46,159,844,782 – – 46,159,844,782

Transportation equipment 8,318,424,927 – 453,900,000 7,864,524,927

54,478,269,709 – 453,900,000 54,024,369,709


Machinery and equipment 38,948,067,607 3,733,435,637 – 42,681,503,244

Transportation equipment 7,939,427,927 203,977,000 378,250,000 7,765,154,927

46,887,495,534 3,937,412,637 378,250,000 50,446,658,171

Book value 7,590,774,175 3,577,711,538

Deduction on fixed assets represents sales of fixed asset with details as follows :

2 0 0 6 2 0 0 5

Rp Rp

Book value 86,615,181 –

Selling price 134,181,818 –

Gain on sales of fixed assets 47,566,637 –




36


2 0 0 6 2 0 0 5

Rp Rp

Depreciation expenses are allocated to :

Direct acquisitions :

Manufacturing expense 572,362,003,435 579,636,253,261

Operating expenses 1,217,503,013 3,362,695,500

573,579,506,448 582,998,948,761

Assets under capital lease :

Manufacturing expense 2,690,900,047 3,733,435,637

Operating expenses 62,760,000 203,977,000

2,753,660,047 3,937,412,637

Total 576,333,166,495 586,936,361,398

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. 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, 2006 and 2005, all of the Company’s fixed assets, except land and vehicles are

insured with PT Asuransi Rama Satria Wibawa from loss and other risks including earthquake

valuing in total US$ 600,000,000 and US$ 600,000,000 respectively. The insurance is valid up to

December 9, 2007. 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, 2006, all of the Subsidiary’s fixed assets are not covered by insurance, while as

of December 31, 2005, the Subsidiary’s vehicles in Jakarta and Pekalongan were insured with PT

Asuransi Rama Satria Wibawa against fire and other risks totaling for Rp 3,555,000,000 and other

fixed assets are not covered by insurance due to the financial difficulties or cash flow problem.

Land, machinery and equipment are used as collateral for the Company’s short term loans and

secured debts (Notes 15 and 16).




37

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 6 2 0 0 5

Rp Rp

Guarantee deposits 2,574,382,590 2,517,709,366

Guarrantee deposit for house rental 14,355,500 24,526,388

Bank guarantee – 28,855,500

Long term rent – –

2,588,738,090 2,571,091,254

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 (Note 21). 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$ 43,501,586

(equivalent to Rp 392,385,203,751).

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, 2006, the interest charge on this bank loan from Damiano

Investments BV, Netherland was Rp 75,999,948,192.




38

15. SECURED DEBTS

2 0 0 6 2 0 0 5

Rp Rp

Bonds :

A. 13% Guaranteed Secured Notes

US$ 122,526,000 1,105,184,520,000 1,204,430,580,000

B. US$ 50,000,000 Secured Floating Rate Notes 451,000,000,000 491,500,000,000

C. 9.375% Guaranteed Secured Notes

US$ 250,000,000 2,255,000,000,000 2,457,500,000,000

D. 11.375% Guaranted Secured Notes

US$ 260,000,000 2,345,200,000,000 2,555,800,000,000

Total 6,156,384,520,000 6,709,230,580,000

Less : Net book value of debt issuance cost (1,042,298,961) (4,006,025,696)

Net 6,155,342,221,039 6,705,224,554,304

PT Bina Prima Perdana :

PT Bank Negara Indonesia (Persero) Tbk.

Rupiah 1,302,583,907,331 1,302,583,907,331

US$ 29,055,834 262,083,622,680 285,618,848,220

EUR 849,872 10,077,962,986 9,909,501,460

YEN 3,001,711,400 227,515,616,076 250,409,668,924

1,802,261,109,073 1,848,521,925,935

Banks :

PT Bank Finconesia

EUR 7,471,539 88,599,153,488 87,118,145,023

Union Europeene de CIC Singapore

EUR 5,941,395 70,454,367,344 69,276,664,055

Credit Agricole Indosuez, Singapore

US$ 12,117,088 109,296,136,825 119,110,978,380

Bangkok Bank, Singapore

US$ 3,303,097 29,773,938,368 32,469,447,245

298,143,596,025 307,975,234,703

Tim Pemberesan (TP) :

PT Bank Negara Indonesia (Persero) Tbk.

US$ 78,628,322 709,227,468,232 772,916,409,392

Rupiah 41,968,807,083 41,968,807,083

EUR 1,426,173 16,911,867,911 16,629,171,977

CHF 45,902 338,834,797 343,825,718

768,446,978,023 831,858,214,170

Total 9,024,193,904,160 9,693,579,929,112




39

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.

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.

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.




40

15. SECURED DEBTS (Continued)

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, 2006 and 2005

amounted to Rp 2,963,726,735 and Rp 3,993,539,182 respectively.

16. SHORT TERM LOANS

2 0 0 6 2 0 0 5

Rp Rp

Working Capital Loan Facility :



Rupiah 53,211,451,624 53,211,451,624

Dollar Amerika Serikat (US$ 18,587,500

in 2006 and 2005 ) 167,659,250,000 182,715,125,000

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 4,510,000,000 –

Total working capital facility 234,578,192,104 245,124,067,104

Letter of Credit Facility :


PT Bank Putera Multikarsa

Dollar Amerika Serikat ( US$ 1,670,669.38

in 2006 and 2005) 15,069,437,808 16,422,680,006

PT Bank Duta

Rupiah 28,175,026,153 28,175,026,153

43,244,463,961 44,597,706,159




41

16. SHORT TERM LOANS

2 0 0 6 2 0 0 5

Rp Rp

Working Capital Loan Facility :

Others :


Rupiah 27,115,346,119 27,115,346,119

US Dollar (US$ 198,595 in 2006 and 2005) 1,791,326,900 1,952,188,850


(US$ 1,906,484 in 2006 and 2005) 17,196,483,245 18,740,735,066

46,103,156,264 47,808,270,035

Total letter of credit facility 89,347,620,225 92,405,976,194

Total 323,925,812,329 337,530,043,298

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.

On January 27, 2006, the Company 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 Company with total facility up to US$

750,000 and the final repayment due on May 31, 2007.




42

17. NOTES PAYABLE

2 0 0 6 2 0 0 5

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 2006 and 2005) 45,100,000,000 49,150,000,000

Total BPP 82,126,286,647 86,176,286,647

Others :

US Dollar

Nominal value (US$ 11,141,085.29 in 2006 and 2005) 100,492,589,315 109,516,868,401

Total others 100,492,589,315 109,516,868,401

Total 182,618,875,962 195,693,155,048

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.




43

17. NOTES PAYABLE (Continued)

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.

18. TRADE PAYABLES

This account consist of :

Third parties :

2 0 0 6 2 0 0 5

Rp Rp

Local suppliers 127,017,314,524 61,463,415,542

Foreign suppliers 41,325,834,238 150,409,879,310

Total 168,343,148,762 211,873,294,852

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 6 2 0 0 5

Rp Rp

Up to 1 month 20,906,107,195 100,042,989,458

> 1 month – 3 months 96,351,281,652 39,086,659,277

> 3 months – 6 months 5,746,606,044 26,654,715,635

> 6 months – 1 year 5,221,142,255 5,107,901,227

> 1 year 40,118,011,616 40,981,029,255

Total 168,343,148,762 211,873,294,852

The details of trade payables to third parties based on currencies are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Rupiah 52,171,952,056 59,254,617,614

Unites States Dollar

(US$ 12,492,607 in 2006 and 15,118,725 in 2005) 112,683,314,669 148,617,073,335

Carried forward 164,855,266,725 207,871,690,949




44

18. TRADE PAYABLES (Continued)

2 0 0 6 2 0 0 5

Rp Rp

Brought forward 164,855,266,725 207,871,690,949

European Euro

(EUR 207,392 in 2006 and EUR 120,295 in 2005) 2,456,964,195 1,402,630,117

Singapore Dollar

(SGD 32,461 in 2006 and SGD 114,343 in 2005) 190,834,741 675,376,463

Japan Yen

(Yen 6,926,512 in 2006 and Yen 747,396 in 2005) 525,031,894 62,349,537

Swiss Franc

(CHF 6,676 in 2006 and CHF 209,934 in 2005) 50,008,337 1,572,521,729

Great Brithish Poundsterling

(GBP 14,964 in 2006 and GBP 17,037 in 2005) 264,809,187 288,726,057

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

Total 168,343,148,762 211,873,294,852

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.

Related parties :

2 0 0 6 2 0 0 5

Rp Rp

PT Citra Indah Textiles 39,493,541,493 46,482,882,927

PT Wismakarya Prasetya 19,281,994,015 18,549,859,205

PT Texmaco Micro Indoutama 80,457,768 80,457,768

PT Texmaco Taman Synthentics – 3,046,550,262

PT Busana Perkasa Garment – 160,673,385

Polysindo Japan Ltd., Japan – 126,608,941

Total 58,855,993,276 68,447,032,488




45

18. TRADE PAYABLES (Continued)

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 6 2 0 0 5

Rp Rp

Up to 1 month 9,139,131,362 9,127,726,562

> 1 month – 3 months 671,156,493 628,318,713

> 3 months – 6 months 3,522,223,649 3,458,661,549

> 6 months – 1 year 1,846,768,834 1,682,377,775

> 1 year 43,676,712,938 53,549,947,889

Total 58,855,993,276 68,447,032,488

The details of trade payables to related parties based on currencies are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Rupiah 58,855,993,276 68,447,032,488

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 6 2 0 0 5

Rp Rp

Third parties :

Juki Singapore Pte. Ltd., Singapore

US$ 30,476.25 274,895,775 299,581,538




46

20. TAXATIONS

a. Prepaid Taxes

2 0 0 6 2 0 0 5

Rp Rp

Overpayment of corporate income tax

2004 – 22,512,948,973

2005 37,622,291,240 37,622,291,240

2006 9,786,773,691 –

Income tax article 26 162,883,322 20,508,301

Value added tax 80,838,876,340 86,204,020,840

Total 128,410,824,593 146,359,769,354

b. Taxes Payable

2 0 0 6 2 0 0 5

Rp Rp

Income tax article 21 1,023,008,084 7,045,256,136

Income tax article 23 451,016,536 1,302,733,425

Income tax article 26 10,061,277,251 33,304,950,336

Income tax article 4 (final) 3,782,093 56,492,648

Value added tax 23,388,588,187 23,594,332,715

Tax penalty 21,008,630,192 19,693,374,673

Total 55,936,302,343 84,997,139,933

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


2 0 0 6 2 0 0 5

Rp Rp

Loss before income tax as per consolidated

statements of income (77,031,237,733) (879,045,794,725)

Extraordinary item – 1,423,797,000

Loss before income tax of the Subsidiaries 73,378,740,225 149,968,103,401

Loss before income tax of the Company (3,652,497,508) (727,653,894,324)




47

20. TAXATIONS (Continued)

c. Corporate Income Tax (Continued)

2 0 0 6 2 0 0 5

Rp Rp

Fiscal adjustments consisted of :

Permanent difference :

Non deductible expenses/ (non taxable income) :

Tax expense 4,782,256,818 9,057,443,483

Entertainment and representation 426,806,943 569,250,343

Donation 271,305,710 152,643,560

Bad debt expenses 84,583,001 1,260,109,105

Interest income (114,570,055) (37,265,593)

5,450,382,417 11,002,180,898

Timing differences :

Depreciation expense of fixed assets 134,940,015,532 84,781,922,159

Amortization of deferred charges 2,582,413,075 2,366,241,630

Provision for employee entitlement 18,056,359,001 3,774,152,567

Lease expense 615,636,706 2,958,059,490

156,194,424,314 93,880,375,846

Estimated taxable loss of the

Company for the period before loss carry forward 157,992,309,223 (622,771,337,580)

Fiscal loss carry forward (1,540,997,647,814) (5,933,349,253,540)

Total estimated taxable loss (1,383,005,338,591) (6,556,120,591,120)

Estimated corporate income tax – –

Prepaid taxes :

Income tax article 22 (4,494,631,237) (30,475,817,478)

Income tax article 23 (5,270,703,710) (7,120,292,335)

Total prepaid taxes (9,765,334,947) (37,596,109,813)

Estimated overpayment of corporate income tax (9,765,334,947) (37,596,109,813)

Estimated overpayment of corporate income tax of

subsidiaries (21,438,744) (26,181,427)




48


c. Corporate Income Tax (Continued)

Taxable loss for the year ended December 31, 2005 as reported in the 2005 corporate

income tax return amounted to Rp 33,853,255,521. 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 6

As of

December 31, 2005

Credited (charged)

to statement of

income for the year

As of

December 31, 2006

Rp Rp Rp

The Company

Deferred tax assets (liabilities) :

Fiscal loss carry forward 3,221,646,445,844 (47,397,692,767) 3,174,248,753,077

Valuation allowance (3,221,646,445,844) 47,397,692,767 (3,174,248,753,077)

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)




49


d. Deferred Tax (Continued) 2 0 0 5

As of

December 31, 2004

Credited (charged)

to statement of

income for the year

As of

December 31, 2005

Rp Rp Rp

The Company

Deferred tax assets (liabilities) :

Fiscal loss carry forward 3,034,815,044,570 186,831,401,274 3,221,646,445,844

Valuation allowance (3,034,815,044,570) (186,831,401,274) (3,221,646,445,844)

Depreciation expense of fixed assets (409,415,360,893) 25,434,576,648 (383,980,784,245)

Amortization of deferred charges 827,307,139 709,872,489 1,537,179,628

Provision for employee entitlements 2,735,876,839 1,132,245,770 3,868,122,609

Lease expense (3,291,128,247) 887,417,847 (2,403,710,400)

Total – the Company (409,143,305,162) 28,164,112,754 (380,979,192,408)

Subsidiaries

TJ 24,788,592,296 7,391,182,878 32,179,775,174

TGB 354,483,788 261,297,083 615,780,871

Total – Subsidiaries 25,143,076,084 7,652,479,961 32,795,556,045

Total deferred tax liabilities, net (384,000,229,078) 35,816,592,715 (348,183,636,363)

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 3,174,248,753,077 and Rp 3,221,646,445,884 at December 31, 2006 and 2005, 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 6 2 0 0 5

Rp Rp

Loss before income tax as per

consolidated statements of income (77,031,237,733) (879.045.794.725)

Extraordinary items – 1.423.797.000

Loss before income tax of the Subsidiaries 73,378,740,225 149.968.103.401

Loss before income tax of the Company (3,652,497,508) (727.653.894.324)




50


d. Deferred Tax (Continued)

2 0 0 6 2 0 0 5

Rp Rp

Tax benefit at effective tax rate of 30% (1,095,749,252) (218,296,168,297)

Valuation allowance (47,397,692,767) 186,831,401,274

Tax effect of non-deductible expense

(non-taxable income) 1,635,114,725 3,300,654,269

Tax income of the Company (46,858,327,294) (28,164,112,754)

Tax income of the Subsidiaries (4,743,377,845) (7.652.479.961)

Total tax income (51,601,705,139) (35.816.592.715)

e. Tax Income (Expense)

2 0 0 6 2 0 0 5

Rp Rp

Current income tax expense:

The Company – –

Subsidiaries – –

– –

Deferred tax income (expense) :

The Company 46,858,327,294 28.164.112.754

Subsidiaries 4,743,377,845 7.652.479.961

51,601,705,139 35.816.592.715

Tax income 51,601,705,139 35.816.592.715


f. Tax Assessment Letter

a. The Company

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

Pelayanan 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.




51


f. Tax Assessment Letter (Continued)

a. The Company (Continued)



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.


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.


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.


Pelayanan Pajak Wajib Pajak Besar Dua) issued a Value Added Tax assessment letter


tax liability of Rp 136,807,858. The tax liability had been paid in January 2007.

On March 29, 2005, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor

Pelayanan Pajak Wajib Pajak Besar Dua) issued an Income Tax Article 21 assessment

letter for the fiscal year 2003 No. 00006/501/03/092/05 stated that the Company had no

additional tax liability.

On March 29, 2005, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor


letter for the fiscal year 2003 No. 00019/203/03/092/05 stated that the Company had no

additional tax liability.

On March 29, 2005, the Indonesian Tax Authorities (Direktorat Jendral Pajak Kantor

Pelayanan Pajak Wajib Pajak Besar Dua) issued a Value Added Tax assessment letter


tax liability of Rp 8,087,279.239. The tax liability had been compensated on March

2005 with the overpayment of 2003 corporate income tax.




52






letter for fiscal year 2003 No. 00014/203/03/092/05 stated that the Company had

additional tax liability of Rp 2,996,117. The tax liability had been compensated on

March 2005 with the overpayment of 2003 corporate income tax.


Pelayanan Pajak Wajib Pajak Besar Dua) issued a Corporate Income Tax assessment

letter for the fiscal year 2003 No. 00019/406/03/092/05 stated that the Company had an

overpayment of income tax amounted to Rp 11,224,356,753 based on taxable loss of Rp

769,531,023,056. The overpayment had been compensated with other tax liabilities.

• On March 29, 2005, the Indonesian Tax Authorities (Direktorat Jendral Pajak Kantor

Pelayanan Pajak Wajib Pajak Besar Dua) issued a Income Tax article 26 assessment

letter for fiscal year 2003 No. 00010/204/03/092/05 stated that the Company had

additional tax liability of Rp 44,679,970,029. On October 7, 2005, the Indonesian Tax

Authorities (Direktorat Jendral Pajak Kantor Pelayanan Pajak Wajib Pajak Besar Dua)

issued decision letter No Kep-284/WPJ.19/BD.05/2005 to approve deduction or write

off income tax article 26 and its administration penalty.

On April 15, 2005, the Indonesian Tax Authorities (Direktorat Jenderal Pajak Kantor


the 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.

On September 12, 2005, the Indonesian Tax Authorities (Direktorat Jenderal Pajak

Kantor Pelayanan Pajak Wajib Pajak Besar Dua) issued a Value Added Tax assessment

letter for the fiscal year 2003 No. 00032/107/03/092/05 stated that the Company had

additional tax liability of Rp 554,519,233. The tax liability had been paid in December

2005.

On April 4, 2005, the Indonesian Tax Authorities (Direktorat Jendral Pajak Kantor

Pelayanan Pajak Karawang) issued an Income Tax article 23 assessment letter for fiscal

year 2003 No. 00088/203/03/408/05 stated that the Company had additional tax liability

of Rp 24,471,183. The tax liability had been paid on June 9, 2005.




53





Pelayanan Pajak Karawang) issued an Income Tax article 21 assessment letter for fiscal

year 2003 No. 00078/201/03/408/05 stated that the Company had additional tax liability

of Rp 61,708,010. The tax liability had been paid on June 9, 2005.


Pelayanan Pajak Karawang) issued an Income Tax article 4 (2) assessment letter for

fiscal year 2003 No. 00039/540/03/408/05 stated that the Company had no additional

tax liability.

On June 28, 2004, the Indonesian Tax Authorities (Direktorat Jendral Pajak Kantor

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 not been paid

yet.

b. Subsidiaries (TJ and TGB) :

• On September 13, 2006, the Indonesian Tax Authorities (Direktorat Jendral 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 Jendral 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.




54


f. Tax Assessment Letters (Continued)

b. Subsidiaries (TJ and TGB) (Continued)

• On July 3, 2006, the Indonesian Tax Authorities (Direktorat Jendral 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.

• On June 16, 2006, the Indonesiam Tax Authorities (Direktorat Jendral 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.




additional tax liability of Rp 834,502,680. The tax liabilities had been compensated on








Pelayanan Pajak Masuk Bursa) issued an Income Tax Article 4(2) assessment letter for





Pelayanan Pajak Masuk Bursa) issued a Corporate Income Tax assessment letter for

2003, No. 00156/406/03/054/05 stated that the Subsidiary (TJ) has overpayment of

Rp 294,562,328 based on taxable loss of Rp 213,392,604,641. The overpayment had

been compensated with other tax liabilities.




55





Pelayanan Pajak Masuk Bursa) issued an Income Tax article 23 assessment letter for

2003, No. 00135/203/03/054/05 stated that the Subsidiary (TJ) had additional tax

liability of Rp 1,119,855,133. The tax liabilities had been compensated on September

29, 2006 with the overpayment of 2004 value added tax.




liability of Rp 2,234,189,156. The tax liability had been settled on September 13, 2006

at amount of Rp 2,116,173,919 with the overpayment of 2004 value added tax and on

June 16, 2006 at amount of Rp 118,015,242 with the overpayment of 2004 corporate

income tax.


Pelayanan Pajak Masuk Bursa) issued a Value Added Tax assessment letter for 2003,

No. 00018/277/03/054/05 stated that the Subsidiary (TJ) had additional tax liability of

Rp 35,026,210. The tax liability had been compensated on June 15, 2005 with the

overpayment of 2003 corporate income tax.


Pelayanan Pajak Masuk Bursa) issued a Income Tax article 4 (2) assessment letter for


liability of Rp 163,112,803. The tax liability had been compensated on June 15, 2005

with the overpayment of 2003 corporate income tax.


Pelayanan Pajak Masuk Bursa) issued an Income Tax article 26 assessment letters for

2003, No. 00051/504/03/054/05 stated that the Subsidiary (TJ) had no additional tax

liabilities.


Pelayanan Pajak Masuk Bursa) issued an Income Tax article 26 assessment letters for

2003, No. 00002/541/03/054/05 stated that the Subsidiary (TJ) had no additional tax

liabilities.




56






2003 No. 00016/101/03/054/05 stated that the Subsidiary (TJ) had additional tax

liability of Rp 37,778,893. The tax liability had been compensated on June 16, 2005

with the overpayment of 2003 corporate income tax


Pelayanan Pajak Masuk Bursa) issued an Value Added Tax assessment letter for

January 2003 up to December 2003 No. 00040/107/03/054/05 stated that the

Subsidiary (TJ) had additional tax liability of Rp 60,279,382. The tax liability had

been compensated at amount of Rp 58,644,422 on June 16, 2005 with the

overpayment of 2003 corporate income tax


Pelayanan Pajak Karawang) issued an Income Tax article 21 assessment letter for


liability of Rp 17,208,885. The tax liability had been compensated on September 20,

2006 with the overpayment of 2004 Value Added Tax.


Pelayanan Pajak Karawang) issued an Income Tax article 21 assessment letter for


liability of Rp 10,709,583. The tax liability had been paid on March 23, 2006.

On December 21, 2005, the Indonesian Tax Authorities (Direktorat Jendral Pajak

Kantor Pelayanan Pajak Karawang) issued an Income Tax article 23 assessment letter

for January 2003 up to December 2003 No. 00051/103/03/408/05 stated that the

Subsidiary (TJ) had additional tax liability of Rp 869,969. The tax liability had been

paid in February 2006.



for 2003, No. 00148/201/03/408/05 stated that the Subsidiary (TJ) had additional tax


2006 with the overpayment of 2004 value added tax.




57





Kantor Pelayanan Pajak Karawang) issued an Income Tax article 23 assessment letters

for 2003, No. 00031/503/03/408/05 stated that the Subsidiary (TJ) had no additional

tax liabilities.



for 2003 No. 00508/101/03/408/05 stated that the Subsidiary (TJ) had additional tax


2006 with the overpayment of 2004 value added tax.

On August 3, 2004, the Indonesian Tax Authorities (Direktorat Jendral Pajak Kantor

Pelayanan Pajak Karawang ) issued a Value Added Tax assessment letter for 2002,

No. 00024/277/02/408/04 stated that the Subsidiary (TJ) had additional tax liability

of Rp 188,333,061. The tax liability had been compensated on September 20, 2006

with the overpayment of 2004 value added tax.

21. ACCRUED EXPENSES

2 0 0 6 2 0 0 5

Rp Rp

Interest 637,516,267,557 585,684,067,327

Electricity 23,436,510,773 63,587,564,722

Transportation 11,071,133,537 3,010,180,205

Salary 8,971,515,758 8,947,489,175

Rent 1,497,081,286 2,877,265,445

Insurance – 10,623,014,263

Others 1,234,896,227 9,675,905,524

Total 683,727,405,138 684,405,486,661




58

22. UNSECURED DEBTS AND NOTES PAYABLE

2 0 0 6 2 0 0 5

Rp Rp

The Hongkong and Shanghai Banking

Corporation Limited

(US$ 18,766,058) 169,269,839,721 –

Banks :

Credit Agricole Indosuez

(US$ 317,445) – 3,120,484,350


(US$ 2,538) – 24,948,540

ING Bank

(US$ 412,241) – 4,052,329,030

PT Bank Lippo Tbk.

(US$ 153,902) – 1,512,856,660


(US$ 113,605) – 1,116,737,150

– 9,827,355,730


( US$ 737,522 ) – 7,249,850,685

Lease payable :

PT Exim SB Leasing (US$ 45,413) – 446,409,790

PT Koexim Mandiri Finance (US$ 24,357) – 239,429,310

PT Jaya Fuji Leasing Pratama (US$ 14,552) – 143,046,160

PT Hanil Bakrie Finance Corporation (US$ 12,595) – 123,808,850

– 952,694,110

Notes payable :

Others (US$ 16,836,459) – 165,502,391,970

Total 169,269,839,721 183,532,292,495

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.




59

22. UNSECURED DEBTS AND NOTES PAYABLE (Continued)

As of December 31, 2005, the restructured unsecured debt was US$ 18,670,630 (equivalent to

Rp 183,532,292,495). And as of December 31, 2006, the total restructured unsecured debt was

US$ 18,766,058 (equivalent to Rp 169,269,839,721) which is comprising of principal notes at

US$ 18,670,630 (equivalent to Rp 168,409,082,228) plus unpaid capitalized interest of US$ 95,428

(equivalent to Rp 860,757,493). 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%

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, 2006, the interest charge on the unsecured debts was

Rp 2,947,158,940.

23. WORKING CAPITAL LOANS

2 0 0 6 2 0 0 5

Rp Rp

Related party :

Damiano Investments BV, Netherland 269,621,644,406 24,575,000.000

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. The addition amount of US$ 867,856.64 will be refunded by the Company with interest

free, but till to dated this has not been refunded.




60

23. WORKING CAPITAL LOANS (Continued)

Damiano Investments BV has also provided of US$ 3,336,000 (equivalent to Rp 30,090,719,999)

as advance.

For the years ended December 31, 2006 and 2005, the interest charge on the working capital loans

from Damiano Investments BV, Netherland were Rp 17,670,098,669 and Rp 212,694,444

respectively.

24. DUE TO RELATED PARTIES

2 0 0 6 2 0 0 5

Rp Rp

PT Bima Peranan Busana 13,653,484,229 13,649,470,385

PT Perkasa Heavyndo Engineering 1,062,557,586 1,695,957,586

PT Waniaindah Busana Tbk 128,200,000 128,200,000

PT Kreasi Kekar 89,413,522 –

Polysindo Japan Ltd., Japan – 1,264,537,914

Total 14,933,655,337 16,738,165,885

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 6 2 0 0 5

Rp Rp

PT Perjahl Leasing Indonesia Machinery 11,128,136,441 12,127,448,030

PT Piranti Mulia Bisnisindo Machinery 10,509,985,209 –

PT Hanil Bakrie Finance Corporation Machinery 9,044,904,850 10,324,066,316

PT Koexim Mandiri Finance Vehicle, Machinery 5,433,097,598 5,920,992,172

PT GE Astra Finance Machinery 2,971,792,251 3,238,660,512

PT Exim SB Leasing Machinery – 11,453,786,542

Total 39,087,916,349 43,064,953,572

Less : Current maturity of obligation under

capital lease (39,087,916,349) (42,328,270,370)

Long-term portion – 736,683,202




61

25. OBLIGATION UNDER CAPITAL LEASE (Continued)

As of December 31, 2006 and 2005, 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 Exim SB Leasing SIBOR + 2% 2005

PT Piranti Mulia Bisnisindo SIBOR + 2% 2005

PT GE Astra Finance SIBOR + 4.75% for 1999 2002

SIBOR + 2.75% from 2000 until

2002

The future minimum lease payments under capital lease as of December 31, 2006 and 2005 are as

follows :

2 0 0 6 2 0 0 5

Rp Rp

Year ending December 31,

2006 – 47,979,103,769

2007 44,410,627,820 736,683,202

Total minimum lease payments 44,410,627,820 48,715,786,971

Less : amount representing interest (5,322,711,471) (5,650,833,399)

Obligation under capital lease 39,087,916,349 43,064,953,572

Less : current maturity of obligation under

capital lease (39,087,916,349) (42,328,270,370)

Long-term portion – 736,683,202

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.




62

26. CAPITAL STOCK

The composition of stockholders as of December 31, 2005 based on the stockholder’s list issued by

the Stock Administrative Office of listed shares of the Company, PT Datindo Entrycom are as

follows:

Numbers of Percentage of Total

Stockholders Shares ownership Rp

%

PT Multikarsa Investama 2,627,894,390 59.81 1,313,947,195,000

Public (below 5% each) 1,766,025,610 40.19 883,012,805,000

Total 4,393,920,000 100.00 2,196,960,000,000

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 Taufan, 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 43,144,238,747 shares.

The composition of stockholders as of December 31, 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 :




63

26. CAPITAL STOCK (Continued)

Numbers of Percentage of Total

Stockholders Shares ownership Rp

%

Shares Series A:

PT Multikarsa Investama 2,627,894,390 5.53 1,313,947,195,000

Public (below 5% each) 1,766,025,610 3.71 883,012,805,000

Sub total 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 65,505,032,818

Others 3,341,314,881 7.03 6,682,629,768

Unsettled 7,050,407,457 14.83 14,100,814,914

Sub total 43,144,238,747 90.76 86,288,477,500

Total 47,538,158,747 100.00 2,283,248,477,500

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 2006 and 2005 with ownership of

47,760,023,880 and 47,760 shares respectively of the paid-in capital for 2006 and 2005.

The new shares are issued as the results of the debt to equity conversion can not be traded in the

Jakarta and Surabaya Stock Exchanges for at least one year from September 1, 2006.

27. ADDITIONAL PAID-IN CAPITAL

2 0 0 6 2 0 0 5

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 –

Total 5,586,506,149,053 11,992,613,553




64

28. ADVANCE FOR FUTURE STOCK SUBSCRIPTION

As per the Composition Proposal (Rencana Perdamaian) the Company is issuing 16,780,718,747

shares to unsecured creditors and 26.363.520.000 shares for Damiano Investments BV, Netherland in

regard to debt to equity conversion of Rp 5,660,802,013,000 (Note 23).

Based on the amendment of the Company’s articles of association dated July 4, 2006 by notary deed

No. 12 of Aulia Taufani, SH, the Company has recognized the advance for future stock subscription

of Rp 5,660,802,013,000 as issued and paid-in capital amounted to Rp 86,288,477,500 and as

additional paid-in capital amounted to Rp 5,574,513,535,500 (Note 27).

2 0 0 6 2 0 0 5

Rp Rp

Banks :

Credit Agricole Indosuez

(US$ 10,405,076) – 96,246,953,000


(US$ 83,197) – 769,572,250

ING Bank

(US$ 13,512,290) – 124,988,682,500

PT Bank Lippo Tbk.

(US$ 5,044,551) – 46,662,096,750


(US$ 3,723,705) – 34,444,271,250

– 303,111,575,750


(US$ 24,174,189) – 223,611,248,250

Leasing :

PT Exim SB Leasing (US$ 1,488,532) – 13,768,921,000

PT Koexim Mandiri Finance (US$ 798,355) – 7,384,783,750

PT Jaya Fuji Leasing Pratama (US$ 476,971) – 4,411,981,750

PT Hanil Bakrie Finance Corporation

(US$ 412,828) – 3,818,659,000

– 29,384,345,500

Notes Payables :

Others ( US$ 551,858,902 ) – 5,104,694,843,500

Total – 5,660,802,013,000




65

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.

The pension plans are funded by the contributions from both employers and employees. Employees’

contributions in 2006 and 2005 amounted to 5% of their gross salaries and the remaining amounts

were contributed by the employers.

Pension expense for 2006 dan 2005 are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Current service cost – total 1,268,824,938 1,041,935,160

Current service cost – employees (634,412,469) (520,967,580)

Total current service cost – the Company and TJ 634,412,469 520,967,580

The actuarial liability and net assets based on the actuarial report of DPTG as of December 31, 2006

and 2005 are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Net assets 9,012,090,038 72,751,962,455

Actuarial liability (8,205,068,468) (59,820,854,629)

Excess of net assets over actuarial liability 807,021,570 12,931,107,826

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




66

29. RETIREMENT BENEFITS (Continued)

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.

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,

2006 and 2005, the Company and Subsidiaries have recorded provision for employees entitlement as

follows :

2 0 0 6 2 0 0 5

Rp Rp

Current service cost 5,292,069,626 3,461,387,794

Interest costs 1,465,984,777 1,133,757,602

Past service cost 1,665,322,019 244,857,705

Net actuarial losses (gains) 743,560,116 20,052,801

Losses (gains) o curtailments and settlements 8,889,422,463 1,950,980,088

Total 18,056,359,001 6,811,035,990

The amounts included in the balance sheets arising from the Company’s obligation in respect of the

employees’ entitlement is as follows :

2 0 0 6 2 0 0 5

Rp Rp

Present value of obligations 66,451,484,066 51,375,986,353

Unrecognized past service cost (20,683,765,738 ) (2,830,421,951)

Unrecognized actuarial gains (losses) (6,727,721,895 ) (1,065,321,284)

Net liability 39,039,996,433 47,480,243,118




67

30. PROVISION FOR EMPLOYEES’ ENTITLEMENT (Continued)

Movements in the net liability recognized in balance sheet are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Saldo awal 47,480,243,118 58,612,414,940

Pembayaran manfaat (26,496,605,686 ) (17,943,207,812)

Beban tahun berjalan 18,056,359,001 6,811,035,990

39,039,996,433 47,480,243,118

The above actuarial assessments were made by PT Sienco Aktuarindo Utama as at December 31,

2006 and 2005 with the following assumptions:

Discount rate : 11% p.a. in 2006 and 10% p.a. in 2005

Mortality rate : The 1958 Commissioners’ Standard Ordinary Mortality Table.

Salary growth rate : 8% p.a. in 2006 and 10% p.a. in 2005

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, 2006 and 2005, the Subsidiaries have recorded provision for employees’

entitlement of Rp 21,998,582,533 and Rp 35,219,011,345 respectively based on the amount payable

to the employees pursuant to the Labor Law No. 13/2003. In 2006 and 2005, 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 2006 and 2005 the Company was exempted from reserving additional amounts due to

its operating losses.




68

32. INSURANCE CLAIM SETTLEMENT, NET

In 2005, this account represent the settlement of insurance claim for inventory damage of

Rp 128,915,625.

33. BASIC NET LOSS PER SHARE

2 0 0 6 2 0 0 5

Rp Rp

Weighted average number of shares outstanding 18,775,332,916 4,393,920,000

Net loss for computing the loss per share (25,429,532,594) (841,805,405,011)

Basic net loss per share (1) (192)

34. NET SALES

2 0 0 6 2 0 0 5

Rp Rp

Lokal

Yarn 700,320,976,116 526,489,927,722

Chips 680,414,195,812 478,007,702,370

Fibre 495,868,742,887 267,602,224,638

Knitting 35,721,211,199 13,426,706,174

Coating 3,885,998,916 2,427,518,490

Garment 435,738,231 1,155,327,465

Grey – 1,262,225,714

Suiting – 251,129,644

Georgette – 135,036,931

Others 20,385,308,975 33,273,233,070

1,937,032,172,136 1,324,031,032,218

Export

Yarn 819,372,530,892 733,072,469,161

Fibre 158,923,501,294 102,855,587,528

Chips 65,154,277,000 119,400,501,057

PTA 58,374,592,356 612,845,279,496

Knitting 17,619,107,793 43,612,659,349

Garment 4,353,929,021 1,514,137,729

1,123,797,938,356 1,613,300,634,320

Total 3,060,830,110,492 2,937,331,666,538




69

34. NET SALES (Continued)

In 2006 and 2005, net sales were made to related parties amounted to Rp 384,926,283,753 and

Rp 481,704,493,850 or 12.50% and 16.04% respectively of total operating revenues (Note 42).

In connection with pre-financing from customer, in 2006 and 2005 the Company has sales to

Winsway International Petroleum Ltd., China amounted to Rp 50,288,867,356 and

Rp 589,621,962,496 or 1.63% and 19.64% of total operating revenues.

In 2006 and 2005, no sales to third parties exceeded 10% of total operating revenues.

35. OTHER OPERATING REVENUES

2 0 0 6 2 0 0 5

Rp Rp

Indirect materials 9,985,815,572 14,750,505,955

Makloon 3,860,827,370 42,346,747,049

Waste 5,151,187,291 10,115,797,516

Total 18,997,830,233 67,213,050,520

In 2006 and 2005, other operating revenues were made to related parties amounted to

Rp 8,913,111,572 and Rp 11,957,058,837 or 0.29% and 0.40% respectively of total operating

revenues (Note 42).

In 2006 and 2005, no sales to third parties exceeded 10% of total operating revenues.

36. COST OF GOODS SOLD

2 0 0 6 2 0 0 5

Rp Rp

Raw materials used 1,843,730,838,121 1,600,127,950,936

Direct labour 65,129,094,091 64,569,624,991

Manufacturing expense 1,188,651,970,284 1,168,623,125,977

Total manufacturing cost 3,097,511,902,496 2,833,320,701,904




70

36. COST OF GOODS SOLD (Continued)

2 0 0 6 2 0 0 5

Rp Rp

Raw materials used 1,843,730,838,121 1,600,127,950,936

Direct labour 65,129,094,091 64,569,624,991

Manufacturing expense 1,188,651,970,284 1,168,623,125,977

Total manufacturing cost 3,097,511,902,496 2,833,320,701,904

Work in process

At beginning of year 35,802,334,019 36,378,824,847

At end of year (61,609,898,835) (35,802,334,019)

Cost of goods manufactured 3,071,704,337,680 2,833,897,192,732

Finished goods

At beginning of year 71,918,313,414 71,147,338,138

Purchases 514,514,450,567 489,654,750,933

At end of year (139,233,912,383) (71,918,313,414)

Cost of goods sold 3,518,903,189,278 3,322,780,968,389

In 2006 and 2005, total purchase of raw materials, indirect materials, spare parts and finished goods

were made from related parties amounted to Rp 478,433,629,409 and Rp 478,245,811,900 or 20.26%

and 23.15% respectively of total purchases (Note 42).

In connection with prefinancing from customer in 2006 and 2005, the company has purchases from

Winsway International Petroleum Ltd, China amounted to Rp Nil.and Rp 490,587,655,224 or 00.00%

and 23.75% of total purchases.

In 2006 and 2005, no purchase to third parties exceeded 10% of total purchases.

37. SELLING EXPENSES

2 0 0 6 2 0 0 5

Rp Rp

Export charges 47,645,401,610 62,365,544,110

Marketing expenses 36,675,098,449 54,395,042,380

Freight 28,027,617,705 20,445,343,232

Advertising and promotion 232,020,300 329,522,600

Others 1,012,430,206 4,376,626,752

Total 113,592,568,270 141,912,079,074




71

38. GENERAL AND ADMINISTRATIVE EXPENSES

2 0 0 6 2 0 0 5

Rp Rp

Salaries, wages and benefits 26,379,408,727 27,672,485,072

Rent 8,925,982,768 10,017,490,660

Business traveling expenses 8,578,908,228 8,503,964,046

Professional fees 7,341,960,991 5,264,632,555

Communication 5,091,838,465 5,369,919,818

Tax penalties 4,989,813,382 4,765,737,098

Repairs and maintenance 4,361,496,525 2,579,629,766

Insurance 4,032,804,170 4,373,147,619

Bad debt expenses 3,297,299,253 11,696,567,750

Amortization 2,963,726,735 3,993,539,182

Stationery 1,761,010,611 1,653,309,384

Depreciation expense of fixed assets 1,280,263,013 3,566,672,502

Electricity and water 1,271,042,713 272,755,547

Entertainment and representation 426,806,943 569,250,343

Others 32,756,146,226 27,905,406,676

Total 113,458,508,750 118,204,508,018

39. INTEREST EXPENSE AND BANK CHARGES

2 0 0 6 2 0 0 5

Rp Rp

Interest expense on :

Bank loan 75,999,948,192 –

Working capital loan 17,670,098,669 212,694,444

Claim from custom 11,130,021,337 –

Unsecured loan and notes payable 2,947,158,940 –

Short term loans 624,536,786 12,882,635,415

Obligation under capital lease 139,788,443 683,362,576

Total interest expense 108,511,552,367 13,778,692,435

Bank charges 4,102,503,053 2,862,150,307

Total 112,614,055,420 16,640,842,742




72

40. INTEREST INCOME

2 0 0 6 2 0 0 5

Rp Rp

Current accounts and others 249,584,878 49,231,149

41. EXTRAORDINARY ITEM

On February 15, 2005, the Company implemented the Composition Plan as approved by the

unsecured creditors and ratified by the Commercial Court. The detail of gain from this

implementation is as follows :

Before After Exchange

Restructuring Restructuring Rate Gain

US$ US$ Rp/US$ Rp

Lease payable 3,288,584 3,273,599 9,250 138,611,250

Letter of credit 11,811,780 11,746,841 9,250 600,685,750

Notes payable 1,224,000 1,150,000 9,250 684,500,000

Total 16,324,364 16,170,440 1,423,797,000

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




73

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

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

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 :




74

42. NATURE AND TRANSACTION WITH RELATED PARTIES (Continued)

Related parties transaction (Continued)

Percentage to total

Assets/ Liabilities

Revenue/Expenses

2 0 0 6 2 0 0 5 2006 2005

Rp Rp % %

Trade receivables 434,333,939,847 445,501,255,933 7.42 7.31

Purchase advance 41,329,419,067 3,901,707,320 0.71 0.06

Due from related parties 621,176,485,643 613,165,329,298 10.61 10.06

Trade payables 58,855,993,276 68,447,032,488 0.49 0.56

Due to related parties 14,933,655,337 16,738,165,885 0.13 0.14

Net sales 384,926,283,753 481,704,493,850 12.50 16.03

Other operating revenues 8,913,111,572 11,957,058,837 0.29 0.40

Manufacturing Expenses 1,320,726,002 172,743,123,125 0.06 8.36

Purchase of raw material, indirect

materials, spare parts and

finished goods 478,433,629,409 478,245,811,900

20.26 23.15

Purchase of fixed assets – – – –

Sales of finished goods to related parties accounted for 12.50% and 16.03% from total operating

revenue for the years ended December 31, 2006 and 2005 respectively.




75



The details of sales to related parties are as follows :

2 0 0 6 2 0 0 5

Rp Rp


PT Ungaran Sari Garments 5,710,444,371 6,923,986,045

PT Busana Perkasa Garments 989,140,160 716,895,059

Polysindo (USA) Inc., USA 183,971,280 –

PT Texmaco Perkasa Engineering 25,704,000 7,138,000

PT Texmaco Taman Synthetics – 756,128,706

Total 384,926,283,753 481,704,493,850

Other operating revenue to related parties accounted for 0.29% and 0.40% from total operating

revenue for the years ended December 31, 2006 and 2005 respectively.

The details of other operating revenue to related parties are as follows :

2 0 0 6 2 0 0 5

Rp Rp


PT Wismakarya Prasetya – 237,957,626

PT Texmaco Taman Synthetics – 6,000,000

PT Raja Busana Mahameru – 1,363,636

Total 8,913,111,572 11,957,058,837

Purchases of raw materials, indirect materials, spare parts and fixed assets from related parties

accounted for 20.31% and 23.15% for total purchases for the years ended December 31, 2006 and

2005, respectively.




76



The details of purchases from related parties are as follows :

2 0 0 6 2 0 0 5

Rp Rp

Raw material, indirect material and spare parts

Polysindo (Japan) Inc., Japan 9,798,581,360 –

PT Texmaco Taman Synthetics 56,381,700 –

9,854,963,060 –

Finished goods


Others (Fabrication)


PT Wisma Karya Prasetya – 170,434,281,207

PT Devrindo Widya – 715,411,738

1,320,726,002 172,743,123,125

Total 479,754,355,411 650,988,935,025

Compensation representing salary, was given to commissioners and directors for the years ended

December 31, 2006 and 2005 amounted to Rp 1,106,558,400 and Rp 583,095,000 respectively.

No contribution to retirement benefits, entitlement benefits and or any other special benefits were

given during the year 2006 and 2005.

43. ASSETS AND LIABILITIES IN FOREIGN CURRENCY

The Company and its Subsidiaries had monetary assets and liabilities in foreign currencies as of

December 31, 2006 and 2005 as follows :

2 0 0 6 2 0 0 5

Foreign Equivalent in Foreign Equivalent in

Currency Rupiah Currency Rupiah

Rp Rp

Assets

Cash and cash equivalents US$ 2,684,945 24,218,203,285 1,296,893 12,748,459,625

SGD 1,652 9,712,250 3,980 23,507,144

NOK 1,108 1,761,587 1,108 1,119,080

YEN – – 100 8,342

Trade receivables :

Third parties US$ 25,696,063 231,778,485,535 7,793,775 76,612,805,307

Related parties US$ 5,076,779 45,792,543,147 6,894,976 67,777,606,313

Due from related parties US$ 5,579,991 50,331,516,385 5,634,996 55,392,007,333

Restricted cash in bank US$ 1,274,386 11,494,964,697 1,274,387 12,527,223,012

Total assets 363,627,186,886 225,082,736,156




77

43. ASSETS AND LIABILITIES IN FOREIGN CURRENCY

The Company and its Subsidiaries had monetary assets and liabilities in foreign currencies as of

December 31, 2006 and 2005 as follows :

2 0 0 6 2 0 0 5

Foreign Equivalent in Foreign Equivalent in

Currency Rupiah Currency Rupiah

Rp Rp

Liabilities

Bank loans

Third parties US$ 43,501,586 392,385,203,751 – –

Secured Debts

Third parties US$ 805,630,342 7,266,785,686,105 805,630,342 7,119,346,252,030

EUR 15,688,978 186,043,351,729 15,688,978 182,933,798,300

YEN 3,001,711,400 227,515,616,076 3,001,711,400 250,409,668,924

CHF 45,902 338,834,797 45,902 343,825,718

Short term loans US$ 22,363,248 201,716,497,953 22,363,248 219,830,728,922

Trade payables :

Third parties US$ 12,492,607 112,683,314,669 15,118,725 148,617,073,335

YEN 6,926,512 525,031,894 747,417 62,349,537

SGD 32,641 190,834,741 114,343 675,376,463

CHF 6,676 50,008,337 209,934 1,572,521,729

GBP 14,964 264,809,187 17,037 288,726,057

EUR 207,392 2,456,964,195 120,295 1,402,630,117

DKK 147 233,683 – –

Unsecured debts and notes

payable US$ 18,766,058 169,269,839,721 18,670,630 183,532,292,495

Working Capital Loan US$ 29,891,535 269,621,644,406 2,500,000 24,575,000,000

Other current liabilities

Related parties US$ 4,000,000 36,080,000,000 4,000,000 39,320,000,000

Accrued expenses US$ 71,022,621 640,624,043,214 1,281,597 12,598,098,903

Notes payable US$ 16,141,085 145,592,589,315 16,141,085 158,666,868,400

Liabilities for purchase of

fixed assets US$ 30,476 274,895,775 30,476 299,581,538

Total liabilities (9,652,419,399,548) (8,344,474,792,468)

Net liabilities (9,288,792,212,612) (8,119,392,056,312)




78

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

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 – – – 3,079,827,941

Inter 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

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




79

44. BUSINESS SEGMENT INFORMATION (Continued)

Chemical Weaving Textile

industry and And And Finance

2006 synthetic fibre Knitting Trading Service Elimination Total


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)

BUSINESS SEGMENT

INFORMATION

(PRIMARY)

SEGMENT SALES :

External sales 2,935,928,867 68,498,814 235,737 – – 3,004,663,418

Inter segment sales 98,459 – – (217,161) (118,702)

Total segment sales 2,936,027,326 68,498,814 235,737 – (217,161) 3,004,544,716

RESULT

Segment result (243,549,541) (73,563,470) (1,116,240 ) – – (318,236,251)

Unallocated operating

expenses (215,170,108) (44,901,025) – (45,454) – (260,116,587)

Loss from operations (578,352,838)

Other charges, net (300,692,956)

Loss before income tax (879,045,795)

Tax expense 35,816,593

Loss from ordinary activities (843,229,202)

Extraordinary item 1,423,797

Net loss (841,805,405)




80

44. BUSINESS SEGMENT INFORMATION (Continued)

Chemical Weaving Textile

industry and and And Finance

2005 synthetic fibre knitting Trading Service Elimination Total


BUSINESS SEGMENT INFORMATION

(PRIMARY)

BALANCE SHEET :

Segment assets (5,858,510,308) (533,332,534) (2,389,435) (7,463,114,179) 7,763,566,263 (6,093,780,193)

Segment liabilities 11,151,147,246 2,092,813,941 12,186,232 7,450,598,691 (8,590,918,905) 12,115,827,205

OTHER INFORMATION :

Capital expenditures (1,898,285) (532,642) – – – (2,430,927)

Depreciation and amortization 514,060,809 74,910,014 2,079,840 – – 591,050,663

GEOGRAPHIC SEGMENT

INFORMATION

(SECONDARY)

SEGMENT SALES :

Local 1,367,853,489 23,372,017 235,737 – (217,161) 1,391,244,082

Export 1,568,173,837 45,126,797 – – – 1,613,300,634

Total 2,936,027,326 68,498,814 235,737 – (217,161) 3,004,544,716

SEGMENT ASSETS :

Local (5,779,796,701) (504,033,117) (2,389,435) – 7,763,566,263 1,477,347,010

Export (78,713,607) (29,299,417) – (7,463,114,179 ) – (7,571,127,203)

Total (5,858,510,308) (533,332,534) (2,389,435) – (7,763,566,263) (6,093,780,193)

CAPITAL EXPENDITURES :

Local (1,898,285) (532,642) – – – (2,430,927)

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.




81

46. RECLASSIFICATION OF ACCOUNTS

Certain account in the 2005 financial statements have been reclassified in line with the presentation

of the 2006 financial statements. The detail is a follows :

Previous report As restated Amount Description

Rp

Due from related parties Purchase Advance 3,901,707,320 More appropriate presentation

47. PREPARATION AND COMPLETION OF THE FINANCIAL STATEMENTS

The Company’s directors are responsible for the preparation of the financial statements and

completed on March 22, 2007.

contents - asia pacific fibers · over 2005 to 63.5 million tons, with man-made fibers growing by...

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