TABLE OF CONTENTS

Page

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Summary of the Terms of the Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Summary Consolidated Financial and Operating Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Dividends and Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Exchange Rates and Exchange Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Capitalization and Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Selected Consolidated Financial and Operating Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 37
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Description of Material Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Relationship with the Government. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Regulatory Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Description of Our Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Indonesian Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Steel Industry Expert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Summary of Certain Significant Differences Between Indonesian GAAP and U.S. GAAP . . . . . . . . . . . . 145
Glossary of Technical Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Index to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
 NOTICE TO INVESTORS
You should rely only on the information contained in this offering circular. We have not authorized anyone to
provide you with different information. We are not, and the Joint Lead International Selling Agents and the Joint
Lead Underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted.
Unless otherwise indicated, you should not assume that the information contained in this offering circular is
accurate as of any date other than the date on the front of this offering circular.
No U.S. federal, state or foreign securities commission or regulating authority has approved, disapproved of or
recommended the Offer Shares, nor have any of the foregoing authorities, reviewed, passed upon, determined or
endorsed the merits of the offering of the Offer Shares or the accuracy or adequacy of this offering circular. Any
representation to the contrary is a criminal offense in the United States and may be a criminal offense in other
jurisdictions. In addition, the Indonesian Capital Markets and Financial Supervisory Agency (Badan Pengawas
Pasar Modal dan Lembaga Keuangan) (“BAPEPAM-LK”), does not declare its approval or disapproval of the Offer
Shares, nor does it declare the accuracy or adequacy of this offering circular. Any statement to the contrary is a
violation of Indonesian law. For the purposes of the Indonesian Offering, the formal offering document is the
Indonesian prospectus.
This offering circular is strictly confidential and has been prepared by us solely for use in connection with the
proposed offer of the Offer Shares to eligible investors outside of the Republic of Indonesia by way of the
International Offering. This offering circular is personal to each offeree and does not constitute an offer to any other
person or to the public generally to purchase, or otherwise acquire, the Offer Shares. Distribution of this offering
circular to any person other than the offeree and those persons, if any, retained to advise such offeree with respect
thereto is unauthorized and any disclosure of any of its contents, without our prior written consent, is prohibited.
Each prospective purchaser, by accepting delivery of this offering circular, agrees to the foregoing.
We have prepared this offering circular, and we are solely responsible for its contents. You are responsible for
making your own examination of us and your own assessment of the merits and risks of investing in the Offer
Shares. By purchasing the Offer Shares, you will be deemed to have acknowledged that you have made certain
acknowledgements, representations and agreements as set forth under the section headed “Transfer Restrictions”
below.
No representation or warranty, expressed or implied, is made by the Joint Lead International Selling Agents or
the Joint Lead Underwriters as to the accuracy or completeness of the information contained in this offering circular.
Neither the delivery of this offering circular nor the offer of the Offer Shares shall, under any circumstances,
constitute a representation or create any implication that there has been no change in our affairs since the date of this
offering circular or that any information contained herein is correct as of any date subsequent to the date hereof.
Neither we nor the Joint Lead International Selling Agents or the Joint Lead Underwriters, nor any affiliate or
representative of us or any of them, is making any representation to any purchaser of shares regarding the legality of
an investment by such purchaser under applicable laws. In addition, you should not construe the contents of this
offering circular as legal, business or tax advice. You should be aware that you may be required to bear the financial
risks of an investment in our shares for an indefinite period of time. You should consult with your own advisors as to
the legal, tax, business, financial and related aspects of a purchase of the Offer Shares.
In making an investment decision, each prospective purchaser must rely on its own examination of us and the
terms of the International Offering, including the merits and risks involved. By receiving this offering circular, each
prospective purchaser acknowledges that (i) it has been afforded an opportunity to request from us and has received
all information considered necessary to verify the accuracy of, or to supplement, the information contained in this
offering circular, (ii) it has not relied on any of the Joint Lead International Selling Agents or the Joint Lead
Underwriters or any person affiliated with the Joint Lead International Selling Agents or the Joint Lead
Underwriters in connection with its investigation of the accuracy of any information in this offering circular or
its investment decision and (iii) no person has been authorized to give any information or to make any representation
concerning us or our shares other than as contained in this offering circular and, if given or made, any such other
information or representation should not be relied upon as having been authorized by us, the Joint Lead
International Selling Agents or the Joint Lead Underwriters.
This offering circular does not constitute an offer to sell, or an invitation by or on behalf of us or the Joint Lead
International Selling Agents or the Joint Lead Underwriters or any affiliate or representative of any of us or them to
purchase any of the Offer Shares, and may not be used for the purpose of an offer to, or a solicitation by, anyone, in
each case, in any jurisdiction or in any circumstances in which such offer or solicitation is not authorized or is
unlawful. There are restrictions on the distribution of this offering circular and the making of solicitations pursuant

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thereto in certain jurisdictions, further details of which are set out under “Plan of Distribution.” Recipients of this
offering circular are required to inform themselves about and observe any applicable restrictions.
The Offer Shares have not been, and will not be, registered under the Securities Act or any U.S. state securities
laws and, unless so registered, may not be offered, sold or delivered within the United States or to, or for the account
or benefit of, U.S. persons (as defined in Regulation S) except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable U.S. state securities laws. The
International Offering is being made only to non-U.S. persons in transactions outside the United States in reliance
on Regulation S under the Securities Act and in the United States only to “qualified institutional buyers” as defined
in Rule 144A under the Securities Act. Each purchaser of the Offer Shares in making its purchase will be required to
make or will be deemed to have made certain acknowledgements, representations and agreements. For a description
of these and certain further restrictions on offers, sales and transfers of the shares and distribution of this offering
circular, see “Plan of Distribution” and “Transfer Restrictions.”
Each purchaser of the Offer Shares must comply with all applicable laws and regulations in force in each
jurisdiction in which it purchases, offers or sells such shares or possesses or distributes this offering circular and
must obtain any consent, approval or permission required by it for the purchase, offer or sale by it of such shares
under the laws and regulations in force in any jurisdictions to which it is subject or in which it makes such purchases,
offers or sales and none of us nor the Joint Lead International Selling Agents or the Joint Lead Underwriters shall
have any responsibility therefor.
We, having made all reasonable inquiries, confirm that this document contains all information with respect to
us and our shares which is material in the context of the International Offering, that the information contained herein
is true and accurate in all material respects, that the opinions and intentions expressed herein are honestly held, that
we are not aware of any other facts the omission of which in our reasonable opinion might make this document as a
whole or any of such information or the expression of any such opinions or intentions materially misleading and that
all reasonable inquiries have been made by us to verify the accuracy of such information; except that, economic and
other data included in this offering circular on the Indonesian and global steel manufacturing industries, including
information relating to us and our competitors’ relative positions in the Indonesian steel manufacturing industry, is
based on a report prepared for us by CRU Strategies Ltd. (“CRU”), industry publications or the good faith belief of
our management. Although we believe that the CRU and steel manufacturing industry sources referred to in this
offering circular are reliable, we take responsibility only for the accurate reproduction and extraction of such report,
summaries and data, but accept no other responsibility for such information. The accuracy and completeness of
such information are not guaranteed and have not been independently verified by us, the Joint Lead International
Selling Agents or the Joint Lead Underwriters.
Notwithstanding anything to the contrary contained herein, a prospective investor (and each employee,
representative, or other agent of a prospective investor) may disclose to any and all persons, without limitation of
any kind, the tax treatment and tax structure of the transactions described in this offering circular and all materials of
any kind that are provided to the prospective investor relating to such tax treatment and tax structure (as such terms
are defined in Treasury Regulation section 1.6011-4). This authorization of tax disclosure is retroactively effective
to the commencement of discussions with prospective investors.

NOTICE TO NEW HAMPSHIRE RESIDENTS

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED
STATUTES ANNOTATED (“RSA 421-B”) WITH THE STATE OF NEW HAMPSHIRE NOR THE
FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW
HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT
MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR
EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE
SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATION
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR
TRANSACTION. IT IS UNLAWFUL TO MAKE OR CAUSE TO BE MADE TO ANY PROSPECTIVE
PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE
PROVISIONS OF THIS PARAGRAPH.

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 CONVENTIONS
In this offering circular, unless the context otherwise requires, all references to “we,” “us,” and “our” refer to
PT Krakatau Steel (Persero) Tbk. and its consolidated subsidiaries. Unless the context otherwise requires, all
references to “our company,” the “Company,” and “PT Krakatau” refer to PT Krakatau Steel (Persero) Tbk. only.
Unless the context otherwise requires, references to “Management” are to the directors, executive officers and
senior management team of the Company as at the date of this offering circular, and statements in this offering
circular as to beliefs, expectations, estimates and opinions of the Company are those of the Company’s
Management. Further, unless we specify otherwise or the context otherwise requires, all references to our
“ordinary shares” or our “shares” refer to Series B ordinary shares, par value Rp.500.0 per share, in the share
capital of PT Krakatau Steel (Persero) Tbk. References to the “Special Share” refer to the one Series A share with a
par value of Rp.500.0 owned by the Government in our company, which gives the Government, represented by the
Ministry of State-Owned Enterprises, certain rights. See “Management” and “Description of Our Shares —
Description of Special Share.”
As used in this offering circular, all references to “Indonesia” are references to the Republic of Indonesia and
all references to the “Government” are references to the government of Indonesia. As used in this offering circular,
all references to “Rupiah” and “Rp.” are to Indonesian Rupiah, the lawful currency of Indonesia, and all references
to “US$” and “U.S. dollars” are to United States dollars, the lawful currency of the United States of America.
In this offering circular, references to “2007,” “2008” and “2009” refer to the years ended December 31, 2007,
2008 and 2009, respectively.
In this offering circular, where information has been presented in thousands, millions or billions of units,
amounts may have been rounded up or down. Accordingly, totals of columns or rows of numbers in tables may not
be equal to the apparent total of the individual items and actual numbers may differ from those contained herein due
to rounding.
In this offering circular, all references to “production capacity” with respect to a plant are references to
estimates of the maximum production possible in the year or period in question, under normal working conditions,
after giving effect to the time required for maintenance of such plants. The calculation of production capacity for
our various plants is generally based upon the relevant manufacturer’s technical specifications for our plants which,
in turn are based on several assumptions and estimates, and should not be relied upon as an accurate predictor of the
actual manufacturing tonnage that will or can be produced in any future period. In calculating the production
capacity of our various facilities a number of factors were considered, including natural gas composition (in the case
of our direct reduction plant), the breakdown of the different kinds of product grades and specifications produced in
that facility and the optimal working time of that facility. Actual production by facility may differ from production
capacity as a result of variations in product mix and other factors.

Financial Data
Our consolidated financial statements presented in this offering circular are prepared and presented in
accordance with generally accepted accounting principles in Indonesia, or Indonesian GAAP, which differ in
certain material respects from generally accepted accounting principles in the United Sates, or U.S. GAAP. Please
refer to “Summary of Certain Significant Differences between Indonesian GAAP and U.S. GAAP.” Unless
otherwise stated, all discussions on the financial information included in this offering circular are of
consolidated amounts.
We maintain our accounts in Rupiah. Solely for the convenience of the reader, certain Rupiah amounts have
been translated into U.S. dollars at specified rates. U.S. dollar equivalent information for amounts in Rupiah is
based on the middle exchange rate quoted by Bank Indonesia, or the Indonesia Central Bank Rate. Unless otherwise
indicated, U.S. dollar equivalent information for amounts in Rupiah is based on the Indonesia Central Bank Rate as
of June 30, 2010, which was Rp.9,083.0 to US$1.00. The Federal Reserve Bank of New York does not certify for
customs purposes a noon buying rate for cable transfers in Rupiah. No representation is made that the Rupiah or
U.S. dollar amounts shown herein could have been or could be converted into U.S. dollars or Rupiah, as the case
may be, at any particular rate or at all. See “Exchange Rates and Exchange Controls” for further information
regarding rates of exchange between Rupiah and U.S. dollars.

Non-GAAP Financial Measures

We have defined EBITDA to mean net income/(loss) for a relevant period, adjusted by adding/(deducting):
(i) interest expense/(income); (ii) tax expense/(benefit); (iii) depreciation expenses; (iv) minority interest in net
income/(loss) of subsidiaries; (v) (gain)/loss due to extraordinary items, in particular, (gain) on sale of investment;

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(vi) (gain)/loss on disposal of fixed assets; (vii) write off/down in the value of investments; and (viii) (gain)/loss on
foreign exchange, net. EBITDA, as well as the related ratios presented in this offering circular, are supplemental
measures of our performance and liquidity that are not required by, or presented in accordance with, Indonesian
GAAP or U.S. GAAP, are not measurements of financial performance or liquidity under Indonesian GAAP or
U.S. GAAP and should not be considered as alternatives to net income, operating income or any other performance
measures derived in accordance with Indonesian GAAP or U.S. GAAP or as alternatives to cash flow from
operating activities as a measure of liquidity. In addition, EBITDA is not a standardized term; accordingly, a direct
comparison between companies using such a term may not be possible.
We believe EBITDA facilitates comparisons of operating performance from period to period and company to
company by eliminating potential differences caused by variations in capital structures (affecting interest, finance
charges and related derivative gains/(losses), net of interest income), tax positions (such as the impact on periods or
companies of changes in effective tax rates or net operating losses), the age and book depreciation and amortization of
tangible and intangible assets (affecting relative depreciation and amortization expenses) and extraordinary items
(such as a gain from the sale of an investment). In particular, presentation of our EBITDA also adjusts for the non-cash
equity in net income of associates and foreign exchange gains (losses). EBITDA has been presented because we
believe it is frequently used by securities analysts, investors and other interested parties in evaluating similar
companies, many of whom present such non-GAAP financial measures when reporting their results. Finally, EBITDA
is presented as a supplemental measure of our ability to service our debt. Nevertheless, EBITDA has limitations as an
analytical tool, and you should not consider it in isolation from, or as a substitute for, an analysis of our financial
condition or results of operations, as reported under Indonesian GAAP. Because of these limitations, EBITDA should
not be considered as a measure of discretionary cash available to us to invest in the growth of our business.

INDUSTRY AND MARKET DATA

This document includes market share and industry data and forecasts that we have obtained from industry
publications and surveys, including the Industry Overview prepared by CRU, reports of governmental agencies and
internal company surveys. Industry publications and surveys and forecasts generally state that the information
contained therein has been obtained from sources believed to be reliable, but we cannot assure you that the
information is accurate or complete. While reasonable actions have been taken by us to ensure that the information
is extracted accurately and presented in its proper context, we have not independently verified any of the data from
third-party sources or ascertained the underlying economic assumptions relied upon therein.

ENFORCEABILITY OF CIVIL LIABILITIES

We are a limited liability company incorporated under the laws of the Republic of Indonesia. All of our
commissioners, directors and executive officers reside in Indonesia and all or a substantial portion of our assets and
the assets of such persons are located in Indonesia. As a result, it may not be possible for investors to effect service
of process outside of Indonesia upon us or such persons or to enforce against us or such persons outside of Indonesia
judgments obtained in foreign courts, including judgments based upon the civil liability provisions of the securities
laws of the United States or any state or territory within the United States.
We have been advised by our Indonesian legal counsel, Makes & Partners, that judgments of non-Indonesian
courts are not enforceable in Indonesian courts, although such a judgment could be admissible as evidence in a
proceeding on the underlying claim in an Indonesian court. There is doubt as to whether Indonesian courts will enter
judgments on original actions brought in Indonesian courts based solely upon the civil liability provisions of the
federal securities laws of the United States or any state or territory within the United States. A claimant may be
required to pursue claims in Indonesian courts on the basis of Indonesian law. Re-examination of the underlying
claim de novo would be required before the Indonesian court.

FORWARD-LOOKING STATEMENTS
This offering circular contains forward-looking statements that relate to future events, which are, by their
nature, subject to significant risks and uncertainties. All statements, other than statements of historical fact
contained in this offering circular including, without limitation, those regarding our future financial position and
results of operations, strategy, plans, objectives, goals and targets, future developments in the markets where we
participate or are seeking to participate, and any statements preceded by, followed by or that include the words
“believe,” “expect,” “aim,” “intend,” “will,” “may,” “project,” “estimate,” “anticipate,” “predict,” “seek,” “should”
or similar words or expressions, are forward-looking statements.

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 Such forward-looking statements involve known and unknown risks, uncertainties and other factors, some of
which are beyond our control, which may cause our actual results, performance or achievements, or industry results
to be materially different from any future results, performance or achievements expressed or implied by the
forward-looking statements. These forward-looking statements are based on numerous assumptions regarding our
present and future business strategies and the environment in which we will operate in the future and are not a
guarantee of future performance. Important factors that could cause the actual results, performance or achievements
to differ materially from those in the forward-looking statements include, among other things:
• our ability to successfully implement our strategy for revitalization and expansion;
• difficulties with implementing our revitalization and expansion programs, as well as our joint venture
strategy with Pohang Iron and Steel Company (“POSCO”) relating to the development, engineering,
financing, construction, ownership, operation, and maintenance of an integrated steel mill and related
structures and facilities in Cilegon;
• the competitive market for steel products in Indonesia;
• general political and economic conditions, including those in Indonesia, global or regional recessions,
reduced economic activity or market disruptions due to world or regional events;
• cost, fluctuations in the price and availability of raw materials and energy;
• possible disruptions to commercial activities owing to natural and human-induced disasters, including
terrorist activities and armed conflict;
• increase in regulatory burdens in Indonesia, including employment, environmental, health and safety
regulations and related compliance costs;
• exchange rate fluctuations;
• developments in the legal system, including changes in laws, regulations and restrictions; and
• any future reduction in or elimination of Indonesia’s import tariffs and duties on imported steel.
This list of important factors is not exhaustive. Additional factors that could cause the actual results,
performance or achievements to differ materially include, but are not limited to, those discussed under “Risk
Factors.” When relying on forward-looking statements, you should carefully consider the foregoing factors and
other uncertainties and events, especially in light of the political, economic, social and legal environment in which
we operate. Such forward-looking statements speak only as of the date on which they are made and we do not
undertake any obligation to update or revise any of them, whether as a result of new information, future events or
otherwise. We do not make any representation, warranty or prediction that the results anticipated by such
forward-looking statements will be achieved, and such forward-looking statements represent, in each case,
only one of many possible scenarios and should not be viewed as the most likely or standard scenario.
Accordingly, you should not place undue reliance on any forward-looking statements.

AVAILABLE INFORMATION
We have agreed that, for so long as our shares are “restricted securities” within the meaning of Rule 144(a)(3)
under the Securities Act, we will, during any period in which we are neither subject to Section 13 or Section 15(d) of
the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor exempt from such
reporting requirements pursuant to Rule 12g3-2(b) thereunder, furnish to any holder or beneficial owner of such
restricted securities or to any prospective purchaser of such restricted securities designated by such holder or
beneficial owner for delivery to such holder, beneficial owner or prospective purchaser, in each case upon the
request of such holder, beneficial owner or prospective purchaser, the information required to be provided by
Rule 144A(d)(4) under the Securities Act.
We will furnish annual and interim reports in English and Indonesian to our shareholders and the IDX. These
reports will include a review of our business and operations and our annual reports will include audited consolidated
financial statements, which will be prepared in accordance with Indonesian GAAP. We will also furnish to the IDX
all notices of shareholders’ meetings in English and Indonesian that we make available to our shareholders.

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 SUMMARY
This summary does not contain all the information that may be important to you in deciding to invest in our
shares. You should read the entire offering circular, including “Risk Factors” and the financial statements and
related notes included in this offering circular before making an investment decision.

Overview
We are the largest steel producer in Indonesia and one of the largest steel producers in Southeast Asia. We
believe we are the largest producer of HRC and CRC in Indonesia and the second largest producer of wire rods in
Indonesia. Our integrated steel production facilities include ironmaking facilities at our direct reduction plant,
10 EAF steel making facilities, five continuous casting facilities and six rolling mills, comprised of a hot strip mill, a
cold rolling mill, a wire rod mill, a bar mill, a section mill and a pipe mill.
During the year ended December 31, 2009 and the six-month period ended June 30, 2010, we produced
1,602,295 metric tons and 971,372 metric tons, respectively, of HRC, 475,990 metric tons and 257,029 metric tons,
respectively, of CRC, 251,479 metric tons and 139,519 metric tons, respectively, of wire rods, 46,551 metric tons
and 40,299 metric tons, respectively, of steel sections, 79,307 metric tons and 44,754 metric tons, respectively, of
steel bars, and 51,100 metric tons and 30,029 metric tons, respectively, of steel pipes. We currently import our raw
materials, including iron ore pellets, from South America and the Middle East. We use a substantial proportion of
the HRC we produce as raw material for production of CRC and pipes. During the year ended December 31, 2009
and the six-month period ended June 30, 2010, we used 575,049 metric tons and 317,118 metric tons, respectively
of HRC in this manner. We sell substantially all of our products domestically in Indonesia to customers principally
located in Jakarta and its surrounding areas and Surabaya in East Java.
Our production facilities are currently all located in Cilegon, in the province of Banten in Indonesia. The
strategic location of our production facilities, which are 94 kilometers from Jakarta, and 5 kilometers from the port
of Cigading on the Sunda Strait, provides us with convenient access to our domestic customers as well as to our
imported raw materials that are delivered by suppliers. Our operations are supported by key infrastructure services
provided by our subsidiaries in Cilegon, including a power plant, port services and a water treatment plant.
We have recently commenced a program to substantially revitalize and expand our production facilities, with
the aim of increasing production capacity, improving the synergies between our upstream production capacity and
finished steel production facilities, as well as enhancing profit margins. Our revitalization and expansion programs,
which we expect to complete over the course of the next four years, is comprised of a number of projects, including
the construction of ironmaking facilities in South Kalimantan, Indonesia, which will be fed by domestic iron ore,
and the construction of a new blast furnace complex at our facilities in Cilegon. We estimate that total capital
expenditures for all of the revitalization and expansion projects we intend to complete by 2014 will be
approximately Rp.11,407 billion (US$1,255.9 million). We intend to use a portion of the proceeds of the
Global Offering to fund certain aspects of our revitalization and expansion programs, including improvements
relating to increasing the production capacity of our hot strip mill. See “Use of Proceeds” and “Business —
Revitalization and Expansion Programs.” In addition, we have recently entered into a joint venture agreement with
POSCO to establish a joint venture to develop, construct, operate, and maintain an integrated steel slab plant and
associated structures and facilities (the “joint venture integrated steel mill”) in Cilegon. We expect the first phase of
the development and construction of the joint venture integrated steel mill to be completed by 2013 and, upon
completion of the first phase, expect the steel slab plant to have an annual production capacity of 3,000,000 metric
tons of steel slab, of which we will be able to off-take up to 1,000,000 metric tons per year, subject to a ramp-up
period of two years. It is also expected that the joint venture company, PT Krakatau POSCO, will process some of
the steel slabs into steel plates. We estimate that our initial capital investment for the development, engineering and
construction of the first phase of the joint venture integrated steel mill will be approximately US$279.3 million, a
portion of which will be in the form of the 388.0 hectares of land for use as the site for the joint venture integrated
steel mill in Cilegon. See “Business — Joint Venture with POSCO.”
Our total consolidated net revenues for the years ended December 31, 2007, 2008 and 2009 were
Rp.14,836.0 billion, Rp.20,631.4 billion, and Rp.16,913.5 billion (US$1,862.1 million), respectively, and our
total consolidated net revenues for the six-month periods ended June 30, 2009 and 2010 were Rp.7,827.9 billion and
Rp.9,000.2 billion (US$990.9 million), respectively.

1
Competitive Strengths
We believe that we have built the following competitive strengths:

Well Positioned to Benefit from Indonesia’s Strong Economic Outlook and Demand for Steel
According to CRU, Indonesia’s gross domestic product (“GDP”) grew by 4.5% in 2009 and 6.0% in 2008. We
believe that the anticipated continued growth in Indonesia’s GDP will result in increased demand for steel products,
particularly in the infrastructure, construction and shipbuilding sectors. Furthermore, CRU noted that finished steel
consumption per capita in Indonesia during 2009 was 29 kilograms per capita, as compared to 937 kilograms per
capita in South Korea, 515 kilograms per capita in Singapore, and 472 kilograms per capita in China. We believe
that the current, relatively low finished steel consumption per capita in Indonesia and anticipated GDP growth
indicate that demand for steel products in Indonesia will increase substantially. We believe these factors will
substantially increase demand for finished steel products in Indonesia, and thereby present us with the opportunity
to increase sales, including sales derived from our planned additional production capacity.

Leadership in Domestic Indonesian Market

According to CRU, in 2009, we were the market leader in HRC and CRC in Indonesia in terms of sales volume,
with a market share of 65.0% for HRC and 33.0% for CRC, and were second in terms of sales volume of wire rods,
with a market share of 32.0%. We believe that our long operating history in Indonesia and the diversity and quality
of our carbon steel products allow us to compete successfully with domestic and imported steel products. In
particular, we believe that our ability to offer a wide range of steel products with different product specifications
enables us to meet the needs of our customers in distinct market segments in the domestic Indonesian market.
Moreover, we believe that our ability to adapt to changes in domestic demand, whether in relation to the absolute
amount of demand or in relation to the product specifications of our finished steel products, allows us to compete
effectively with imported finished steel products. In particular, we believe that our ability to meet customer orders
on a short turnaround basis and to physically deliver the requested products to our customers in Indonesia provides a
significant competitive advantage against imports, as well as domestic competition. We also believe that our
position as the largest producer of HRC and CRC in Indonesia allows us to benefit from government policies that
encourage the use of local materials in domestic projects and encourage consumption of domestic products.

Strategically Located Production Facilities Ensure Access to Customers and Raw Materials
Our production facilities are all strategically located in Cilegon, Banten, Indonesia providing us with
convenient access to our customers and raw materials. Our facilities are close to key transportation
infrastructure, including marine, rail, and road transportation. The facilities are supported by Cigading Port,
one of the largest ports in Indonesia, which is operated by our wholly-owned subsidiary, PT Krakatau Bandar
Samudera (“PT KBS”). Our imported raw materials are unloaded at Cigading Port. Since we deliver our products
domestically from our production facilities to our customers’ designated delivery points in Indonesia, we believe
that our proximity to Jakarta and to transportation infrastructure, including toll roads and our port facilities,
significantly reduces transportation costs and allows us convenient access to our customers in Jakarta and its
surrounding areas and in Surabaya in East Java. Approximately, 76.2% of our total domestic HRC, CRC, wire rod,
steel section, bar and pipe sales by volume for the year ended December 31, 2009 were to customers located in
Jakarta and its surrounding areas. We also have 220.0 hectares of additional land available in Cilegon on and
adjacent to the site of our existing facilities, in addition to 388.0 hectares of land which we expect to contribute to
our joint venture with POSCO.

Integrated Upstream and Downstream Production Facilities and Supporting Business Help us Achieve
High Quality Products and Cost-Efficient Operations
We own and operate integrated upstream and downstream production facilities, which consist of co-located
ironmaking facilities, steel making facilities and rolling mills supported by utilities, infrastructure, and services
owned and operated by our subsidiaries. The key supporting utilities, infrastructure and services that we rely on
include a power plant, port services, a water treatment plant, and information technology services. In our production
of steel products, we produce and consume all of the sponge iron manufactured in our ironmaking facilities. We also
produce and consume some of the other important inputs that we use in our rolling mills, such as steel slabs and steel
billets. Our integrated upstream and downstream production facilities and supporting businesses allow us to monitor
and control the entire production process, thereby allowing us to ensure quality and achieve cost efficiencies and
economies of scale in our operations.

2
 Strong and Diversified Customer Base
We sell our products to a wide range of customers in a diverse array of industries such as the construction, pipe,
galvanized steel sheet and nail manufacturing industries. In addition to a diversity of industries, our customers are
well distributed within each of our significant product lines. Many of our customers have been our customers for
considerable periods of time, in many cases between 10 and 20 years. We believe that the diversity of our customers
across a variety of industries helps us maintain stable revenues. Furthermore, we expect many of our existing
customers to become customers for our new products. As our production facilities and operations expand, we expect
to provide our customers with products with an increased range of specifications, as well as products with improved
quality, which we expect to increase customer loyalty.

High Proportion of Sales to End Users

We sell our products directly to end users, as well as to indirect sellers such as stockists and steel centers. For
the six-month period ended June 30, 2010, 67.9% our steel sales were direct sales to end users. We expect to
increase this proportion in the future. We believe that the sale of our steel products directly to end users enhances our
margins and strengthens our relationship with key strategic customers by putting us in a better position to identify
and respond to customer demands and product requirements. Our strong customer relationships stem from our
ability to manufacture a wide range of products that meet the different product specifications of our customers and
our reputation for providing high quality products.

Capable Management Team with Proven Track Record

Our management team has a proven track record in managing operations under its control, including our major
production facilities. Our senior management team combines extensive industry and marketing experience with
financial and management expertise, and our board of directors is made up of individuals who have at least 10 years
of relevant industry experience and an average of 24 years of experience working for us.

Strategy
Our strategy is to maintain our position as the leading producer of steel products in Indonesia and to meet
increased demand for our products while maintaining and enhancing our profit margins. We intend to pursue this
strategy by:
• revitalizing and modernizing our production facilities to enhance efficiency and lower costs;
• balancing upstream and downstream production facilities to enhance our margin profile;
• expanding our steel production to capture growth in the Indonesian market;
• improving our product mix to capture new markets; and
• diversifying our sources of energy and raw materials to enhance profitability, each as set out below.

Revitalize our Production Facilities to Enhance Efficiency and Lower Costs

We have initiated a revitalization program to increase the efficiency and reliability of our facilities, increase
production output and reduce production costs. We are in the process of replacing obsolete equipment, installing
new control systems in our direct reduction plant, steel slab plant and hot strip mill, and upgrading certain other
systems, such as cooling systems. We believe that this program will improve reliability and efficiency at our
production facilities, reduce production costs and increase productivity. Upon full commercial operation of the
revitalized facilities, we expect the production capacity of our hot strip mill to increase from 2,000,000 metric tons
per year to 2,400,000 metric tons per year, the production capacity of our steel slab plant to increase from 1,800,000
metric tons per year to 2,100,000 metric tons per year, and the production capacity of our direct reduction plant to
increase from 1,500,000 tons per year to 1,740,000 metric tons per year. Furthermore, we expect that the
revitalization of our control, cooling and other systems will enable us to use more oxygen in our direct
reduction process, thereby reducing the use of more expensive natural gas while producing iron with a higher
carbon content, thereby reducing the amount of electricity necessary for the EAF melting process. We expect that
the revitalization of our hot strip mill, the first program scheduled for completion, will be completed by May 2011.
We expect to incur capital expenditures of approximately Rp.2,087 billion (US$229.8 million) in connection with
the revitalization of our direct reduction plant, steel slab plant and hot strip mill.

3
 Balancing Upstream and Downstream Production Facilities to Enhance Our Margin Profile
We intend to expand our upstream production facilities to increase production capacity. This would allow our
steel production facilities to meet anticipated demand and further enhance the efficiency of our integrated steel
production process, thereby improving our margin profile. We intend to achieve these strategic goals by
constructing new ironmaking facilities in South Kalimantan, Indonesia through a joint venture with PT Antam
(Persero) Tbk (“Antam”), and by constructing a new blast furnace complex at Cilegon. We expect operations at the
new ironmaking facilities in South Kalimantan to commence in 2011. We expect that these ironmaking facilities,
which will utilize domestic iron ore (also from South Kalimantan) as raw material, will significantly reduce our
dependency on imported iron ore and reduce our production costs. We expect to complete our new blast furnace
complex in 2013, further increasing our ironmaking capacity by 1,200,000 metric tons. In addition, we expect our
new blast furnace complex to reduce our energy costs and raw material costs, including the steel scrap required in
our EAF steel making operations. We have also recently entered into an agreement with POSCO to establish a joint
venture to develop and construct an integrated steel slab plant with a production capacity of 3,000,000 metric tons,
of which we can off-take up to 1,000,000 metric tons of steel slab per year for our use as raw material, subject to a
ramp-up period of two years. We expect that the joint venture with POSCO will further enhance our production
capacity and allow our steel production facilities to meet anticipated demand.

Significant Investment Program to Capture Growth in the Indonesian Market

We believe that our ability to increase the capacity of our production facilities is one of the most critical
components of our strategy to maintain our domestic market leadership and capture growth in the Indonesian
market and expected growing demand for steel. To this end, we are focused on expanding the capacity of our
production facilities to meet the growing demand for steel products in the domestic market beyond the increased
capacity that we expect to achieve under our revitalization program. Through our expansion program, we intend to
further increase our hot strip mill production capacity from 2,400,000 metric tons per year to 3,500,000 metric tons
per year and our steel slab plant production capacity from 2,100,000 metric tons per year to 2,470,000 metric tons
per year.

Improve Product Mix to Capture New Markets

With the planned revitalizations and modernization of our hot strip mill, we expect to offer a broader range of
products with different grades and specifications in addition to increased production capacity. We believe this
ability to offer a broader range of products with different grades and specifications will allow us to meet demands of
customers with requirements for higher value and higher margin products for use in the automotive, container and
construction industries, especially the high rise building industry. Furthermore, our joint venture with POSCO is
expected to lead to the development of an integrated steel production facility able to produce shipbuilding plates of
different grades and specifications, marine construction plates and other products, which we currently do not
produce or produce in limited quantities.

Diversify Our Sources of Raw Materials and Energy to Enhance Profitability

We are seeking to diversify our sources of raw materials and energy to enhance our margins on sales of our
steel products. To accomplish this objective, we are in the process of constructing new ironmaking facilities through
a joint venture with Antam and plan to develop and construct a new blast furnace complex. The new ironmaking
facilities are expected to utilize less expensive local raw materials and energy that will help us lower our raw
material expenses and enhance our profitability. We intend to diversify our source of iron ore by using locally mined
iron ore in our new ironmaking facilities, which we believe will reduce our dependency on imported iron ore pellets.
We believe that the development and construction of the new blast furnace complex will complement our gas-based
direct reduced iron (“DRI”) technology with an iron ore and coking coal based technology that we believe will be
more cost effective.

Company Information
Our headquarters are located at Gedung Teknologi, Jalan Produksi No. 1, Cilegon 42435, Banten, Indonesia.
Our telephone number is +62 (254) 371134 and our corporate website is www.krakatausteel.com. The information
on our website is not incorporated by reference into, and does not constitute part of, this offering circular.

4
 SUMMARY OF THE TERMS OF THE OFFERING
The following summary contains basic information about the Offer Shares and the Global Offering and is not
intended to be complete. It does not contain all the information that is important to prospective purchasers. For a
more complete understanding of our shares, please refer to the section entitled “Description of Our Shares” and
“Indonesian Capital Markets” in this offering circular.
The Company . . . . . . . . . . . . . . . . . . .
Offer Shares . . . . . . . . . . . . . . . . . . . .
Offer Price . . . . . . . . . . . . . . . . . . . . . .
Global Offering . . . . . . . . . . . . . . . . . .
Indonesian Offering . . . . . . . . . . . . . . .
International Offering . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . .
Payment . . . . . . . . . . . . . . . . . . . . . . . .
Listing . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Shares . . . . . . . . . . . . . . .
Share Ownership . . . . . . . . . . . . . . . . .
Lock-up . . . . . . . . . . . . . . . . . . . . . . . .
PT Krakatau Steel (Persero) Tbk.
3,155,000,000 Series B ordinary shares
Rp.850 per share
The Global Offering consists of the concurrent Indonesian Offering
and International Offering.
The Offer Shares are being offered in Indonesia through the
Underwriters by way of a public offering in Indonesia.
The Offer Shares are being offered through the Joint Lead
Underwriters’ arrangements with the Joint Lead International
Selling Agents to (i) “qualified institutional buyers” in the
United States in reliance on Rule 144A under the Securities Act,
and (ii) certain non-U.S. persons outside Indonesia and the
United States in offshore transactions in reliance on Regulation S
under the Securities Act.
The net proceeds we will receive from the Global Offering, after
deducting selling and underwriting fees and commissions and other
estimated expenses related to the Global Offering, are expected to be
approximately Rp.2,572.9 billion (US$283.3 million). We intend to
use the proceeds as set forth in “Use of Proceeds.”
Payment to us for the Offer Shares is expected to take place on or about
November 9, 2010 in immediately available funds.
Prior to the Global Offering, there has been no public market for our
shares. Application has been made for the listing and quotation of the
Offer Shares on the IDX. If listing approval is granted, trading in the
Offer Shares on the IDX is expected to commence on or about
November 10, 2010.
12,620,000,000 shares outstanding prior to the Global Offering
(including the Special Share) and 15,775,000,000 shares (including
the Special Share) immediately following the Global Offering
(assuming the sale of all Offer Shares).
Immediately following completion of the Global Offering, the
Government, acting through the Ministry of State-Owned
Enterprises, will own 80.0% of our total outstanding shares
(including the Special Share).
We have agreed that, for a period of 12 months following the date the
Offer Shares are listed on the IDX (the “Listing Date”), we will not,
and will procure that none of our subsidiaries will, directly or
indirectly, offer, sell or contract to sell, pledge or otherwise dispose
of, or enter into any transaction (including swap transactions), which
is designed to, or might reasonably be expected to, result in the
disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by us or any of our
subsidiaries of any of our shares or any securities convertible into or
exchangeable or exercisable for shares (including swap transactions)
or warrants or other rights to purchase our shares, or publicly disclose
the intention to effect any such transaction, without the prior written
consent of the Joint Lead International Selling Agents and the Joint
5

Special Share . . . . . . . . . . . . . . . . . . . .
Voting Rights . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . .
Distribution and Trading . . . . . . . . . . .
Management and Employee Share
Allocation Program . . . . . . . . . . . . . . .
Lead Underwriters, except for the issuance of shares in connection
with the Management and Employee Stock Option Plan as described
in “Management — Management and Employee Stock Option Plan.”
The Government of the Republic of Indonesia, acting through the
Ministry of State-Owned Enterprises (“MSOE”), which is our
controlling shareholder, has informed the Joint Lead Underwriters,
the Joint Lead International Selling Agents and us that, for a period of
six months following the listing date of our shares, it does not intend to
offer, sell, contract to sell, or otherwise dispose directly or indirectly,
of any of its shares in us. The MSOE has further advised us that any
offer, sale, contract to sell or other arrangement to sell its shares would
require the approval of the Parliament of the Government of Indonesia.
However, the MSOE has not entered into any lock-up agreement with
the Joint Lead Managing Underwriters or the Joint Lead International
Selling Agents.
The Special Share gives the Government, acting through the Ministry of
State-Owned Enterprises, rights which provide that its approval is
required in respect of certain decisions, including with respect to the
nomination, election and removal of commissioners and directors and for
amendments to our articles of association. Pursuant to our articles of
association, the Government cannot transfer the Special Share. The
Government’s rights with respect to the Special Share will not
terminate unless our articles of association are amended, which would
require the approval of the Government as the holder of the Special Share.
See “Description of Our Shares — Description of Special Share.”
Owners of shares purchased in the Global Offering will be entitled to
the same voting rights as other holders of the shares, other than the
Special Share. See “Management” and “Description of Our Shares —
Description of Special Share.”
The declaration, amount and payment of future dividends on the
shares, if any, is discretionary and will be subject to the
recommendation of the board of directors and approval at a general
meeting of shareholders. See “Dividends and Dividend Policy” and
“Description of Our Shares — Dividends.”
Distribution of the Offer Shares to successful applicants will be made
in electronic (scripless) form for their administration in the Collective
Depository of the Indonesian Central Securities Depository,
PT Kustodian Sentral Efek Indonesia (“KSEI”). Successful
applicants who wish to undertake on-exchange transactions of the
Offer Shares must appoint a securities company or custodian bank
which is an account holder in KSEI to administer those shares. The
Offer Shares will be credited to the securities account of the account
holder which is the custodian of the relevant applicant. KSEI or the
relevant securities company or custodian bank (being the custodian of
the relevant applicant) will issue written confirmation confirming the
ownership of the Offer Shares of the relevant applicant. See
“Indonesian Capital Markets” and “Plan of Distribution —
Registration of Our Shares with KSEI.” It is expected that the
Offer Shares will be distributed on or about November 9, 2010.
We will be granting and allocating a number of the Offer Shares to our
management and employees. See “Management — Management and
6

Distribution and Solicitation
Restrictions . . . . . . . . . . . . . . . . . . . . .
Transfer Restrictions . . . . . . . . . . . . . .
Risk Factors. . . . . . . . . . . . . . . . . . . . .
Timetable . . . . . . . . . . . . . . . . . . . . . . .
Employee Share Allocation Program” and “Plan of Distribution —
The Indonesian Offering.”
The Offer Shares will be subject to certain distribution and solicitation
restrictions as described in “Plan of Distribution — Distribution and
Solicitation Restrictions” of this offering circular.
The Offer Shares will be subject to certain transfer restrictions as
described in “Transfer Restrictions” of this offering circular.
Investment in the Offer Shares involves risks. See “Risk Factors.”
An indicative timetable in respect of the Indonesian Offering and the
International Offering is set forth in the “Plan of Distribution” section
of this offering circular.
7
 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
You should read the summary consolidated financial and operating data presented below in conjunction with
our consolidated financial statements and the notes thereto included elsewhere in this offering circular. You should
also read the section of this offering circular entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
The following tables present our summary consolidated financial and operating data as of the dates and for the
periods indicated. The summary consolidated financial data as of and for the years ended December 31, 2007, 2008,
and 2009, and as of and for the six-month period ended June 30, 2010, are derived from our audited consolidated
financial statements for those periods. The summary consolidated financial data as of and for the six-month period
ended June 30, 2009 is derived from our unaudited consolidated financial statements for that period. Results for the
interim periods are not necessarily indicative of results for the full year.
Our audited consolidated financial statements as of and for the years ended December 31, 2007, 2008, and
2009, and as of and for the six-month period ended June 30, 2010, included in this offering circular, have been
audited by Purwantono, Suherman & Surja (formerly Purwantono, Sarwoko & Sandjaja) (the Indonesian member
firm of Ernst & Young Global Limited), independent public accountants, in accordance with auditing standards
established by the Indonesian Institute of Certified Public Accountants (“IICPA”), as stated in their audit report
appearing in this offering circular.
Our unaudited consolidated financial statements as of and for the six-month period ended June 30, 2009
included in this offering circular have been reviewed by Purwantono, Suherman & Surja (formerly Purwantono,
Sarwoko & Sandjaja) (the Indonesian member firm of Ernst & Young Global Limited), independent public
accountants, in accordance with Section 722 of Auditing Standards established by the IICPA, “Interim Financial
Information” (“SA 722”), as stated in their review report appearing in this offering circular (presented combined
with the audit report mentioned above). A review conducted in accordance with SA 722 established by the IICPA is
substantially less in scope than an audit conducted in accordance with auditing standards established by the IICPA
and, as stated in their review report appearing in this offering circular (presented combined with the audit report
mentioned above), Purwantono, Suherman & Surja (formerly Purwantono, Sarwoko & Sandjaja) did not audit and
do not express any opinion on such unaudited consolidated financial statements included in this offering circular.
Our consolidated financial statements have been prepared and presented in accordance with Indonesian
GAAP, which differ in certain material respects from U.S. GAAP. For a discussion of these differences, see
“Summary of Certain Significant Differences between Indonesian GAAP and U.S. GAAP.”
As of and for the Six-Month
As of and for the Years Ended December 31, Periods Ended June 30,
2007 2008 2009 2009 2009 2010 2010
(Rp. in billions) (US$ in millions) (Unaudited) (US$ in millions)
(Rp. in billions)
Income statement data:
Net revenues . . . . . . . . . . . . . 14,836.0 20,631.4 16,913.5 1,862.1 7,827.9 9,000.2 990.9
Cost of revenues . . . . . . . . . . 13,063.4 17,915.4 15,728.1 1,731.6 8,409.6 7,105.6 782.3
Gross profit/(loss) . . . . . . . . . 1,772.6 2,716.1 1,185.4 130.5 (581.7) 1,894.6 208.6
Total operating expenses . . . . . 979.9 1,355.7 1,159.4 127.6 561.1 678.7 74.7
Income/(loss ) from
operations . . . . . . . . . . . . . 792.7 1,360.4 25.9 2.9 (1,142.7) 1,215.8 133.9
Other income (charges), net . . . (295.4) (619.6) 442.7 48.7 (281.7) 127.3 14.0
Income/(loss) before tax
expense/(benefit) . . . . . . . . 497.4 740.8 468.7 51.6 (1,424.5) 1,343.2 147.9
Tax expense/(benefit), net . . . . 180.8 277.2 (27.5) (3.0) (323.7) 346.3 38.1
Income/(loss) before minority
interest in net (income)/loss
of subsidiaries . . . . . . . . . . 316.5 463.6 496.2 54.6 (1,100.8) 996.9 109.8
Minority interest in net
(income)/loss of
subsidiaries . . . . . . . . . . . . (3.1) (4.0) (1.5) (0.2) (0.3) 0.9 0.1
Net income/(loss) . . . . . . . . . . 313.4 459.6 494.7 54.5 (1,101.1) 997.8 109.9

8
 As of and for the Six-Month
As of and for the Years Ended December 31, Periods Ended June 30,
2007 2008 2009 2009 2009 2010 2010
(Rp. in billions) (US$ in millions) (Unaudited) (US$ in millions)
(Rp. in billions)
Balance sheet data:
Cash and cash equivalents . . . . 636.6 1,100.5 1,760.0 193.8 1,100.2 1,518.9 167.2
Short-term investments . . . . . . 44.9 5.3 142.6 15.7 6.1 2.0 0.2
Total assets . . . . . . . . . . . . . . 11,117.0 15,374.4 12,795.8 1,408.8 11,538.2 13,343.7 1,469.1
Total debt(1) . . . . . . . . . . . . . 3,918.7 7,653.2 5,000.3 550.5 5,176.5 4,226.2 465.3
Total liabilities . . . . . . . . . . . 6,028.0 9,897.3 6,949.0 765.1 7,310.9 6,636.4 730.6
Total shareholder’s equity,
net . . . . . . . . . . . . . . . ... 5,074.3 5,439.8 5,805.8 639.2 4,191.6 6,636.0 730.6

As of and for the Six-Month

As of and for the Years Ended December 31, Periods Ended June 30,
2007 2008 2009 2009 2009 2010 2010
(Rp. in billions, except ratios) (US$ in millions, (Rp. in billions, (US$ in millions,
except ratio) except ratios) except ratio)
Other Financial Measures
(unaudited) :
EBITDA(2) . . . . . . . . . . . .. 1,230.7 1,894.1 795.6 87.6 (815.2) 1,480.9 163.0
Gross Profit Margin (%)(3) .. 11.9 13.2 7.0 7.0 (7.4) 21.1 21.1
EBITDA Margin (%)(4) . . .. 8.3 9.2 4.7 4.7 (10.4) 16.5 16.5
EBITDA to Gross Interest
Expense(5) . . . . . . . . . . . . 4.3 5.2 1.7 1.7 N.A. 13.2 13.2
Return on Equity (%)(6) . . . . 6.2 8.4 8.5 8.5 N.A. 15.0 15.0
Return on Assets (%)(7) . . . . 2.9 3.5 3.5 3.5 N.A. 7.6 7.6
Net Debt(8) to EBITDA(9) . . . 2.7 3.5 4.1 4.1 N.A. 1.8 1.8
Net Debt to Total
Capitalization (10) . . . . . .. 0.4 0.5 0.3 0.3 0.4 0.2 0.2

Notes:
(1)
Total debt is calculated by adding short-term bank loans and the total current and non-current portions of long-term loans.
(2)
We have defined EBITDA to mean net income/(loss) for a relevant period, adjusted by adding/(deducting): (i) interest expense/(income);
(ii) tax expense/(benefit); (iii) depreciation expenses; (iv) minority interest in net income/(loss) of subsidiaries; (v) (gain)/loss due to
extraordinary items, in particular, (gain) on sale of investment; (vi) (gain)/loss on disposal of fixed assets; (vii) write off/down in the value
of investments; and (viii) (gain)/loss on foreign exchange, net. EBITDA is not a standard measure under either Indonesian GAAP or U.S.
GAAP. As the steel manufacturing business is capital intensive, capital expenditure requirements and levels of debt and interest expenses
may have a significant impact on the net income of companies with similar operating results. Therefore, we believe that EBITDA provides
a useful reflection of our operating results and is an indicator of our operating performance. You should not consider our definition of
EBITDA in isolation or as an indicator of operating performance, liquidity or any other standard measure under either Indonesian GAAP or
U.S. GAAP or other companies’ definition of EBITDA. Funds depicted by this measure may not be available for debt service due to
covenant restrictions, capital expenditure requirements and other commitments. The definition of EBITDA under certain agreements
related to our indebtedness may differ from the definition we use here. Set forth below is a reconciliation of our consolidated net income or
net loss to EBITDA.

For the Six-Month

For the Years Ended December 31, Periods Ended June 30,
2007 2008 2009 2009 2009 2010 2010
(Rp. in billions) (US$ in millions) (Unaudited) (US$ in millions)
(Rp. in billions)
Net income/(loss) . . . . . . .. 313.4 459.6 494.7 54.5 (1,101.1) 997.8 109.9
Plus:
Interest expense . . . . . .. 285.7 367.0 458.3 50.5 328.4 112.2 12.4
Tax expense/(benefit) . . .. 180.8 277.2 (27.5) (3.0) (323.7) 346.3 38.1
Depreciation expenses . .. 353.9 357.5 356.1 39.2 183.6 167.2 18.4
Minority interest in net
income/(loss) of
subsidiaries . . . . . . . .. 3.1 4.0 1.5 0.2 0.3 (0.9) (0.1)
1,136.9 1,465.3 1,283.1 141.3 (912.5) 1,622.6 178.6

9
 For the Six-Month
For the Years Ended December 31, Periods Ended June 30,
2007 2008 2009 2009 2009 2010 2010
(Rp. in billions) (US$ in millions) (Unaudited) (US$ in millions)
(Rp. in billions)
Less:
Interest income . . . . . . . . 26.8 46.0 41.3 4.5 21.7 22.8 2.5
Gain on sale of
investment . . . . . . . . . — — 374.6 41.2 — — —
(Gain)/loss on the disposal
of fixed assets . . . . . . . — — — — — — —
Write off/down in the
value of investments . . . — — — — — — —
(Gain)/loss on foreign
exchange, net . . . . . . . (120.6) (474.8) 71.6 7.9 (119.0) 118.9 13.1
(93.8) (428.8) 487.5 53.7 (97.3) 141.7 15.6
EBITDA (unaudited) . . . . 1,230.7 1,894.1 795.6 87.6 (815.2) 1,480.9 163.0

(3)
Gross profit margin is calculated by dividing gross profit/(loss) by net revenues.
(4)
EBITDA margin is calculated by dividing EBITDA by net revenues.
(5)
The ratio of EBITDA to gross interest expense is calculated by dividing EBITDA for the relevant period by gross interest expense for the
same period. Gross interest expense equals net interest expense plus finance charges, including commitment charges and fees relating to the
opening of letters of credit.
(6)
Return on equity is calculated by dividing net income/(loss) for the relevant period by shareholder’s equity, net for the same period.
(7)
Return on assets is calculated by dividing net income/(loss) for the relevant period by the average total assets for the same period. Average
total assets are calculated on the opening and closing consolidated balance for the year and for the relevant six-month periods.
(8)
Net debt represents total interest-bearing liabilities, including short-term bank loans, the total current and non-current portions of long-term
loans, and factoring payables, less cash and cash equivalents.
(9)
The ratio of net debt to EBITDA is calculated by dividing net debt for the relevant period by EBITDA for the same period.
(10)
The ratio of net debt to total capitalization is calculated by dividing net debt for the relevant period by total capitalization for the same
period. For these purposes, total capitalization is defined as total debt plus total shareholder’s equity.

Operating Data
The following table sets out the amount of HRC, CRC, wire rods, steel sections, bars, and pipes that we
produced in our production facilities for the periods indicated below:
For the Six-Month
For the Years Ended December 31, Periods Ended June 30,
2007 2008 2009 2009 2010
(In metric tons)
HRC(1) . . . . . . . . . . . . . . . . . . . . . . . . 1,731,016 1,596,389 1,602,295 676,693 971,372
CRC. . . . . . . . . . ................ 613,639 520,888 475,990 191,145 257,029
Wire rods . . . . . . ................ 340,909 256,267 251,479 138,128 139,519
Steel sections . . . ................ 87,085 71,372 46,551 22,129 40,299
Bars . . . . . . . . . . ................ 103,734 94,377 79,307 29,447 44,754
Pipes . . . . . . . . . ................ 20,307 45,814 51,100 30,937 30,029

Note:
(1)
Certain of the HRC that we produce in our hot strip mill is used as input in the production of our CRC and pipes. For the years ended
December 31, 2007, 2008 and 2009 and the six-month periods ended June 30, 2009 and 2010, we used 672,837 metric tons, 567,852 metric
tons, 519,305 metric tons, 209,978 metric tons and 285,045 metric tons of the HRC we produced, respectively, in our cold rolling mill to
produce the amount of CRC indicated above for the relevant periods. For the same periods, we used 35,096 metric tons, 49,690 metric tons,
55,744 metric tons, 33,918 metric tons, and 32,073 metric tons of the HRC we produced, respectively, in our pipe mill to produce the amount
of pipes indicated above for the relevant periods. We sell HRC that we do not use in the production of our CRC or pipes to external
customers. The amount of HRC set out in the table above represents the total amount of HRC produced in our hot strip mill for the relevant
periods, including HRC used in our production of CRC and pipes, as well as HRC sold to external customers. The difference between the
amount of HRC that we used in each of our cold rolling mill and pipe mill and the amount of CRC and pipes that we produced, respectively,
represents scrap resulting from edge cutting of the HRC, scarfing and other processes in the production of our CRC and pipes.

10
 The following table sets out the capacity utilization rate of our various plants for the periods indicated below:
For the Six-Month
For the Years Ended December 31, Periods Ended June 30,
2007 2008 2009 2009 2010
Capacity utilization rate (%)(1)
Plant
Direct Reduction Plant . . . . . . . . . . . . . . 88.1 80.3 74.6 61.5 91.6
Steel Slab Plant . . . . . . . . . . . . . . . . . . . 74.5 71.1 52.3 38.3 68.7
Steel Billet Plant . . . . . . . . . . . . . . . . . . 59.4 54.3 43.0 43.2 49.4
Hot Strip Mill . . . . . . . . . . . . . . . . . . . . 86.6 79.8 80.1 67.7 97.1
Cold Rolling Mill . . . . . . . . . . . . . . . . . 72.2 61.3 56.0 45.0 60.5
Wire Rod Mill . . . . . . . . . . . . . . . . . . . . 75.8 57.0 55.9 61.4 62.0
Section Mill . . . . . . . . . . . . . . . . . . . . . 58.1 47.6 31.0 29.5 53.7
Bar Mill . . . . . . . . . . . . . . . . . . . . . . . . 69.2 62.9 52.9 39.3 59.7
Pipe Mill . . . . . . . . . . . . . . . . . . . . . . . . 16.9 38.2 42.6 51.6 50.0

Note:
(1)
Capacity utilization rate is calculated by dividing the actual output of each facility for the relevant period by the production capacity of that
facility.

The following table sets out the production yield of our various plants for the periods indicated below:
For the Six-Month
For the Years Ended December 31, Periods Ended June 30,
2007 2008 2009 2009 2010
Production yield (%)(1)
Plant
Direct Reduction Plant . . . . . . . . . . . . . . 65.0 65.2 64.0 63.5 65.0
Steel Slab Plant . . . . . . . . . . . . . . . . . . . 81.2 80.8 79.9 79.5 80.6
Steel Billet Plant . . . . . . . . . . . . . . . . . . 83.5 82.8 82.4 83.3 83.0
Hot Strip Mill . . . . . . . . . . . . . . . . . . . . 96.2 96.2 96.6 96.9 96.6
Cold Rolling Mill . . . . . . . . . . . . . . . . . 91.2 91.8 91.6 91.0 90.2
Wire Rod Mill . . . . . . . . . . . . . . . . . . . . 96.6 96.7 96.6 96.5 96.8
Section Mill . . . . . . . . . . . . . . . . . . . . . 95.5 93.3 93.4 91.7 94.2
Bar Mill . . . . . . . . . . . . . . . . . . . . . . . . 97.5 96.1 96.6 97.7 95.8
Pipe Mill . . . . . . . . . . . . . . . . . . . . . . . . 92.0 87.0 92.0 91.2 93.5

Note:
(1)
Production yield is calculated by dividing product output in metric tons of each facility for the relevant period by raw material input in metric
tons of that facility.

11
 RISK FACTORS
An investment in our shares involves risks. Prospective purchasers of our shares should carefully consider all
of the information in this offering circular and, in particular, the risks described below, prior to making an
investment decision with respect to our shares. The risks described below are not the only risks that may affect us or
our shares. Prospective purchasers should also note that certain of the statements set forth below constitute
forward-looking statements. In general, investing in securities of issuers in emerging market countries, such as
Indonesia, involves risks not typically associated with investing in the securities of companies in countries with
more developed economies and regulatory regimes. To the extent the description below relates to the Government or
Indonesian macroeconomic data, such information has been extracted from official Government publications or
other third-party sources and has not been independently verified by us.

Risks Relating to Our Business

We operate in a cyclical industry, and any local or global downturn in the steel industry may have an
adverse effect on our results of operations and financial condition
The steel industry is cyclical in nature because the industries in which steel customers operate are cyclical and
sensitive to changes in general economic conditions and to imbalances between regional supply and demand for
steel products. The demand for steel products thus generally correlates to macroeconomic fluctuations in the
economies in which steel producers sell products, as well as in the global economy. The prices of steel products are
influenced by many factors, including demand, worldwide production capacity, capacity-utilization rates, raw-
material costs, energy costs, exchange rates, trade barriers and improvements in steel making processes. Steel prices
have experienced, and in the future may experience, significant fluctuations as a result of these and other factors,
many of which are beyond our control. A decline in steel prices could have a material adverse effect on our results of
operations.
Because a portion of our products are sold on the spot market under contracts with terms of 12 months or less,
our sales, margins and earnings are negatively impacted by decreases in domestic steel prices. As a result,
downturns in the domestic steel market, such as in 2009, would have an adverse effect on our sales, margins and
earnings.

We depend on domestic steel customers for a substantial portion of our revenues, and therefore economic
developments in Indonesia will affect our business
We depend on our domestic steel customers for a substantial portion of our revenues. The growth of our steel
sales has historically been closely linked to, and is expected to continue to be affected by, the performance of the
Indonesian economy. For 2009 and the six-month period ended June 30, 2010, 97.6% and 97.3%, respectively, of
our revenue from steel sales were from domestic steel customers. Our steel products in Indonesia are mainly used in
the construction industry, which is particularly vulnerable to general economic downturns. We believe that a
material portion of our domestic steel customers rely, to varying degrees, on government spending on public
infrastructure projects. Accordingly, our domestic sales and revenues may be adversely affected by any decrease in
government appropriations for infrastructure projects. Any significant decrease in demand for steel products or
decline in the price of these products in Indonesia could result in significantly reduced revenues, thereby materially
and adversely affecting our business, financial condition, results of operations and prospects.
Future economic growth in Indonesia and our business, financial condition, cash flows, prospects and results of
operations may be affected by changes in inflation, interest rates, taxation and other political, economic, legal or
social developments in or affecting Indonesia. See “— Risks Relating to Indonesia.”

The steel industry is highly competitive and subject to regulations for the maintenance of this competitive
environment; we may not be able to maintain our domestic market leadership position
We face competition from foreign manufacturers of HRC, CRC and wire rod products, and many of our foreign
competitors have more resources than us. Although we are the largest supplier of flat steel products in Indonesia and
the second largest supplier of long products domestically, we face increasing competition from imports.
Historically, we have enjoyed a strong market position relative to imports and supportive government policies
in relation to steel imports, including import tariffs and duties. See “— We benefit from Indonesia’s tariffs and
duties on imported steel, which may be eliminated in the future.” However, there can be no assurance that we will be
able to maintain this position. As of January 1, 2010, the ASEAN-China Free Trade Agreement, a trade agreement
among countries in Southeast Asia and China, took effect in Indonesia. Under this trade agreement, trade on certain
products, including steel commodities, will be liberalized. Increases in steel imports could result in less demand and

12
lower prices for steel manufactured in Indonesia, which would have a negative impact on our revenues and profits.
We also face increasing competition from domestic manufacturers of HRC, CRC and wire rod products. Should
these or other producers undertake major expansions of facilities, we may be negatively affected.
In addition, as we were the largest supplier of HRC and CRC in Indonesia with, according to CRU, a market
share of 65.0% for HRC in 2009, we must also comply with Law No. 5 of Year 1999 regarding Prohibition of
Monopolistic Practices and Unfair Business Competition (“Competition Law”). The Competition Law prohibits us
from misusing our dominant position in the Indonesian market. By virtue of our dominant position in the domestic
market, we are prohibited from controlling the production and/or marketing of goods and/or services which may
result in monopolistic practices and/or unfair business competition. In particular, we are prohibited from using our
dominant position to:
• determine the conditions of trading with the intention of preventing and or barring consumers from obtaining
competitive goods and or services, both in terms of price and quality;
• limit markets and technology development; or
• bar other potential competitors from entering the relevant market.
If we fail to comply with or violate the Competition Law, we would be subject to various sanctions. We would
be subject to administrative sanctions equivalent to a fine of between Rp.1.0 billion (US$0.1 million) and
Rp.25.0 billion (US$2.8 million) and/or an order prohibiting us from engaging in acts that the authorities
believe may result in monopolistic practices and/or unfair business competition. We would also be subject to
criminal sanctions equivalent to a fine of between Rp.25.0 billion (US$2.8 million) and Rp.100.0 billion
(US$11.0 million) or our directors or officers could be subject to imprisonment for up to six months. In
addition, our business license could also be revoked.

We will require a significant amount of cash to fund our capital improvements program. Our ability to
generate cash or obtain financing depends on many factors
Our investment strategy, particularly our revitalization and expansion programs, will require substantial
capital investment in the coming years. See “Business — Revitalization and Expansion Programs.” We require
capital for, among other purposes, constructing or acquiring new equipment. We currently expect to spend a total of
approximately Rp.11,407 billion (US$1,255.9 million) on the ongoing revitalization and expansion of our
production facilities, of which we have recorded Rp.1,196.9 billion (US$131.8 million) as of June 30, 2010 as
an addition to our fixed assets. The amount recorded as of such date may vary from the amount we actually spent.
We expect to spend a total of approximately Rp.10,210.5 billion (US$1,124.1 million) by the end of 2014. The
actual amount we will be required to spend may be higher than these estimates as these estimates are preliminary
and based partly on our own judgment. Our actual capital expenditures will depend on contract terms and market
conditions. To the extent that cash generated internally, cash available under our credit facilities and cash generated
through debt financing are not sufficient to fund our capital expenditure requirements, we will require additional
debt and/or equity financing. If we seek financing in the future, our ability to arrange for such financing will depend
on numerous factors, including general economic and capital market conditions, interest rates, credit availability
from banks or other lenders, investor confidence in us, and political and economic conditions in Indonesia. It is
possible that sources of financing may not be available in the future in the amounts we require or at an acceptable
cost. In addition, future debt financings may limit our ability to withstand competitive pressures and render us more
vulnerable to economic downturns. If we fail to generate or obtain sufficient additional capital in the future, we
could be forced to reduce or delay capital expenditures, sell assets or restructure or refinance our indebtedness.

Our expansion plans may not be successful, may become more expensive to complete and modernized or
additional facilities may not commence operation as planned
We currently intend to revitalize and expand the production capacity of our facilities through various projects
that are scheduled to be completed on various dates between the end of 2010 and 2014. See “Business —
Revitalization and Expansion Programs.” Our modernization and expansion programs, including the construction
of new ironmaking facilities in South Kalimantan, are subject to significant risks, including the risk of our failure to
recruit and retain qualified employees and managers to execute our plans, control costs, complete various projects
as originally planned or secure the necessary financing or financing on terms favorable to us. Furthermore, many of
the projects that comprise our revitalization and expansion programs are at early stages of negotiations and final
commercial terms, including price, are yet to be agreed. Our current expected capital expenditures for the second
half of 2010 up to 2014 are based in part on internal feasibility studies and are subject to change, which could be
material depending on the final terms of our project agreements. As such, although part of the proceeds of the

13
Global Offering will be used to fund our revitalization and expansion programs, there can be no assurance that our
current plans will proceed, will be successful or that revitalized or additional facilities will commence operation as
planned or at all. Our facilities expansion plans are also subject to the risk of engineering problems, construction and
operational delays, failure by contractors and vendors to timely and properly perform under their contracts,
becoming more expensive to complete, and adverse environmental and geological conditions, including inclement
weather conditions. Successful development and construction is contingent upon, among other things, our receipt of
adequate financing and timely implementation of construction. There can be no assurance that modernization and
development efforts on any particular facility or power plant, or our efforts generally, will be successful.

Our joint venture may not be successful and the new steel and plate mill facilities may not commence
operation as planned
On August 4, 2010, we entered into a joint venture agreement with POSCO, a South Korean steel company,
covering the development, construction, operation and maintenance of the joint venture integrated steel mill to be
built in the Krakatau Industrial Estate in Cilegon, Indonesia. Under the joint venture agreement, POSCO will
initially own 70.0% of the shares in the joint venture company, while we will initially own the remaining 30.0% of
the shares. We are required to increase our stake in the joint venture company by acquiring 15.0% of POSCO’s
shares in the joint venture company one year after the issuance of the final acceptance certificate for the facilities to
be completed during the first phase of the joint venture project (the “Phase I Facilities”). We expect the development
and construction of the Phase I Facilities to be completed by 2013 and production to commence in 2014. Once the
Phase I Facilities are completed and become fully operational, we expect that the joint venture integrated steel mill
will have a production capacity of 3,000,000 metric tons of steel slabs per year, part of which is expected to be
processed into steel plates. We expect to make substantial investments in the joint venture. Of the 3,000,000 metric
tons of steel produced by the joint venture integrated steel mill, subject to a ramp-up arrangement, we can acquire
1,000,000 metric tons of steel slab per year from the joint venture company, which we expect to use in our hot strip
mill. See “Business — Joint Venture with POSCO.”
It is difficult to evaluate or predict our ability to implement our joint venture strategy successfully. We have yet
to complete the joint venture transaction and there is no assurance that the joint venture transaction will be
completed as planned or at all, or, that the joint venture company will be able to execute the development and
construction of the joint venture integrated steel mill, the sale of steel plates in Indonesia, or its other plans and
objectives successfully. Furthermore, the parties’ obligations under the joint venture agreement are subject to
certain conditions, some of which are beyond our control, and any of which may not be fulfilled. In particular, we
are required to deliver to the joint venture company no later than January 4, 2011 a certificate and other relevant
documents evidencing our legal and beneficial ownership of at least 388.0 hectares of land, including 66.5 hectares
of land in Kubangsari that is under legal dispute. See “Business — Joint Venture with POSCO.” No assurance can
be made that we will be able to obtain from the relevant land authorities or to deliver to the joint venture company in
a timely manner the certificate and other relevant documents that we are required to deliver under the joint venture
agreement. The joint venture company, the approval for the formation of which was received on September 27,
2010, may also experience unanticipated difficulties or delays in operating the joint venture integrated steel mill. If
the board of directors of the joint venture company determines that additional capital is required for the joint venture
and we fail to exercise our pre-emptive rights to subscribe and pay for new shares in the joint venture company to
fund the capital required for the construction and operation of the joint venture integrated steel mill, then our interest
in the joint venture company would be diluted. If any of the above were to occur, our business, financial condition,
results of operations and prospects could be materially and adversely affected.

Any decrease in the availability, or increase in the cost, of raw materials and energy could materially
affect our production output and earnings
Our operations depend heavily on the availability of various raw materials and energy resources, including iron
ore, steel scrap, semi-finished products, such as steel slabs and steel billets, and natural gas and electricity. After the
expected completion of our new blast furnace complex in 2013, we also expect to depend on the availability of
coking coal. See “Business — Strategy — Diversify our sources of raw materials and energy to enhance
profitability.” We depend on PT Pertamina (Persero) (“PT Pertamina”) and PT Perusahaan Gas Negara
(Persero) (“PT PGN”) for our supply of natural gas, and on PT Perusahaan Listrik Negara (“PT PLN”) for
electricity. In the past, PT Pertamina, PT PGN and PT PLN have not been able to meet all of our natural gas and
electricity requirements. In addition, the amount of natural gas and electricity that they supplied to us decreased
from 2008 to 2009. See “Business — Our Steel Business — Production Facilities.” In the future, if our natural gas
and electricity suppliers are unable to provide us with sufficient amounts of natural gas and electricity, we may not

14
be able to maximize our production capacity, which could have a material adverse effect on our business, financial
condition, results of operations and prospects.
The availability of raw materials and energy resources may decrease. Raw materials and energy resources
prices are likely to be volatile as a result of, among other things, changes in overall supply and demand levels and
new laws or regulations. Disruption in the supply of our raw materials or energy resources could temporarily impair
our ability to manufacture some of our products or require us to pay higher prices in order to obtain these raw
materials or energy resources from other sources. In the event our raw material and energy costs increase, we may
not be able to pass these higher costs on to our customers in full or at all. Any increase in the prices for raw materials
or energy resources could materially increase our costs and therefore lower our earnings.

Depreciation in the value of the Indonesian Rupiah may adversely affect our business, financial
condition, results of operations and prospects
During the Asian financial crisis which commenced in mid-1997, the Indonesian Rupiah depreciated
significantly against other currencies, such as the U.S. dollar. Although the Indonesian Rupiah has appreciated
considerably from its low point of approximately Rp.17,000 per U.S. dollar in 1998, it may experience volatility
again in the future. During the period from January 1, 2007 through July 31, 2010, the Indonesian Rupiah/
U.S. dollar exchange rate ranged from a low of Rp.12,400 per U.S. dollar to a high of Rp.8,672 per U.S. dollar. As of
July 31, 2010, the Indonesian Rupiah/U.S. dollar exchange rate stood at Rp.8,952.0 per U.S. dollar. We cannot
assure you that further depreciation of the Indonesian Rupiah against other currencies, including the U.S. dollar,
will not occur. While most of our revenues are denominated in Rupiah, a significant proportion of our operating
expenses, including the costs and expenses for the importation of iron ore, are denominated in U.S. dollars. For the
years ended December 31, 2007, 2008 and 2009 and for the six-month periods ended June 30, 2009 and 2010, iron
ore expenses represented 16.2%, 20.1%, 18.5%, 20.2%, and 19.8%, respectively, of our cost of revenues. Going
forward, we expect that our costs for coking coal, which we will import for use as a raw material in our new blast
furnace complex once it is completed, will also be denominated in U.S. dollars. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Factors Affecting Our Results of Operations — Raw
Materials and Energy Costs.” To the extent our cost of revenues or operating expenses are denominated in
U.S. dollars, we are exposed to fluctuations in currency exchange rates. A material appreciation of the U.S. dollar
against the Rupiah in which a majority of our revenues are denominated, could have a material adverse effect on our
results of operations. Moreover, there can be no assurance that our U.S. dollar-denominated costs and expenses will
not rise in the future. To the extent the Indonesian Rupiah depreciates further from exchange rates in effect at
July 31, 2010, the cost of imported raw materials, energy sources, and our obligations under our foreign currency-
denominated loans payable would increase in Indonesian Rupiah terms.
In addition, while the Indonesian Rupiah has generally been freely convertible and transferable (except that
Indonesian banks may not transfer Indonesian Rupiah to persons outside of Indonesia who lack a bona fide trade or
investment purpose), from time to time, Bank Indonesia has intervened in the currency exchange markets in
furtherance of its policies, either by selling Indonesian Rupiah or by using its foreign currency reserves to purchase
Indonesian Rupiah. We cannot assure you that the current floating exchange rate policy of Bank Indonesia will not
be modified or that the Government will take additional action to stabilize, maintain or increase the value of the
Indonesian Rupiah, or that any of these actions, if taken, will be successful. Modification of the current floating
exchange rate policy could result in significantly higher domestic interest rates, liquidity shortages, capital or
exchange controls or the withholding of additional financial assistance by multinational lenders. This could result in
a reduction of economic activity, an economic recession, or loan defaults, and as a result, we may also face
difficulties in funding our capital expenditures and in implementing our business strategy. Any of the foregoing
consequences could have a material adverse effect on our business, financial condition, results of operations and
prospects.

Our ability to conduct our business may be affected by disruptions of supplies and services from our
principal suppliers
We rely upon a few principal vendors to supply a substantial portion of the raw materials and energy we require
to conduct our business. See “Business — Raw Materials and Supplies — Iron Ore” and “Business — Raw
Materials and Supplies — Natural Gas, Electricity and Water.” We also depend on equipment and other
supplies and services from vendors to maintain and replace key components of our plants and to operate our
business. If we are unable to obtain adequate raw materials, energy, supplies or services in a timely manner or on
commercially acceptable terms, or if there are significant increases in the cost of such raw materials, energy,
supplies or services, our ability to maintain and to expand our steel operations and our business, financial condition,
results of operations and prospects may be adversely affected.

15
 We benefit from Indonesia’s tariffs and duties on imported steel, which may be eliminated in the future
Indonesia has in place import tariffs and anti-dumping duties with respect to certain steel products imported
from outside of Indonesia. These tariffs generally amount to 5.0% of value depending on the type of product, while
anti-dumping duties range between 4.2% to 56.5% depending on the type of product and the country of origin. We
believe we benefit from these tariffs and duties because they prevent heavily subsidized exports to Indonesia from
requiring us to reduce our prices in the domestic markets. These tariffs and duties may be reduced or eliminated in
the future, which could materially and adversely affect our revenues and results of operations.

Our business could be adversely affected if we fail to obtain or renew necessary licenses and permits or
fail to comply with the terms of our licenses and permits
Our business depends on the continuing validity of certain licenses and the issuance of certain new licenses and
our compliance with the terms thereof. The licenses from the Government or regional governments required for our
steel operations include general corporate, capital investment, manpower, environmental, land utilization and other
licenses. Most of these permits have various expiration dates ranging from one to thirty years from the date of issue.
We must renew all of our permits and approvals as they expire, as well as obtain new permits and approvals when
required. We cannot assure you that the relevant government authorities, whether at the central Government or local
government level, will not revoke or refuse to issue or renew the permits and approvals required to operate our
business. A loss of, or failure to obtain or renew, any permits, agreements and approvals necessary for our operations
could materially and adversely affect our business, financial condition, results of operations and prospects.

The departure of our key personnel could adversely affect our business and our ability to pursue our
growth strategies
Our success depends on our ability to retain our senior executives and key employees. If any senior executives
or key employees were to leave, we could face difficulty replacing them. Their departure and our failure to replace
such key personnel could have a negative impact on our business, as well as on our ability to meet our earnings and
profitability targets and to pursue our growth strategies. In addition, we rely on the Ministry of State-Owned
Enterprises to select commissioners and directors who have the skill, experience and background appropriate for the
management of our company. See “Business — Legal Proceedings.”

Our steel business is subject to extensive environmental and other regulations

Our steel manufacturing operations involve water use, disposal of waste, and discharge of emissions from our
facilities, which could adversely affect the environment. We are subject to Indonesian national and regional
environmental, health and safety laws, regulations, and other legal requirements.
These laws govern the discharge of substances into the air and water and the management and disposal of
hazardous substances and wastes, among others. The environmental regulations require us to submit an
environmental impact study to be approved by the Government before we may increase production capacity,
move our business location, or change our business activities. The costs associated with complying with these laws
have had, and will continue to have, an impact on our operating costs. In addition, we may be required to bear
substantial costs as a result of violations of, liabilities under or changes in environmental, health and safety laws.
Furthermore, our permit to carry on our operations may be suspended if there is evidence of serious failure to meet
environmental standards, or withdrawn permanently in the event of extreme failures.
The impact of our operations on the environment may be materially greater than we anticipate and our
operations may breach Indonesian environmental laws and regulations. In addition, the requirements for
compliance and remediation may be materially increased by new laws or regulations or changes in the
interpretation or implementation of existing laws and regulations. We cannot assure you that we will not
experience difficulties in complying with any new environmental requirements on our operations. Any material
increase in the cost of environmental compliance and remediation, or the occurrence of a major environmental
accident at our facilities, could materially and adversely affect our business, financial condition, results of
operations and prospects.

We face potential liability for defective products

As of July 31, 2010, we did not face any lawsuits based on a defective product claim. However, we cannot
assure you that we will not face such law suits in the future. Due to the nature of our operations, it is possible that
claims against us could arise from defects in or non-conformity with specifications of materials or products
manufactured or supplied by us. Purchasers and third parties could make claims against us based on the delivery of

16
defective materials or products, or for damage or loss arising from the use of these defective material or products. If
any claims of this type are determined against us and our existing insurance arrangements do not cover the liability,
it could have a material adverse effect on our business, financial condition, results of operations and prospects.

Unexpected equipment failures and unanticipated events may lead to production curtailments or
shutdowns
Interruptions in production capabilities may increase production costs and reduce our sales and earnings. In
addition to equipment failures, our facilities are also subject to the risk of catastrophic loss due to unanticipated
events such as fires, explosions or adverse weather conditions. Our manufacturing processes depend on critical
pieces of steel making equipment, such as furnaces, continuous casters and rolling equipment, as well as electrical
equipment, such as transformers, and these pieces of equipment may, on occasion, be out of service as a result of
unanticipated failures or events thus resulting in material plant shutdowns or periods of reduced production. For
instance, on October 17, 2008, a fire occurred in our steel slab plant I (“SSP I”) due to malfunctions in the old
substation, cable tunnel, and electrical equipment. This caused us to shut down various parts of SSP I for inspection,
renovation and modernization. SSP I became fully operational again on July 22, 2010 and has since been
functioning normally. We produced fewer steel slabs during the period that SSP I was not fully operational
and imported more steel slabs for our HRC production. Although we are in the process of upgrading our electrical
transmission systems and other facilities to prevent similar events from occurring in the future, there is no assurance
that similar suspensions of operations or shutdowns in SSP I or in any of our other facilities will not occur in the
future. Furthermore, any interruption in production capability may require us to make large capital expenditures to
remedy the situation, which could have a negative effect on our profitability and cash flows. Although we maintain
all-risks property insurance, any recovery under this insurance policy may not offset the lost revenues or increased
costs that we experience during the disruption of our operations. In addition to the revenue losses which we may not
be able to recover, longer-term business disruption could result in a loss of customers. If this were to occur, our
future sales levels, and therefore our profitability, could be adversely affected.

Our level of indebtedness and other demands on our cash resources could materially and adversely affect
our ability to execute our business strategy
As of December 31, 2009, we had Rp.5,000.3 billion (US$550.5 million) of indebtedness outstanding,
representing 46.3% of our total capitalization. Although we believe that we are not currently highly leveraged, we
may incur substantial additional indebtedness in the future. Our financial performance could be affected by our
indebtedness. If new debt is added to our current debt levels, the related risks that we now face could increase. Any
substantial increase in indebtedness could therefore have a material adverse effect on our business.
Our level of indebtedness could have important consequences to our business and prospects as it could increase
our vulnerability to general adverse economic and industry conditions; make it difficult or impossible to obtain
insurance and surety bonds or letters of credit; limit our ability to enter into new long-term sales contracts; make it
more difficult for us to pay interest and satisfy our debt obligations; require us to dedicate a substantial portion of
our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to
fund working capital, capital expenditures, acquisitions and other general corporate activities; limit our ability to
obtain additional financing to fund future working capital, capital expenditures, research and development, debt
service requirements and other general corporate requirements; limit our flexibility in planning for, or reacting to,
changes in our business and in the various industries in which we operate; and limit our ability to borrow additional
funds at competitive rates or at all.

We are subject to the control of the Government

The Government, through the Ministry of State-Owned Enterprises, currently owns all of our issued share
capital. After the Global Offering, the Government, through the Ministry of State-Owned Enterprises, is expected to
own at least 80.0% of PT Krakatau and will continue to exercise control over us. Consequently, the Government will
effectively control the outcome of matters requiring the vote of our shareholders, including the composition of our
boards of directors and commissioners, and determining the timing and amount of dividend payments. The
Government has historically influenced, and will continue to influence, our strategy and operations. For instance,
although in September 2009, the Government approved the Global Offering through the Indonesian House of
Representatives, we only received approval to sell 30.0% of our shares. Any sale of more than 30.0% of our shares
would need to be further approved by the Government. The Government’s ability to influence the amount of our
shares that may be sold could materially affect our ability to engage in capital raising activities and could limit our
ability to raise additional financing.

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 In addition, the Government will own a Special Share in PT Krakatau which gives the Government,
represented by the Ministry of State-Owned Enterprises, certain rights such that its approval is required for,
among others, the nomination, election and removal of commissioners and directors, for approval of amendments to
our articles of association and for any merger, consolidation, acquisition or spin-off. Under our articles of
association, the Government cannot transfer the Special Share. The Government’s rights with respect to the
Special Share will not terminate unless our articles of association are amended, which would require the approval of
the Government as holder of the Special Share. See “Description of Our Shares — Description of Special Share.”
All candidates for election to the board of commissioners and to the board of directors are required to be nominated
by the holder of the Special Share. The rights of the Government attached to this Special Share limit the ability of
public shareholders to influence certain matters relating to us. See “Management” and “Description of our
Shares — Description of Special Share.” We rely on the Ministry of State-Owned Enterprises to select
commissioners and directors who have the skill, experience and background appropriate for the management
of our company, and who will exercise their duties in the best interests of both the public shareholders and the
Ministry of State-Owned Enterprises. See “Business — Legal Proceedings.”
We expect that our Government shareholder will continue to exert significant influence over us indefinitely. There
can be no assurance that the Government will exercise its control and influence over us, including with respect to the
selection of our commissioners or directors, for the benefit of our public shareholders. The interests of the Government
could also at times conflict with the interests of our public shareholders. For example, the Government may request that
we enter into transactions which are not in the best interests of our public shareholders, including engaging in
transactions with parties that are under common control with us on terms not determined by market forces. Although we
have in the past executed, and expect to continue to negotiate, all related party transactions on an arm’s-length basis and
have adopted procedures for entering into transactions with related parties, conflicts of interest may arise between us, our
affiliates, other Government-owned corporations, and our principal shareholder, the Government. Any such request or
conflict of interest could adversely affect our business, financial condition, results of operations and prospects. In
addition, while two of our four commissioners are independent under BAPEPAM-LK regulations and the IDX Listing
Regulations, three of our commissioners have government-related backgrounds. See “Management — Board of
Commissioners.” The influence of the Government may have a material adverse effect on our business, financial
condition, results of operations and prospects.

If we fail to keep pace with technological advances, our business and results of operations may be
adversely affected
While, in general, the technology used in the steel making industry does not develop and change as rapidly as
in other industries, we may still face competition due to technologies currently under development or which may be
developed in the future. Future development or application of new or alternative technologies, services or standards
could require significant changes to our business model, the acquisition or use of new facilities or equipment, the
development of new products, the provision of additional services and substantial new investments by us. We cannot
accurately predict how emerging and future technological changes will affect our operations or the competitiveness
of our facilities or products. We cannot assure you that our technologies will not become obsolete, or be subjected to
competition from new technologies in the future, or that we will be able to acquire new technologies necessary to
compete in changed circumstances on commercially acceptable terms.

All our operations are concentrated at our Cilegon facilities, and any adverse developments affecting our
Cilegon facilities could have a material adverse effect on our business
Substantially all of our present and planned activities, including the production of all of our steel products, are
and will be located at our steel making complex in Cilegon, Banten, Indonesia. We do not have alternative
production plans in place or alternative facilities available if we experience prolonged service interruptions at our
Cilegon facilities. As a result, our present and future operations and cash flows are entirely dependent upon our
Cilegon facilities, and we face risks inherent in operating a single facility for the manufacture of our products. These
risks include:
• inaccessibility due to inclement weather, road construction or closure of primary access routes;
• explosions, fire and other industrial accidents;
• breakdown of equipment or machinery;
• changes in laws and regulations affecting our Cilegon land and facilities, including environmental laws and
regulations; and
• natural and other disasters, including the risk of outbreaks of infectious diseases, terrorism or earthquakes.

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 Any of these events and other adverse developments affecting our Cilegon facilities could have a material
adverse effect on our business, financial condition, cash flows, prospects and results of operations.

Our operations are dependent on our ability to maintain and renew our current Indonesian land rights
We own and have rights to manage parcels of land located in Banten, Indonesia, which we use for our
production facilities and for our infrastructure. Each of these parcels of land is registered under certificates of right
to build and certificates to manage. Our land titles over these parcels of land will expire on different dates ranging
from May 4, 2012 to November 5, 2039. See “Business — Production Facilities.” Our ironmaking, steel making,
rolling mill, section, bar and pipe mill operations are dependent on our ability to maintain or renew our land rights. If
we are not able to maintain or renew our land rights over the parcels of land in Banten, Indonesia, or if we have to
incur significant additional cost, to renew such land rights, our business, financial condition, results of operations
and prospects could be materially and adversely affected.

Our insurance coverage may not be adequate to cover casualty events, our insurance costs may increase
and we may not be able to obtain adequate insurance coverage in the future
Although we have all-risks property insurance covering damage caused by a casualty loss (such as fire and
natural disasters) and plan to purchase similar policies for our future properties and projects, each such policy has
certain exclusions. In addition, our level of insurance coverage for our production facilities in Cilegon may not be
adequate to cover all losses in the event of a major casualty. While we believe that our insurance coverage is
comparable to other market players in the industry, our all-risks property insurance only covers losses up to
US$500 million per incident, which is less than the declared value of our production facilities amounting to
US$2.1 billion as of June 30, 2010. In addition, certain casualty events, such as acts of war, terrorism, deterioration,
corrosion and pollution, are not covered under our policies and expose us to potential heavy, uninsured losses.
In addition to the damage to our properties caused by a casualty event, we may suffer disruption of our business
or be subject to claims by third parties injured or harmed as a result of these events. We do not maintain any business
interruption insurance against damage to any of our production facilities. If the use of our production facilities is
interrupted in whole or in part for any extended period as a result of any such events, our business, financial
condition, results of operations and prospects may be adversely affected. Our insurance policies are typically
renewed on an annual basis. Our premiums may also increase as a result of market conditions or following a claim,
in which case we may need to reduce policy limits or agree to certain exclusions from coverage.

Our business, financial condition, results of operations and prospects could be adversely affected if we
fail to maintain satisfactory labor relations
The liberalization of regulations permitting the formation of labor unions, combined with weak economic
conditions, has resulted, and will likely continue to result, in labor unrest and activism in Indonesia. In 2000, the
Government issued a labor regulation allowing employees to form unions without employer intervention. In March
2003, the Government enacted a manpower law, Law No. 13/2003 (the “Labor Law”), which, among other things,
increased the amount of required severance, service and compensation payments to terminated employees, and
required employers with 50 or more employees to establish bipartite forums with the participation of employers and
employees. To negotiate a collective labor agreement with such a company, a labor union’s membership must
consist of more than 50% of the company’s employees. In response to a challenge to its validity, the Indonesian
Constitutional Court declared the Labor Law to be mostly valid, except for certain provisions. The Government
proposed to amend the Labor Law in a manner which, in the view of labor activists, would result in reduced pension
benefits, the increased use of outsourced employees and prohibitions on unions to conduct strikes. The proposal has
been suspended and the new Government regulation addressing lay-offs of workers has not yet become effective.
Labor unrest and activism could disrupt our operations and could adversely affect the financial condition of
Indonesian companies in general and the value of the Indonesian Rupiah relative to other currencies, which could
have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Relating to Indonesia

We are incorporated in Indonesia and substantially all of our operations and assets are located in Indonesia. All
of our commissioners, directors and officers are Indonesian citizens based in Indonesia. Since substantially all our
sales are made to customers in Indonesia, we could be adversely affected by changes in Government policies, social
instability, natural disasters or other political, economic, legal, regulatory or international developments in or
affecting Indonesia which are not within our control, examples of which are described below. These could, in turn,
have an adverse effect on our business, financial condition, results of operations and prospects.

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 Domestic, regional or global economic changes may adversely affect our business
The economic crisis which affected Southeast Asia, including Indonesia, from mid-1997 was characterized in
Indonesia by, among other things, currency depreciation, negative economic growth, high interest rates, social
unrest and extraordinary political events. These conditions had a material adverse effect on Indonesian businesses.
In addition, the economic crisis resulted in the failure of many Indonesian companies to meet their debt obligations.
Many Indonesian companies have not fully recovered from the economic crisis, and many such companies are still
in the process of restructuring their debt obligations or are engaged in disputes arising from defaults under their debt
obligations. More recently, the global financial crisis, which was triggered in part by the subprime mortgage crisis in
the United States, caused failures of large U.S. financial institutions and rapidly evolved into a global credit crisis.
U.S. bank failures were followed by failures of a number of European banks and declines in various stock indexes,
as well as large reductions in the market value of equities and commodities worldwide, including in Indonesia. The
world economic downturn has adversely affected the economic performance of Indonesia, resulting in declining
economic growth, slowing household consumption and weakening investment due to loss of external demand and
increased uncertainty in the world economy. These conditions have had a negative impact on Indonesian businesses
and consumers, which resulted in reduced demand for our steel products.
An economic downturn in Indonesia could also lead to additional defaults by Indonesian borrowers and could
have a material adverse effect on our business, financial condition and results of operations and prospects. A loss of
investor confidence in the financial systems of emerging and other markets, or other factors, including the
deterioration of the global economic situation, may cause increased volatility in the Indonesian financial markets
and a slowdown in economic growth or negative economic growth in Indonesia. Any such increased volatility or
slowdown or negative growth could have a material adverse effect on our business, financial condition, results of
operations and prospects.

Political, economic and social instability may adversely affect our business
Since the collapse of President Soeharto’s regime in 1998, Indonesia has experienced a process of democratic
change, resulting in political and social events that have highlighted the unpredictable nature of Indonesia’s
changing political landscape. These events have resulted in political instability, as well as general social and civil
unrest on certain occasions in the past few years.
Since 2000, thousands of Indonesians have participated in demonstrations in Jakarta and other Indonesian
cities both for and against the Government and Government officials, as well as in response to specific issues,
including fuel subsidy reductions, privatization of state-owned enterprises, anti-corruption measures,
decentralization and provincial autonomy, potential increases in electricity charges and the American-led
military campaigns in Afghanistan and Iraq. Although these demonstrations were generally peaceful, some
have turned violent. In June 2001, demonstrations and strikes affected at least 19 cities after the Government
mandated a 30.0% increase in fuel prices. Similar demonstrations occurred in January 2003, when the Government
again tried to increase fuel prices, as well as electricity rates and telephone charges. In both instances, the
Government was forced to drop or substantially reduce the proposed increases. In March 2005, the Government
implemented an approximately 29.0% increase in fuel prices. In October 2005, the Government implemented a new
policy that resulted in a significant increase in fuel prices. In response, several non-violent mass protests were
organized in opposition to the increases in domestic fuel prices, and political tensions have resulted from the
Government’s decision. There can be no assurance that this situation or future sources of discontent will not lead to
further political and social instability.
Separatist movements and clashes between religious and ethnic groups have resulted in social and civil unrest
in parts of Indonesia. In the provinces of Aceh and Papua, there have been clashes between supporters of those
separatist movements and the Indonesian military. In Papua, continued activity by separatist rebels has led to violent
incidents; in Maluku, clashes between religious groups have resulted in casualties and displaced persons and in the
province of Kalimantan, clashes between ethnic groups have produced fatalities and refugees over the past several
years. In recent years, the Government has made progress in negotiations with these troubled regions (including the
recently signed memorandum of understanding between the Government and the leaders of the Aceh separatist
movement), but there is no guarantee that the terms of any agreement reached between the Government and the
separatists will be upheld. Human rights violators, including those from high-ranking military positions, have
recently begun to be more actively prosecuted in Indonesia, most notably with respect to alleged violations
occurring in Timor Leste (formerly East Timor), Aceh, Papua and Maluku. However, the success of these
prosecutions has been mixed, and many public commentators and demonstrators have criticized the
Government’s failure to prosecute human rights violations in Indonesia more vigorously.

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 In 2004, Indonesians directly elected the President, Vice-President and representatives in the Indonesian
parliament (the “Parliament”) for the first time through proportional voting with an open list of candidates. At the
lower governmental level, Indonesians have started directly electing their respective heads of local governments. In
2009, another set of elections were held in Indonesia to elect the President, Vice-President and representatives in the
Parliament. The July 2009 presidential elections resulted in the re-election of President Susilo Bambang
Yudhoyono. Although the 2004 and 2009 elections were conducted peacefully, political campaigns in
Indonesia may bring a degree of political and social uncertainty to Indonesia. Political and social unrest may
occur if the results of future elections are disputed or unpopular.
Political and social developments in Indonesia have been unpredictable in the past, and, as a result, confidence
in the Indonesian economy has remained low. Any resurgence of political instability could adversely affect the
Indonesian economy, which could adversely affect our business. There can be no assurance that social and civil
disturbances will not occur in the future and on a wider scale, or that any such disturbances will not, directly or
indirectly, have a material adverse effect on our business, financial condition, results of operations and prospects.

Indonesia is located in an earthquake zone and is subject to significant geological risk that could lead to
social unrest and economic loss
Many parts of Indonesia are vulnerable to natural disasters such as earthquakes, tsunamis, floods, volcanic
eruptions as well as droughts, power outages or other events beyond our control. In recent years, several natural
disasters have occurred in Indonesia including tsunamis in 2004 and 2006, the earthquake in Jogyakarta in Central
Java in 2006, the hot mud eruption and subsequent flooding in East Java in 2006 and separate earthquakes in Papua,
West Java, Sulawesi and Sumatra in 2009. Indonesia also experienced significant flooding in Jakarta in February
2007 and in Solo in Central Java in January 2008. In January 2009, torrential rain caused a dam to burst outside
Jakarta, flooding homes in a densely populated neighborhood, resulting in the death of approximately 100 people.
The flood submerged hundreds of homes and resulted in a number of people being reported missing.
As a result of these natural disasters, the Government has had to spend significant amounts on emergency aid
and resettlement efforts. Most of these costs have been underwritten by foreign governments and international aid
agencies. We cannot assure you that such aid will continue to be forthcoming, or that it will be delivered to
recipients on a timely basis. If the Government is unable to timely deliver foreign aid to affected communities,
political and social unrest could result. Additionally, recovery and relief efforts are likely to continue to impose a
strain on the Government’s finances, and may affect its ability to meet its obligations on its sovereign debt. Any such
failure on the part of the Government, or declaration by it of a moratorium on its sovereign debt, could trigger an
event of default under numerous private-sector borrowings including ours, thereby materially and adversely
affecting our business and financial condition.
Our steel facilities and Cigading Port are all located in Cilegon, Indonesia. We cannot assure you that our
insurance coverage will be sufficient to protect us from potential losses resulting from such natural disasters and
other events beyond our control. In addition, we cannot assure you that the premium payable for these insurance
policies upon renewal will not increase substantially, which may materially and adversely affect our financial
condition and results of operations. We also cannot assure you that future geological or meteorological occurrences
will not have more of an impact on the Indonesian economy. A significant earthquake, other geological disturbance
or weather-related natural disaster in any of Indonesia’s more populated cities and financial centers could severely
disrupt the Indonesian economy and undermine investor confidence, thereby materially and adversely affecting our
business, financial condition, results of operations and prospects.

Terrorist attacks and activities could cause economic and social volatility
Several bombing incidents have taken place in Indonesia, most significantly in October 2002 in Bali, a region
of Indonesia previously considered safe from the unrest affecting other parts of the country. Other bombing
incidents, although on a lesser scale, have also been committed in Indonesia on a number of occasions over the past
few years, including at shopping centers and places of worship. In April 2003, a bomb exploded outside the main
United Nations building in Jakarta and in front of the domestic terminal at Jakarta International Airport. In August
2003, a bomb exploded at the JW Marriott Hotel in Jakarta, and in September 2004, a bomb exploded in front of the
Australian embassy in Jakarta. In May 2005, bomb blasts in Central Sulawesi killed at least 21 people and injured at
least 60 people. In October 2005, bomb blasts in Bali killed at least 23 people and injured at least 101 others.
Indonesian, Australian and U.S. government officials have indicated that these bombings may be linked to an
international terrorist organization. Demonstrations have taken place in Indonesia in response to plans for and
subsequent to U.S., British and Australian military action in Iraq. In January 2007, sectarian terrorists conducted
bombings in Poso. In July 2009, bomb blasts in the JW Marriott and Ritz Carlton hotels in Jakarta killed six people

21
and injured at least 50 people. Further terrorist acts may occur in the future and may be directed at foreigners in
Indonesia. Violent acts arising from, and leading to, instability and unrest could destabilize Indonesia and the
Government and have had, and may continue to have, a material adverse effect on investment and confidence in, and
the performance of, the Indonesian economy, and may have a material adverse effect on our business, financial
condition, results of operations and prospects.

High levels of inflation and high interest rates in Indonesia could adversely affect our financial condition
and results of operations
Annual inflation in Indonesia averaged approximately 6.8% from 2007 to 2009. The official inflation rate
reported by Badan Pusat Statistik, also known as BPS-Statitics Indonesia, for the period from December 31, 2009 to
July 31, 2010 was approximately 4.3%, principally due to higher energy costs. Should inflation in Indonesia
increase significantly, our costs, including raw materials, employee compensation, energy, transportation,
construction, maintenance and other overhead expenses are expected to increase, which would have a material
adverse effect on our expense structure, cash flow, business, financial condition and results of operations.
Furthermore, high inflation rates could have an adverse effect on Indonesia’s economy, business climate and
consumer confidence. As a result, a high rate of inflation in Indonesia could have a material adverse effect on our
expense structure, our financial condition and results of operations.

Outbreak of an infectious disease, or fear of an outbreak, or any other serious public health concerns in
Asia (including Indonesia) and elsewhere may adversely impact our business and financial condition
In 2003, certain countries in Asia including, Indonesia, the People’s Republic of China, Vietnam, Thailand and
Cambodia, experienced an outbreak of severe acute respiratory syndrome (“SARS”), a highly contagious form of
atypical pneumonia, which seriously interrupted the economic activities in, and the demand for goods declined in,
the affected regions.
During the last three years, large parts of Asia experienced unprecedented outbreaks of avian influenza. As of
June 2, 2009, the World Health Organization (“WHO”) had confirmed a total of 262 fatalities in a total number of
433 cases reported to the WHO, which only reports laboratory confirmed cases of avian influenza. Of these, the
Indonesian Ministry of Health reported to the WHO 115 fatalities in a total number of 141 cases of avian influenza
in Indonesia. In addition, the WHO announced in June 2006 that human-to-human transmission of avian influenza
had been confirmed in Sumatra, Indonesia. According to the United Nations Food and Agricultural Organization,
avian influenza virus is entrenched in 31 of Indonesia’s 33 provinces and efforts to contain avian influenza are
failing in Indonesia, increasing the possibility that the virus may mutate into a deadlier form. No fully effective
avian influenza vaccines have been developed and an effective vaccine may not be discovered in time to protect
against the potential avian influenza pandemic.
More recently, in April 2009, there was an outbreak of the Influenza A (H1N1) virus, which originated in
Mexico but has since spread globally, including confirmed reports in Hong Kong, Indonesia, Japan, Malaysia,
Singapore and elsewhere in Asia. The Influenza A (H1N1) virus is believed to be highly contagious and may not be
easily contained.
An outbreak of SARS, avian influenza, Influenza A (H1N1) virus or a similar epidemic, or the measures taken
by the governments of affected countries, including Indonesia, against such an outbreak, could severely disrupt the
Indonesian and other economies and undermine investor confidence, thereby materially and adversely affecting our
financial condition and results of operations.

Downgrades of credit ratings of the Government or Indonesian companies could adversely affect our
business
Beginning in 1997, certain recognized statistical rating organizations, including Moody’s Investors Service,
Inc. (“Moody’s”), Standard & Poor’s Rating Group (“Standard & Poor’s”), and Fitch Ratings (“Fitch”),
downgraded Indonesia’s sovereign rating and the credit ratings of various credit instruments of the
Government and a large number of Indonesian banks and other companies. As of the date of this offering
circular, Indonesia’s sovereign foreign currency long-term debt is rated “Ba2 stable” by Moody’s, “BB positive” by
Standard & Poor’s and “BB+ stable” by Fitch. These ratings reflect an assessment of the Government’s overall
financial capacity to pay its obligations and its ability or willingness to meet its financial commitments as they
become due.
We cannot assure you that Moody’s, Standard & Poor’s, Fitch or any other statistical rating organization will
not downgrade the credit ratings of Indonesia or Indonesian companies, including us. Any such downgrade could

22
have an adverse impact on liquidity in the Indonesian financial markets, the ability of the Government and
Indonesian companies, including us, to raise additional financing and the interest rates and other commercial terms
at which such additional financing is available. Interest rates on our floating rate Indonesian Rupiah-denominated
debt would also likely increase. Such events could have material adverse effects on our business, financial
condition, results of operations and prospects.

Indonesian accounting standards differ from those in the United States

We prepare our consolidated financial statements in accordance with Indonesian GAAP, which differs in
certain material respects from U.S. GAAP. For a discussion of these differences, see “Summary of Certain
Significant Differences Between Indonesian GAAP and U.S. GAAP.” As a result, our consolidated financial
statements and reported earnings could be significantly different from those that would be reported under
U.S. GAAP.

We are incorporated in Indonesia, and it may not be possible for investors to effect service of process, or
enforce judgments, on us within the United States, or to enforce judgments of a foreign court against us
in Indonesia
We are a limited liability company incorporated in Indonesia and all of our significant assets are located in
Indonesia. In addition, all of our commissioners and directors reside in Indonesia and a substantial portion of the
assets of such persons is located outside the United States. As a result, it may be difficult for investors to effect
service of process, or enforce judgments, on us or such persons within the United States, or to enforce against us or
such persons in the United States, judgments obtained in U.S. courts.
We have been advised by our Indonesian legal advisor that judgments of U.S. courts, including judgments
predicated upon the civil liability provisions of the U.S. federal securities laws or the securities laws of any state
within the United States, are not enforceable in Indonesian courts, although such judgments could be admissible as
non-conclusive evidence in a proceeding on the underlying claim in an Indonesian court. There is doubt as to
whether Indonesian courts will enter judgments in original actions brought in Indonesian courts predicated solely
upon the civil liability provisions of the U.S. federal securities laws or the securities laws of any state within the
United States. As a result, the claimant would be required to pursue claims against us or such persons in Indonesian
courts. The claims and remedies available under Indonesian law may not be as extensive as those available in other
jurisdictions. No assurance can be given that the Indonesian courts will protect the interests of investors in the same
manner or to the same extent as would U.S. courts.
Indonesia’s legal system is a civil law system based on written statutes, and decided legal cases do not
constitute binding precedent. The administration of laws and regulations by courts and government agencies may be
subject to considerable discretion. In addition, because relatively few disputes relating to commercial matters and
modern financial transactions and instruments are brought before Indonesia’s courts, such courts do not necessarily
have the experience of courts in other countries. There is uncertainty as to how long it will take for proceedings in
Indonesian courts to be concluded and the outcome of proceedings in Indonesian courts may be more uncertain than
that of similar proceedings in other jurisdictions. Accordingly, it may not be possible for investors to obtain swift
and equitable enforcement of their legal rights.
In addition, purchasers of our shares may have more difficulty in protecting their interests against actions by
our commissioners, directors or principal shareholders than they might have as investors in shares in a corporation
established under the laws of other jurisdictions.

Risks Relating to an Investment in Our Shares

Conditions in the Indonesian securities market may affect the price or liquidity of our shares; the
absence of a prior market in our shares may contribute to a lack of liquidity
We have made an application to list our shares on the Main Board of the IDX. There is currently no market for
our shares. There can be no assurance that a market will develop for our shares. The Indonesian capital markets are
less liquid and more volatile, and have different reporting standards, than markets in the United States and many
other countries. Also, prices in the Indonesian capital markets are typically more volatile than in such other markets.
The ability to sell and settle trades on the IDX may be subject to delays. In light of the foregoing, there can be no
assurance that a holder of our shares will be able to dispose of such shares at prices or at times at which such holder
would be able to do so in more liquid markets or at all.

23
 Even if our listing application is approved, our shares will not be listed on the IDX for approximately two days
after the allotment date for the Global Offering. During such period, investors will be exposed to movements in the
price of our shares without the ability to dispose of the purchased shares through the IDX.

The price of our shares may fluctuate widely

The price of our shares after the Global Offering may fluctuate widely, depending on many factors, including:
• differences between our actual financial and operating results and those expected by investors and analysts;
• changes in analysts’ recommendations or perceptions of us or Indonesia;
• changes in general economic, social, political or market conditions in Indonesia;
• changes in prices of equity securities of foreign (particularly Asian) and emerging markets companies; and
• broad stock market price fluctuations.

The Joint Lead International Selling Agents and Joint Lead Underwriters will not over-allot Offer Shares
or otherwise stabilize the market price of the Offer Shares
The Joint Lead International Selling Agents and Joint Lead Underwriters will not be over-allotting the Offer
Shares or taking other actions to stabilize or maintain the market price of the Offer Shares at levels which might not
otherwise prevail in the open market. This is commonly done in other securities markets in the 30-day period
immediately following the date of commencement of dealing in securities on the relevant exchange. As a result, the
market price of the Offer Shares will be more susceptible to a decline than if such Joint Lead International Selling
Agents and Joint Lead Underwriters were permitted to take such actions.

Future changes in the value of the Rupiah against other currencies will affect the foreign currency
equivalent of the value of our shares and any dividends
Fluctuations in the exchange rate between the Rupiah and other currencies will affect the foreign currency
equivalent of the Rupiah price of our shares on the IDX. Such fluctuations will also affect the amount in foreign
currency received upon conversion of cash dividends or other distributions paid in Rupiah by us on, and the Rupiah
proceeds received from any sales of, our shares, as well as the book value of foreign currency assets and liabilities,
and income and expenses and cashflows in our financial statements.

The application of BAPEPAM-LK conflict of interest rules may cause us to forego transactions that are
in our best interests
In order to protect the rights of minority shareholders in conflict of interest transactions, the rules of
BAPEPAM-LK afford independent shareholders of Indonesian public companies the right to vote to approve
or disapprove any transactions, whether or not material, which entail a “conflict of interest” under the
BAPEPAM-LK rules unless the transactions fall within certain exceptions set out under BAPEPAM-LK rules.
See “Relationship with the Government — Transactions with Affiliates.” Transactions between us and other
Government-owned entities could constitute conflict of interest transactions under the relevant BAPEPAM-LK
rules. As a result, the approval of holders of a majority of shares not owned directly or indirectly by the Government
(“disinterested shareholders”) would have to be obtained if a conflict of interest were to exist. BAPEPAM-LK has
the power to enforce this rule and our shareholders may also be entitled to seek enforcement or bring enforcement
action based on this BAPEPAM-LK rule. The requirement to obtain independent shareholder approval could be
burdensome to us in terms of time and expense and could cause us to forego entering into certain transactions which
we might otherwise consider to be in our best interests. Moreover, there can be no assurance that approval of
disinterested shareholders would be obtained if sought.

The projections we have provided to the IDX should not be relied upon
As part of our listing application, we are required to submit certain financial projections to the IDX and have
been advised that the relevant regulations require the IDX to publish such projections. The IDX has informed us that
they do not consider the projections as a part of the prospectus that will be circulated to investors for the purposes of
the Indonesian Offering and that it will only make the projections available to the public upon the listing of our
shares, which is after investors in the Global Offering have made their investment decision. You should note that the
projections that we have provided to the IDX were prepared solely for the purpose of satisfying Indonesian listing
requirements and do not form a part of this offering circular, which is the only document you should refer to in
making your investment decision. Neither we nor any of our affiliates, or our or their respective directors, officers,

24
employees or agents, make any representation or warranty, express or implied, in relation to the accuracy or
completeness of the information contained in the projections that we have provided to the IDX and accept no
responsibility, obligation or liability in relation to such information. Consequently, projection numbers cannot be
relied upon to the same extent as those derived from audited accounts for completed accounting periods. We make
no representation that these results will be achieved.
The projections, which were prepared by our management, necessarily are based upon a number of estimates
and forecasts that are inherently subject to many factors and/or aspects including but not limited to, the significant
business, economic and competitive uncertainties and contingencies, many of which are beyond our control, and
upon assumptions with respect to future business decisions which are subject to change. For example, they are based
on, among other factors, the estimated future prices of our products, the estimated future prices of our raw materials,
and estimates of the energy prices, labor costs that we will need to pay, and foreign exchange rates and interest rates.
The projections also assume the success of our business strategy which is subject to uncertainties and contingencies
beyond our control and no assurance can be given that our strategy will be effective or that the anticipated benefits
from the strategy will be realized in the periods for which the projections have been prepared. For example, in
preparing the projections, we made certain assumptions about our ability to execute our revitalization and
expansion programs and our plans relating to the completion of our joint venture transaction with POSCO
within the timeframe we have scheduled, as well as the performance of certain contracts by other parties, including
contractors and suppliers, over which we have little or no control.
The projections were not prepared with a view towards compliance with any published guidelines regarding
the preparation and presentation of prospective financial information under accounting principles generally
accepted in Indonesia or any other accounting standards. They have also not been audited, reviewed, examined
or prepared with the advice of our auditors. The reports of our auditors included in this offering circular relate only
to our historical financial information and do not extend to the projections and should not be read to do so.
Consequently, projection numbers cannot be relied upon to the same extent as those derived from audited accounts
for completed accounting periods.
You should also note that any views or terms contained in the projections that we provided to the IDX are
preliminary only, and are based on assumptions and factors prevailing as of August 23, 2010, when we provided the
projections to the IDX. They are therefore subject to change. However, we undertake no obligation or responsibility
and do not intend to update such projections for future changes or events after the listing of our shares. Furthermore,
we do not intend to prepare or issue to the public any future projections or earnings guidance except as required
under relevant law and regulations.
For the reasons mentioned above, you should not rely in any way on any of our projections that are made
available by the IDX.

Future sales of our shares could adversely affect the market price of our shares
Sales in the future of substantial amounts of our shares in the public market, or the perception that such sales
may occur, could adversely affect the prevailing market price of our shares or our ability to raise capital through a
public offering of additional equity or equity-linked securities. Immediately following the Global Offering, at least
80.0% of our outstanding shares are expected to be held directly by the Government through the Ministry of State-
Owned Enterprises. The Government has announced generally that it intends to privatize Government-owned
enterprises, which may lead to the sale of our shares in the future as part of its privatization plans. We have agreed to
certain restrictions on our ability to sell or otherwise dispose of our shares for a limited period following closing of
the Global Offering. The Government has not entered into a lock up agreement but has informed the Joint Lead
Underwriters and the Joint Lead International Selling Agents that it does not currently intend to offer, sell, contract
to sell or otherwise dispose of its shares in us for a period of six months. See “Plan of Distribution.” Nevertheless,
future sales of large blocks of shares, or the perception that such sales could occur, could cause the price of our
shares to decrease and make it more difficult for us to raise capital.

We may not be able to pay dividends

Our ability to declare dividends in relation to the Offer Shares will depend on future financial performance,
which, in turn, depends on successfully implementing our growth strategy, on competitive, regulatory, technical,
environmental and other factors, general economic conditions, demand and selling prices for our product, and other
factors specific to the steel industry or specific projects we have undertaken, many of which are beyond our control.

25
 Your right to participate in our rights offerings could be limited, which would cause dilution to your
holdings
To the extent that we offer our shareholders rights to purchase or subscribe for shares or otherwise distribute
shares to our shareholders, U.S. holders may be unable to exercise such rights for our shares unless a registration
statement under the U.S. Securities Act is effective with respect to the new shares or an exemption from registration
under the U.S. Securities Act is available. Whenever we make a rights or similar offering of our shares, we will
evaluate the costs and potential liabilities associated with, and our ability to comply with, U.S. regulations, for any
such registration statement and any other factors we consider appropriate. However, we may choose not to file any
such registration statement. If we do not file a registration statement and no exemption from registration under the
U.S. Securities Act is available, then U.S. holders of our shares would be unable to participate in rights or similar
offerings and would suffer dilution of their shareholdings. Also, there may be similar restrictions in other
jurisdictions that affect our ability to offer rights and make other share offerings in these jurisdictions.
Consequently, we cannot assure you that you will be able to maintain your proportional equity interests in us.
Also, as rights issues in Indonesia generally enable participants to purchase shares at a discount to the recent trading
price, your inability to participate in such rights offerings could cause you material economic harm.

The net asset value of the Offer Shares issued in the Global Offering is significantly less than the
Offering Price and the purchasers may incur immediate and substantial dilution
The Offering Price is substantially higher than the net asset value per share of the outstanding shares issued to
our existing shareholder. Therefore, purchasers of the Offer Shares will experience immediate and substantial
dilution and our existing shareholder will experience a material increase in the net asset value per share of the shares
they own.

You may be subject to limitations on minority shareholders’ rights

The obligations under Indonesian law of majority shareholders, commissioners and directors with respect to
minority shareholders may be more limited than those in certain other countries such as the United States or the
United Kingdom. Consequently, minority shareholders may not be able to protect their interests under current
Indonesian law to the same extent as in certain other countries. Your rights as a shareholder may also be adversely
affected by the ownership of the Government of the Special Share and a majority of our shares. See “— Risks
Relating to Our Business — We are subject to the control of the Government.” Principles of corporate law relating
to such matters as the validity of corporate procedures, the fiduciary duties of our management, directors,
commissioners and controlling shareholder, and the rights of our minority shareholders are governed by
Indonesian law and our articles of association. Such principles of law differ from those that would apply if we
were incorporated in a jurisdiction in the United States or in other jurisdictions. In particular, concepts relating to the
fiduciary duties of management are untested in Indonesian courts. Derivative actions have almost never been
brought on behalf of companies or been tested in Indonesian courts, and minority shareholders’ rights have only
been defined since 1995 and are unproven in practice. Accordingly, there can be no assurance that legal rights or
remedies of minority shareholders will be the same, or as extensive, as those available in other jurisdictions or
sufficient to protect the interests of minority shareholders.

There may be less company information available, and corporate governance standards may differ, for
public companies listed on Indonesian securities markets than securities markets in developed countries
The IDX and BAPEPAM-LK have different reporting standards than securities exchanges and regulatory
regimes in the United States, the United Kingdom and many other countries. There is a difference between the level
of regulation and monitoring of the Indonesian securities markets and the activities of investors, brokers and other
participants and that of markets in the United States and other developed economies. BAPEPAM-LK and the IDX
are responsible for improving disclosure and other regulatory standards for the Indonesian securities markets.
BAPEPAM-LK has issued regulations and guidelines on disclosure requirements, insider trading and other matters.
There may, however, be less publicly available information about Indonesian companies than is regularly made
available by public companies in developed countries. As a result, as a shareholder you may not receive the same
amount of information or receive information with the same frequency as you may for companies listed in the
United States, the United Kingdom and many other countries. In addition, corporate governance standards and
practices may not be as strict, including with regard to the independence of boards of directors and audit and other
committees. Because of this, the directors of Indonesian companies may be more likely to have interests that
conflict with the interests of shareholders generally, which may result in them taking actions that are contrary to the
interests of shareholders.

26
 U.S. investors in PT Krakatau could suffer adverse tax consequences if we are characterized as a passive
foreign investment company.
If you are a U.S. investor and we are characterized as a passive foreign investment company, or PFIC, for any
taxable year during which you own Offer Shares, you could be subject to adverse U.S. tax consequences. We do not
believe that we are currently a PFIC and we do not expect to become a PFIC in the foreseeable future. However,
because this determination is made on an annual basis and the composition of our gross income and assets may vary
significantly from year to year, no assurance can be provided regarding our PFIC status. See “Taxation — Certain
United States Federal Income Tax Considerations — Passive Foreign Investment Company” for a more detailed
discussion.
U.S. investors should consult their own tax advisors regarding the U.S. federal income tax consequences of an
investment in Offer Shares if we are classified as a PFIC for our current or subsequent taxable years.

27
 USE OF PROCEEDS
Our net proceeds from our sale of 3,155,000,000 shares in this Global Offering will total approximately
Rp.2,572.9 billion (US$283.3 million) after deducting selling and underwriting fees and commissions and other
estimated expenses related to the Global Offering, which are payable by us. Of the net proceeds from the Global
Offering, we intend to use:
• approximately 35.8% to fund capital expenditures and expansion costs relating to the modernization and
expansion of the production capacity of our hot strip mill, which we expect to increase to 3,500,000 metric
tons per year, to be completed in 2013. See “Business — Revitalization and Expansion Programs — Hot
Strip Mill Expansion;”
• approximately 24.2% to strengthen our working capital for raw material purchases, including the purchase
of iron ore pellets, steel scraps, steel billets, steel slab and other supporting materials;
• approximately 25.0% for land preparation work on 388.0 hectares of land that we expect our joint venture
company with POSCO will use as the site of the joint venture integrated steel mill in Cilegon. See
“Business — Joint Venture with POSCO;” and
• approximately 15.0% to fund, through capital injections, the capital expenditures and expansion costs of our
subsidiaries, PT KBS and PT Krakatau Daya Listrik (“PT KDL”) relating to port and power plant expansion
projects, respectively. See “Business — Revitalization and Expansion Programs — Port, Power and Water
Supply Development.”
The exact amount and proportionate breakdown of the net proceeds from the Global Offering which we will
actually apply to any particular business may change due to a number of factors, including but not limited to, the
actual costs and timing of future suitable revitalization and expansion projects. Pending the use of the net proceeds
in the manner described above, we may use the net proceeds for our working capital, place the funds in fixed
deposits with banks and financial institutions or invest the funds in short-term money market instruments, as our
board of directors may deem appropriate.
Pursuant to BAPEPAM-LK Regulation No. X.K.4, which is attached to the Decree of the Chairman of
BAPEPAM-LK No. Kep-27/PM/2003 dated July 17, 2003 regarding Report on the Realization of the Use of IPO
Proceeds, we are responsible for reporting the use of the proceeds of the Global Offering periodically both at a
general meeting of shareholders and to BAPEPAM-LK. If we seek to amend our use of the proceeds from this
Global Offering, we will be required to submit a report to BAPEPAM-LK explaining the proposed changes to the
use of the proceeds, and must obtain shareholders’ approval for such changes at a general meeting of shareholders.

28
 DIVIDENDS AND DIVIDEND POLICY
Under Indonesian law, the payment of dividends is made by resolution of the shareholders at an annual or
extraordinary general meeting of shareholders. Prior to the end of a financial year, an interim dividend may be
distributed so long as it is permitted under our articles of association and provided that the interim dividend does not
result in our net assets becoming less than the total issued and paid-up capital and compulsory reserves. Such
distribution is determined by the board of directors after being approved by the board of commissioners. If, after the
end of the relevant financial year, we incur losses, the distributed interim dividend must be returned by the
shareholders to us, and the board of directors and board of commissioners will be jointly and severally responsible
in the event the interim dividend is not returned.
We have declared and paid dividends in each of the last three years as follows: a payment in the aggregate
amount of Rp.94.1 billion in 2008 based on our profits for the year ended December 31, 2007; a payment in the
aggregate amount of Rp.137.9 billion in 2009 based on our profits for the year ended December 31, 2008; and a
payment in the aggregate amount of Rp.148.4 billion (US$16.3 million) in 2010 based on our profits for the year
ended December 31, 2009, reflecting a dividend payout ratio of 30.0% of net income for 2007, 2008 and 2009. Our
current dividend policy is to pay dividends to our shareholders in the amount of approximately 30.0% of our
consolidated net income after making provisions for all statutory reserves. We intend to maintain this dividend
payout ratio after the Global Offering in the year 2010 and going forward. Our dividends will be subject to our cash
flow and our investment plans, as well as requirements imposed by our indebtedness, regulatory restrictions and
other requirements.
Our board of directors may, in its discretion, change our dividend policy at any time. See “Description of Our
Shares — Dividends.” Our board of directors may decrease the level of dividends provided for in this dividend
policy or entirely discontinue the payment of dividends. Notwithstanding the foregoing, the declaration, amount
and payment of future dividends, if any, is subject to approval at a general meeting of shareholders. Future
dividends, if any, will depend on, among other things, our results of operations, retained earnings, cash
requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable law
and other factors that our board of directors may deem relevant. No assurance can be given that we will be able to
pay or will pay dividends in the future.
Under the Minister of State-Owned Enterprise Regulation No. PER-05/MBU/2007 on State-Owned
Companies’ Partnership Program with Small Scale Businesses and the Community Development Program
dated April 27, 2007, or the PKBL Regulation, as a non-public state-owned company, we were obliged to
establish a community development program (Program Kemitraan BUMN dengan Usaha Kecil dan Program Bina
Lingkungan), or PKBL. As a public state-owned company, we may contribute to the PKBL, based on a decision of
our shareholders, an amount of up to 2.0% of our net income. With respect to the years ended December 31, 2007,
2008, and 2009, our aggregate contributions to the PKBL were Rp. 1.9 billion, Rp. 9.2 billion and Rp. 19.8 billion
(US$2.2 million), respectively.
Any dividends will be paid in Rupiah. Holders of shares on the applicable record dates will be entitled to the
full amount of dividends approved, subject to any Indonesian withholding tax imposed, if any. Dividends received
by a non-Indonesian holder of shares will be subject to Indonesian withholding tax. For further information relating
to Indonesian taxation, see “Taxation — Indonesian Taxation.”
If you acquire shares in the Global Offering, you will be entitled to the same and equal rights as our existing
shareholder, including the right to receive dividends.

29
 EXCHANGE RATES AND EXCHANGE CONTROLS

Exchange Rates
The following table shows the exchange rate of Rupiah for U.S. dollars based on the middle exchange rates at
the end of each month during the periods indicated. The Rupiah middle exchange rate is calculated based on Bank
Indonesia’s buying and selling rates. None of the Company, the Joint Lead International Selling Agents or the
Underwriters makes any representations that the Rupiah or U.S. dollar amounts referred to in this offering circular
could have been or could be converted into U.S. dollars or Rupiah, as the case may be, at the rate indicated or any
other rate or at all.
Period End Average(1) Rupiah Low(2) Rupiah High(2)
(Rp. per US$1.00)
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,830 9,751 10,800 9,133
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,020 9,141 9,795 8,720
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,419 9,164 9,479 8,672
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,950 9,757 12,400 9,051
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,400 10,356 12,065 9,293
2010 (through September 2010)
January 2010 . . . . . . . . . . . . . . . . . . . . . . . . . 9,365 9,275 9,408 9,130
February 2010 . . . . . . . . . . . . . . . . . . . . . . . . 9,335 9,348 9,413 9,280
March 2010. . . . . . . . . . . . . . . . . . . . . . . . . . 9,115 9,174 9,313 9,070
April 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . 9,012 9,027 9,075 9,001
May 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,180 9,183 9,373 9,017
June 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,083 9,148 9,295 9,015
July 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,952 9,049 9,094 8,952
August 2010 . . . . . . . . . . . . . . . . . . . . . . . . . 9,041 8,972 9,041 8,932
September 2010. . . . . . . . . . . . . . . . . . . . . . . 8,924 8,976 9,034 8,924
(1)
The average exchange rate shown for each of the years listed above is calculated based on the middle exchange rate announced by Bank
Indonesia on the last day of each month during the year indicated. The average exchange rate for each month is calculated based on the daily
middle exchange rates during the month indicated.
(2)
The high and low amounts for each year are determined based on the month-end middle exchange rate announced by Bank Indonesia during
the year indicated. The high and low figures for each month are determined based on the daily middle exchange rates during the month
indicated.
Source: Statistik Ekonomi dan Keuangan Indonesia (Indonesian Financial Statistics) published monthly by Bank Indonesia and available on the
website of Bank Indonesia (www.bi.go.id).

Exchange Controls
Indonesia has no foreign exchange controls. Foreign currency is generally freely transferable within or from
Indonesia. However, to maintain the stability of the Rupiah and to prevent the utilization of the Rupiah for
speculative purposes by non-residents, Bank Indonesia has introduced regulations to restrict the movement of
Rupiah to a bank domiciled outside Indonesia or to an offshore branch of an Indonesian bank, or any investment in
Rupiah denomination with foreign parties and/or Indonesian parties domiciled or permanently residing outside
Indonesia, thereby limiting offshore trading to existing sources of liquidity. In addition, Bank Indonesia has the
authority to request information and data concerning the foreign exchange activities of all persons and legal entities
that are domiciled, or plan to domicile, in Indonesia for at least one year. Bank Indonesia regulations also require
resident banks and companies that have total assets or total annual gross revenues of at least Rp.100 billion to report
to Bank Indonesia all data concerning their foreign currency activities, if the transaction is not conducted via a
domestic bank or domestic non-bank financial institution (for example, insurance companies, securities companies,
finance companies, or venture capital companies). However, if the transaction is conducted via a domestic bank
and/or domestic non-bank financial institution, the requirement to report to Bank Indonesia is imposed on the
relevant Indonesian banks or non-bank financial institutions that carried out the transaction. The transactions that
must be reported include receipt and payment of foreign currency through bank accounts outside of Indonesia.

30
 CAPITALIZATION AND INDEBTEDNESS
The following table sets forth our consolidated capitalization as of June 30, 2010 on an actual basis, on a pro forma
basis to account for: (i) the capitalization of Rp.2,043.5 billion (US$225.0 million) of retained earnings as of June 30,
2010 and Rp.956.5 billion (US$105.3 million) of net income for the six-month period ended June 30, 2010 to increase
PT Krakatau’s issued and paid-up capital to Rp.5,000.0 billion (US$550.5 million) and changes in PT Krakatau’s shares
to 10,000,000,000 shares of Rp.500 each through a stock split, comprising the Special Share and 9,999,999,999
Series B ordinary shares based on Deed No. 135 dated August 21, 2010 (the “First Recapitalization”), and (ii) the
capitalization of Rp.6.5 billion (US$0.7 million) of retained earnings and Rp.1,303.5 billion (US$143.5 million) of
other paid-in capital as of June 30, 2010 to further increase PT Krakatau’s issued and paid-up capital to
Rp.6,310.0 billion (US$694.7 million) and changes in PT Krakatau’s shares to 12,620,000,000 shares of Rp.500
each, comprising the Special Share and 12,619,999,999 Series B ordinary shares based on Deed No. 75 dated October 7,
2010 (the “Second Recapitalization”, and together with the First Recapitalization, the “Recapitalization”), and on a pro
forma as adjusted basis to account for the Recapitalization and to reflect the completion of the Global Offering and our
receipt of the estimated net proceeds therefrom (after deducting selling and underwriting fees and commissions and
other estimated expenses related to the Global Offering). The consolidated financial information presented in the
“Actual” column in the table below has been extracted from our consolidated financial statements as of and for the six-
month period ended June 30, 2010, which have been audited by Purwantono, Suherman & Surja (formerly Purwantono,
Sarwoko & Sandjaja) (the Indonesian member firm of Ernst & Young Global Limited), independent public accountants,
in accordance with auditing standards established by the IICPA, as stated in their audit report appearing in this offering
circular. You should read this table in conjunction with our consolidated financial statements and the notes thereto
included elsewhere in this offering circular and the sections of this offering circular entitled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and “Use of Proceeds.”
As of June 30, 2010
Pro Forma
Pro Forma to account
to account for the First
for the First and Second Pro Forma as Adjusted
Actual Recapitalization Recapitalizations for the Global Offering
(Rp. in (Rp. in (Rp. in (US$ in (Rp. in (US$ in
billions) billions) billions) millions) billions) millions)
(Unaudited)(2) (Unaudited)(3) (Unaudited)
Short-term bank loans . . . . . . . . . . . 3,439.4 3,439.4 3,439.4 378.7 3,439.4 378.7
Current portion of long-term loans. . 202.3 202.3 202.3 22.3 202.3 22.3
Long-term loans (net of current
portion) . . . . . . . . . . . . . . . . . . . . 584.5 584.5 584.5 64.4 584.5 64.4
Total debt . . . . . . . . . . . . . . . . . 4,226.2 4,226.2 4,226.2 465.3 4,226.2 465.3
Shareholder’s equity
Issued and paid-up share capital . . 2,000.0 5,000.0 6,310.0 694.7 7,887.5 868.4
Other paid-in capital . . . . . . . . . . 1,303.5 1,303.5 — — 995.4 109.6
Difference arising from
transactions resulting in
changes in the equity of
subsidiaries . . . . . . . . . . . . . . . 18.5 18.5 18.5 2.0 18.5 2.0
Retained earnings . . . . . . . . . . . . 3,314.0 314.0 307.5 33.9 307.5 33.9
Total shareholder’s
equity . . . . . . . . . . . . . . . 6,636.0 6,636.0 6,636.0 730.6 9,208.9 1,013.9
(1)
Total capitalization . . . . . 10,862.2 10,862.2 10,862.2 1,195.9 13,435.1 1,479.1

Notes:
(1)
Total capitalization represents the sum of total debt plus total shareholder’s equity.
(2)
Based on Deed No. 135 dated August 21, 2010, our shareholder approved: (i) the increase of our authorized capital to Rp.20,000.0 billion
(US$2,201.9 million), (ii) the capitalization of Rp.2,043.5 billion (US$225.0 million) of retained earnings as of June 30, 2010 and
Rp.956.5 billion (US$105.3 million) of net income for the six-month period ended June 30, 2010 to increase PT Krakatau’s issued and
paid-up capital to Rp.5,000.0 billion (US$550.5 million), and (iii) the changes in PT Krakatau’s existing issued and paid-up share capital to
10,000,000,000 shares of Rp.500.0 each through a stock split, comprising the Special Share and 9,999,999,999 Series B ordinary shares.
(3)
Based on Deed No. 75 dated October 7, 2010, our shareholder approved: (i) the capitalization of Rp.6.5 billion (US$0.7 million) of retained
earnings and Rp.1,303.5 billion (US$143.5 million) of other paid-in capital as of June 30, 2010 to further increase PT Krakatau’s issued and
paid-up capital to Rp.6,310.0 billion (US$694.7 million), and (ii) the changes in PT Krakatau’s shares to 12,620,000,000 shares of Rp.500
each, comprising the Special Share and 12,619,999,999 Series B ordinary shares.

Except as disclosed in this offering circular, there have been no material adverse changes in our capitalization
since June 30, 2010.

31
 DILUTION
As of June 30, 2010, after giving effect to the Recapitalization, our book value of net assets attributable to
shareholders was Rp.6,636.0 billion, or Rp.526 per share. Book value of net assets per share represents consolidated
total shareholder’s equity divided by the total number of shares outstanding. After giving effect to the sale of the
Offer Shares at the Offering Price of Rp.850 per Offer Share and after deducting selling and underwriting fees and
commissions and other estimated expenses related to the Global Offering payable by us, our pro forma book value
of net assets per share as of June 30, 2010 would increase to Rp.584 per share. This represents an immediate
increase in book value of net assets per share of Rp.58 to our existing shareholder, and an immediate dilution of
Rp.266 per share to purchasers of Offer Shares at the assumed Offering Price.
The following table illustrates dilution on a per share basis based on the Offering Price of Rp.850 per Offer
Share:
Assumed Offering Price per Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rp.850
Pro forma book value of net assets per share as of June 30, 2010, after giving effect to the
Recapitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rp.526
Increase per share attributable to new investors(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rp.58
Pro forma book value of net assets per share, after giving effect to the Recapitalization and
the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rp.584
Dilution per share to new investors(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rp.266

Notes:
(1)
Calculated as the pro forma book value of net assets per share after giving effect to the Recapitalization and the Global Offering less the pro
forma book value of net assets per share as of June 30, 2010 after giving effect to the Recapitalization.
(2)
Calculated as the Offering Price per Offer Share less the pro forma book value of net assets per share after giving effect to the
Recapitalization and the Global Offering.

32
 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
You should read the selected consolidated financial and operating data presented below in conjunction with
our consolidated financial statements and the notes thereto included elsewhere in this offering circular. You should
also read the section of this offering circular entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
The following tables present our selected consolidated financial and operating data as of the dates and for the
periods indicated. The selected consolidated financial data as of and for the years ended December 31, 2005, 2006,
2007, 2008, and 2009, and as of and for the six-month period ended June 30, 2010, are derived from our audited
consolidated financial statements for those periods. The selected consolidated financial data as of and for the
six-month period ended June 30, 2009 is derived from our unaudited consolidated financial statements for that
period. Results for the interim periods are not necessarily indicative of results for the full year.
Our restated audited consolidated financial statements as of and for the year ended December 31, 2005, which
are not included in this offering circular, have been audited by Kanaka Puradiredja, Suhartono, independent public
accountants, in accordance with auditing standards established by the IICPA, as stated in their re-issued audit report
with an unqualified opinion, which is not included in this offering circular.
Our audited consolidated financial statements as of and for the year ended December 31, 2006, which are not
included in this offering circular, have been audited by Purwantono, Suherman & Surja (formerly Purwantono,
Sarwoko & Sandjaja) (the Indonesian member firm of Ernst & Young Global Limited), independent public
accountants, in accordance with auditing standards established by the IICPA, as stated in their audit report, which is
not included in this offering circular. As also stated in their audit report, Purwantono, Suherman & Surja (formerly
Purwantono, Sarwoko & Sandjaja) did not audit the financial statements as of and for the year ended December 31,
2006 of certain of our subsidiaries, which financial statements reflect approximately 7.0% of our consolidated total
assets as of December 31, 2006 and approximately 4.0% of our consolidated net revenues for the year ended
December 31, 2006. Those financial statements were audited by Syarief Basir & Rekan, independent public
accountants, in accordance with auditing standards established by the IICPA, whose audit reports expressed an
unqualified opinion and which are not included in this offering circular.
Our audited consolidated financial statements as of and for the years ended December 31, 2007, 2008, and
2009, and as of and for the six-month period ended June 30, 2010, included in this offering circular, have been
audited by Purwantono, Suherman & Surja (formerly Purwantono, Sarwoko & Sandjaja) (the Indonesian member
firm of Ernst & Young Global Limited), independent public accountants, in accordance with auditing standards
established by the IICPA, as stated in their audit report appearing in this offering circular.
Our unaudited consolidated financial statements as of and for the six-month period ended June 30, 2009
included in this offering circular have been reviewed by Purwantono, Suherman & Surja (formerly Purwantono,
Sarwoko & Sandjaja) (the Indonesian member firm of Ernst & Young Global Limited), independent public
accountants, in accordance with SA 722 established by the IICPA, as stated in their review report appearing in this
offering circular (presented combined with the audit report mentioned above). A review conducted in accordance
with SA 722 established by the IICPA is substantially less in scope than an audit conducted in accordance with
auditing standards established by the IICPA and, as stated in their review report appearing in this offering circular
(presented combined with the audit report mentioned above), Purwantono, Suherman & Surja (formerly
Purwantono, Sarwoko & Sandjaja) did not audit and do not express any opinion on such unaudited
consolidated financial statements included in this offering circular.
Our consolidated financial statements have been prepared and presented in accordance with Indonesian
GAAP, which differ in certain material respects from U.S. GAAP. For a discussion of these differences, see
“Summary of Certain Significant Differences between Indonesian GAAP and U.S. GAAP.”

33
 As of and for the Six-Month
As of and for the Years Ended December 31, Periods Ended June 30,
2005 2006 2007 2008 2009 2009 2009 2010 2010
(Restated) (US$ in (Unaudited) (US$ in
(Rp. in billions) millions) (Rp. in billions) millions)
Income statement data:
Net revenues . . . . . . . . . . . . . . . . . . . . . . 11,632.5 12,078.1 14,836.0 20,631.4 16,913.5 1,862.1 7,827.9 9,000.2 990.9
Cost of revenues . . . . . . . . . . . . . . . . . . . . 10,476.2 11,476.5 13,063.4 17,915.4 15,728.1 1,731.6 8,409.6 7,105.6 782.3
Gross profit/(loss) . . . . . . . . . . . . . . . . . . . 1,156.3 601.6 1,772.6 2,716.1 1,185.4 130.5 (581.7) 1,894.6 208.6
Total operating expenses . . . . . . . . . . . . . . 518.8 818.2 979.9 1,355.7 1,159.4 127.6 561.1 678.7 74.7
Income/(loss) from operations . . . . . . . . . . . 637.4 (216.6) 792.7 1,360.4 25.9 2.9 (1,142.7) 1,215.8 133.9
Other Income (charges), net . . . . . . . . . . . . (293.8) 61.4 (295.4) (619.6) 442.7 48.7 (281.7) 127.3 14.0
Income/(loss) before tax expense/ (benefit). . . 343.6 (155.2) 497.4 740.8 468.7 51.6 (1,424.5) 1,343.2 147.9
Tax expense/(benefit), net . . . . . . . . . . . . . . 157.8 (21.1) 180.8 277.2 (27.5) (3.0) (323.7) 346.3 38.1
Income/(loss) before minority interest in net
(income)/loss of subsidiaries . . . . . . . . . . 185.8 (134.2) 316.5 463.6 496.2 54.6 (1,100.8) 996.9 109.8
Minority interest in net (income)/loss of
subsidiaries . . . . . . . . . . . . . . . . . . . . . (2.1) (3.8) (3.1) (4.0) (1.5) (0.2) (0.3) 0.9 0.1
Extraordinary item, net of tax . . . . . . . . . . . — 2.6 — — — — — — —
Net income/(loss) . . . . . . . . . . . . . . . . . . . 183.7 (135.4) 313.4 459.6 494.7 54.5 (1,101.1) 997.8 109.9
Balance sheet data:
Cash and cash equivalents . . . . . . . . . . . . . 442.4 851.8 636.6 1,100.5 1,760.0 193.8 1,100.2 1,518.9 167.2
Short-term investments. . . . . . . . . . . . . . . . 19.9 21.9 44.9 5.3 142.6 15.7 6.1 2.0 0.2
Total assets . . . . . . . . . . . . . . . . . . . . . . . 10,720.5 10,247.6 11,117.0 15,374.4 12,795.8 1,408.8 11,538.2 13,343.7 1,469.1
Total debt(1) . . . . . . . . . . . . . . . . . . . . . . . 3,561.5 3,376.8 3,918.7 7,653.2 5,000.3 550.5 5,176.5 4,226.2 465.3
Total liabilities . . . . . . . . . . . . . . . . . . . . . 5,698.4 5,466.7 6,028.0 9,897.3 6,949.0 765.1 7,310.9 6,636.4 730.6
Total shareholder’s equity, net . . . . . . . . . . . 5,007.7 4,765.4 5,074.3 5,439.8 5,805.8 639.2 4,191.6 6,636.0 730.6

As of and for the Six-Month

As of and for the Years Ended December 31, Periods Ended June 30,
2005 2006 2007 2008 2009 2009 2009 2010 2010
(Rp. in billions, except ratios) (US$ in millions, (Rp. in billions, (US$ in millions,
except ratio) except ratios) except ratio)
Other Financial Measures
(unaudited) :
EBITDA(2) . . . . . . . . . . . . . . . . . . . 921.5 324.9 1,230.7 1,894.1 795.6 87.6 (815.2) 1,480.9 163.0
Gross Profit Margin (%)(3) . . . . . . . . 9.9 5.0 11.9 13.2 7.0 7.0 (7.4) 21.1 21.1
EBITDA Margin (%)(4) . . . . . . . . . . 7.9 2.7 8.3 9.2 4.7 4.7 (10.4) 16.5 16.5
EBITDA to Gross Interest
Expense(5) . . . . . . . . . . . . . . . . .. 3.6 1.0 4.3 5.2 1.7 1.7 N.A. 13.2 13.2
Return on Equity (%)(6) . . . . . . . . .. 3.7 (2.8) 6.2 8.4 8.5 8.5 N.A. 15.0 15.0
Return on Assets (%)(7) . . . . . . . . .. 1.7 (1.3) 2.9 3.5 3.5 3.5 N.A. 7.6 7.6
Net Debt(8) to EBITDA(9) . . . . . . . .. 3.7 8.9 2.7 3.5 4.1 4.1 N.A. 1.8 1.8
Net Debt to Total Capitalization(10) .. 0.3 0.4 0.4 0.5 0.3 0.3 0.4 0.2 0.2
Notes:
(1)
Total debt is calculated by adding short-term bank loans and the total current and non-current portions of long-term loans.
(2)
We have defined EBITDA to mean net income/(loss) for a relevant period, adjusted by adding/(deducting): (i) interest expense/(income);
(ii) tax expense/(benefit); (iii) depreciation expenses; (iv) minority interest in net income/(net loss) of subsidiaries; (v) (gain)/loss due to
extraordinary items, in particular, (gain) on sale of investment; (vi) (gain)/loss on disposal of fixed assets; (vii) write off/down in the value
of investments; and (viii) (gain)/loss on foreign exchange, net. EBITDA is not a standard measure under either Indonesian GAAP or U.S.
GAAP. As the steel manufacturing business is capital intensive, capital expenditure requirements and levels of debt and interest expenses
may have a significant impact on the net income of companies with similar operating results. Therefore, we believe that EBITDA provides
a useful reflection of our operating results and is an indicator of our operating performance. You should not consider our definition of
EBITDA in isolation or as an indicator of operating performance, liquidity or any other standard measure under either Indonesian GAAP or
U.S. GAAP or other companies’ definition of EBITDA. Funds depicted by this measure may not be available for debt service due to
covenant restrictions, capital expenditure requirements and other commitments. The definition of EBITDA under certain agreements
related to our indebtedness may differ from the definition we use here. Set forth below is a reconciliation of our consolidated net income or
net loss to EBITDA.

34
 For the Six-Month
For the Years Ended December 31, Periods Ended June 30,
2005 2006 2007 2008 2009 2009 2009 2010 2010
(Rp. in billions) (US$ in (Unaudited) (US$ in
millions) (Rp. in billions) millions)
Net income/(loss) . . . . . . . . . . . . . . 183.7 (135.4) 313.4 459.6 494.7 54.5 (1,101.1) 997.8 109.9
Plus:
Interest expense . . . . . . . . . . . . . . 254.8 321.6 285.7 367.0 458.3 50.5 328.4 112.2 12.4
Tax expense/(benefit) . . . . . . . . . . 157.8 (21.1) 180.8 277.2 (27.5) (3.0) (323.7) 346.3 38.1
Depreciation expenses . . . . . . . . . 307.7 355.1 353.9 357.5 356.1 39.2 183.6 167.2 18.4
Minority interest in net
income/(loss) of subsidiaries ... 2.1 (3.8) 3.1 4.0 1.5 0.2 0.3 (0.9) (0.1)
906.1 524.0 1,136.9 1,465.3 1,283.1 141.3 (912.5) 1,622.6 178.6
Less:
Interest income . . . . . . . . . . . . . . 19.0 39.2 26.8 46.0 41.3 4.5 21.7 22.8 2.5
Gain on sale of investment . . . . . . — 2.6* — — 374.6 41.2 — — —
(Gain)/loss on the disposal of fixed
assets . . . . . . . . . . . . . . . . . . . — — — — — — — — —
Write off/down in the value of
investments . . . . . . . . . . . . . . . — — — — — — — — —
(Gain)/loss on foreign exchange,
net . . . . . . . . . . . . . . . . . . . . . (34.4) 157.3 (120.6) (474.8) 71.6 7.9 (119.0) 118.9 13.1
(15.4) 199.1 (93.8) (428.8) 487.5 53.7 (97.3) 141.7 15.6
EBITDA (unaudited) . . . . . . . . . . 921.5 324.9 1,230.7 1,894.1 795.6 87.6 (815.2) 1,480.9 163.0

* Represents a discount on interest payments arising from a debt restructuring exercise conducted by our subsidiary, PT Krakatau Wajatama.
(3)
Gross profit margin is calculated by dividing gross profit/(loss) by net revenues.
(4)
EBITDA margin is calculated by dividing EBITDA by net revenues.
(5)
The ratio of EBITDA to gross interest expense is calculated by dividing EBITDA for the relevant period by gross interest expense for the
same period. Gross interest expense equals net interest expense plus finance charges, including commitment charges and fees relating to the
opening of letters of credit.
(6)
Return on equity is calculated by dividing net income/(loss) for the relevant period by shareholder’s equity, net for the same period.
(7)
Return on assets is calculated by dividing net income/(loss) for the relevant period by the average total assets for the same period. Average
total assets are calculated on the opening and closing consolidated balance for the year and for the relevant six-month periods.
(8)
Net debt represents total interest-bearing liabilities, including short-term bank loans, the total current and non-current portions of long-term
loans, and factoring payables, less cash and cash equivalents.
(9)
The ratio of net debt to EBITDA is calculated by dividing net debt for the relevant period by EBITDA for the same period.
(10)
The ratio of net debt to total capitalization is calculated by dividing net debt for the relevant period by total capitalization for the same
period. For these purposes, total capitalization represents the sum of total debt plus total shareholder’s equity.

Operating Data
The following table sets out the amount of HRC, CRC, wire rods, steel sections, bars, and pipes that we
produced in our production facilities for the periods indicated below:
For the Six-Month
For the Years Ended December 31, Periods Ended June 30,
2005 2006 2007 2008 2009 2009 2010
(In metric tons)
HRC(1) . . . . . . . . . . . 1,371,322 1,634,657 1,731,016 1,596,389 1,602,295 676,693 971,372
CRC . . . . . . . . . . . . . 512,904 552,659 613,639 520,888 475,990 191,145 257,029
Wire rods . . . . . . . . . 297,059 184,519 340,909 256,267 251,479 138,128 139,519
Steel sections . . . . . . 67,383 41,173 87,085 71,372 46,551 22,129 40,299
Bars . . . . . . . . . . . . . 127,431 64,369 103,734 94,377 79,307 29,447 44,754
Pipes. . . . . . . . . . . . . 43,219 31,012 20,307 45,814 51,100 30,937 30,029
Note:
(1)
Certain of the HRC that we produce in our hot strip mill is used as input in the production of our CRC and pipes. For the years ended
December 31, 2005, 2006, 2007, 2008 and 2009 and the six-month periods ended June 30, 2009 and 2010, we used 669,577 metric tons,
669,491 metric tons, 672,837 metric tons, 567,852 metric tons, 519,305 metric tons, 209,978 metric tons and 285,045 metric tons of the HRC
we produced, respectively, in our cold rolling mill to produce the amount of CRC indicated above for the relevant periods. For the same

35
 periods, we used 50,616 metric tons, 36,026 metric tons, 35,096 metric tons, 49,690 metric tons, 55,744 metric tons, 33,918 metric tons, and
32,073 metric tons of the HRC we produced, respectively, in our pipe mill to produce the amount of pipes indicated above for the relevant
periods. We sell HRC that we do not use in the production of our CRC or pipes to external customers. The amount of HRC set out in the table
above represents the total amount of HRC produced in our hot strip mill for the relevant periods, including HRC used in our production of
CRC and pipes, as well as HRC sold to external customers. The difference between the amount of HRC that we used in each of our cold
rolling mill and pipe mill and the amount of CRC and pipes that we produced, respectively, represents scrap resulting from edge cutting of
the HRC, scarfing and other processes in the production of our CRC and pipes.

The following table sets out the capacity utilization rate of our various plants for the periods indicated below:
For the Six-Month
Periods Ended
For the Years Ended December 31, June 30,
Plant 2005 2006 2007 2008 2009 2009 2010
Capacity utilization rate (%)(1)
Direct Reduction Plant . . . . 84.5 79.9 88.1 80.3 74.6 61.5 91.6
Steel Slab Plant . . . . . . . . . 70.4 70.2 74.5 71.1 52.3 38.3 68.7
Steel Billet Plant . . . . . . . . 57.0 32.0 59.4 54.3 43.0 43.2 49.4
Hot Strip Mill . . . . . . . . . . 68.6 81.7 86.6 79.8 80.1 67.7 97.1
Cold Rolling Mill . . . . . . . 60.3 65.0 72.2 61.3 56.0 45.0 60.5
Wire Rod Mill . . . . . . . . . . 66.0 41.0 75.8 57.0 55.9 61.4 62.0
Section Mill . . . . . . . . . . . 44.9 27.4 58.1 47.6 31.0 29.5 53.7
Bar Mill . . . . . . . . . . . . . . 85.0 42.9 69.2 62.9 52.9 39.3 59.7
Pipe Mill . . . . . . . . . . . . . . 36.0 25.8 16.9 38.2 42.6 51.6 50.0
Note:
(1)
Capacity utilization rate is calculated by dividing the actual output of each facility for the relevant period by the production capacity of that
facility.

The following table sets out the production yield of our various plants for the periods indicated below.
For the Six-Month
Periods Ended
For the Years Ended December 31, June 30,
Plant 2005 2006 2007 2008 2009 2009 2010
Production yield (%)(1)
Direct Reduction Plant . . . . . 63.8 64.4 65.0 65.2 64.0 63.5 65.0
Steel Slab Plant . . . . . . . . . . . 77.6 79.5 81.2 80.8 79.9 79.5 80.6
Steel Billet Plant . . . . . . . . . . 82.3 83.1 83.5 82.8 82.4 83.3 83.0
Hot Strip Mill . . . . . . . . . . . . 96.2 96.3 96.2 96.2 96.6 96.9 96.6
Cold Rolling Mill . . . . . . . . . 90.8 90.5 91.2 91.8 91.6 91.0 90.2
Wire Rod Mill . . . . . . . . . . . 96.3 96.2 96.6 96.7 96.6 96.5 96.8
Section Mill . . . . . . . . . . . . . 95.0 94.6 95.5 93.3 93.4 91.7 94.2
Bar Mill . . . . . . . . . . . . . . . . 96.4 95.4 97.5 96.1 96.6 97.7 95.8
Pipe Mill . . . . . . . . . . . . . . . 85.6 84.9 92.0 87.0 92.0 91.2 93.5
Note:
(1)
Production yield is calculated by dividing product output in metric tons of each facility for the relevant period by raw material input in metric
tons of that facility.

36
 MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of financial condition and results of operations should be
read in conjunction with the selected consolidated financial and operating data, our audited consolidated financial
statements and their related notes, our unaudited interim consolidated financial statements and their related notes,
and other financial information included elsewhere in this offering circular. Results for the interim periods are not
necessarily indicative of results for the full year. These consolidated financial statements have been prepared in
accordance with Indonesian GAAP, which differ in certain material respects from U.S. GAAP. See “Summary of
Certain Significant Differences between Indonesian GAAP and U.S. GAAP.”
Our audited consolidated financial statements as of and for the years ended December 31, 2007, 2008, and
2009, and as of and for the six-month period ended June 30, 2010, included in this offering circular have been
audited by Purwantono, Suherman & Surja (formerly Purwantono, Sarwoko & Sandjaja) (the Indonesian member
firm of Ernst & Young Global Limited), independent public accountants, in accordance with auditing standards
established by the IICPA, as stated in their audit report appearing in this offering circular.
Our unaudited consolidated financial statements as of and for the six-month period ended June 30, 2009
included in this offering circular have been reviewed by Purwantono, Suherman & Surja (formerly Purwantono,
Sarwoko & Sandjaja) (the Indonesian member firm of Ernst & Young Global Limited), independent public
accountants, in accordance with SA 722 established by the IICPA, as stated in their review report appearing in this
offering circular (presented combined with the audit report mentioned above). A review conducted in accordance
with SA 722 established by the IICPA is substantially less in scope than an audit conducted in accordance with
auditing standards established by the IICPA and, as stated in their review report appearing in this offering circular
(presented combined with the audit report mentioned above), Purwantono, Suherman & Surja (formerly
Purwantono, Sarwoko & Sandjaja) did not audit and do not express any opinion on such unaudited
consolidated financial statements included in this offering circular.
The discussion in this section contains forward-looking statements that involve risks and uncertainties and
reflects our current view with respect to future events and financial performance. Actual results may differ
materially from those anticipated in these forward-looking statements as a result of certain factors, including, but
not limited to, those set forth under “Forward Looking Statements,” “Risk Factors” and elsewhere in this offering
circular.

Overview
We are the largest steel producer in Indonesia and one of the largest steel producers in Southeast Asia. We
believe we are the largest producer of HRC and CRC in Indonesia and the second largest producer of wire rods in
Indonesia. Our integrated steel production facilities include ironmaking facilities at our direct reduction plant,
10 EAF steel making facilities, five continuous casting facilities and six rolling mills, comprised of a hot strip mill, a
cold rolling mill, a wire rod mill, a bar mill, a section mill and a pipe mill.
During the year ended December 31, 2009 and the six-month period ended June 30, 2010, we produced
1,602,295 metric tons and 971,372 metric tons, respectively, of HRC, 475,990 metric tons and 257,029 metric tons,
respectively, of CRC, 251,479 metric tons and 139,519 metric tons, respectively, of wire rods, 46,551 metric tons
and 40,299 metric tons, respectively, of steel sections, 79,307 metric tons and 44,754 metric tons, respectively, of
steel bars, and 51,100 metric tons and 30,029 metric tons, respectively, of steel pipes. We currently import our raw
materials, including iron ore pellets, from South America and the Middle East. We use a substantial proportion of
the HRC we produce as raw material for production of CRC and pipes. During the year ended December 31, 2009
and the six-month period ended June 30, 2010, we used 575,049 metric tons and 317,118 metric tons, respectively
of HRC in this manner. We sell substantially all of our products domestically in Indonesia to customers principally
located in Jakarta and its surrounding areas and Surabaya in East Java.
Our production facilities are currently all located in Cilegon, in the province of Banten in Indonesia. The
strategic location of our production facilities, which are 94 kilometers from Jakarta, and 5 kilometers from the port
of Cigading on the Sunda Strait, provides us with convenient access to our domestic customers as well as to our
imported raw materials that are delivered by suppliers. Our operations are supported by key infrastructure services
provided by our subsidiaries in Cilegon, including a power plant, port services and a water treatment plant.
We have recently commenced a program to substantially revitalize and expand our production facilities, with
the aim of increasing production capacity, improving the synergies between our upstream production capacity and
finished steel production facilities, as well as enhancing profit margins. Our revitalization and expansion programs,
which we expect to complete over the course of the next four years, is comprised of a number of projects, including

37
the construction of ironmaking facilities in South Kalimantan, Indonesia, which will be fed by domestic iron ore,
and the construction of a new blast furnace complex at our facilities in Cilegon. We estimate that total capital
expenditures for all of the revitalization and expansion projects we intend to complete by 2014 will be
approximately Rp.11,407 billion (US$1,255.9 million). We intend to use a portion of the proceeds of the
Global Offering to fund certain aspects of our revitalization and expansion programs, including improvements
relating to increasing the production capacity of our hot strip mill. See “Use of Proceeds” and “Business —
Revitalization and Expansion Programs.” In addition, we have recently entered into a joint venture agreement with
POSCO to establish a joint venture to develop, construct, operate, and maintain the joint venture integrated steel
mill in Cilegon. We expect the first phase of the development and construction of the joint venture integrated steel
mill to be completed by 2013 and, upon completion of the first phase, expect the steel slab plant to have an annual
production capacity of 3,000,000 metric tons of steel slab, of which we will be able to off-take up to 1,000,000
metric tons per year, subject to a ramp-up period of two years. It is also expected that the joint venture company will
process some of the steel slabs into steel plates. We estimate that our initial capital investment for the development,
engineering and construction of the first phase of the joint venture integrated steel mill will be approximately
US$279.3 million, a portion of which will be in the form of the 388.0 hectares of land for use as the site for the joint
venture integrated steel mill in Cilegon. See “Business — Joint Venture with POSCO.”
Our total consolidated net revenues for the years ended December 31, 2007, 2008 and 2009 were
Rp.14,836.0 billion, Rp.20,631.4 billion, and Rp.16,913.5 billion (US$1,862.1 million), respectively, and our
total consolidated net revenues for the six-month periods ended June 30, 2009 and 2010 were Rp.7,827.9 billion and
Rp.9,000.2 billion (US$990.9 million), respectively.

Factors Affecting Our Results of Operations

Set out below are some of the significant factors that have affected our results of operations during the periods
under review, as well as factors that are currently expected to affect our results of operations in the foreseeable
future. Other factors beyond those identified below may materially affect our results of operations. See “Risk
Factors” in this offering circular.

The Indonesian Economy

We believe that the growth in the Indonesian steel industry has been driven in part by recent growth of the
Indonesian economy and that demand for steel will continue to increase as the Indonesian economy continues to
develop and modernize. Our performance and the growth of our customer base and product offerings are necessarily
dependent on the health of the overall Indonesian economy.

Domestic and International Steel Prices

We derive substantially all of our net revenues from the sale of our steel products. For 2009 and the six-month
period ended June 30, 2010, 97.6% and 97.2%, respectively, of our revenue from steel sales were from domestic
steel customers. We utilize an adaptive selling price mechanism to determine the price of our products based on,
among other factors, the international prices of, and the demand for, steel products and the cost of our raw materials,
particularly, the cost of our imported iron ore pellets. We adjust the price of our products regularly based on such
factors. Historically, more than half of our steel products were sold through forward contracts, under which we
typically agree to deliver our products within two to three months at a fixed price. The remainder of our steel
products were sold on the spot market. Based on our analysis of the prevailing state of the steel market, we
determine the percentage of our products that we will sell on the spot market.
In 2007, 2008, 2009 and the six-month period ended June 30, 2010, we sold 21.0%, 40.6%, 38.0% and 33.0%,
respectively, of our HRC, CRC and wire rod products, in the spot market. Accordingly, the prevailing steel prices in
Indonesia have a significant impact on our results of operations. The prices of steel products in Indonesia are, in
turn, affected by international and regional steel prices, demand for steel products, raw materials and energy costs,
and the mix of steel products that are sold to our customers at a particular time.
The prices of steel products in Indonesia are affected by international steel prices, especially Far East Asian
steel prices. We believe that international steel prices, in turn, are affected by a number of factors, including the
health of the worldwide economy and the economies of certain regions and countries, the worldwide demand for
steel and the global cost of raw materials and energy. We believe that international steel prices declined in 2009
relative to 2008 primarily because of the global financial crisis. The global financial crisis also resulted in a
reduction of economic activity in Indonesia, particularly infrastructure and construction, which had an impact on
Indonesian steel prices.

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 Supply and Demand for Steel Products in the Indonesian Steel Market
Our results of operations are affected by the supply of and demand for steel products in the Indonesian market.
An increase in the supply of steel products could result in our customers placing fewer orders for products with us or
paying lower prices for ordered steel products, either of which would have an adverse effect on our revenues. The
entry of new competitors into the market, whether of domestic suppliers or importers, would intensify competition
and may reduce the selling prices of our steel products. Customers may renegotiate their existing contracts with us
or purchase products from our competitors instead of from us if they are able to secure lower prices elsewhere. See
“Risk Factors — Risks Relating to our Business — The steel industry is highly competitive and subject to
regulations for the maintenance of this competitive environment; we may not be able to maintain our domestic
market leadership position.”
On the other hand, when there is a shortage of steel products in the market, the demand and selling prices for
our products may increase, which would, in turn, be expected to have a positive impact on our revenue and
profitability. According to CRU, Indonesia was a net importer of certain steel products, including HRC and CRC, in
2009, which suggests opportunities for import substitution. We believe that domestic demand for steel products is
driven by, among others, the recent growth of the Indonesian economy, and that demand for steel will continue to
increase as the Indonesian economy continues to develop and modernize.

Raw Materials and Energy Costs

All direct and indirect manufacturing costs are included in our cost of revenues. The principal elements of our
cost of revenues of steel products are raw materials and energy costs, which accounted for 61.8% and 17.0%,
respectively, of our total costs for the six-month period ended June 30, 2010. The primary components of our raw
materials are iron ore pellets and steel scrap. Our iron ore pellets were supplied primarily under long-term contracts
during 2009 and the first half of 2010. Under our supply contracts, the price of iron ore pellets is determined during
the period preceding shipment of the iron ore pellets to us, taking into consideration the international market price
for iron ore pellets of the same grade. See “Business — Our Steel Business — Raw Materials and Supplies — Iron
Ore.” Iron ore prices are volatile and are most affected by the supply of iron ore and the demand for steel.
We believe that if our ironmaking venture becomes operational in 2011 and our new blast furnace complex
becomes operational in 2013, we would be able to utilize lower-grade domestic iron ore and thereby reduce our
reliance on imported iron ore and possibly reduce our iron ore costs. See “Business — Revitalization and Expansion
Programs — Ironmaking Expansion Project” and “Business — Revitalization and Expansion Programs — New
Blast Furnace Complex and Steel Making Modernization.” Our new blast furnace complex will require coking coal
as a raw material and, according to CRU, there are no coke batteries in Indonesia. As such, we expect that on
completion of our new blast furnace complex, we will need to import coking coal. We, therefore, expect coking coal
to become a U.S. dollar raw material cost for us.
Supplies of natural gas and electricity can fluctuate widely with availability and the demand levels from other
manufacturers. During periods of peak usage, supplies of energy may be curtailed. To manage our energy costs, we
have entered into long-term contracts with our suppliers, PT Pertamina and PT PGN for natural gas, which expire in
2013 and 2016, respectively, and PT PLN for electricity, which remains valid until terminated by either party. Our
two natural gas suppliers covered all of our natural gas requirements in 2009 while PT PLN covered 58.8% of our
electricity requirements in 2009.

39
 Product Mix
Our results of operations are affected by the mix of steel products that we sell to our customers. We conduct
inquiries and simulation exercises on a monthly basis to determine our product mix for a certain period, taking into
account, among others, our production capacity, domestic steel demand and international and domestic steel prices
for such period. The following table sets out the volume of HRC, CRC, wire rods, steel sections, bars, and pipes that
we sold and our average price of each of those products for the periods indicated:
For the Years Ended December 31, For the Six-Month Periods Ended June 30,
2007 2008 2009 2009 2010
Average Average Average Average Average Average
Selling Selling Selling Selling Selling Selling
Sales Price Sales Price Sales Price Average Sales Price Sales Price Price
Volume (In Rp. Volume (In Rp. Volume (In Rp. Selling Price Volume (In Rp. Volume (In Rp. (In US$
(In metric per metric (In metric per metric (In metric per metric (In US$ per metric (In metric per metric (In metric per metric per metric
tons) ton) tons) ton) tons) ton) ton) tons) ton) tons) ton) ton)
(In millions) (In millions) (In millions) (In millions) (In millions)

HRC(1) . . . . . . . 944,702 6.0 1,021,840 8.6 1,005,935 7.3 804 418,955 7.9 612,603 7.0 771
CRC. . . . . . . . . 622,566 6.1 533,314 9.1 460,031 8.0 881 201,115 7.7 258,814 8.0 881
Wire rods . . . . . 361,657 5.0 242,642 8.2 258,130 6.0 661 140,195 5.9 128,689 6.1 672
Steel sections . . . 106,881 6.1 59,341 9.3 49,711 6.8 749 18,993 6.9 46,821 6.6 727
Bars . . . . . . . . . 138,579 5.4 160,510 7.8 155,313 5.6 617 75,663 5.7 93,330 5.8 639
Pipes . . . . . . . . 38,342 8.2 44,048 12.3 66,757 12.9 1,420 29,863 13.3 26,734 10.7 1,178

Note:
(1)
Sales volume and the average price of HRC represent sales and average price of HRC sold to third party customers only.

Given conditions prevailing at a particular time, we endeavor to sell higher value products, such as products for
oil and gas pipes and boiler pressure vessels.

Sale of Interest in PT Pelat Timah Nusantara (“Latinusa”) and other Non-Recurring Events
On December 14, 2009, our subsidiary, Latinusa, conducted a public offering of its shares and was listed on the
IDX. Pursuant to a Sale and Purchase Agreement dated November 11, 2009, we sold 1,387,842,500 shares in
Latinusa, representing 55.0% of its total shares. The shares were sold at US$0.0432 per share, or a total of
US$60.0 million, which resulted in a gain on sale of investment of Rp.374.6 billion (US$41.2 million) (net of other
expenses related to the sale of shares), which is presented as part of our “Other Income (Charges)” in our 2009
consolidated statement of income. The sale of Latinusa’s shares was subject to final tax. As a result of the
transaction, our ownership interest in Latinusa decreased to 20.1%. As of and for periods after December 31, 2009,
Latinusa will be presented as an investment under the equity method in our consolidated financial statements.
The gain recognized on the sale of our interest in Latinusa represented 75.7% of our net income of
Rp.494.7 billion (US$54.5 million) for the year ended December 31, 2009. If we disregard this one-time gain,
then our net income for the year ended December 31, 2009 would have been Rp.120.0 billion (US$13.2 million).
Under our joint venture agreement with POSCO dated August 4, 2010, we agreed that the land contributed by
us would be valued at US$44.0 per square meter. As a result, we expect to recognize a one-time gain for the year
ending December 31, 2011 as a result of the in-kind capital contribution of land we expect to make to PT Krakatau
POSCO. See “Business — Joint Venture with POSCO.”

Capital Expenditures
Our ability to increase our production and sales will depend on our ability to expand our capacity through the
revitalization and expansion of our production facilities. We expect our revitalization and expansion programs to
increase the production capacity of some of our existing facilities and to create new facilities that will further
increase our production capacity by 2014. See “Business — Revitalization and Expansion Programs.” During 2007,
2008 and 2009, net cash used for the purchase of fixed assets amounted to Rp.167.6 billion, Rp.247.4 billion and
Rp.473.6 billion (US$52.1 million). In 2009, a majority of our capital expenditures were used to finance our
revitalization and expansion projects. The remainder of our capital expenditures in 2009 was used to finance various
asset acquisitions by our subsidiary companies. We expect that capital expenditures relating to our revitalization
and expansion programs will increase in the future until 2014. Part of our planned capital expenditures from 2010 to
2014 will be funded by external debt financing (see “Business - Revitalization and Expansion Programs”), which
we expect will increase our financing costs in the future.

40
 Foreign Exchange Volatility
The Indonesian Rupiah has appreciated considerably over the last decade from its low point of approximately
Rp.17,000 per U.S. dollar during the Asian financial crisis. During the period between January 1, 2007 through
March 31, 2010, the Indonesian Rupiah/U.S. dollar exchange rate ranged from a low of Rp.12,400 per U.S. dollar to
a high of Rp.8,672 per U.S. dollar, and, during the year 2009, the Indonesian Rupiah/U.S. dollar exchange rate
ranged from a low of Rp.12,065 per U.S. dollar to a high of Rp.9,293 per U.S. dollar. The prevailing Bank Indonesia
exchange rate was Rp.9,400 per U.S. dollar on December 31, 2009, and Rp.9,083 per U.S. dollar on June 30, 2010.
A portion of our borrowings, cost of goods, and capital expenditures are denominated in currencies other than
Indonesian Rupiah.
For the year ended December 31, 2009, a significant portion of our costs of goods and our borrowings were
denominated in foreign currency, primarily in U.S. dollars and in Euros, with the balance denominated in
Indonesian Rupiah. Depreciation in the value of the Indonesian Rupiah against foreign currencies adversely
affects our financial condition and results of operations because, among other things, the Indonesia Rupiah value of
costs of goods and expenses payable in foreign currency will increase by the same factor, thereby requiring us to
convert more Indonesian Rupiah to pay our foreign currency obligations. For the years ended December 31, 2007,
2008 and 2009, we recorded a gain/(loss) on foreign exchange-net of Rp.(120.6) billion, Rp.(474.8) billion and
Rp.71.6 billion (US$7.9 million), respectively.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with Indonesian GAAP. The
preparation of these consolidated financial statements requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue, and expenses as well as the disclosure of contingent
assets and liabilities. Management bases its estimates and judgments on historical experience and other factors that
are believed to be reasonable under the circumstances. We continually evaluate such estimates and judgments.
Actual results may differ from these estimates under different assumptions or actual conditions.
We also provide a summary of significant differences between our accounting principles prepared under
Indonesian GAAP and U.S. GAAP. The Indonesian Accounting Standards Board issued various revised accounting
standards that are to become effective on or after January 1, 2011. See note 2(u) of the notes to our consolidated
financial statements. We are currently evaluating and have not yet determined the effects of these revised and new
accounting standards on our consolidated financial statements.
We believe that, of our significant accounting policies, the following may involve a higher degree of judgment
or complexity.

Estimated Useful Lives and Impairment of Fixed Assets

Beginning on January 1, 2008, we have chosen the cost model for the measurement of fixed assets. Our fixed
assets are stated at cost less accumulated depreciation and impairment losses. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
Years

Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 - 50
Machineries and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 - 40
Plant and project equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 - 20
Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 - 30
Office and housing equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. 3-6
An item of fixed assets is derecognized upon disposal or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the
net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is
derecognized.
The assets’ residual values, useful lives and methods of depreciation are reviewed, and adjusted prospectively
as appropriate, at each financial year end.
The carrying amount of fixed assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Impairment in asset value, if any, is recognized as loss in
the consolidated statements of income.

41
 Construction in progress is stated at cost. The accumulated cost of the asset constructed is transferred to the
appropriate fixed assets account when the construction is completed and the asset is ready for its intended use.

Pension Plan and Other Employee Benefits

Our obligations and costs for pension and other employee benefits are determined by periodic actuarial
calculations using the projected unit credit method and are dependent on the selection of certain assumptions used
by an actuary in calculating such amounts. Those assumptions include, among other things, actuarial discount rates,
mortality rate, investment rate of return, salary increase rates, retirement age, turnover rates and disability rates.
Actuarial gains or losses are recognized as income or expenses when the net cumulative unrecognized actuarial
gains or losses for each individual plan at the end of the previous reporting year exceed the greater of 10.0% of the
present value of the defined benefit obligation and 10.0% of the fair value of any plan assets at that date. These gains
or losses are recognized on a straight-line method over the expected average remaining working lives of the
employees.
While we believe that the assumptions are reasonable and appropriate, significant differences in our actual
experience or significant changes in the assumptions may materially affect the costs and obligations of pension and
other employee benefits.

Allowance for doubtful accounts

We report the amount of our trade receivables by deducting allowances for doubtful accounts. Based on the
review of the status of the individual trade receivables at the end of the year, our management determines the
allowance of doubtful accounts that is adequate to cover possible losses that may arise from uncollectible trade
receivables.
Allowance for doubtful accounts is provided based on a review of the collectability of the individual
outstanding amounts at the end of the year. Receivables which are outstanding for two years or more are fully
provided, while receivables which are outstanding for less than two years are not provided except for amounts
identified as uncollectible.

Inventories
We establish allowances for obsolescence reserves for slow-moving inventories based on a review of the
physical condition of our inventories at the end of the year. Obsolescence reserves reduce the carrying value of slow-
moving and inactive inventories to their estimated net realizable value, which generally approximates the
recoverable scrap value. We also periodically evaluate our inventory carrying value to ensure that the amounts
are stated at the lower of cost or net realizable value. The cost of inventories is measured using the weighted-average
method, except for the cost of inventories of our subsidiaries, which is measured using a specific identification
method. If actual market conditions are less favorable than those projected by management, additional inventory
write-downs may be required.

Description of Key Line Items

Net Revenues
Net revenues consist primarily of sales of our various finished and semi-finished steel products net of discounts
and returns. Net revenues from domestic sales and exports of our steel products in Indonesia and in the international
market amounted to Rp.14,106.5 billion, Rp.19,534.6 billion and Rp.15,702.5 billion (US$1,728.8 million) for the
years ended December 31, 2007, 2008 and 2009, respectively and Rp.7,264.0 billion and Rp.8,302.7 billion
(US$914.1 million) for the six-month periods ended June 30, 2009 and 2010, respectively, representing 95.1%,
94.7%, 92.8%, 92.8% and 92.3%, respectively, of our total net revenues for the same periods.

42
 The table below sets forth the breakdown of our net revenues from the sale of our steel products for each of the
periods indicated:
For the Years Ended December 31, For the Six-Month Periods Ended June 30,
2007(1) 2008(1) 2009(1) 2009(1) 2010(1)
Percentage Percentage Percentage Percentage Percentage
to Total to Total to Total to Total to Total
Rp. in Revenues Rp. in Revenues Rp. in US$ in Revenues Rp. in Revenues Rp. in US$ in Revenues
billions (%) billions (%) billions millions (%) billions (%) billions millions (%)
(Unaudited)
HRC(2) . . . . . . 5,623.7 37.9 8,819.2 42.7 7,300.5 803.8 43.2 3,309.1 42.3 4,285.6 471.8 47.6
CRC . . . . . . . 3,785.7 25.5 4,875.6 23.6 3,679.1 405.1 21.8 1,541.0 19.7 2,081.1 229.1 23.1
Wire rods . . . . 1,798.4 12.1 1,982.0 9.6 1,553.3 171.0 9.2 831.0 10.6 780.3 85.9 8.7
Sections . . . . . 647.0 4.4 550.0 2.7 340.0 37.4 2.0 131.4 1.7 309.7 34.1 3.4
Bars . . . . . . . 746.3 5.0 1,258.3 6.1 862.1 94.9 5.1 429.1 5.5 539.9 59.4 6.0
Pipes . . . . . . . 315.1 2.1 540.4 2.6 859.3 94.6 5.1 398.5 5.1 285.1 31.4 3.2
Tinplates(3) . . . 1,021.4 6.9 1,465.9 7.1 1,070.5 117.9 6.3 596.0 7.6 — — —
Billets . . . . . . 67.0 0.5 43.2 0.2 2.4 0.3 0.0 17.4 0.2 — — —
Others . . . . . . 101.9 0.7 — — 35.2 3.9 0.2 10.4 0.1 21.1 2.3 0.2
Total . . . . . . . 14,106.5 95.1 19,534.6 94.7 15,702.5 1,728.8 92.8 7,264.0 92.8 8,302.7 914.1 92.3

Notes:
(1)
In 2008, we replaced our existing General Ledger — Computer Associates financial reporting system and tailor made application with an
SAP-based financial reporting system. With respect to each of 2007, 2009 and 2010, we reclassified the revenue generated by certain
products and adjusted the allocation of revenue accordingly. However, because the migration between financial reporting systems took place
during 2008, we were unable to retain the information necessary to make the reclassification for that year. For 2007, the reclassification of
revenue resulted in an adjustment to the allocation of revenues from HRC, CRC and wire rods, ranging from 0.1% to 6.0%. For 2009 and
2010, we believe that any adjustments to the allocation of revenue from HRC, CRC and wire rods were insignificant. The reclassification of
products and changes in allocation of revenue had no impact on the total revenue reported for each of 2007, 2008, 2009 and the six-month
periods ended June 30, 2009 and 2010.
(2)
Net revenues from the sale of our HRC represents HRC sales to external customers.
(3)
Our ownership interest in Latinusa decreased to 20.1% after we sold some of our shares in Latinusa in 2009. As a result, we no longer
consolidate the results of operations of Latinusa, which produces tinplates, with our consolidated financial statements for periods after
December 31, 2009. See “— Factors Affecting Our Results of Operations — Sale of Interest in PT Pelat Jimah Nusantana (“Latinusa”) and
other Non-Recurring Events.”

We also generate net revenues from other business segments which consist of engineering, procurement and
construction services, industrial estate land services, information technology services, medical services and our port,
power plant, and water treatment plant. See “Business — Our other Activities.” Net revenues from our other business
segments amounted to Rp.1,211.1 billion (US$133.3 million), or 7.2% of total net revenues, for the year ended
December 31, 2009 and Rp.697.5 billion (US$76.8 million) or 7.7% of total net revenues, for the six-month period ended
June 30, 2010. We plan on increasing the contribution of some of those services to our total net revenues in the future.
The primary drivers of our net revenues are domestic demand and steel prices. See “— Factors Affecting Our
Results of Operations.”

Cost of Revenues
Our cost of revenues consists of cost of revenues of steel products and certain non-manufacturing expenses.
Cost of revenues of steel products represented 96.2%, 95.4% and 94.2% of our total cost of revenues for the years
ended December 31, 2007, 2008 and 2009, respectively, and 95.2% and 93.1% for the six-month periods ended
June 30, 2009 and 2010, respectively.
Cost of revenues of steel products consists of raw materials used, direct labor, manufacturing cost, provisions
for (realization on) decline on value of inventory and purchases. Non-manufacturing expenses consist of expenses
relating to engineering and construction, our land and industrial estate services, information technology, salaries,
wages, and employee benefits of employees working for our other business segments, such as our port, power plant
and water supply businesses, and other services. Total production costs for each period are adjusted by the
movement in the inventory of finished goods and provisions for (realization on) declines in the value of our
inventory of finished goods.
Raw materials used consist of iron ore pellets, steel scraps, and steel slabs used in the production of the steel
products that we sell. Direct labor consists primarily of payments to the employees in our production facilities in
respect of their salaries, bonuses and payments for religious allowances. Manufacturing cost consists of direct costs
and production overheads relating to our steel making business, including natural gas, electricity, the use of other

43
materials in our production process, such as refractory and electrodes, and maintenance costs. Provision for
(realization on) decline in value of inventory consists of provisions for or realizations on a decline in the value of our
inventory of raw materials or products. Provisions are made to reduce the cost of our inventory to its net realizable
value when there is a decline in the value of our raw material or product inventory, due to various reasons, such as the
decline of the selling price for the inventory to an amount below its cost. Net realizable value represents our estimate
of the selling price of our inventory, less estimated costs of completion and estimated costs necessary to sell our
inventory. Upon use or sale of the inventory, we recognize a realization on the decline in value of inventory.
The following table sets out the components of our cost of revenues for steel products and as a percentage of
our total cost of revenues for the periods indicated:
For the Years Ended December 31, For the Six-Month Periods Ended June 30,
2007 2008 2009 2009 2010
Percentage Percentage Percentage Percentage Percentage
to Total Cost to Total Cost to Total Cost to Total Cost to Total Cost
Rp. in of Revenues Rp. in of Revenues Rp. in US$ in of Revenues Rp. in of Revenues Rp. in US$ in of Revenues
billions (%) billions (%) billions millions (%) billions (%) billions millions (%)
(Unaudited)
Raw materials used . . . . . . . . . . . 7,432.3 56.9 11,838.2 66.1 8,813.4 970.3 56.0 4,399.0 52.3 4,087.3 450.0 57.5
Direct labor . . . . . . . . . . . . . . . 516.4 4.0 620.5 3.5 589.3 64.9 3.7 278.5 3.3 449.0 49.4 6.3
Manufacturing cost . . . . . . . . . . . 4,554.8 34.9 5,574.9 31.1 4,005.3 441.0 25.5 2,032.4 24.2 2,232.1 245.7 31.4
Provision for (realization on) decline
in value of inventory . . . . . . . . . — — 374.9 2.1 (374.9) (41.3) (2.4) (316.3) (3.8) (1.8) (0.2) (0.0)

Total production cost . . . . . . . . . . 12,503.5 95.7 18,408.6 102.8 13,033.1 1,434.9 82.9 6,393.5 76.0 6,766.7 745.0 95.2
Finished goods, beginning of year . . . 1,719.5 13.2 1,987.6 11.1 4,080.1 449.2 25.9 4,080.1 48.5 2,113.9 232.7 29.7
Purchases . . . . . . . . . . . . . . . . 333.4 2.6 406.9 2.3 237.0 26.1 1.5 183.1 2.2 230.8 25.4 3.2
Finished goods, end of year . . . . . . (1,987.6) (15.2) (4,080.1) (22.8) (2,113.9) (232.7) (13.4) (2,285.0) (27.2) (2,489.0) (274.0 ) (35.0)
Effect on disposal of a subsidiary . . . — — — — (80.0) (8.8) (0.5) — — — — —
Provision for (realization on) decline
in value of inventory . . . . . . . . . — — 363.5 2.0 (340.3) (37.5) (2.2) (369.0) (4.4) (9.0) (1.0) (0.1)

Total . . . . . . . . . . . . . . . . . . . 12,568.7 96.2 17,086.6 95.4 14,816.1 1,631.2 94.2 8,002.6 95.2 6,613.3 728.1 93.1

We also incur cost of revenues from our other business segments which consist of engineering, procurement
and construction services, industrial estate land services, information technology services, medical services and our
port, power plant, water treatment plant. Cost of revenues from our other business segments amounted to
Rp.912.1 billion (US$100.4 million), or 5.8% of total cost of revenues, for the year ended December 31, 2009
and Rp.492.3 billion (US$54.2 million) or 6.9% of total cost of revenues, for the six-month period ended June 30,
2010.

Operating Expenses
Our operating expenses consist of selling and general and administrative expenses. Selling expenses consist of
delivery expenses, salaries, wages and employee benefits of our sales managers and staff, customer claims,
transportation and communication expenses related to the sale of our steel products, office expenses and other
expenses. General and administrative expenses consist of salaries, wages and employee benefits of all of our
employees other than those working at our production facilities and our sales managers and staff, insurance and
rental, repairs and maintenance of non-production facilities, office expenses, professional fees, all other
transportation and communication expenses, depreciation and amortization of non-production facilities,
provision for doubtful accounts, education and training, corporate and social responsibility and community
development expenses and other expenses.
Our principal operating expenses include general and administrative expenses relating to salaries, wages and
employee benefits and insurance and rental expenses, as well as selling expenses relating to delivery expenses.
General and administrative expenses relating to salaries, wages and employee benefits consist of payments to
our employees who are not engaged in production work or sales. Payments to those employees consist of salaries,
bonuses, payments for religious allowance, pension fund contributions, vacation and medical allowances, food
allowances, transportation allowance, and contribution to employee insurance premiums. General and
administrative expenses relating to salaries, wages and employee benefits represented 46.8%, 48.0%, 51.5% of
our operating expenses, respectively, for the years ended December 31, 2007, 2008 and 2009, respectively and
49.6% and 43.3% for the six-month periods ended June 30, 2009 and 2010, respectively.
Delivery expenses consist of transportation costs relating to the delivery of goods to our customers. Delivery
expenses represented 17.4%, 17.4%, 17.9%, 17.9% and 16.6% of our operating expenses, for the years ended
December 31, 2007, 2008 and 2009 and for the six-month periods ended June 30, 2009 and 2010, respectively.

44
 Insurance and rental expenses consist of insurance premiums paid to our insurers in respect of all-risks
property insurance and marine cargo open cover insurance. Rental expense consists of rent for the use of cars,
computers, and heavy equipment. Our insurance and rental expenses represented 11.6%, 12.2%, 10.4%, 9.3% and
12.3% of our operating expenses for the years ended December 31, 2007, 2008 and 2009 and for the six-month
periods ended June 30, 2009 and 2010, respectively.
The following table sets out the components of our operating expenses in absolute terms and as a percentage of
our total operating expenses for the periods indicated:
For the Years Ended December 31, For the Six-Month Periods Ended June 30,
2007 2008 2009 2009 2010
Percentage Percentage Percentage Percentage Percentage
to Total to Total to Total to Total to Total
Operating Operating Operating Operating Operating
Rp. in Expenses Rp. in Expenses Rp. in US$ in Expenses Rp. in Expenses Rp. in US$ in Expenses
billions (%) billions (%) billions millions (%) billions (%) billions millions (%)
(Unaudited)
Selling
Delivery expense. . . . . . . . . . . . 170.5 17.4 235.3 17.4 207.8 22.9 17.9 100.3 17.9 112.9 12.4 16.6
Salaries, wages and employees
benefits . . . . . . . . . . . . . . . . 34.1 3.5 47.8 3.5 41.7 4.6 3.6 20.3 3.6 28.5 3.1 4.2
Office expense . . . . . . . . . . . . . 2.8 0.3 4.6 0.3 4.3 0.5 0.4 3.3 0.6 2.8 0.3 0.4
Transportation and
communication . . . . . . . . . . . 4.5 0.5 4.6 0.3 4.7 0.5 0.4 2.4 0.4 2.2 0.2 0.3
Customer claims . . . . . . . . . . . . 9.4 1.0 41.9 3.1 5.1 0.6 0.4 4.4 0.8 1.5 0.2 0.2
Others . . . . . . . . . . . . . . . . . . 20.3 2.1 6.6 0.5 3.8 0.4 0.3 1.5 0.3 0.8 0.1 0.1
Total selling expenses . . . . . . . . 241.6 24.7 340.9 25.1 267.4 29.4 23.1 132.2 23.6 148.7 16.4 21.9
General and administrative
Salaries, wages and employees
benefits . . . . . . . . . . . . . . . . 459.0 46.8 650.6 48.0 597.4 65.8 51.5 278.2 49.6 294.1 32.4 43.3
Insurance and rental. . . . . . . . . . 113.9 11.6 165.3 12.2 120.9 13.3 10.4 52.4 9.3 83.7 9.2 12.3
Provision for doubtful accounts . . 23.8 2.4 35.7 2.6 10.0 1.1 0.9 19.3 3.4 46.9 5.2 6.9
Repairs and maintenance . . . . . . 30.5 3.1 46.4 3.4 60.7 6.7 5.2 31.3 5.6 36.2 4.0 5.3
Office expenses . . . . . . . . . . . . 38.0 3.9 32.7 2.4 32.2 3.5 2.8 14.2 2.5 21.7 2.4 3.2
Transportation and
communication . . . . . . . . . . . 24.7 2.5 23.0 1.7 15.4 1.7 1.3 7.3 1.3 9.7 1.1 1.4
Depreciation and amortization . . . 25.0 2.6 21.1 1.6 20.1 2.2 1.7 10.1 1.8 9.3 1.0 1.4
Education and training . . . . . . . . 5.7 0.6 7.1 0.5 7.6 0.8 0.7 2.1 0.4 7.8 0.9 1.1
Professional fees . . . . . . . . . . . . 14.9 1.5 26.1 1.9 19.0 2.1 1.6 10.3 1.8 5.2 0.6 0.8
Corporate social responsibility and
community development . . . . . 0.4 0.0 3.8 0.3 3.5 0.4 0.3 2.5 0.4 0.9 0.1 0.1
Others . . . . . . . . . . . . . . . . . . 2.5 0.3 3.2 0.2 5.2 0.6 0.4 1.2 0.2 14.5 1.6 2.1
Total general and administrative
expenses . . . . . . . . . . . . . . . 738.3 75.3 1,014.7 74.8 892.0 98.2 76.9 428.8 76.4 530.0 58.4 78.1
Total . . . . . . . . . . . . . . . . . . . 979.9 100.0 1,355.7 100.0 1,159.4 127.6 100.0 561.1 100.0 678.7 74.7 100.0

Other Income (Charges)

Our other income and charges consist of interest income from current accounts, time deposits in banks and a
one-time gain on our sale of our investment in Latinusa. Our other income and charges also include gains from the
settlement of post-retirement health care benefits liability associated with a change in our employee plan in 2009
from a defined benefit plan to a defined contribution plan (see note 23 of the notes to our consolidated financial
statements), foreign exchange gains (losses) from translation of net monetary liabilities in foreign currencies,
interest charges of our bank loans, sales of production waste products, rent income, an insurance claim arising from
the breakdown of machinery, and our receipt of penalty charges from customers for their cancellation of sales
contracts.

Tax Expense (Benefit)

Income tax expenses (benefits) represent current and deferred income tax expenses and benefits. Current tax
expenses represent the amount of income taxes payable in respect of our taxable profit for the relevant year
calculated based on relevant Indonesian income tax laws and regulations. Deferred income tax expenses and
benefits represent movements in the deferred tax assets (liabilities) balance for the relevant year reflecting the

45
amount of income tax recoverable (payable) in future periods in respect of deductible (taxable) temporary
differences and unused tax losses.

Comparison of Results of Operations

Six-Month Period Ended June 30, 2009 Compared to Six-Month Period Ended June 30, 2010
Net Revenues
Net revenues increased by 15.0% from Rp.7,827.9 billion for the six-month period ended June 30, 2009 to
Rp.9,000.2 billion (US$990.9 million) for the six-month period ended June 30, 2010. This increase was mainly due
to an increase in the sales volume of most of our steel products. Our sales volume increased by 31.9% from 884,784
metric tons for the six-month period ended June 30, 2009 to 1,166,991 metric tons for the six-month period ended
June 30, 2010. The increase in net revenues attributable to the increase in the sales volume of most of our steel
products was partially offset by a decrease in the sales volume of wire rods by 8.2% from 140,195 metric tons for the
six-month period ended June 30, 2009 to 128,689 metric tons for the six-month period ended June 30, 2010, and a
corresponding decrease in our net revenues from the sale of wire rods by 6.1% from Rp.831.0 billion for the
six-month period ended June 30, 2009 to Rp.780.3 billion (US$85.9 million) for the six-month period ended
June 30, 2010. The increase in net revenues was also partially offset by a decrease in the sales volume of pipes by
10.5% from 29,863 metric tons for the six-month period ended June 30, 2009 to 26,734 metric tons for the
six-month period ended June 30, 2010, and a corresponding decrease in our net revenues from the sale of pipes by
28.5% from Rp.398.5 billion for the six-month period ended June 30, 2009 to Rp.285.1 billion (US$31.4 million)
for the six-month period ended June 30, 2010. The increase in the sales volume of most of our steel products was
also partially offset by a decrease in the average selling prices of our HRC, steel sections, bars and pipes for the
six-month period ended June 30, 2010, compared to the six-month period ended June 30, 2009.

Cost of Revenues
Our cost of revenues decreased by 15.5% from Rp.8,409.6 billion for the six-month period ended June 30,
2009 to Rp.7,105.6 billion (US$782.3 million) for the six-month period ended June 30, 2010. This decrease in cost
of revenues was primarily due to a decrease in the cost of our raw materials, mainly as a result of a decrease in the
price of steel slabs that we used in our production. Our cost of raw materials used decreased by 7.1% from
Rp.4,399.0 billion for the six-month period ended June 30, 2009 to Rp.4,087.3 billion (US$450.0 million) for the
six-month period ended June 30, 2010 despite an increase in the volume of raw materials used for the six-month
period ended June 30, 2010, as compared to the six-month period ended June 30, 2009. The average price of steel
slab which we used in our operations decreased by 28.2% from Rp.5.9 million per metric ton for the six-month
period ended June 30, 2009 to Rp.4.2 million (US$465.6) per metric ton for the six-month period ended June 30,
2010. This decrease in the cost of our raw materials was partially offset by an increase in the volume of raw
materials used as well as an increase in our manufacturing costs. Our manufacturing costs increased by 9.8% from
Rp.2,032.4 billion for the six-month period ended June 30, 2009 to Rp.2,232.1 billion (US$245.7 million) for the
six-month period ended June 30, 2010 due to a general increase in our volume of steel products sold.

Operating Expenses
Operating expenses increased by 21.0% from Rp.561.1 billion for the six-month period ended June 30, 2009 to
Rp.678.7 billion (US$74.7 million) for the six-month period ended June 30, 2010. This increase was primarily due
to an increase in our delivery expenses, general and administrative expenses relating to salaries, wages and
employee benefits, insurance and rental expenses, and provision for doubtful accounts. Delivery expenses increased
by 12.6% from Rp.100.3 billion for the six-month period ended June 30, 2009 to Rp.112.9 billion (US$12.4 million)
for the six-month period ended June 30, 2010 as a result of an increase in the volume of steel products shipped to our
customers. General and administrative expenses relating to salaries, wages and employee benefits increased by
5.7% from Rp.278.2 billion for the six-month period ended June 30, 2009 to Rp.294.1 billion (US$ 32.4 million) for
the six-month period ended June 30, 2010 as a result of salary increases that took effect in April 2010. Insurance and
rental expenses increased by 59.7% from Rp.52.4 billion for the six-month period ended June 30, 2009 to
Rp.83.7 billion (US$9.2 million) for the six-month period ended June 30, 2010 due to an increase in our insurance
premiums as a result of the expansion of our insurance coverage from US$100 million to US$500 million per
incident. There was also an increase by 143.0% in our provision for doubtful accounts from Rp.19.3 billion for the
six-month period ended June 30, 2009 to Rp.46.9 billion (US$5.2 million) for the six-month period ended June 30,
2010 due to the provisions we made for long-term receivables from PT Boma Bisma Indra.

46
 Income from Operations
As a result of the foregoing, we received income from operations in the amount of Rp.1,215.8 billion
(US$133.9 million) for the six-month period ended June 30, 2010, while we experienced a loss from operations in
the amount of Rp.1,142.7 billion for the six-month period ended June 30, 2009.

Other Income (Charges), net

Other charges amounted to Rp.281.7 billion for the six-month period ended June 30, 2009, while we recorded
other income of Rp.127.3 billion (US$14.0 million) for the six-month period ended June 30, 2010. This change was
primarily due to foreign exchange gains and a significant decline in our interest expenses for the six-month period
ended June 30, 2010 as compared to the six-month period ended June 30, 2009. The foreign exchange gain occurred
in line with the appreciation of the Rupiah against other foreign currencies, as our U.S. dollar liabilities exceeded
our U.S. dollar assets, while the decline in interest expenses was due to a decrease in the amount of our outstanding
bank loans and facilities as a result of payments we made under these bank loans and facilities.

Income before Tax Expense (Benefit)

As a result of the foregoing, we experienced a loss before tax benefit amounting to Rp.1,424.5 billion for the
six-month period ended June 30, 2009, and recorded Rp.1,343.2 billion (US$147.9 million) of income before tax
expenses for the six-month period ended June 30, 2010.

Tax expense (benefit) — net

We had a tax benefit, net, amounting to Rp.323.7 billion for the six-month period ended June 30, 2009 because
we suffered a tax loss during the period; we recorded tax expenses, net, in the amount of Rp.346.3 billion
(US$38.1 million) for the six-month period ended June 30, 2010 as a result of income before tax that we earned for
the period. Tax expenses, net, for the six-month period ended June 30, 2010, were comprised of Rp.80.9 billion
(US$8.9 million) of current tax and Rp.265.4 billion (US$29.2 million) of deferred tax expenses. For the six-month
period ended June 30, 2010, we recorded current tax expenses of Rp.80.9 billion (US$8.9 million), after applying a
25.0% tax rate to our net taxable income. Our Rp.265.4 billion (US$29.2 million) in deferred tax expenses for the
six-month period ended June 30, 2010 represented utilization of our tax loss carry forward in 2009, which we had
previously recognized as a deferred tax asset in 2009.

Net Income
As a result of all the foregoing, we earned net income for the six-month period ended June 30, 2010 amounting
to Rp.997.8 billion (US$109.9 million). On the other hand, we recorded a net loss of Rp.1,101.1 billion for the six-
month period ended June 30, 2009.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2009
Net Revenues
Net revenues decreased by 18.0% from Rp.20,631.4 billion for the year ended December 31, 2008 to
Rp.16,913.5 billion (US$1,862.1 million) for the year ended December 31, 2009. This decrease was mainly due to
declining steel prices in 2009. Our average selling price for steel products sold in the domestic market dropped by
16.0% from its 2008 price levels and dropped by 19.0% for steel products that we sold to the export market for the
same period. In addition, there was also a decrease in the sales volume of our steel products by 3.0% from 2,061,695
metric tons for the year ended December 31, 2008 to 1,999,876 metric tons for the year ended December 31, 2009,
which had an adverse impact on our net revenues. The decrease in our net revenues from the sale of steel products
was slightly offset by increases in our net revenues from engineering and construction, information and technology
and other services. Revenue from other services increased by 13.1% from Rp.963.2 billion for the year ended
December 31, 2008 to Rp.1,089.3 billion (US$119.9 million) for the year ended December 31, 2009.

Cost of Revenues
Cost of revenues decreased by 12.2% from Rp.17,915.4 billion for the year ended December 31, 2008 to
Rp.15,728.1 billion (US$1,731.6 million) for the year ended December 31, 2009 primarily due to a decrease in our
production cost which, in turn, resulted from a decrease in the cost of raw materials used and manufacturing costs.
The cost of raw materials used decreased by 25.6% from Rp.11,838.2 billion for the year ended December 31, 2008
to Rp.8,813.4 billion (US$970.3 million) for the year ended December 31, 2009 primarily due to a general decrease
in our sales volume, which decreased by 3.2% from 2,061,695 metric tons for the year ended December 31, 2008 to

47
1,995,876 metric tons for the year ended December 31, 2009 and a decrease in the prices of our raw materials,
primarily imported iron ore pellets, steel scraps and imported steel slabs. The average price of imported iron ore
pellets that we used in our production decreased by 12.5% from Rp.1,898,000 per metric ton for the year ended
December 31, 2008 to Rp.1,660,000 (US$182.8) per metric ton for the year ended December 31, 2009. The average
price of steel scrap that we used in our production decreased by 23.7% from Rp.3,912,000 per metric ton for the year
ended December 31, 2008 to Rp.2,985,000 (US$328.6) per metric ton for the year ended December 31, 2009. The
average price of imported steel slab that we used in our production decreased by 25.9% from Rp.6,091,000 metric
ton for the year ended December 31, 2008 to Rp.4,512,000 (US$496.8) per metric ton for the year ended
December 31, 2009. Manufacturing costs decreased by 28.2% from Rp.5,574.9 billion for the year ended
December 31, 2008 to Rp.4,005.3 billion (US$441.0 million) for the year ended December 31, 2009 due to the
decrease in the use of other materials in 2009, such as electrodes, refractory, and other materials.

Operating Expenses
Operating expenses decreased by 14.5% from Rp.1,355.7 billion for the year ended December 31, 2008 to
Rp.1,159.4 billion (US$127.6 million) for the year ended December 31, 2009. This decrease was due to a decrease
in salaries, wages and employees expenses, delivery expenses and insurance and rental expenses.
General and administrative expenses relating to salaries, wages and employee benefits decreased by 8.2% from
Rp.650.6 billion for the year ended December 31, 2008 to Rp.597.4 billion (US$65.8 million) for the year ended
December 31, 2009 due to a reduction in travel allowances, shift allowances and vacation allowances and monthly
performance incentives not being awarded to employees in 2009, as compared to 2008. Allowances were reduced
and incentives were not awarded in 2009 as a result of our unfavorable financial performance during the year.
Delivery expenses decreased by 11.7% from Rp.235.3 billion for the year ended December 31, 2008 to
Rp.207.8 billion (US$22.9 million) for the year ended December 31, 2009 due to a decrease in the tonnage of
steel products delivered to our customers. Insurance and rental expenses decreased by 26.9% from Rp.165.3 billion
for the year ended December 31, 2008 to Rp.120.9 billion (US$13.3 million) for the year ended December 31, 2009
due to a decrease in the amount of insurance premium allocated to our operating expenses in 2009 and which were
allocated to production cost instead. Generally, we allocate insurance premium relating to assets that are not used in
our production to our operating expense and allocate insurance premium relating to assets used in our production to
our production cost.

Income from Operations

As a result of the foregoing, our income from operations decreased by 98.1% from Rp.1,360.4 billion for the
year ended December 31, 2008 to Rp.25.9 billion (US$2.9 million) for the year ended December 31, 2009.

Other Income (Charges), net

Other charges amounted to Rp.619.6 billion for the year ended December 31, 2008, while other income for the
year ended December 31, 2009 amounted to Rp.442.7 billion (US$48.7 million). The significant increase in other
income was primarily contributed by the occurrence of non-recurring income in 2009, such as gains on our sale of
our investment in Latinusa, gains from the settlement of post-retirement healthcare benefits liability, receipt of an
insurance claim, income from penalty payments made by a customer for its cancellation of a sales contract, and a
gain on foreign exchange, net. See “— Factors Affecting our Results of Operations — Sale of Interest in PT Pelat
Timah Nusantara (“Latinusa”) and Other Non-Recurring Events” and “— Description of Key Line Items — Other
Income (Charges).” The appreciation of the Rupiah against certain foreign currencies, including the U.S. dollar, that
2009 caused us to recognize a foreign exchange gain of Rp.71.6 billion (US$7.9 million) resulting from translation
gains with respect to foreign liabilities in 2009, while we experienced a foreign exchange loss of Rp 474.8 billion
(US$52.3 million) in 2008 due to the depreciation of the Rupiah and against certain foreign currencies, including
the U.S. dollar, which caused us to recognize a foreign exchange loss resulting from translation losses with respect
to foreign liabilities in 2008. The above income in 2009 was offset partially by an increase in interest expense,
which increased by 24.9% from Rp.367.0 billion for the year ended December 31, 2008 to Rp.458.3 billion
(US$50.5 million) for the year ended December 31, 2009 due to increased interest charged on our short-term
facilities and loans as a result of the global financial crisis.

Income before Tax Expense (Benefit)

As a result of the foregoing, our income before tax expense decreased by 36.7% from Rp.740.8 billion for the
year ended December 31, 2008 to Rp.468.7 billion (US$51.6 million) for the year ended December 31, 2009.

48
 Income tax (benefit) net
We recorded tax expense-net of Rp. 277.2 billion for the year ended December 31, 2008 and a tax benefit-net of
Rp.27.5 billion (US$3.0 million) for the year ended December 31, 2009. The tax benefit was derived mainly from an
allowance for decline in the value of inventory that was provided for in the year ended December 31, 2008, which
became deductible for tax purposes only for the year ended December 31, 2009 when the loss was realized. The tax
benefit was also due to a decrease in the income tax rate applicable to us. Prior to 2009, we had been taxed based on
a progressive income tax rate of up to 30.0%. Due to the revision of Law No. 7 of 1983 regarding income tax (the
“Indonesian Income Tax Law”) in 2008, which revision was made effective as of January 1, 2009, we have been
subjected to a single tax rate of 28.0%. Based on the revised Indonesian Income Tax Law, we will be taxed on a
single rate of 25.% for fiscal year 2010 onwards.

Net Income
As a result of all the foregoing, our net income increased by 7.6% from Rp.459.6 billion for the year ended
December 31, 2008 to Rp.494.7 billion (US$54.5 million) for the year ended December 31, 2009.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2008
Net Revenues
Despite a general decrease in our total sales volume by 6.8% from 2,212,727 metric tons for the year ended
December 31, 2007 to 2,061,695 metric tons for the year ended December 31, 2008, our net revenues increased by
39.1% from Rp.14,836.0 billion for the year ended December 31, 2007 to Rp.20,631.4 billion for the year ended
December 31, 2008 primarily as a result of a 46.0% increase in the selling price of steel products in the domestic
market. Our net revenues from steel products sold in the domestic market increased by 41.7% from
Rp.12,772.4 billion for the year ended December 31, 2007 to Rp.18,100.8 billion for the year ended
December 31, 2008. Sales of HRC comprise a significant portion of our net revenues, and contributed to the
increase in our net revenues. HRC sales volume increased by 8.2% from 944,702 metric tons in 2007 to 1,021,840
metric tons in 2008. This increase in HRC sales volume was partially offset by decreases in the sales volume of our
other products, including CRC and wire rods. CRC sales volume decreased by 14.3% from 622,566 metric tons in
2007 to 533,314 metric tons in 2008. Wire rod sales volume decreased by 32.9% from 361,657 metric tons in 2007
to 242,642 metric tons in 2008. Sales volume for all our products, with the exception of HRC and pipes, decreased
because we decided to produce and sell more HRC in 2008 due to the higher margins that we could obtain from the
production and sale of HRC compared to our other products.

Cost of Revenues
Our cost of revenues increased by 37.1% from Rp.13,063.4 billion for the year ended December 31, 2007 to
Rp.17,915.4 billion for the year ended December 31, 2008, as a result of an increase in our production cost,
especially the cost of raw materials used and manufacturing costs. The cost of raw materials used increased by
59.3% from Rp.7,432.3 billion for the year ended December 31, 2007 to Rp.11,838.2 billion for the year ended
December 31, 2008. The cost of raw materials used increased primarily because of an increase in the price of raw
materials used in 2008 compared to 2007, especially in the price of iron ore pellets. The average price of iron ore
pellets that we used in our production increased by 81.3% from Rp.1,047.0 million per metric ton in 2007 to
Rp.1,898.0 million per metric ton in 2008. Our manufacturing costs increased by 22.4% from Rp.4,554.8 billion for
the year ended December 31, 2007 to Rp.5,574.9 billion for the year ended December 31, 2008 mainly because of
an increase in the average price per unit of the other materials that we used in our production process. The average
price of alloys per kilogram increased by 48.0% from Rp.16,374 per kilogram for the year ended December 31,
2007 to Rp.24,229 per kilogram for the year ended December 31, 2008. The average price of electrodes per
kilogram increased by 27.6% from Rp.34,719 per kilogram for the year ended December 31, 2007 to Rp.44,309 per
kilogram for the year ended December 31, 2008. The average price of refractory per kilogram increased by 13.6%
from Rp.6,736 per kilogram for the year ended December 31, 2007 to Rp.7,653 per kilogram for the year ended
December 31, 2008.

Operating Expenses
Our operating expenses increased by 38.4% from Rp.979.9 billion for the year ended December 31, 2007 to
Rp.1,355.7 billion for the year ended December 31, 2008 primarily as a result of an increase in our general and
administrative expenses relating to salaries, wages and employees benefits, delivery expenses, claim from
customers, and insurance and rental expenses. General and administrative expenses relating to salaries, wages
and employee benefits increased by 41.7% from Rp.459.0 billion for the year ended December 31, 2007 to

49
Rp.650.6 billion as a result of salary raises in 2008, accrual of employee bonuses and our implementation of a new
monthly performance incentive for employees. Delivery expenses increased by 38.0% from Rp.170.5 billion for the
year ended December 31, 2007 to Rp.235.3 billion for the year ended December 31, 2008. Our average delivery
expense per metric ton of steel product delivered to customers increased by 47.0% from Rp.73,348.7 per metric ton
for the year ended December 31, 2007 to Rp.107,939.4 per metric ton for the year ended December 31, 2008. The
increase in delivery expenses was caused by a 95.0% increase in fuel prices in 2008. Claims for customers increased
by 345.7% due to the recognition of a one-time claim and penalty amounting to Rp.38.0 billion imposed on PT KHI
Pipe Industries (“PT KHIPI”) for its late delivery of pipes to a customer in 2008. Insurance and rental expenses
increased by 45.1% from Rp.113.9 billion for the year ended December 31, 2007 to Rp.165.3 billion for the year
ended December 31, 2008 due to an increase in insurance premium. The insurance premiums we were required to
pay increased due to a claim of Euro 8.1 million (US$9.9 million based on the European Central Bank rate of
US$1.2271 to Euro 1.00 as of June 30, 2010) that we made in 2007 for the breakdown of our boiler in 2007.

Income from Operations

As a result of the foregoing, our income from operations increased by 71.6% from Rp.792.7 billion to
Rp.1,360.4 billion.

Other Income (Charges), Net

Other charges, net increased by 109.7% from Rp.295.4 billion for the year ended December 31, 2007 to
Rp.619.6 billion for the year ended December 31, 2008, primarily as a result of the devaluation of the Indonesian
Rupiah as represented by foreign exchange losses of Rp.474.8 billion and an increase of 28.5% in our interest
expenses from Rp.285.7 billion for the year ended December 31, 2007 to Rp.367.0 billion for the year ended
December 31, 2008. Interest expenses increased as a result of our increased debt in the form of short-term working
capital loans and facilities, which we took out to finance our increasing working capital needs.

Income before Tax Expense (Benefit)

As a result of the foregoing, our income before tax expense increased by 48.9% from Rp.497.4 billion for the
year ended December 31, 2007 to Rp.740.8 billion for the year ended December 31, 2008.

Income tax (benefit) net

We recorded tax expense-net of Rp. 180.8 billion for the year ended December 31, 2007 and tax expense-net of
Rp.277.2 billion for the year ended December 31, 2008. The increase of 53.3% in tax expense-net was primarily due
to the increase in our income before tax expense.

Net Income
As a result of all the foregoing, our net income increased by 46.6% from Rp.313.4 billion for the year ended
December 31, 2007 to Rp.459.6 billion for the year ended December 31, 2008.

Liquidity and Capital Resources

Our business is capital intensive and requires substantial capital expenditures for, among other things,
purchasing, upgrading and maintaining equipment used in our steel making operations and for remaining in
compliance with environmental laws and regulations. Our short-term and long-term liquidity needs arise primarily
from capital expenditures, working capital requirements and principal and interest payments related to our
outstanding debt. We have met these liquidity requirements with cash provided by operations and short-term
and long-term debt, including credit lines which are available to us should we face a shortage of funds. We manage
liquidity risk by engaging in regular projections of cash flows to anticipate our cash needs. We use our excess cash to
invest in short-term financial instruments.
We believe the principal indicators of our liquidity are our cash position and remaining availability under our
credit facilities. As of December 31, 2009, we had cash available of Rp.1,760.0 billion (US$193.8 million) and
available borrowing capacity of Rp.5,407.8 billion (US$595.4 million) under our various credit facilities. As of
June 30, 2010, we had cash available of Rp.1,518.9 billion (US$167.2 million) and available borrowing capacity of
Rp.6,335.6 billion (US$697.5 million) under our various credit facilities.
We expect to meet our working capital and capital expenditure requirements for the remainder of 2010
primarily from the proceeds of this Global Offering, cash flows from operations and external debt. We may also,

50
from time to time, draw on our existing credit facilities or seek other sources of funding, depending on our financial
requirements and market conditions.

Cash Flows Provided By Operating Activities

The following table sets forth certain information regarding our historical cash flows for the periods indicated
below:
For the Six-Month
For the Years Ended December 31, Periods Ended June 30,
2007 2008 2009 2009 2010
Rp. in Rp. in Rp. in US$ in Rp. in Rp. in US$ in
billions billions billions millions billions billions millions
(Unaudited)
Net cash flows:
Provided by operating activities . . . 275.2 607.1 883.4 97.3 972.6 942.5 103.8
Used in investing activities . . . . . . . (170.7) (203.2) (18.2) (2.0) (226.2) (622.4) (68.5)
Used in financing activities . . . . . . (316.6) (7.5) (184.0) (20.3) (733.7) (527.9) (58.1)

Net Cash Provided by Operating Activities

Our net cash provided by operating activities consists of receipts from customers, receipts for claims for tax
refunds, and receipts from interest income from bank deposits. For the six-month period ended June 30, 2010, we
had net cash from operating activities in the amount of Rp.942.5 billion (US$103.8 million), a 3.1% decrease from
Rp.972.6 billion (US$107.1 million) for the six-month period ended June 30, 2009. The decrease was primarily due
to an increase in our operating expense payments, which was driven by increases in maintenance expense payments
and salaries, wages and employee benefits. Payments for operating expenses and others increased by 127.6% from
Rp.548.2 billion for the six-month period ended June 30, 2009 to Rp.1,247.9 billion (US$137.4 million) for the
six-month period ended June 30, 2010. Maintenance expense payments increased for the six-month period ended
June 30, 2010 as a result of maintenance activities, which were originally scheduled to take place in 2009, that were
conducted during the six-month period ended June 30, 2010 to coincide with the commencement of our
revitalization program. Operating expense payments also increased as a result of an increase in the salaries,
wages and employee benefits that we paid our employees. While salary increases usually take effect in April of
every year, salary increases took effect at the start of 2010. Bonuses were also paid to employees in June 2010 for
their performance in 2009.
Our net cash provided by operating activities amounted to Rp.275.2 billion, Rp.607.1 billion and
Rp.883.4 billion (US$97.3 million) for the years ended December 31, 2007, 2008 and 2009, respectively. For
the year ended December 31, 2008, net cash provided by operating activities increased primarily due to an increase
in receipts from customers, which increased by 49.2% from Rp.14,997.4 billion for the year ended December 31,
2007 to Rp.22,374.5 billion for the year ended December 31, 2008. For the year ended December 31, 2009, net cash
provided by operating activities increased by 45.5% mainly because we paid less to our suppliers, and payments for
our operating expenses and other expenses decreased. See “— Comparison of Results of Operations — Year ended
December 31, 2008 compared to year ended December 31, 2009 — Operating Expenses.” In 2009, there was a
29.6% decrease in the amount paid to our suppliers from Rp.17,998.5 billion (US$1,981.6 million) in 2008 to
Rp.12,672.2 billion (US$1,395.2 million) in 2009 as a result of a reduction in the amount of raw materials
purchased, such as a decrease in the purchase of iron ore pellets from 2,200,000 metric tons in 2008 to 1,500,000
metric tons in 2009. The decrease in our purchases was in line with our reduced production volume in 2009,
especially in the area of ironmaking and steel making.

Net Cash Used in Investing Activities

Net cash used in investing activities amounted to Rp.622.4 billion (US$68.5 million) for the six-month period
ended June 30, 2010 compared to Rp.226.2 billion for the six-month period ended June 30, 2009. The increase in net
cash used in investing activities compared to the corresponding six-month period ended June 30, 2009 was
primarily due to investments we made in our joint venture company for the development of ironmaking facilities in
South Kalimantan. See “Business — Revitalization and Expansion Programs — Ironmaking Expansion Project.”
The increase in net cash used in investing activities was also due to a significant increase in our investments in
restricted time deposits from Rp.10.3 billion for the six-month period ended June 30, 2009 to Rp.259.2 billion
(US$28.5 million) for the six-month period ended June 30, 2010.
Net cash used in investing activities amounted to Rp.170.7 billion, Rp.203.2 billion and Rp.18.2 billion
(US$2.0 million) for the years ended December 31, 2007, 2008 and 2009, respectively. Net cash used in investing

51
activities for 2007, 2008 and 2009 was driven primarily by acquisitions of equipment totaling Rp.167.6 billion,
Rp.247.4 billion and Rp.473.6 billion, respectively. See “— Capital Expenditures — Historical Capital
Expenditures.” The purchase of fixed assets in 2009, as well as placements in short-term time deposits, was
partially offset by proceeds from our sale of shares in Latinusa, which amounted to Rp.536.1 billion. See
“— Factors Affecting Our Results of Operations — Sale of Interest in PT Pelat Timah Nusantara (“Latinusa”)
and Other Non-Recurring Events.”

Net Cash Used in Financing Activities

Net cash used in financing activities amounted to Rp.527.9 billion (US$58.1 million) for the six-month period
ended June 30, 2010. Net cash used in financing activities primarily consisted of our repayment of bank loans in the
amount of Rp.558.1 billion (US$61.4 million).
Net cash used in financing activities amounted to Rp.316.6 billion in 2007, Rp.7.5 billion in 2008 and
Rp.184.0 billion (US$20.3 million) in 2009, respectively. Net cash used in financing activities in 2007 related
primarily to repayments of bank loans in the amount of Rp.388.7 billion. Net cash used in financing activities in
2008 and 2009 related primarily to our payment of cash dividends in the amount of Rp.95.1 billion and
Rp.137.9 billion, respectively.

Principal Indebtedness
The following table shows our outstanding borrowings as of December 31, 2007, 2008 and 2009, and June 30,
2010:
As of December 31, As of June 30,
2007 2008 2009 2010
Rp. in Rp. in Rp. in US$ in Rp. in US$ in
billions billions billions millions billions millions
(Unaudited)
Working capital loans, including
factoring payables . . . . . . . . . . . . . . . 2,789.1 6,809.8 4,209.3 463.4 3,439.4 378.7
Investment loans. . . . . . . . . . . . . . . . . . 1,129.6 951.7 791.0 87.1 786.8 86.6
See “Description of Material Indebtedness.”

Contractual Commitments
The following table sets forth information regarding our contracts and commitments as of June 30, 2010:
Payments Due by Period
Less Than More Than More Than
Total 1 Year 1-3 Years 3-5 Years 5 Years
Rp. in billions
Description of Contractual Obligations
Long-Term Debt Obligations. . . . . . . . . . . 828.1 205.6 327.2 171.1 124.2
Other Long-Term Liabilities Reflected on
Our Balance Sheet . . . . . . . . . . . . . . . . — — — — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 828.1 205.6 327.2 171.1 124.2

Capital Expenditures
Historical Capital Expenditures
For 2007, 2008 and 2009, net cash used for the purchase of fixed assets amounted to Rp.167.6 billion,
Rp.247.4 billion and Rp.473.6 billion (US$52.1 million), respectively. We used these funds primarily for the
acquisition of equipment, to fund projects relating to our revitalization program, the implementation of an
enterprise resource planning contract for the upgrade of our information systems using a SAP program, our
energy conversion project that was directed towards better energy management of our batch annealing furnace, the
erection of roll quenching facilities, and to fund our investment in an ironmaking joint venture with Antam. As of
June 30, 2010, we have recorded Rp.1,196.9 billion (US$131.8 million) in 2010 as an addition to our fixed assets
related to our ongoing revitalization and expansion programs. See “Business — Revitalization and Expansion
Programs — Revitalization of Existing Facilities.”

52
 Capital Expenditures for 2010 to 2014
Under our capital expenditure program, we currently plan to invest approximately Rp.1,209.3 billion
(US$133.1 million) during the second half of 2010 and Rp.3,310 billion (US$364.4 million) in 2011 in capital
expenditures. From 2012 to 2014, we also plan to make capital expenditures of approximately Rp 5,691 billion
(US$626.4 million).
The capital expenditures we expect to incur in the second half of 2010 and our current budgeted capital
expenditures relating to our revitalization and expansion programs for the year ending December 31, 2011 and the
years 2012 to 2014 are summarized in the table below. Also see “Business — Revitalization and Expansion
Programs.” These amounts are subject to change depending on a number of factors, including the results of our
feasibility studies and the completion of our projects in a timely manner. See “Risk Factors — Risks Relating to our
Business — Our expansion plans may not be successful, may become more expensive to complete and modernized
or additional facilities may not commence operation as planned.”
For the Year Ending For the Years Ending
Second Half of December 31, December 31,
2010 2011 2012-2014
(Rp. in billions)
Revitalization:
Direct Reduction Plant(1) . . . . . . . . . . . . 125 315 49
Steel Slab Plant(2) . . . . . . . . . . . . . . . . . 16 219 354
Hot Strip Mill(3) . . . . . . . . . . . . . . . . . . 245 128 —
New Blast Furnace Complex and Steel
Making Modernization(4) . . . . . . . . . . . . — 917 2,480
Hot Strip Mill Expansion(5) . . . . . . . . . . . . — 224 1,075
New Ironmaking Facilities(6) . . . . . . . . . . . 462 362 —
Port Development(7) . . . . . . . . . . . . . . . . . 91 216 959
Power Plant Development(7) . . . . . . . . . . . . 260 837 637
Water Supply Development(7) . . . . . . . . . . 10 93 137
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,209 3,310 5,691

Notes:
(1)
Our total estimated capital expenditures for the revitalization of our direct reduction plant are based partly on contractual amounts that we
agreed to pay under the EPC contract that we signed on June 25, 2009 with Hyl Technologies S.A. de C.V., as amended, the EPC contract for
a migration automation system that we signed on April 22, 2010 with PT Honeywell Indonesia, the contract we signed on August 27, 2010
with our subsidiary, PT KE, for the revitalization of our Hyl III, as well as our estimate of the additional amounts that we will need to invest to
complete the direct reduction plant revitalization project.
(2)
Our total estimated capital expenditures for the revitalization of our steel slab plant are based on the contractual amount that we agreed to pay
under the turnkey contract that we signed on April 20, 2010 with Siemens VAI Metals Technologies GmbH & Co. and PT Siemens
Indonesia, as well as our estimate of the additional amounts that we will need to invest to complete the steel slab plant revitalization project.
(3)
Our total estimated capital expenditures for the revitalization of our hot strip mill are based on the contractual amount that we agreed to pay
under a contract for the modernization of our hot strip mill’s main line, reheating furnace, and roll shop, which was signed on March 31,
2008, with a consortium consisting of SMS Demag AG, Siemens AG, PT Siemens Indonesia, PT Lyka Mandiri Sentosajaya and Tenova
S.P.A, as amended, as well as our estimate of additional amounts that we will need to invest to complete the hot strip mill revitalization
project.
(4)
Our total estimated capital expenditures for the new blast furnace complex and steel making modernization projects are based on our pre-
feasibility study. We currently aim to sign a contract for the development and construction of our new blast furnace complex by the end of
2010. However, the contract could be signed at a later time and our payment for expenditures under the contract could take place in 2011.
(5)
We are in the process of completing the feasibility study for this project. The total estimated capital expenditures for our hot strip mill
expansion are based on a preliminary offer from a potential supplier.
(6)
The total estimated capital expenditures for our new ironmaking facilities are based on a contract for the development of the rotary kiln
signed on February 19, 2009 between PT Meratus Jaya Iron and Steel, the joint venture company which we formed with Antam, and PT KE,
our subsidiary, a contract for the development of the 60 MW power plant signed on March 23, 2010 also between PT Meratus Jaya Iron and
Steel and PT KE, as well as a feasibility study that was prepared by a third party for the development and construction of a water treatment
plant that will support our new ironmaking facilities.
(7)
The total estimated capital expenditures for the port development project, which excludes certain minor ancillary works which will
accompany the port development project, and water development projects are based on our feasibility studies, while the total estimated
capital expenditures for the power plant development project are based on a feasibility study that was prepared by a third party. The
feasibility studies are subject to further review. The scope of work under these projects could change and the costs associated with these
projects could increase after further review of the feasibility studies.

53
 In addition to our revitalization and expansion programs, we also have on-going projects, which will require
capital expenditures in the future.
In April 2009, to improve and integrate our business processes and information systems, we entered into an
enterprise resources planning contract to procure hardware, online software and SAP software for our business. We
estimate that the project will be completed by the end of 2010. Based on the enterprise resources planning contract,
we expect to spend an additional amount of Rp.10.2 billion (US$1.1 million) during the second half of 2010 using
cash from our operations.
We also entered into a cold rolling mill fuel conversion project in July 2009, which includes changing our
combustion system from special fuel oil to natural gas for our batch annealing furnaces, to reduce our energy costs.
We estimate that the project will be completed by the end of 2010. Based on the contract we entered to implement
this project, we expect to spend an additional amount of Rp.2.2 billion (US$0.2 million) and EUR 0.6 million during
the second half of 2010 using cash from our operations.
Our overall expenditure levels and our allocation among our projects and programs remain subject to many
uncertainties. We may increase, reduce or suspend our planned capital expenditures for 2010 and 2011 through
2014 or change the timing and area of our capital expenditure spending from the estimates described above in
response to market conditions or for other reasons. We may also make additional capital expenditure investments as
opportunities arise. We periodically review the amount of our capital expenditures and may make adjustments based
on the current progress of capital expenditure projects and market conditions. No assurance can be given that we
will be able to meet any such increased expenditure requirements or obtain adequate financing for such
requirements, on terms acceptable to us, or at all.
The primary sources of the amounts we plan to expend on capital expenditures will be cash from our
operations, proceeds from the Global Offering, and external debt.

Contingencies
We have made provisions for certain contingent liabilities in relation to certain legal proceedings which we are
involved. See “Business — Legal Proceedings.”

Quantitative and Qualitative Disclosures about Market Risks

In the normal course of business, our financial position is routinely subject to a variety of risks. We are exposed
to market risks associated with foreign currency exchange rates and commodity price risks.

Currency Risk
Our foreign currency exposures give rise to market risk associated with exchange rate movements against the
Indonesian Rupiah, our functional and reporting currency. As of June 30, 2010, we had Rp.2,959.6 billion
(US$325.8 million) of foreign currency denominated monetary liabilities, primarily U.S. dollar denominated debt,
payables and accrued expenses, and Rp.923.4 billion (US$101.7 million) of foreign currency denominated
monetary assets, consisting principally of U.S. dollar denominated cash and cash equivalents and trade
receivables. To the extent the Indonesian Rupiah declines in value relative to the U.S. dollar, our monetary net
liabilities will increase in Indonesian Rupiah terms. See note 35 of the notes to our consolidated financial statements
for a description of our historical monetary assets and liabilities denominated in foreign currencies and “— Factors
Affecting Our Results of Operations — Foreign Exchange Volatility” for a description of the impact of foreign
exchange movements on our results of operations.
We enter into hedging contracts to limit our foreign exchange exposures. During the three-year period ended
December 31, 2009 and the six-month period ended June 30, 2010, we engaged in several forward transactions
pursuant to which we agreed to receive fixed amounts in U.S. dollars ranging from US$103 million to
US$386 million and to pay fixed amounts in Rupiah ranging from Rp.926 billion (US$101.9 million) to
Rp.3,629.0 billion (US$399.5 million) to hedge our exposure to movements in foreign currency exchange rates
arising on our monetary assets and liabilities denominated in foreign currencies, mostly in U.S. dollars, including
cash and cash equivalents, short-term investments, trade receivables, net, short-term bank loans, trade payables and
accrued expenses. Such forward transactions amounted to US$149.0 million during the six-month period ended
June 30, 2010. We hedge on a selective basis and evaluate on a monthly basis our short-term foreign exchange
exposure position, the availability of foreign exchange funds, and market consensus in foreign exchange
movements. Such transactions historically covered 30.0% to 50.0% of our net foreign currency exposure. We
intend to continue to engage in such transactions covering between 30.0% to 50.0% of our net foreign currency
exposure going forward.

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 Commodity Price Risk
In the normal course of our business, we are exposed to a variety of commodity price risks, primarily in relation
to iron ore. We are also exposed to market risk of price fluctuations related to the purchase, production and sale of
steel products, and to the purchase, production and sale of steel scrap.

Interest Rate Risk

We are also exposed to market risk associated with variable interest rates. Our exposure to changes in interest
rates arises primarily from our loans and facilities with floating interest rates. See “Description of Material
Indebtedness” and notes 15 and 22 to our consolidated financial statements. Going forward, some of our new debt
financing agreements could also subject us to floating interest rates. Increases in interest rates would increase our
interest expenses relating to our outstanding variable rate borrowings and increase the cost of new debt. We manage
interest rate risk by evaluating the ratio of our loans with fixed and floating interest rates, taking into account the
movements of relevant interest rates in the financial markets.

Off Balance Sheet Arrangements

As of the date of this offering circular, we do not have any off balance sheet arrangements.

Recent Developments
We experienced a decline in our domestic sales volume for the third quarter of 2010 compared to the first and
second quarters of 2010. We believe that the decline was primarily due to the recent Ramadan holidays and the
decline in the domestic demand for steel in the period. As a result of the Ramadan holidays, a number of key
national roads were inaccessible and a number of our customers’ warehouses were closed. We believe that while the
Ramadan holidays generally have an adverse impact on our sales volume each year, its effects in 2009 were
mitigated because of the increased demand in the third quarter of 2009 in spite of the Ramadan holidays, as
customers were making up for their reduced purchases during the first half of 2009. Accordingly, our sales volume
for the third quarter of 2010 was also lower than our sales volume for the third quarter of 2009.
In addition, we experienced an increase in the prices of our raw materials, particularly for iron ore pellets, in
the third quarter of 2010. This resulted in a decrease in our gross profit margin for that quarter.

55
 INDUSTRY OVERVIEW
This Industry Overview has been prepared and provided by CRU for PT Krakatau. It is based upon information
from CRU’s database, publicly available sources, industry reports, data obtained from interviews and other sources.
Graphs and tables are prepared from information contained in CRU’s own database unless an alternative source is
indicated underneath the relevant graph or table. Market analyses and views about the future of the steel industry
represent CRU’s estimates or judgment, based upon data sources cited, and are subject to the validity of the
assumptions noted herein. For purposes of the analyses presented in this Industry Overview, CRU has advised that it
has relied upon, and considered accurate and complete, data obtained from the sources cited, but has not
independently verified the completeness or accuracy of that data. The information in the databases of other steel
industry data collection agencies may differ from the information in CRU’s database. It is expected that any third party
who is given a copy of this offering circular will conduct its own independent analysis. All estimates and views about
the future of the steel industry contained in this Industry Overview are based on data obtained from the sources cited
and involve significant elements of subjective judgment and analysis, which may or may not be correct.

Introduction to Steel
End Uses and Demand Drivers
As one of the most adaptable and cost-effective bulk materials, steel is widely used in infrastructure
development, construction, and manufacturing industries such as in the automotive, shipbuilding, railway,
machinery and electronic appliances industries. The global finished steel consumption volume has been
increasing steadily, largely driven by economic and industrial growth in China, expanding to 1.2 billion metric
tons in 2009 according to CRU finished steel figures.
The steel industry is affected by a combination of factors, including periods of economic growth or recession
and the associated changes in global and regional levels of industrial production, worldwide production capacity
and the existence of, and fluctuations in, steel imports and protective trade measures. Based on studies by CRU,
steel prices tend to respond to supply and demand and fluctuate in response to general and industry-specific
economic conditions.
Steel products can be divided into two categories: long products and flat products.
Long products are so called because they come off the mill as long bars of steel. These products come in a vast
range of shapes and sizes. They can have cross-sections shaped like an H or I (joists, beams and columns), a
U (channel) or a T. These types of steel section are primarily used in the construction industry. Some long products
are in the form of bars and have cross-sections in the shape of squares, rectangles, circles, hexagons, or angles. Other
types of long products include railway rails, piling and reinforcing bars for concrete.
Flat products are so called because they come in flat shapes (sheets or plates). These products are typically
made by rolling steel through sets of rollers to produce the final thickness. Flat products include plates, HRC, and
CRC. These products come with a variety of thickness and surface conditions. HRC is one of the most widely used
steel products and many other downstream products are made from it. HRC is also the substrate material for CRC,
galvanized steel, silicon steel and other products. Flat products have applications in construction, transportation,
pipe manufacture and domestic appliances.

Steel Production Processes

Steel is typically produced using a two-stage process, the first of which is termed “ironmaking” and the second
“steel making.”
Ironmaking is the conversion of primary iron units (ore) to a product that is around 96% iron; in a blast furnace,
hot metal/pig iron is produced and in a direct reduction furnace, DRI/Hot Briquetted Iron (“HBI”) is produced. In a
blast furnace, iron ore, coke and limestone are charged into the top of the furnace. Hot air (usually heated by gas) is
blown in at the bottom of the furnace causing the iron ore to melt, producing hot metal / pig iron at approximately
96% and impurities as slag. A direct reduction furnace is a tall cylinder, known as a shaft furnace. Iron ore is
dropped in at the top and on the way down volatiles, such as carbon dioxide and chemically bound moisture, are
driven off by hot reducing gases. The iron never becomes molten so no slag is produced, hence a low impurity iron
ore (“DR grade”) must be used.
The next stage in the process is steel making, which involves the refining of the products from the ironmaking
stage into liquid steel. This process can either be accomplished in a Basic Oxygen Furnace (“BOF”) or an EAF. In a
BOF, scrap and hot metal from the blast furnace are charged into the vessel, and oxygen is then blown into the
mixture via a lance, oxidizing carbon and other impurities. Metallurgical lime and fluor-spar are fed into the vessel

56
to form slag, which absorbs impurities during the steel making process. EAFs produce steel by applying heat
generated by electricity arcing between graphite electrodes and a metal bath. The charge includes scrap, HBI/DRI,
fluxes (lime, fluorspar), reducing agents (carbon) and ferroalloys. Further scrap may be added after the ignition of
the electric arc and melting.
According to CRU, steel mills using EAFs are typically smaller in scale than integrated blast furnace/BOF
facilities, and therefore involve lower capital costs. Where a larger proportion of scrap is used to produce EAF steel,
typically it is of lower quality, and is therefore used for construction-destined long steel products such as rebar,
where a very high quality is not paramount. However, the use of DRI and/or hot metal from a blast furnace in the
EAF instead of, or in addition to, scrap can allow a higher quality steel to be produced. The chart below shows the
flowsheets for the production of steel from iron ore by each of the two main methods.

Iron Ore to Steel Making Flow Diagram

BOF Route: EAF Route:

Iron Ore Mine Iron Ore Mine

Sinter Fines BF Pellet Feed Lump DR Fines DR Pellet Feed DR Lump

Sinter Plant Pellet Plant Sinter Plant Pellet Plant

Natural
Gas
Limestone Sinter
Coke Sinter BF Pellets DR Pellets
Fluxes

Blast Furnace Direct Reduced Iron (DRI) Plant

Pig Iron/Hot Metal Scrap DRI

Ferroalloys Scrap

Basic Oxygen Furnace (BOF) Electric Arc Furnace (EAF)

Crude Steel Crude Steel

Source: CRU

The resulting liquid steel is then cast into a “slab” or “billet” of cast steel (semi-finished products). The slab is
often left to cool and may not be used for several days. When it is required the slab is heated up and rolled, first
through a reversing mill and then through a series of continuous rollers. Cast steel is a relatively weak mass of coarse
and uneven metal crystals, or “grains.” Rolling the steel makes coarse grains re-crystallize into a much finer grain
structure, increasing toughness, shock resistance and tensile (stress) strength. Rolling is also the main method used
to shape steel into different products. The rolling process consists of passing the steel between two rolls revolving at
the same speed but in opposite directions. The gap between the rolls is less than the thickness of the steel being
rolled, resulting in the steel being reduced in thickness and, at the same time, lengthened. In addition to hot rolling,
in which the steel is rolled at a high temperature, steel may also be rolled at ambient temperatures, resulting in a
different set of properties.

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 Crude Steel Consumption
The table below provides crude steel consumption data for major countries and regions. Note that for all the
tables in this industry report, where column totals do not equal the sum of their constituents this is due to rounding.
Crude Steel Consumption
2000 2001 2002 2003 2004 CAGR 2000-7
(Million metric tons) (%)
China . . . . . . . . . . . . . . . . ... 127.2 150.9 181.7 222.4 280.5 21.2
USA. . . . . . . . . . . . . . . . . ... 101.8 90.1 91.6 93.7 99.7 (0.5)
EU . . . . . . . . . . . . . . . . . . ... 193.7 187.6 188.4 192.7 202.5 1.1
Indonesia . . . . . . . . . . . . . ... 2.8 2.8 2.5 2.0 3.7 5.6
Rest of the World . . . . . . . ... 422.5 419.6 439.8 459.1 482.5 3.7
Total . . . . . . . . . . . . . . . . . . . 848.1 850.9 903.9 970.0 1,068.9 6.8
2005 2006 2007 2008 2009 2010 H1 CAGR 2000-9
(Million metric tons) (%)
China . . . . . . . . . . . . 349.4 419.1 489.3 500.3 567.8 323.2 18.1
USA . . . . . . . . . . . . 94.9 98.6 98.2 91.4 58.1 40.9 (6.0)
EU . . . . . . . . . . . . . . 195.6 207.0 209.8 197.9 139.1 91.8 (3.6)
Indonesia . . . . . . . . . 3.7 3.8 4.2 3.9 3.5 2.0 2.3
Rest of the World . . . 489.0 518.2 544.6 535.4 453.9 248.2 0.8
Total . . . . . . . . . . . . 1,132.6 1,246.6 1,345.9 1,328.9 1,222.5 706.1 4.1

Source: CRU Crude Steel Quarterly May 2010, CRU Steel Monitor September 2010

CRU believes that the most important historical driver of growth in steel consumption and production has been
China, where crude steel production has grown by 22.0% per year on average from 2000 to 2006, spurred by
increasing demand in steel end use sectors such as construction, automobiles, and home appliances. The increase
has been driven primarily by the rapid expansion of the Chinese economy, which has brought about widespread
infrastructure growth. China accounted for 15% of global crude steel production in 2000 and 46% by 2009. CRU
believes that the increased importance of China in the Asian steel market has a significant impact on the Indonesian
steel industry as Indonesia is a net importer, and as such prices in the country are affected by the regional prices,
which are to a certain extent a function of Chinese demand and supply.
The other regions and countries that have shown strong growth in crude steel production over the last decade
are India and the Middle East and North Africa. While crude steel production in developed regions is expected to
recover over the medium term, CRU believes that output in North America and Europe is not predicted to reach
2007 levels in the short term.
Long term crude steel production forecasts are produced by CRU utilizing macro economic data, combined
with an ‘S’ curve analysis of each country’s position across the theoretical development parabola. It can be seen that
developed countries with a mature and stable production base are at the right hand side of the curve, having already
completed the transit from agriculture-based economies, to heavily industrialized nations and finally to a service
and technology-based economy. Indonesia is situated at the bottom-left of the chart, suggesting that incremental
rises in GDP per capita can be expected to bring about increased steel consumption per capita, which in turn —
given Indonesia’s large population — would lead to strong demand for steel.

58
 Steel Intensity of Use “S” Curve, 2009
1000

900 South Korea

Finished steel consumption/capita (kg)

800

700

600

500 China
Singapore
Taiwan Japan
400 Middle East
Other Oceania
300 Malaysia
Europe

Vietnam
200 EU/EEA
CIS North
Thailand America
100 Latin America
India
Africa
Indonesia
0
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
Philippines

Source: CRU, Oxford Economics

The following table contains the data from the chart above for selected countries and regions.
‘‘S” Curve GDP and Steel Consumption per Capita
Data, 2009
GDP per Capita Finished Steel Consumption per
(US 2005$) Capita (Kilogram/head)

Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 1,546 29

China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 2,540 472
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 34,996 399
India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 900 52
EU/EEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 29,202 236
North America . . . . . . . . . . . . . . . . . . . . . . . ...... 40,660 186
South Korea . . . . . . . . . . . . . . . . . . . . . . . . . ...... 19,807 937
Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 5,807 256
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 2,875 154
Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 789 123
Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 1,270 28
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 29,906 515
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 17,426 466

Source: CRU, Oxford Economics

59
The Indonesian Steel Industry
Indonesian Economic Growth and Steel Drivers
Indonesia is the largest country in South East Asia and the fourth largest in the world, with a population of
230 million as of 2009, according to data from the United Nations World Population Prospects.
Population Data for the Five
Largest Countries
2000 2005 2009
(Millions)
China(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 1,267 1,312 1,346
India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 1,043 1,131 1,198
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 288 303 315
Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 205 219 230
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 174 186 194
Top 5 total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 2,977 3,151 3,282
World total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 6,115 6,512 6,829

Source: CRU, UN World Population Prospects

Note:
(1)
China includes Taiwan and Hong Kong

Indonesia suffered badly in the Asian crisis of 1997, and was initially slower to recover than other countries
affected. Since that time, GDP grew by 65.7%, reaching a rate of 5-6% per annum in recent years prior to 2009.
According to CRU (using source data from Oxford Economics and the UN), GDP per capita now stands at $2,329
(around $4,000 in purchasing power parity terms), with the industrial sector contributing 40.7% of GDP, with the
main segments including energy, textiles and mining, and with an emerging transport industry.
World Economic
Growth (Percentage
Annual Change in Real
GDP/GNP)
2007 2008 2009

USA . . . . . . . . . . . . . . . . . . ...................................... 2.1 0.4 (2.4)

Japan . . . . . . . . . . . . . . . . . ...................................... 2.3 (1.2) (5.3)
Germany. . . . . . . . . . . . . . . ...................................... 2.6 1.0 (4.9)
EU 27 . . . . . . . . . . . . . . . . ...................................... 2.9 0.6 (3.5)
China . . . . . . . . . . . . . . . . . ...................................... 14.2 9.6 9.1
India. . . . . . . . . . . . . . . . . . ...................................... 9.5 7.4 6.7
South Korea . . . . . . . . . . . . ...................................... 5.1 2.3 0.2
Indonesia . . . . . . . . . . . . . . ...................................... 6.3 6.0 4.5
Taiwan . . . . . . . . . . . . . . . . ...................................... 6.0 0.7 (1.9)
World . . . . . . . . . . . . . . . . . ...................................... 3.9 1.7 (2.0)

Source: Oxford Economics, CRU

CRU believes that the global economic slowdown has had an effect on Indonesian economic development in
2009, but rapid growth is expected to resume in 2010 and continue to accelerate slightly until the middle of the
decade. In addition, according to the UN World Population Prospects, population growth has fallen to 1% per
annum as of the start of 2010, thus boosting per capita GDP rise, and total fertility rate to 2.3/woman, compared to a
replacement level of 2.2 at current mortality rates. With the median age still at 28 years, falling birth rates and still
low age dependency ratio implies a high proportion of the population of working age.
CRU believes that Indonesia is due to enter a highly steel-intensive phase of growth, based on the development
of industry, construction, and infrastructure. According to CRU, unlike much of the rest of Asia, Indonesian
industrial production is actually forecast to show slower development than the overall economy. However, the
energy sector is expected to grow and since the development of gas and oil is steel intensive due to the need for tubes
and pipes for delivery, CRU believes that the Indonesian energy sector will be an important driver of steel demand.
Given the growth in GDP per capita and the densely populated urban areas in Indonesia, the construction of
housing is also expected to increase over the next few years. In addition, CRU believes that infrastructure will also

60
drive steel demand over the next decade. Government schemes such as the ‘Indonesia Infrastructure Initiative’ have
been set up to augment water delivery and sanitation conditions throughout the country, as well as to improve
transport links by road, rail, and sea. According to CRU, improved transport links combined with incremental rises
in personal wealth is expected to bring about greater demand for automobiles, driving increased HRC and CRC
consumption. Furthermore, CRU believes that demand for steel plate required by shipbuilders in Indonesia is
expected to be driven by forthcoming growth in infrastructure, industrial production, and personal wealth; as all of
these will bring about increased seaborne transport, in the form of both travel and trade.
The following table sets out the historical major economic indicators for Indonesia.
Indonesian Economic Indicators
2000 2001 2002 2003 2004 CAGR 2000-4
(%)

Population (millions) . . . . . . . . . . . . . . 205 208 211 214 216 1.3

GDP (billions 2005 US$) . . . . . . . . . . . 227 235 246 258 270 4.5
IP (billions 2005 US$) . . . . . . . . . . . . . 95 99 102 108 111 4.1
GDP% change . . . . . . . . . . . . . . . . . . . 3.6 4.5 4.8 5.0
IP% change . . . . . . . . . . . . . . . . . . . . . 4.3% 3.3 5.5 3.3
GDP/Capita (US$) . . . . . . . . . . . . . . . . 1,105 1,130 1,166 1,205 1,250 3.1
Rupiah vs. US$ exchange rate . . . . . . . 8,401 10,255 9,327 8,574 8,940 1.6
% Change in CPI . . . . . . . . . . . . . . . . . 3.7 11.5 11.9 6.8 6.1

2005 2006 2007 2008 2009 CAGR 2004-9

(%)

Population (millions) . . . . . . . . . . . . . . 219 222 225 227 230 1.2

GDP (billions 2005 US$) . . . . . . . . . . . 286 302 321 340 355 5.6
IP (billions 2005 US$) . . . . . . . . . . . . . 113 111 117 121 122 1.9
GDP % change. . . . . . . . . . . . . . . . . . . 5.7 5.5 6.3 6.0 4.5
IP % change. . . . . . . . . . . . . . . . . . . . . 1.3 (1.6) 5.6 3.0 1.3
GDP/Capita (US$) . . . . . . . . . . . . . . . . 1,304 1,359 1,427 1,495 1,546 4.3
Rupiah vs US$ exchange rate . . . . . . . . 9,710 9,167 9,133 9,637 10,373 3.0
% Change in CPI . . . . . . . . . . . . . . . . . 10.5 13.1 6.3 9.9 4.8

Source: CRU, Oxford Economics

Indonesian Finished Steel Consumption

CRU believes that the blip caused by the global downturn is expected to be weathered relatively quickly, and
very rapid growth is forecast for both flat and long products. CRU estimates consumption based on GDP, industrial
production and steel intensity of use. The historical consumption of steel products in Indonesia is shown below.
Indonesian Finished Steel Consumption
2000 2001 2002 2003 2004 CAGR 2000-7
(‘000 metric tons) (%)
Hot rolled coil(1) . . . . . . . . . . . . . . . . . . 955 993 1,028 711 1,234 5.9
Cold rolled coil(1) . . . . . . . . . . . . . . . . . . 621 477 436 271 408 2.9
Coil plate . . . . . . . . . . . . . . . . . . . . . . . . 192 216 173 60 83 5.7
Reversing mill plate . . . . . . . . . . . . . . . . 223 291 335 552 478 3.1
Wire rod . . . . . . . . . . . . . . . . . . . . . . . . 633 479 507 518 530 5.1
Others(2) . . . . . . . . . . . . . . . . . . . . . . . . 1,962 2,336 2,204 2,468 2,837 8.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,585 4,793 4,683 4,580 5,570 6.2

61
 2005 2006 2007 2008 2009 2010 H1 CAGR 2000-9
(‘000 metric tons) (%)
Hot rolled coil(1) . . . . . . . . . . 1,130 929 1,429 1,547 1,077 569 1.3
Cold rolled coil(1) . . . . . . . . . . 752 503 757 1,143 889 620 4.1
Coil plate . . . . . . . . . . . . . . . . 280 80 283 334 185 97 (0.4)
Reversing mill plate . . . . . . . . 544 443 277 516 482 312 8.9
Wire rod . . . . . . . . . . . . . . . . 607 790 895 846 807 467 2.7
Others(2) . . . . . . . . . . . . . . . . 3,551 3,068 3,360 3,963 3,132 1,567 5.3
Total . . . . . . . . . . . . . . . . . . . 6,864 5,813 7,002 8,348 6,573 3,632 4.1

Source: CRU
Notes:
(1)
Hot and cold rolled coil figures are for net consumption.
(2)
Others are the sum of longs excluding wire rod, plus coated sheet.

Indonesian Steel Production

The tables below list Indonesia’s major steel producers and their respective capacities for selected products, as
well as the approximate Indonesian market share held by PT Krakatau for 2009. The market share is calculated
using CRU’s consumption and import data, and PT Krakatau’s own production figures.
Indonesian Finished Steel Production
Capacities, 2009
Company HRC (Gross) CRC (Gross) Wire Rod
(Million metric tons per year)
PT Krakatau(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 2.00 0.85 0.45
Gunung Raja Paksi . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 0.70 0 0
PT Essar Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 0 0.40 0
Gunung Garuda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 0 0 0.06
Hanil Jaya Metalworks. . . . . . . . . . . . . . . . . . . . . . . . . .... 0 0 0.10
Ispat Indo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 0 0 0.70
Gunaw an Dianjaya . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 0.35 0 0
Jayapari Steel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 0.10 0 0
PT Raja Besi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 0.10 0.15 0
Little Giant Steel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 0.06 0.23 0
Intan Nasional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 0 0.06 0
PT Master . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 0 0 0.25
PT Gunung Gahapi . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 0 0 0.10
PT Growth Sumatra Industry . . . . . . . . . . . . . . . . . . . . .... 0 0 0.05
Total Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.31 1.69 1.71

Source: CRU, Indonesian Iron and Steel Industry Association Directory 2009, PT Krakatau
Note:
(1)
Indicates the figures provided by PT Krakatau.

62
 PT Krakatau Indonesian Market Share, 2009
Hot-Rolled Coil (Gross) Cold-Rolled Coil (Gross) Wire Rod

Total Indonesian consumption (‘000

metric tons) . . . . . . . . . . . . . . . . . . . . . 2,267 1,397 807
PT Krakatau Production (‘000 metric
tons) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,465 460 258
Imports (‘000 metric tons) . . . . . . . . . . . . 483 679 (31)
Other domestic producers (‘000 metric
tons) . . . . . . . . . . . . . . . . . . . . . . . . . . 319 258 579
PT Krakatau market share (%) . . . . . . . . . 65 33 32
Imports market share (%) . . . . . . . . . . . . 21 49 (4)
Other domestic producers market
share (%). . . . . . . . . . . . . . . . . . . . . . . 14 18 72

Source: CRU, PT Krakatau

According to CRU, Indonesia was a large net importer of HRC (0.48 million metric tons) and CRC
(0.61 million metric tons) in 2009. The majority of imports come from neighboring South East Asian
countries such as Japan (31%), South Korea (19%) and Taiwan (12%).
The following table shows the discrepancy between the CRU data for Indonesian production and demand for
total finished steel and HRC.
Implied Import Requirements for Indonesian Finished Steel
2000 2001 2002 2003 2004 CAGR 2000-7
(‘000 metric tons) (%)
Total finished steel
Consumption . . . . . . . . . . . . . . . . . . . . . 4,585 4,793 4,683 4,580 5,570 6.2
Domestic supply . . . . . . . . . . . . . . . . . . 3,679 4,011 3,736 3,798 4,161 5.2
Implied imports . . . . . . . . . . . . . . . . . . . 906 782 947 782 1,409 10.0
As % of consumption . . . . . . . . . . . . . . . 20 16 20 17 25 3.5
HRC (net)
Consumption . . . . . . . . . . . . . . . . . . . . . 955 993 1,028 711 1,234 5.9
Domestic supply . . . . . . . . . . . . . . . . . . 619 661 778 459 579 2.8
Implied imports . . . . . . . . . . . . . . . . . . . 336 332 250 253 656 10.6
As % of consumption . . . . . . . . . . . . . . . 35 33 24 36 53 4.4

Implied Import Requirements for Indonesian Finished Steel

2005 2006 2007 2008 2009 2010 H1 CAGR 2000-9
(‘000 metric tons) (%)
Total finished steel
Consumption . . . . . . . . . . . . . 6,864 5,813 7,002 8,348 6,573 3,632 4.1
Domestic supply. . . . . . . . . . . 4,798 5,081 5,240 5,134 4,628 2,186 2.6
Implied imports . . . . . . . . . . . 2,066 732 1,762 3,214 1,945 1,446 8.9
As % of consumption . . . . . . . 30 13 25 39 30 40 4.6
HRC (net)
Consumption . . . . . . . . . . . . . 1,130 929 1,429 1,547 1,077 569 1.3
Domestic supply. . . . . . . . . . . 544 656 750 665 595 266 (0.4)
Implied imports . . . . . . . . . . . 586 272 679 881 483 303 4.1
As % of consumption . . . . . . . 52 29 48 57 45 53 2.7

Source: CRU

63
 The following table provides the historical (2000-2009) data for Indonesian finished steel production, by
product.
Indonesian Finished Steel Production (‘000 Metric Tons)
2000 2001 2002 2003 2004 CAGR 2000-7
(%)
Hot rolled coil(1) . . . . . . . . . . . . . . . . . . 619 661 778 459 579 2.8
Cold rolled coil(1) . . . . . . . . . . . . . . . . . . 266 219 57 80 46 (7.0)
Coil plate . . . . . . . . . . . . . . . . . . . . . . . . 84 90 106 63 79 2.8
Reversing mill plate . . . . . . . . . . . . . . . . 305 463 412 610 605 13.3
Wire rod . . . . . . . . . . . . . . . . . . . . . . . . 759 610 625 578 680 2.8
Others(2) . . . . . . . . . . . . . . . . . . . . . . . . 1,645 1,968 1,758 2,009 2,173 6.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,679 4011 3,736 3,798 4,161 5.2

2005 2006 2007 2008 2009 2010 H1 CAGR 2000-9

(%)
Hot rolled coil(1) . . . . . . . . . . 544 656 750 665 595 266 (0.4)
Cold rolled coil(1) . . . . . . . . . . 148 172 159 235 210 94 (2.6)
Coil plate . . . . . . . . . . . . . . . . 74 90 102 91 81 43 (0.4)
Reversing mill plate . . . . . . . . 701 835 730 835 697 379 9.6
Wire rod . . . . . . . . . . . . . . . . 602 834 920 839 837 418 1.1
Others(2) . . . . . . . . . . . . . . . . 2,728 2,493 2,579 2,469 2,208 987 3.3
Total . . . . . . . . . . . . . . . . . . . 4,798 5,081 5,240 5,134 4,628 2,186 2.6

Source: CRU
Notes:
(1)
Hot and cold rolled coil figures are for net production.
(2)
Others is the sum of longs excluding wire rod, plus coated sheet.

Indonesian Steel Trade Legislation: Duties and Tariffs

Indonesia is part of the ASEAN-China Free Trade Area (ACFTA), which has worked towards eliminating
tariffs for ASEAN products entering China and vice-versa. Whilst this has resulted in no tariffs being applied to
certain goods, trade in steel products is still subject to import duties.
According to CRU, new import licensing requirements on certain goods, including steel, were introduced in
Indonesia in February 2009. Furthermore, import tariffs on 17 product lines, including steel, were increased. CRU
believes that Indonesia initiated seven anti-dumping investigations in 2008 (six of these being in the final quarter of
the year), making it the 8th largest initiator worldwide for that year. Two safeguard investigations were also initiated
during 2008, one of which was on iron and steel.
According to the International Trade Centre (“ITC”), a 5% tariff is levied on imports of HRC to Indonesia from
any other country. ITC data states that tariffs average at 4.2% and 4.7% for imports of CRC and wire rod
respectively from ASEAN countries, and imports from elsewhere are an average 7.4% and 10% for the same two
products.

Steel Prices
CRU believes that steel demand in China will continue to grow, which it expects to drive an increase in
international steel prices from 2009 levels. Though CRU expects the rate of consumption growth in China to fall in
the short to medium term, starting in the second half of 2010, it believes that there is significant headroom for
growth in this timeframe, and beyond.
The table below contains the Far East Asian hot rolled coil prices from 2000-2009:
Far East Import Hot Rolled Coil Price (Nominal $/Metric Ton)
2000 2001 2002 2003 2004 CAGR 2000-7
(%)
HRC price ($/metric ton) . . . . . . . . . . . . . . . . . . 274 205 265 341 518 10.9
Year on year change . . . . . . . . . . . . . . . . . . . . . . (25)% 29% 29% 52%

64
 2005 2006 2007 2008 2009 2010 H1 CAGR 2000-9
(%)
HRC price ($/metric ton) . . . . . . . . . . 506 478 565 813 490 642 6.7
Year on year change . . . . . . . . . . . . . . (2)% (6)% 18% 44% (40)%

Source: CRU Steel Sheet Quarterly July 2010

Given that Indonesia is a net importer of steel, CRU believes that prices in the country are likely to be linked to
the Far East Asian price going forward. It is possible that domestic producers may receive a premium within
Indonesia based on the avoidance of freight and tariffs, though the extent of such a premium is likely to be variable
and highly dependent on customer-producer negotiations.

Raw Materials Markets

Iron Ore
Iron ore is used primarily as a raw material in the steel making process, Generally, iron ore is produced from
two types of mineral: haematite (typically high grade, i.e. H60% Fe) and magnetite (lower grade, i.e. G30% Fe).
According to CRU, four general types of iron ore are typically traded, separated on the basis of their grain size. Fines
are the baseline product in the iron ore market, from which other products are priced, and typically must be
agglomerated into pebble-sized balls of ore called ‘sinter’ before being used in a furnace. Lump iron ore refers to
large, irregularly sized lumps of iron ore which can be charged directly into a furnace, enabling a steel producer to
avoid the cost of sintering iron ore fines. Iron ore pellets have a uniform size and composition, and are the most
efficient source of iron units to a furnace, thus typically commanding a strong value position. Finally, pellet feed is
iron ore of a smaller grain size than fines, and is usually the lowest value type of iron ore as the pelletizing process
required to convert the pellet feed into useable pellets is more expensive than the sintering process required for fines.
Global iron ore demand in 2009 was 1,932 million metric tons, a fall of 7.1% compared to 2008, but a 30.3%
increase above 2005 levels, according to CRU. The reason for the decrease was the impact of the global economic
crisis on levels of industrial production and consequently crude steel production. In 2010 CRU forecasts demand to
expand as a result of Chinese growth and a recovery in developed economies.
Iron Ore Consumption (Million Metric Tons)
2000 2001 2002 2003 2004 CAGR 2000-7
(%)
China . . . . . . . . . . . . . . . . . . . . 312.0 327.3 384.0 437.9 539.4 19.3
USA . . . . . . . . . . . . . . . . . . . . 67.8 59.1 56.9 57.1 60.7 (3.7)
EU . . . . . . . . . . . . . . . . . . . . . . 161.6 150.2 153.7 158.8 167.0 0.6
Indonesia . . . . . . . . . . . . . . . . . 2.7 2.2 2.2 1.8 2.1 (3.8)
Rest of the World . . . . . . . . . . . 503.7 495.5 515.7 547.2 564.4 3.0
Total . . . . . . . . . . . . . . . . . . . . 1,047.7 1,034.3 1,112.6 1,202.9 1,333.6 9.0

2005 2006 2007 2008 2009 CAGR 2000-9

(%)
China . . . . . . . . . . . . . . . . . . . . 687.7 897.7 1,070.3 1,248.8 1,259.6 16.8
USA . . . . . . . . . . . . . . . . . . . . 53.5 54.5 52.0 48.6 27.7 (9.5)
EU . . . . . . . . . . . . . . . . . . . . . . 159.0 166.9 168.8 157.6 111.6 (4.0)
Indonesia . . . . . . . . . . . . . . . . . 2.0 1.9 2.1 1.9 1.8 (4.5)
Rest of the World . . . . . . . . . . . 586.6 589.4 621.5 620.6 523.0 0.4
Total . . . . . . . . . . . . . . . . . . . . 1,488.9 1,710.4 1,914.6 2,077.4 1,923.7 7.0

Source: CRU Iron Ore Market Outlook June 2010

The global iron ore industry is highly consolidated, with Vale, BHP Billiton, and Rio Tinto accounting for 30%
of world iron ore production and at least 60% of world seaborne supply in 2009, according to CRU.
According to CRU, global iron ore production in 2009 totalled 1,924 million metric tons, 7.4% lower than in
2008, but 29.2% higher than in 2005. CRU believes that global production of pellets, fines and lump will increase in
2010 and over the short term. China’s iron ore production is forecast by CRU to peak in 2011, and then begin to

65
decline. CRU also expects Australian and Brazilian production of pellets, fines and lump to increase between 2010
and 2012.
Indonesia produced 6.5 million metric tons of iron ore at domestic mines in 2009, according to CRU, and its
production is not expected to increase by 2012.
Iron ore prices increased strongly between 2005 and 2008, driven by increased demand from China; the
Hamersley fines price (given by Rio Tinto for their Australian ore sales), for example, exhibited a 134% increase,
according to CRU. Historically, the price of iron ore has been set at four benchmark locations/products on an annual
basis, usually in April — these were Australian (Hamersley) fines and lump, and Brazilian (Vale) fines and pellet.
Since the advent of the spot market, spot prices tend to dictate the level of the benchmark settlement. According to
CRU, the desire of the major iron ore suppliers, led by Vale, to have the price of their products track the spot market
more closely than had previously been the case led to the adoption in April 2010 of a quarterly benchmark pricing
system.
Iron ore prices fell after the global financial crisis. According to CRU, as the global economy recovered in late
2009 and 2010, the spot price for iron ore increased. Since spot prices are an indicator of the quarterly contract price,
this led to an increase of around 90% in the contract price for the second calendar quarter of 2010. CRU believes that
spot prices will continue to lead the quarterly contract price throughout 2010 and into the first half of 2011, at which
point prices should reach an equilibrium level.
CRU believes that the continued strong demand for imported iron ore in China will result in significant price
increases in 2010 and 2011; however significant expansions in iron ore output, largely from the major incumbent
producers, but also from junior miners, are expected to deter price rises by 2012, and then cause prices to decrease in
subsequent years.
Benchmark Australian Fines Prices (Nominal cents/dmtu)
2007 2008 2009 2010 H1 CAGR 2007-2009
(%)
Hamersley fines, 62.5% Fe, fob Australia . . . . . 80.4 144.7 97.0 206.5 9.8
% change year-on year. . . . . . . . . . . . . . . . . . . 79.9 (33.0)

Source: CRU Iron Ore Market Outlook June 2010

Coking Coal
Metallurgical coal is the umbrella term for all coal used in the production of metals. Coking coal accounted for
86.3% of metallurgical coal production in 2009. The other major metallurgical coal product is PCI coal which can
be used directly in the blast furnace as a substitute for coke.
CRU believes that a combination of weakening finished steel demand, softening steel prices and more robust
coal exports should lead coal price increases to decelerate in late 2010, before continuing to increase slightly during
2011.
CRU believes that Chinese coal production will expand aggressively, but given China’s limited project
pipeline, the gap between Chinese coal production and coal demand that opened up in 2009 should linger and
possibly widen over the medium-term. However, lower-cost hard coking coal supply from Australia will not expand
significantly until 2012-2013, according to CRU.
According to CRU, at present Indonesia uses no coking coal, as there are no coke batteries in the country since
all the major steel mills are scrap or DRI based EAF facilities, and do not have a blast furnace. The tables below set
out historical coking coal consumption and prices.
Coal Consumption in Coke-Making (Million Metric Tons)
2000 2001 2002 2003 2004 CAGR 2000-7
(%)
China. . . . . . . . . . . . . . . . . . . . . . . . . . . 166.5 179.2 191.1 217.3 251.1 15.0
USA . . . . . . ..................... 25.3 25.2 22.2 22.3 21.7 (2.5)
EU . . . . . . . ..................... 66.2 61.5 59.3 64.9 64.8 (0.6)
Indonesia . . . ..................... 0.0 0.0 0.0 0.0 0.0 0.0
Others . . . . . . . . . . . . . . . . . . . . . . . . . . 198.8 198.1 205.2 212.1 213.0 1.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 456.9 464.0 477.7 516.7 550.5 7.5

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 2005 2006 2007 2008 2009 CAGR 2004-9
(%)
China. . . . . . . . . . . . . . . . . . . . . . . . . . . 322.2 383.0 442.9 437.0 448.3 11.6
USA . . . . . . ..................... 20.9 20.5 21.3 19.4 14.2 (6.2)
EU . . . . . . . ..................... 64.2 67.8 69.0 63.0 46.6 (3.8)
Indonesia . . . ..................... 0.0 0.0 0.0 0.0 0.0 0.0
Others . . . . . . . . . . . . . . . . . . . . . . . . . . 209.0 212.3 224.3 223.8 205.4 (0.4)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 616.4 683.6 757.4 743.3 714.5 5.1

Source: CRU Coking Coal Outlook June 2010

Metallurgical Coal Prices (Nominal $/metric ton)
2007 2008 2009 2010 H1 CAGR 2007-9
(%)
Hard coking coal (spot) . . . . . . . . . . . . . . . . . . . . . 179 288 165 225 (4.2)
% change year-on-year . . . . . . . . . . . . . . . . . . . . . . 60.7 (42.9)

Source: CRU Coking Coal Outlook May 2010

Raw Material Prices vs. Steel Prices

According to CRU, sharp rises in the prices of raw materials, without a corresponding increase in steel price, is
expected to result in tighter margins for steel mills in 2010. CRU believes that previously, steel mills were able to
pass on price rises to their customers, but the curtailment of demand due to the global financial crisis has provided
resistance to such practices in mature markets such as Western Europe and the U.S. Based on CRU’s assessment of
industrial production and steel demand growth, along with supply/demand balances in key steel raw materials
markets, greater margins should become available for steel mills relative to 2009 and 2010 levels.

67
 BUSINESS

Overview
We are the largest steel producer in Indonesia and one of the largest steel producers in Southeast Asia. We
believe we are the largest producer of HRC and CRC in Indonesia and the second largest producer of wire rods in
Indonesia. Our integrated steel production facilities include ironmaking facilities at our direct reduction plant,
10 EAF steel making facilities, five continuous casting facilities and six rolling mills, comprised of a hot strip mill, a
cold rolling mill, a wire rod mill, a bar mill, a section mill and a pipe mill.
During the year ended December 31, 2009 and the six-month period ended June 30, 2010, we produced
1,602,295 metric tons and 971,372 metric tons, respectively, of HRC, 475,990 metric tons and 257,029 metric tons,
respectively, of CRC, 251,479 metric tons and 139,519 metric tons, respectively, of wire rods, 46,551 metric tons
and 40,299 metric tons, respectively, of steel sections, 79,307 metric tons and 44,754 metric tons, respectively, of
steel bars, and 51,100 metric tons and 30,029 metric tons, respectively, of steel pipes. We currently import our raw
materials, including iron ore pellets, from South America and the Middle East. We use a substantial proportion of
the HRC we produce as raw material for production of CRC and pipes. During the year ended December 31, 2009
and the six-month period ended June 30, 2010, we used 575,049 metric tons and 317,118 metric tons, respectively
of HRC in this manner. We sell substantially all of our products domestically in Indonesia to customers principally
located in Jakarta and its surrounding areas and Surabaya in East Java.
Our production facilities are currently all located in Cilegon, in the province of Banten in Indonesia. The
strategic location of our production facilities, which are 94 kilometers from Jakarta, and 5 kilometers from the port
of Cigading on the Sunda Strait, provides us with convenient access to our domestic customers as well as to our
imported raw materials that are delivered by suppliers. Our operations are supported by key infrastructure services
provided by our subsidiaries in Cilegon, including a power plant, port services and a water treatment plant.
We have recently commenced a program to substantially revitalize and expand our production facilities, with
the aim of increasing production capacity, improving the synergies between our upstream production capacity and
finished steel production facilities, as well as enhancing profit margins. Our revitalization and expansion programs,
which we expect to complete over the course of the next four years, is comprised of a number of projects, including
the construction of ironmaking facilities in South Kalimantan, Indonesia, which will be fed by domestic iron ore,
and the construction of a new blast furnace complex at our facilities in Cilegon. We estimate that total capital
expenditures for all of the revitalization and expansion projects we intend to complete by 2014 will be
approximately Rp.11,407 billion (US$1,255.9 million). We intend to use a portion of the proceeds of the
Global Offering to fund certain aspects of our revitalization and expansion programs, including improvements
relating to increasing the production capacity of our hot strip mill. See “Use of Proceeds” and “— Revitalization
and Expansion Programs.” In addition, we have recently entered into a joint venture agreement with POSCO to
establish a joint venture to develop, construct, operate, and maintain the joint venture integrated steel mill in
Cilegon. We expect the first phase of the development and construction of the joint venture integrated steel mill to
be completed by 2013 and, upon completion of the first phase, expect the steel slab plant to have an annual
production capacity of 3,000,000 metric tons of steel slab, of which we will be able to off-take up to 1,000,000
metric tons per year, subject to a ramp-up period of two years. It is also expected that the joint venture company will
process some of the steel slabs into steel plates. We estimate that our initial capital investment for the development,
engineering and construction of the first phase of the joint venture integrated steel mill will be approximately
US$279.3 million, a portion of which will be in the form of the 388.0 hectares of land for use as the site for the joint
venture integrated steel mill in Cilegon. See “— Joint Venture with POSCO.”
Our total consolidated net revenues for the years ended December 31, 2007, 2008 and 2009 were
Rp.14,836.0 billion, Rp.20,631.4 billion, and Rp.16,913.5 billion (US$1,862.1 million), respectively, and our
total consolidated net revenues for the six-month periods ended June 30, 2009 and 2010 were Rp.7,827.9 billion and
Rp.9,000.2 billion (US$990.9 million), respectively.

Competitive Strengths
We believe that we have built the following competitive strengths:

Well Positioned to Benefit from Indonesia’s Strong Economic Outlook and Demand for Steel
According to CRU, Indonesia’s GDP grew by 4.5% in 2009 and 6.0% in 2008. We believe that the anticipated
continued growth in Indonesia’s GDP will result in increased demand for steel products, particularly in the
infrastructure, construction and shipbuilding sectors. Furthermore, CRU noted that finished steel consumption per

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capita in Indonesia during 2009 was 29 kilograms per capita, as compared to 937 kilograms per capita in South
Korea, 515 kilograms per capita in Singapore, and 472 kilograms per capita in China. We believe that the current,
relatively low finished steel consumption per capita in Indonesia and anticipated GDP growth indicate that demand
for steel products in Indonesia will increase substantially. We believe these factors will substantially increase
demand for finished steel products in Indonesia, and thereby present us with the opportunity to increase sales,
including sales derived from our planned additional production capacity.

Leadership in Domestic Indonesian Market

According to CRU, in 2009, we were the market leader in HRC and CRC in Indonesia in terms of sales volume,
with a market share of 65.0% for HRC and 33.0% for CRC, and were second in terms of sales volume of wire rods,
with a market share of 32.0%. We believe that our long operating history in Indonesia and the diversity and quality
of our carbon steel products allow us to compete successfully with domestic and imported steel products. In
particular, we believe that our ability to offer a wide range of steel products with different product specifications
enables us to meet the needs of our customers in distinct market segments in the domestic Indonesian market.
Moreover, we believe that our ability to adapt to changes in domestic demand, whether in relation to the absolute
amount of demand or in relation to the product specifications of our finished steel products, allows us to compete
effectively with imported finished steel products. In particular, we believe that our ability to meet customer orders
on a short turnaround basis and to physically deliver the requested products to our customers in Indonesia provides a
significant competitive advantage against imports, as well as domestic competition. We also believe that our
position as the largest producer of HRC and CRC in Indonesia allows us to benefit from government policies that
encourage the use of local materials in domestic projects and encourage consumption of domestic products.

Strategically Located Production Facilities Ensure Access to Customers and Raw Materials
Our production facilities are all strategically located in Cilegon, Banten, Indonesia providing us with
convenient access to our customers and raw materials. Our facilities are close to key transportation
infrastructure, including marine, rail, and road transportation. The facilities are supported by Cigading Port,
one of the largest ports in Indonesia, which is operated by our wholly-owned subsidiary, PT KBS. Our imported raw
materials are unloaded at Cigading Port. Since we deliver our products domestically from our production facilities
to our customers’ designated delivery points in Indonesia, we believe that our proximity to Jakarta and to
transportation infrastructure, including toll roads and our port facilities, significantly reduces transportation costs
and allows us convenient access to our customers in Jakarta and its surrounding areas and in Surabaya in East Java.
Approximately, 76.2% of our total domestic HRC, CRC, wire rod, steel section, bar and pipe sales by volume for the
year ended December 31, 2009 were to customers located in Jakarta and its surrounding areas. We also have 220.0
hectares of additional land available in Cilegon on and adjacent to the site of our existing facilities, in addition to
388.0 hectares of land which we expect to contribute to our joint venture with POSCO.

Integrated Upstream and Downstream Production Facilities and Supporting Business Help us Achieve
High Quality Products and Cost-Efficient Operations
We own and operate integrated upstream and downstream production facilities, which consist of co-located
ironmaking facilities, steel making facilities and rolling mills supported by utilities, infrastructure, and services
owned and operated by our subsidiaries. The key supporting utilities, infrastructure and services that we rely on
include a power plant, port services, a water treatment plant, and information technology services. In our production
of steel products, we produce and consume all of the sponge iron manufactured in our ironmaking facilities. We also
produce and consume some of the other important inputs that we use in our rolling mills, such as steel slabs and steel
billets. Our integrated upstream and downstream production facilities and supporting businesses allow us to monitor
and control the entire production process, thereby allowing us to ensure quality and achieve cost efficiencies and
economies of scale in our operations.

Strong and Diversified Customer Base

We sell our products to a wide range of customers in a diverse array of industries such as the construction, pipe,
galvanized steel sheet and nail manufacturing industries. In addition to a diversity of industries, our customers are
well distributed within each of our significant product lines. Many of our customers have been our customers for
considerable periods of time, in many cases between 10 and 20 years. We believe that the diversity of our customers
across a variety of industries helps us maintain stable revenues. Furthermore, we expect many of our existing
customers to become customers for our new products. As our production facilities and operations expand, we expect
to provide our customers with products with an increased range of specifications, as well as products with improved
quality, which we expect to increase customer loyalty.

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 High Proportion of Sales to End Users
We sell our products directly to end users, as well as to indirect sellers such as stockists and steel centers. For
the six-month period ended June 30, 2010, 67.9% of out steel sales were direct sales to end users. We expect to
increase this proportion in the future. We believe that the sale of our steel products directly to end users enhances our
margins and strengthens our relationship with key strategic customers by putting us in a better position to identify
and respond to customer demands and product requirements. Our strong customer relationships stem from our
ability to manufacture a wide range of products that meet the different product specifications of our customers and
our reputation for providing high quality products.

Capable Management Team with Proven Track Record

Our management team has a proven track record in managing operations under its control, including our major
production facilities. Our senior management team combines extensive industry and marketing experience with
financial and management expertise, and our board of directors is made up of individuals who have at least 10 years
of relevant industry experience and an average of 24 years of experience working for us.

Strategy
Our strategy is to maintain our position as the leading producer of steel products in Indonesia and to meet
increased demand for our products while maintaining and enhancing our profit margins. We intend to pursue this
strategy by:
• revitalizing and modernizing our production facilities to enhance efficiency and lower costs;
• balancing upstream and downstream production facilities to enhance our margin profile;
• expanding our steel production to capture growth in the Indonesian market;
• improving our product mix to capture new markets; and
• diversifying our sources of energy and raw materials to enhance profitability, each as set out below.

Revitalize Our Production Facilities to Enhance Efficiency and Lower Costs

We have initiated a revitalization program to increase the efficiency and reliability of our facilities, increase
production output and reduce production costs. We are in the process of replacing obsolete equipment, installing
new control systems in our direct reduction plant, steel slab plant and hot strip mill, and upgrading certain other
systems, such as cooling systems. We believe that this program will improve reliability and efficiency at our
production facilities, reduce production costs and increase productivity. Upon full commercial operation of the
revitalized facilities, we expect the production capacity of our hot strip mill to increase from 2,000,000 metric tons
per year to 2,400,000 metric tons per year, the production capacity of our steel slab plant to increase from 1,800,000
metric tons per year to 2,100,000 metric tons per year, and the production capacity of our direct reduction plant to
increase from 1,500,000 tons per year to 1,740,000 metric tons per year. Furthermore, we expect that the
revitalization of our control, cooling and other systems will enable us to use more oxygen in our direct
reduction process, thereby reducing the use of more expensive natural gas while producing iron with a higher
carbon content, thereby reducing the amount of electricity necessary for the EAF melting process. We expect that
the revitalization of our hot strip mill, the first program scheduled for completion, will be completed by May 2011.
We expect to incur capital expenditures of approximately Rp.2,087 billion (US$229.8 million) in connection with
the revitalization of our direct reduction plant, steel slab plant and hot strip mill.

Balancing Upstream and Downstream Production Facilities to Enhance Our Margin Profile
We intend to expand our upstream production facilities to increase production capacity. This would allow our
steel production facilities to meet anticipated demand and further enhance the efficiency of our integrated steel
production process, thereby improving our margin profile. We intend to achieve these strategic goals by
constructing new ironmaking facilities in South Kalimantan, Indonesia through a joint venture with Antam,
and by constructing a new blast furnace complex at Cilegon. We expect operations at the new ironmaking facilities
in South Kalimantan to commence in 2011. We expect that these ironmaking facilities, which will utilize domestic
iron ore (also from South Kalimantan) as raw material, will significantly reduce our dependency on imported iron
ore and reduce our production costs. We expect to complete our new blast furnace complex in 2013, further
increasing our ironmaking capacity by 1,200,000 metric tons. In addition, we expect our new blast furnace complex
to reduce our energy costs and raw material costs, including the steel scrap required in our EAF steel making
operations. We have also recently entered into an agreement with POSCO to establish a joint venture to develop and

70
construct an integrated steel slab plant with a production capacity of 3,000,000 metric tons, of which we can off-take
up to 1,000,000 metric tons of steel slab per year for our use as raw material, subject to a ramp-up period of two
years. We expect that the joint venture with POSCO will further enhance our production capacity and allow our steel
production facilities to meet anticipated demand.

Significant Investment Program to Capture Growth in the Indonesian Market

We believe that our ability to increase the capacity of our production facilities is one of the most critical
components of our strategy to maintain our domestic market leadership and capture growth in the Indonesian
market and expected growing demand for steel. To this end, we are focused on expanding the capacity of our
production facilities to meet the growing demand for steel products in the domestic market beyond the increased
capacity that we expect to achieve under our revitalization program. Through our expansion program, we intend to
further increase our hot strip mill production capacity from 2,400,000 metric tons per year to 3,500,000 metric tons
per year and our steel slab plant production capacity from 2,100,000 metric tons per year to 2,470,000 metric tons
per year.

Improve Product Mix to Capture New Markets

With the planned revitalizations and modernization of our hot strip mill, we expect to offer a broader range of
products with different grades and specifications in addition to increased production capacity. We believe this
ability to offer a broader range of products with different grades and specifications will allow us to meet demands of
customers with requirements for higher value and higher margin products for use in the automotive, container and
construction industries, especially the high rise building industry. Furthermore, our joint venture with POSCO is
expected to lead to the development of an integrated steel production facility able to produce shipbuilding plates of
different grades and specifications, marine construction plates and other products, which we currently do not
produce or produce in limited quantities.

Diversify Our Sources of Raw Materials and Energy to Enhance Profitability

We are seeking to diversify our sources of raw materials and energy to enhance our margins on sales of our
steel products. To accomplish this objective, we are in the process of constructing new ironmaking facilities through
a joint venture with Antam and plan to develop and construct a new blast furnace complex. The new ironmaking
facilities are expected to utilize less expensive local raw materials and energy that will help us lower our raw
material expenses and enhance our profitability. We intend to diversify our source of iron ore by using locally mined
iron ore in our new ironmaking facilities, which we believe will reduce our dependency on imported iron ore pellets.
We believe that the development and construction of the new blast furnace complex will complement our gas-based
DRI technology with an iron ore and coking coal based technology that we believe will be more cost effective.

71
Corporate History and Structure
PT Krakatau was established in the Republic of Indonesia on October 23, 1971 to take over the former Trikora
steel factory, a former Russian steel project that was launched in Indonesia in 1960 and to provide Indonesia with a
domestic source of steel products. We started to operate our first plants in 1977. In 1979, we commenced operating
other facilities, such as our direct reduction plant, steel billet plant, and wire rod mill. At the same time, we also
established and commenced operations of certain utilities and infrastructure that support our operations, such as a
steam power plant, water treatment plant and the Cigading port. In 1983, we started operating larger-scale plants,
such as a steel slab plant and a hot strip mill. Since that time, through strategic acquisitions, reorganizations and
expansions, we have become the largest steel producer in Indonesia. The following table summarizes several
significant events in our corporate history:
Year Key Milestones

1971 . . . . . . . . . . . . . . . . . . . . . . . PT KHIPI started its operations

1977 . . . . . . . . . . . . . . . . . . . . . . . PT Krakatau started operating cold wire drawing facilities, a bar mill and
a section mill

1979 . . . . . . . . . . . . . . . . . . . . . . . PT Krakatau started operating its direct reduction plant, steel billet plant
and wire rod mill; supporting utilities and infrastructure were established
and commenced operations

1983 . . . . . . . . . . . . . . . . . . . . . . . PT Krakatau commenced operating its steel slab plant and hot strip mill

1988 . . . . . . . . . . . . . . . . . . . . . . . The EPC division was spun off to form PT KE

1991 . . . . . . . . . . . . . . . . . . . . . . . The cold rolling mill was merged into PT Krakatau from PT Cold Rolling
Mill Indonesia Utama, a former subsidiary of the Company

1992 . . . . . . . . . . . . . . . . . . . . . . . The bar and section mill operations were spun off to PT Krakatau
Wajatama (“PT KW”)

1996 . . . . . . . . . . . . . . . . . . . . . . . PT Krakatau spun off its power plant operations to PT KDL, its water
treatment operations to PT Krakatau Tirta Industri (“PT KTI”), and its
port operations to PT KBS

2003 . . . . . . . . . . . . . . . . . . . . . . . PT Krakatau optimized its cold rolling mill with its conversion from a
tandem cold mill to a continuous tandem cold mill

2006 . . . . . . . . . . . . . . . . . . . . . . . PT Krakatau reconditioned its hot strip mill by replacing some obsolete
equipment

2007 . . . . . . . . . . . . . . . . . . . . . . . PT KHIPI completed the installation of additional production lines,

consisting of an electrical resistance welding (“ERW”) line, spiral pipe
line and coating line

2008 . . . . . . . . . . . . . . . . . . . . . . . Our ironmaking project was initiated through a joint venture with Antam

2009 . . . . . . . . . . . . . . . . . . . . . . . Our revitalization and expansion programs was initiated for our existing
production facilities

PT Krakatau sold 55.0% of its shares in Latinusa

2010 . . . . . . . . . . . . . . . . . . . . . . . PT Krakatau commenced the bidding process for our new blast furnace
complex, and we expect the bidding process to be completed by the fourth
quarter of 2010

PT Krakatau entered into a joint venture agreement with POSCO for the
development, construction, maintenance, and operation of an integrated
steel mill

PT Krakatau obtained approval from the Parliament of Indonesia to

conduct the Global Offering, as stated in the letter from the Chairman
of Indonesia’s House of Representatives No. PW.01/5972/DPR
RI/IX/2009 dated September 16, 2009

72
 As of June 30, 2010, we had 10 subsidiaries that support our steel business and the community, as well as other
businesses in the industrial estate at Cilegon. See “— Our Other Activities.” Our corporate structure, showing our
direct and indirect equity ownership in our subsidiaries, is set forth below.

PT Krakatau
Flat and long products producer

PT Krakatau PT Krakatau PT Krakatau PT Krakatau PT KHI PIPE PT Meratus PT Krakatau PT Krakatau PT Krakatau PT Krakatau
Medika Industrial Engineering Wajatama Industries Jaya Iron & Daya Listrik Bandar Tirta Industri Information
Estate Steel* Samudera Technology
Cilegon

(100.0%) (100.0%) (100.0%)

(97.6%) Industrial (100.0%) Steel profile (98.5%) (66.0%) (100.0%) (100.0%) Industrial
Health care estate EPC and bar Pipe Sponge iron Power plant Port service water (100.0%)
company company company producer producer producer company provider provider IT company

* Joint venture company with Antam constructing ironmaking facilities in South Kalimantan, Indonesia.

Our Steel Business

Our steel business comprises the production of crude steel, and the production and sale of semi-finished and
finished steel products, including steel slabs, steel billets, HRC, CRC, wire rods, steel sections, bars, and pipes. Among
our finished products, we are able to produce a wide range of steel grades reflecting different thickness and chemical
compositions to meet specific customer requirements. We import iron ore, our principal raw material, in the form of iron
ore pellets primarily from South America and the Middle East. Our products are sold and distributed mainly to the
Indonesian domestic market. A small portion of our products are also sold to the international market.
Our steel business is supported by our engineering, procurement and construction activities, which provide an
outlet for our steel products, as well as by our power plant, port services, water treatment facilities, and IT services.
See “— Our Other Activities.”

Our production
The following table sets out the amount of HRC, CRC, wire rods, steel sections, bars, and pipes that we
produced during the periods indicated below:
For the Six-Month
For the Years Ended December 31, Periods Ended June 30,
2007 2008 2009 2009 2010
(In metric tons)
HRC(1) . . . . . . . . . . . . . . . . . . . . . . . . 1,731,016 1,596,389 1,602,295 676,693 971,372
CRC. . . . . . . . . . ................ 613,639 520,888 475,990 191,145 257,029
Wire rods . . . . . . ................ 340,909 256,267 251,479 138,128 139,519
Steel sections . . . ................ 87,085 71,372 46,551 22,129 40,299
Bars . . . . . . . . . . ................ 103,734 94,377 79,307 29,447 44,754
Pipes . . . . . . . . . ................ 20,307 45,814 51,100 30,937 30,029

Note:
(1)
Certain of the HRC that we produce in our hot strip mill is used as input in the production of our CRC and pipes. For the years ended
December 31, 2007, 2008 and 2009 and the six-month periods ended June 30, 2009 and 2010, we used 672,837 metric tons, 567,852 metric
tons, 519,305 metric tons, 209,978 metric tons and 285,045 metric tons of the HRC we produced, respectively, in our cold rolling mill to
produce the amount of CRC indicated above for the relevant periods. For the same periods, we used 35,096 metric tons, 49,690 metric tons,
55,744 metric tons, 33,918 metric tons, and 32,073 metric tons of the HRC we produced, respectively, in our pipe mill to produce the amount
of pipes indicated above for the relevant periods. We sell HRC that we do not use in the production of our CRC or pipes to external
customers. The amount of HRC set out in the table above represents the total amount of HRC produced in our hot strip mill for the relevant
periods, including HRC used in our production of CRC and pipes, as well as HRC sold to external customers. The difference between the
amount of HRC that we used in each of our cold rolling mill and pipe mill and the amount of CRC and pipes that we produced, respectively,
represents scrap resulting from edge cutting of the HRC, scarfing and other processes in the production of our CRC and pipes.

73
 Sales of steel products
The table below sets forth the breakdown of our net revenues from the sale of our steel products for each of the
periods indicated:
For the Years Ended December 31, For the Six-Month Periods Ended June 30,
2007(1) 2008(1) 2009(1) 2009(1) 2010(1)
Percentage Percentage Percentage Percentage Percentage
to Total to Total to Total to Total to Total
Rp. in Revenues Rp. in Revenues Rp. in US$ in Revenues Rp. in Revenues Rp. in US$ in Revenues
billions (%) billions (%) billions millions (%) billions (%) billions millions (%)
(Unaudited)
HRC(2) . . . . . . 5,623.7 37.9 8,819.2 42.7 7,300.5 803.8 43.2 3,309.1 42.3 4,285.6 471.8 47.6
CRC . . . . . . . 3,785.7 25.5 4,875.6 23.6 3,679.1 405.1 21.8 1,541.0 19.7 2,081.1 229.1 23.1
Wire rods . . . . 1,798.4 12.1 1,982.0 9.6 1,553.3 171.0 9.2 831.0 10.6 780.3 85.9 8.7
Sections . . . . . 647.0 4.4 550.0 2.7 340.0 37.4 2.0 131.4 1.7 309.7 34.1 3.4
Bars . . . . . . . 746.3 5.0 1,258.3 6.1 862.1 94.9 5.1 429.1 5.5 539.9 59.4 6.0
Pipes . . . . . . . 315.1 2.1 540.4 2.6 859.3 94.6 5.1 398.5 5.1 285.1 31.4 3.2
Tinplates(3) . . . 1,021.4 6.9 1,465.9 7.1 1,070.5 117.9 6.3 596.0 7.6 — — —
Billets . . . . . . 67.0 0.5 43.2 0.2 2.4 0.3 0.0 17.4 0.2 — — —
Others . . . . . . 101.9 0.7 — — 35.2 3.9 0.2 10.4 0.1 21.1 2.3 0.2
Total . . . . . . . 14,106.5 95.1 19,534.6 94.7 15,702.5 1,728.8 92.8 7,264.0 92.8 8,302.7 914.1 92.3

Notes:
(1)
In 2008, we replaced our existing General Ledger — Computer Associates financial reporting system and tailor made application with an
SAP-based financial reporting system. With respect to each of 2007, 2009 and 2010, we reclassified the revenue generated by certain
products and adjusted the allocation of revenue accordingly. However, because the migration between financial reporting systems took place
during 2008, we were unable to retain the information necessary to make the reclassification for that year. For 2007, the reclassification of
revenue resulted in an adjustment to the allocation of revenues from HRC, CRC and wire rods, ranging from 0.1% to 6.0%. For 2009 and
2010, we believe that any adjustments to the allocation of revenue from HRC, CRC and wire rods were insignificant. The reclassification of
products and changes in allocation of revenue had no impact on the total revenue reported for each of 2007, 2008, 2009 and the six-month
periods ended June 30, 2009 and 2010.
(2)
Net revenues from the sale of our HRC represents HRC sales to external customers.
(3)
The results of operations of Latinusa, which produces tinplates, are no longer consolidated with our consolidated financial statements as of
and for the period ended December 31, 2009. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Factors Affecting Our Results of Operations — Sale of Interest in PT Pelat Jimah Nusantana (“Latinusa”) and other Non-
Recurring Events.”

For the year ended December 31, 2009, we sold a total of 2,077,204 metric tons of steel, with consolidated steel
segment revenue of Rp.15,702.5 billion (US$1,728.8 million).
The end users of our finished steel products vary. The table below shows some of the key industries and
products for which our finished products are used.
HRC CRC Wire Rods Sections Bars Pipes

Automotive Automotive Appliance Construction Construction Construction

and retail
Mechanical engineering and Coil centers Automotive Infrastructure
boiler pressure vessel pipes
General structure (consisting Drum Bolt and nut Line pipes
primarily of construction,
general traders, stockists,
and steel centers)
Oil and gas pipes Commercial Enamel Galvanized steel sheet Construction
pipe Cable wire
Re-rolling Home-office appliance Nail
Shipbuilding Pipe and tube Packaging Spring bed
Welding
electrode
Tin Plate Wire rope

In order to capture new markets, we plan to diversify our product mix. In particular, with the planned upgrade
of our hot strip mill, we expect to be able to offer a broader range of high-value HRC product grades and
specifications to meet the demands of our customers.

74
 Marketing and distribution
We primarily sell steel products to the Indonesian market, subject to relevant market conditions.
Approximately 76.2% of our total domestic HRC, CRC, wire rod, steel section, bar and pipe sales by volume
for the year ended December 31, 2009 were to customers who are located in Jakarta and its surrounding areas. We
also export a modest amount of steel products depending on market conditions. We use flexible sales strategies that
are tailored to our customers and the markets we serve. Our overall sales strategy is to develop long-term, close
partnerships with customers who are end users of our finished products. We also make sales to, and maintain
relationships with, intermediaries, such as traders, stockists and steel and coil centers, who on-sell our products. As
part of this strategy, we aim to maintain on-time delivery of products and develop our sales force. We also provide a
one-stop service for customer technical claims settlements.
While a majority of our sales in Indonesia are denominated in Rupiah, we determine the price of our products
based on a number of factors, including the U.S. dollar price of similar imported products. For the year ended
December 31, 2009, sales in Indonesia accounted for 97.4% of our consolidated steel sales volume and 97.6% of our
consolidated steel segment revenue, compared to 91.3% of our consolidated sales volume and 92.7% of our
consolidated steel segment revenue for the year ended December 31, 2008.
The senior members of the marketing team for our HRC, CRC and wire rod products are a Marketing Director
and two General Managers for Sales. Our first General Manager for Sales is responsible for marketing activities
directed towards our regular customers and intermediary customers, such as traders, stockists and steel centers. On
the other hand, our second General Manager for Sales is responsible for marketing activities directed towards
specific projects and retail customers. The following chart shows our marketing organization for our finished steel
products:

Marketing Director

General Manager General Manager

Sales I Sales II

Hot-Rolled Coil Sales Market Research Steel Trading,

and Development Project and Retail

Cold-Rolled Coil Sales Government and Batam, North

Institution Relation Sumatra and Riau Island
Representative Offices
Wire Rod and Sales Administration
By-Product Sales and Market Information
Customer Technical
Service
Export Sales
Profit and
Product Analysis

In addition, we have a marketing team that handles sales of steel sections and bars, and a marketing team that
handles sales of pipes. Our marketing team for steel sections and bars is headed by a Commercial Director who is
supported by a sales manager, a logistics manager and marketing staff. Our marketing team for pipes is also headed
by a Commercial Director who is supported by a legal unit, as well as by an oil, gas and coating sales team, an
infrastructure and export sales team, a construction, retail and trade sales team, and a team providing marketing
support and logistics.
Our sales staff in Jakarta is responsible for selling our pipes, while the sales staff in Cilegon is responsible for
selling by-products and other excess products, such as scrap.

75
 The following chart shows our marketing team for our steel sections and bars:

Commercial
Director

Assistant to Commercial Director

Sales Manager Logistic Manager Marketing Staff

Sales Administration
Staff

Sales Staff Cilegon Sales Staff Jakarta

The following chart shows our marketing team for our pipes:

Commercial
Director

Business Liaison/Legal

Oil, Gas & Coating Sub Directorate

Infrastructure & Construction, Retail
Sales Marketing Support &
Export Sales & Trading Sales
Logistic

Marketing Support
Logistic Non Raw
& Logistic Raw
Material
Material

We tailor our products and promotions to satisfy the needs and preferences of our customers in order to
encourage customer loyalty. We gather market information on a weekly basis. We also attend industry conferences
exhibitions, workshops, seminars and advertise in different media, including industry periodicals to market our
products and capabilities. We are a member of the Indonesian Iron & Steel Industry Association (the “IISIA”). Our
President Director is currently the Chairman of the IISIA, as well as Chairman of the Southeast Asia Iron & Steel
Institute.
As part of our sales strategy, we endeavor to optimize our product mix, with a focus on manufacturing a broad
range of high-value flat products with different grades and specifications, such as API grade steel pipes and high
value-added steel plates. We attempt to penetrate new markets as steel demand increases in Indonesia, and
maximize synergies with other Government-owned enterprises and Government projects. For our export sales, we
maintain long-term relationships with certain customers and focus on regions closer to Indonesia, such as Australia,
where we focus on selling high-value steel plates.
In order to further increase sales, we plan to develop new distribution channels through intermediaries based in
East and Central Java, Central and South Sulawesi and East Kalimantan, where we believe there are potential
customers such as shipbuilders, galvanized manufacturers, pipe makers and fabricators. We also plan to re-organize
our marketing teams to improve our work systems and procedures relating to marketing activities.

76
 Indonesian sales
Our customers in Indonesia are located throughout the country, with Jakarta and its surrounding areas, as well
as Surabaya in East Java, being our most important markets.
Most of our customers are located in Indonesia and we have conducted business with most of them for the past
10 to 20 years. We sell our products to a wide range of customers in a diverse array of industries, such as the
construction, pipe, and galvanized steel sheet and nail manufacturing industries. Our key customers include PT
Essar Indonesia for HRC, PT Bluescope Steel Indonesia for CRC, and PT Jumbo Power International for wire rods.
By generating sales from a variety of customers who come from diverse industries, we believe that our reliance on
any single customer or industry is limited.
The table below sets forth the breakdown of our sales revenue in Indonesia to our five most significant
customers in Indonesia for the year ended December 31, 2009 and for the six-month period ended June 30, 2010:
For the Year Ended December 31, 2009 For the Six Month Period Ended June 30, 2010
Percentage of Total Percentage of Total
Indonesian Sales Indonesian Sales
Customer Sales Revenue Customer Sales Revenue
(Rupiah in millions) (%) (Rupiah in millions) (%)
Customer A . . . . . . . 860,235.9 5.6 Customer A . . . . . . . 576,788.4 7.1
Customer B . . . . . . . 574,115.8 3.7 Customer B . . . . . . . 439,281.9 5.4
Customer C . . . . . . . 556,217.7 3.6 Customer C . . . . . . . 391,432.1 4.9
Customer D . . . . . . . 531,265.1 3.5 Customer D . . . . . . . 315,091.7 3.9
Customer E . . . . . . . 365,423.0 2.4 Customer E . . . . . . . 287,127.7 3.6

We sell our HRC, CRC, wire rods, steel sections, bars, and pipes through direct sales and through indirect sales
through stockists and steel centers. In addition, we sell our HRC and CRC through coil centers, which on-sell our
products to their customers or to stockists or traders. We sell our steel sections, bars, and pipes through direct and
indirect sales. For the six-month period ended June 30, 2010, we sold 67.9% of our steel products through direct
sales.
Our products that are sold via forward contracts are generally paid by 10% cash payment with the balance
covered by a letter of credit or 100% covered by a letter of credit. On the other hand, products we sell on the spot
market are generally paid for in three ways: (i) a 10% cash payment with the balance covered by a letter of credit;
(ii) 100% covered by a letter of credit; or (iii) 100% cash payment.

Export sales
As of June 30, 2010, we had nine customers in the international market who have been our customers for more
than 10 years.
We export a small proportion of our production to other countries, including Australia and New Zealand,
Japan, Malaysia, Singapore, the United Kingdom and Vietnam. For the year ended December 31, 2009, we exported
23,209 metric tons of our HRC, 764 metric tons of our CRC, 26,051 metric tons of our wire rods, and 6,408 metric
tons of our pipes, representing 2.3%, 0.2%, 10.1%, and 9.6% of our total HRC, CRC, wire rod, and pipe sales
volume, respectively. We did not export any of our steel sections or bars in 2009. We intend to export up to 15.0% of
our steel products to overseas customers in order to maintain access to customers abroad. In some market
conditions, export sales are attractive for us.
We export our products directly to customers and indirectly through traders. We sell our products to the
international market through contracts that generally require payment on delivery and which are mostly covered by
letters of credit.

Distribution
For products sold and delivered to domestic customers located within Jakarta and its surrounding areas, we are
generally responsible for transportation costs. We factor transportation costs into the prices we quote for our
products. For products sold and delivered to domestic customers located in other areas, such as Surabaya in East
Java, our customers are generally responsible for transportation costs, which vary based on distance and other
factors. We believe that the proximity of our production facilities to Jakarta, where the majority of our domestic
customers are located, and to transportation infrastructure, including toll roads and our port facilities, significantly
reduces transportation costs.
For export sales, we are generally responsible for transportation costs from our production facilities to the
relevant port or transport transfer location.

77
 We ship our products, both domestically and internationally, primarily though our Cigading Port.

Competition
We operate in a competitive environment and, in our core domestic markets, we compete with domestic
producers and imported products. With respect to HRC and CRC, we compete primarily with imported products
from Japan, South Korea and Taiwan. Our main domestic competitors for HRC are PT Gunung Raja Paksi and
PT Gunawan Dianjaya Steel. For CRC, our main domestic competitors are PT Essar Indonesia and PT Little Giant
Steel. With respect to wire rods, we compete primarily with PT Ispatindo and PT Master. We compete primarily
with various domestic suppliers, such as PT Gunung Garuda, for steel sections, PT Hanil Jaya Metal Works,
PT Jakarta Cakra Tunggal Steel, PT Master, PT Ispat Panca Putra and PT Bhirawa Steel for steel bars, and PT Bakrie
Pipe Industries, PT Bumikaya Steel Industry, PT South East Asia Pipe Industries and PT Steel Pipe Industry of
Indonesia for steel pipes.
We compete primarily on the basis of price, distribution coverage, product quality, and customer service. Some
of our foreign competitors have more resources than us and some of our foreign and domestic competitors may have
lower costs of operations. We believe that we have a number of competitive strengths, including our strong domestic
market position that enables us to compete successfully in the Indonesian steel market. For a description of those
competitive strengths, see “— Competitive Strengths” and for a description of the risks we face from our
competitors, see “Risk Factors — Risks Relating to our Business — The steel industry is highly competitive
and subject to regulations for the maintenance of this competitive environment; we may not be able to maintain our
domestic market leadership position.”

Production Process
The chart below illustrates our ironmaking, steel making and rolling mill processes. Iron ore pellets are
processed in our ironmaking facilities to produce sponge iron. The sponge iron is then mixed with steel scrap for
further processing in our steel making facilities to produce liquid steel. The liquid steel is refined and cast in a
continuous casting machine into steel slabs and billets. Steel slab is further processed in our hot strip mill to produce
HRC, which can be further processed in our cold rolling mill to produce CRC or in our pipe mill to produce pipe.
Steel billets are further processed in our wire rod mill to produce wire rods, in our section mill to produce steel
sections or in our bar mill to produce bars.

Slab Steel Plant 2

Cold Rolling Mill
Cold Rolled
Coils/Sheet
Hot Strip Mill
Direct Reduction
Plant 2 EAF x130 ton 1xLF, 1xRH 1xCCM Hot Rolled
Coils/Plates
Slab Steel Plant 1 Steel Slabs
Spiral/ ERW
Pipes
Sponge Wire Rod Mill
Iron

Wire Rods
4 EAF x130 ton 2xLF 2xCCM
Scrap Bar Mill
Billet Steel Plant
Steel Bar

Steel Billet
Section Mill

4 EAF x60 ton 1xLF 2xCCM Steel Section

Some of our waste products are reproduced in our steel making facilities as scrap, while other waste products
are sold to customers for further processing.

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 Production Facilities
Our production facilities are situated in Cilegon, Indonesia, 94.0 kilometers away from Jakarta, where the
majority of our domestic customers are based. The map below shows the location of our production facilities in
Cilegon, Banten, Indonesia.

The following table shows our various plants, rolling mills and other facilities, as well as the products and
production capacities of our plants, rolling mills and other facilities as of June 30, 2010:
As of June 30, 2010
Production Capacity
Plant Product (Metric Tons/year)

Direct Reduction Plant . . . . . . . . . . . . . . . . . . . . . . . . . . Sponge Iron 1,500,000

Steel Slab Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slab 1,800,000
Steel Billet Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Billet 650,000
Hot Strip Mill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hot Rolled Coil/Plate 2,000,000(1)
Cold Rolling Mill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cold Rolled Coil/Sheet 850,000
Wire Rod Mill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wire Rod 450,000
Bar Mill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Steel Bar 150,000
Section Mill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Steel Section 150,000
Pipe Mill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spiral and ERW Pipes 120,000

Note:
(1)
Certain of the HRC that we produce in our hot strip mill are used as input in the production of our CRC and pipes.

The actual volume production of each of our facilities is influenced by a number of factors, including the
availability of raw materials, natural gas and electricity and the demand for our products. Our actual production, in
turn, has a direct impact on the capacity utilization rate of each of our facilities. Our operations depend heavily on
the availability of various raw materials, in particular imported iron ore pellets. We are also heavily dependent on PT
Pertamina and PT PGN for our supply of natural gas, and PT PLN for electricity. In the past, PT Pertamina, PT PGN,
and PT PLN have not been able to meet all of our natural gas and electricity requirements. In addition, the amount of
natural gas and electricity that PT Pertamina, PT PGN and PT PLN supplied to us decreased from 2008 to 2009. In
2008, PT Pertamina supplied us with 592.1 million cubic meters of natural gas, as compared to 443.7 million cubic
meters of natural gas in 2009. In 2008, PT PGN supplied us with 130.8 million cubic meters of natural gas, as
compared to 173.9 million cubic meters of natural gas in 2009. With respect to electricity, PT PLN supplied us with

79
1,011.4 million kWh of electricity in 2008, as compared to 995.1 million kWh of electricity in 2009. In the future, if
our raw materials and natural gas and electricity suppliers are unable to provide us with sufficient amounts of raw
materials, natural gas or electricity, or if the amount of natural gas or electricity that our natural gas and electricity
suppliers supply to us continues to decrease, then our volume production may decrease and we may not be able to
maximize our production capacity, which could have a material adverse effect on our business. See “Risk Factors —
Risks Relating to our Business — Any decrease in the availability, or increase in the cost, of raw materials and
energy could materially affect our production output and earnings.”
The following table sets out the capacity utilization rate of our various plants for the periods indicated below:
For the Six-Month
Periods Ended
For the Years Ended December 31, June 30,
2005 2006 2007 2008 2009 2009 2010
Capacity utilization rate (%)(1)
Plant
Direct Reduction Plant . . . . . . . . . 84.5 79.9 88.1 80.3 74.6 61.5 91.6
Steel Slab Plant . . . . . . . . . . . . . . 70.4 70.2 74.5 71.1 52.3 38.3 68.7
Steel Billet Plant . . . . . . . . . . . . . 57.0 32.0 59.4 54.3 43.0 43.2 49.4
Hot Strip Mill . . . . . . . . . . . . . . . 68.6 81.7 86.6 79.8 80.1 67.7 97.1
Cold Rolling Mill . . . . . . . . . . . . . 60.3 65.0 72.2 61.3 56.0 45.0 60.5
Wire Rod Mill . . . . . . . . . . . . . . . 66.0 41.0 75.8 57.0 55.9 61.4 62.0
Section Mill . . . . . . . . . . . . . . . . . 44.9 27.4 58.1 47.6 31.0 29.5 53.7
Bar Mill . . . . . . . . . . . . . . . . . . . . 85.0 42.9 69.2 62.9 52.9 39.3 59.7
Pipe Mill . . . . . . . . . . . . . . . . . . . 36.0 49.1 16.9 38.2 42.6 51.6 50.0

Note:
(1)
Capacity utilization rate is calculated by dividing the actual output of each facility for the relevant period by the production capacity of that
facility.

Ironmaking — Direct Reduction Plant

Our ironmaking production facilities consist of a gas-based direct reduction plant in Cilegon. Our direct
reduction plant utilizes iron ore pellets, which are mixed with natural gas to produce sponge iron. Our direct
reduction plant uses Mexican Hyl Technology and, as of June 30, 2010, has two units consisting of Hyl I and Hyl III.
Hyl I is kept for standby purposes and used only when Hy1 III is shut down or is being overhauled.
Hyl I has four module batch processes with each module having four reactors with a production capacity of
500,000 metric tons of sponge iron per year.
Hyl III operates using two shaft continuous processes with a production capacity of 1,500,000 metric tons per
year of sponge iron per year. We expect our Hyl III production capacity to increase to 1,740,000 metric tons per year
after the completion of our direct reduction plant revitalization program in 2012. In addition to an increase in the
capacity of our direct reduction plant, we also expect a reduction in our reliance on and consumption of natural gas.
Out of a production capacity of 1,500,000 metric tons per year, our direct reduction plant produced 1,119,336 metric
tons of sponge iron for the year ended December 31, 2009. The production yield of our direct reduction plant was
64.0% for the year ended December 31, 2009.

Steel Making — Steel Slab Plant

Our steel slab plant (“SSP”) consists of two facilities: (i) the SSP I, which applies German technology supplied
by Maschinenfabrik Augsburg Nurnberg Gutehoffnunghshütte (“MAN GHH”) and Schloemann-Siemag
Aktiengensellschaft (now SMS Siemag), and has a production capacity of 1,000,000 metric tons per year and
(ii) the SSP II, which is equipped with Austrian technology supplied by Voest Alpine Industrieanlagenbau and has a
production capacity of 800,000 metric tons per year.
SSP I is equipped with four EAFs, two ladle furnaces, and two continuous casting machines (“CCMs”), while
SSP II is equipped with two EAFs, one ladle furnace, one Ruhrstahl Heraeus degasser and one CCM.
We expect to increase the production capacity of our SSP to 2,470,000 metric tons per year by 2014 by
replacing three EAFs in SSP I with modern EAF technology equipped with an oxyfuel carbon wall injector,
installing an oxyfuel carbon wall injector in the EAFs in SSP II and modernizing the CCMs in both SSP I and SSP II.
See “— Revitalization and Expansion Programs — New Blast Furnace Complex and Steel Making

80
Modernization.” Out of a production capacity of 1,800,000 metric tons per year, our steel slab plants produced
941,540 metric tons of steel slab for the year ended December 31, 2009. The production yield of our steel slab plant
was 79.9% for the year ended December 31, 2009.

Steel Making — Steel Billet Plant

Our steel billet plant applies German technology supplied by MAN GHH and Concast Standard AG. It has four
EAFs, one ladle furnace, and two four-strand CCMs equipped with ladle turrets. Out of a production capacity of
650,000 metric tons per year, our steel billet plant produced 279,377 metric tons of steel billets for the year ended
December 31, 2009. The production yield of our steel billet plant was 82.4% for the year ended December 31, 2009.

Rolling Mill — Hot Strip Mill

At the start of its operations in 1983, our hot strip mill applied German technology supplied by Schloemann-
Siemag Aktiengesellschaft (now SMS Siemag) and had an initial capacity of 1,000,000 metric tons per year.
Between 1993 and 2004, we conducted modernization projects to increase the production capacity of our hot strip
mill to 2,000,000 metric tons per year through the installation of a reheating furnace, a finishing mill stand, a down
coiler, a sizing press, and a roughing mill with higher motor capacity. In 2005, we also installed a new shifting
device for the finishing mill and modernized our water descaler facility. Out of a production capacity of 2,000,000
metric tons per year, our hot strip mill produced 1,602,295 metric tons of HRC for the year ended December 31,
2009. The production yield of our hot strip mill was 96.6% for the year ended December 31, 2009.
We expect to increase the production capacity of our hot strip mill to 2,400,000 metric tons per year by 2011
through further modernization of our reheating furnaces, the replacement of obsolete electrical equipment and
automation systems, the installation of certain modern technologies for our finishing mills, the installation of
laminar cooling automation and microstructure monitoring systems, as well as restoration and upgrading of our roll
shop. In addition to increasing capacity, we also expect that our revitalization project will improve the quality of our
products and increase the range of products that we can produce, enabling us to enter new markets that we are
currently unable to supply. See “— Revitalization and Expansion Programs — Revitalizaton of Existing Facilities.”

Rolling Mill — Cold Rolling Mill

Our cold rolling mill is equipped with French technology supplied by CLECIM and consists of different
production units, including one continuous pickling line, one continuous tandem cold mill, two electrolytic lines,
one continuous annealing line, a batch annealing unit supported by 30 batch annealing furnaces, one temper pass
mill, one preparation line, one recoiling line, and one shearing line. Out of a production capacity of 850,000 metric
tons per year, our cold rolling mill produced 475,990 metric tons of CRC for the year ended December 31, 2009.
The production yield of our cold rolling mill was 91.6% for the year ended December 31, 2009.

Rolling Mill — Wire Rod Mill

Our wire rod mill started operations in 1979 by applying Schloemann-Siemag Aktiengensellschalt (now SMS
Siemag) technology with an initial capacity of 200,000 metric tons per year. We conducted modernization projects
between 1991 to 1999 to increase the production capacity of our wire rod mill to 450,000 metric tons per year by
increasing the motor power of our no-twist block finishing mill, installing a C-hook and automatic compactor,
replacing our reheating furnace, and installing a second strand. Out of a production capacity of 450,000 metric tons
per year, our wire rod mill produced 251,479 metric tons of wire rods for the year ended December 31, 2009. The
production yield of our wire rod mill was 96.6% for the year ended December 31, 2009.

Rolling Mill — Bar Mill

PT Krakatau Wajatama was established in July 24, 1992 to produce various high-quality products, such as INP,
IWF, H-beam, channels, angles, reinforcing bars and steel wires. It has three production facilities, namely, a bar
mill, a section mill and a cold wire drawing. Our bar mill is equipped with a reheating furnace, a roughing mill, an
intermediate mill, a finishing mill, a cooling bed, and cold shears. The bar mill is capable of producing 150,000
metric tons per year of medium carbon steel reinforcing bars of deformed and plain shapes. Out of a production
capacity of 150,000 metric tons per year, our bar mill produced 79,307 metric tons of steel bars for the year ended
December 31, 2009. The production yield of our bar mill was 96.6% for the year ended December 31, 2009.

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 Rolling Mill — Section Mill
Our section mill is also operated by PT Krakatau Wajatama and is equipped with a reheating furnace, a
roughing mill, a two-high universal finishing mill, a cooling bed, and a roll straightener. The section mill has a
production capacity of 150,000 metric tons per year of steel sections. Out of a production capacity of 150,000 metric
tons per year, our section mill produced 46,551 metric tons of steel bars for the year ended December 31, 2009. The
production yield of our section mill was 93.4% for the year ended December 31, 2009.

Rolling Mill — Pipe Mill

Our pipe mill is operated by PT KHIPI. It was established on May 15, 1972 and commenced commercial
operations in January 1973. It produces high quality pipes to meet the needs of industries, such as the oil and gas
industry and the industrial construction industry. It produces spiral welded steel pipes of different specifications.
Our pipe mill is equipped with two pipe production facilities to produce two types of pipe. The first facility
uses a four-unit spiral pipe machine that produces high-quality spiral welded pipes using spiral arc welding
technology. The second facility uses a one-unit high speed ERW pipe machine that produces high-quality
longitudinal welded pipes using ERW technology. The ERW pipe machine has the ability to produce pipes
with an outer diameter of four to 12 inches.
Out of a production capacity of 120,000 metric tons per year, our pipe mill produced 51,100 metric tons of steel
pipes for the year ended December 31, 2009. The production yield of our pipe mill was 92.0% for the year ended
December 31, 2009.

Raw Materials and Supplies

The principal raw materials and supplies we use in manufacturing our products are iron ore pellets, sponge
iron, steel scrap, steel slab, steel billet, natural gas and electricity. We produce and source some of these raw
materials and supplies internally, including all the sponge iron we use in our production facilities. In the case of steel
slabs, steel billets and electricity, while we produce some of these raw materials and supplies internally, we also
source these raw materials and supplies externally from third party suppliers. See “— Steel Slab and Steel Billet”
and “— Electricity, Natural Gas and Water.” We currently import all our iron ore pellets and steel scrap.
The table below sets out the cost components of our HRC, CRC, wire rods and steel billets for the year ended
December 31, 2009 as a percentage of our production cost:
For the Year Ended December 31, 2009
Percentage of Production Cost
Production Cost Components HRC CRC Wire Rod
(%)
Raw materials used(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64.3 49.8 55.2
Direct overhead(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9 17.2 11.5
Energy costs(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8 17.8 17.8
Conversion costs(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 9.0 12.4
Others(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 6.2 3.1
Total Production Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0

Notes:
(1)
Raw materials used consisted of imported iron ore pellets, steel scraps, and imported steel slabs and billets.
(2)
Direct overhead consisted of different components, including direct labor costs, maintenance costs, rent and insurance premium for assets
used in our production facilities, other fixed costs, and depreciation.
(3)
Energy costs consisted of costs for natural gas, electricity, oil and fuel.
(4)
Conversion costs consisted of variable production costs, such as other materials used in our production process, such as refractory,
electrodes, additives and alloys.
(5)
Others consisted of other miscellaneous costs, including internal handling costs, packaging costs and operating supplies costs.

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 As part of our effort to control costs, we maintain and continue to build strong long-term relationships with our
suppliers. The table below identifies our top suppliers of raw materials and supplies as of December 31, 2009:
Contract Expiry Date of Latest
Period Contracts Relationship
Top 10 Suppliers Product (Years) (Extendable) Since

Samarco Mineracao S.A. Iron Ore Pellets 5 December 31, 2012 1978
Compañia Minera Huasco S.A. Iron Ore Pellets 5 December 31, 2013 1993
Gulf Industrial Investment Co. Iron Ore Pellets 3 December 31, 2012 2003
PT Tamara Steel Steel Scrap 1 April 15, 2011 2005
PT Karya Sumber Daya Steel Scrap 1 March 14, 2011 2005
PT Pertamina Gas 6 June 14, 2013 1978
PT PGN Gas — Unlimited 2006
PT PLN Electricity — Unlimited 1978
Samancor AG Ferroalloy 2 March 31, 2011 2009
Valji, d.o.o. Store Indefinite roll 4 April 1, 2012 2001
Currently, the main raw material that we use in our ironmaking facilities is iron ore of DRI grade. All of our
iron ore raw materials are imported and we are highly dependent on our suppliers. We enter into long-term supply
agreements with our international suppliers of iron ore in order to mitigate risks relating to the disruptions in the
supply of our iron ore supply. Upon completion of our revitalization and expansion programs, we expect to be able
to use a greater variety of raw materials. In addition, the new ironmaking facilities and the new blast furnace
complex will allow us to utilize less expensive local raw materials and energy sources, which will help us to lower
our expenses and enhance our profitability. We believe that our blast furnace technology, as a complement to our
existing gas-based DRI technology, will be more cost effective in the long-term. See “— Revitalization and
Expansion Programs.” Upon completion of our revitalization and expansion programs in 2014 (excluding our joint
venture with POSCO), we expect to use approximately 46.0% of iron ore pellets (DRI grade), 23.0% of iron ore
fines, 12.0% of lump ore, 12.0% of coking coal, and 7.0% iron ore pellets (blast furnace grade) per metric ton of
steel produced.

Iron Ore
Our ironmaking operations use iron ore in the form of pellets. In 2007, 2008, 2009 and the six-month periods
ended June 30, 2009 and 2010, our ironmaking operations used 2,000,000 metric tons, 1,800,000 metric tons,
1,700,000 metric tons, 1,700,000 metric tons, and 1,100,000 metric tons of iron ore pellets, respectively. We have
long-term relationships with iron ore pellet suppliers to ensure continuous availability. We import iron ore pellets
primarily from South America and the Middle East. The table below sets forth our top iron ore pellet suppliers for
the three years ended December 31, 2007, 2008 and 2009 and for the six-month periods ended June 30, 2009 and
2010.
For the Six-
Month
Periods
For the Years Ended December 31, Ended June 30,
Iron Ore Supplier 2005 2006 2007 2008 2009 2009 2010
Imported Pellet Volume (In thousands of metric tons)
Samarco Mineracao S.A. . . . . . . . . . . . . . . . . . . 724 1,023 1,094 1,016 742 305 456
Compañia Minera Huasco S.A. . . . . . . . . . . . . . . 927 567 1,119 713 600 302 462
Gulf Industrial Investment Co. . . . . . . . . . . . . . . 193 84 — 191 — — 130
Kudremukh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 120 64 — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,844 1,655 2,213 2,040 1,406 607 1,048
We agree in advance of delivery on the annual quantity of iron ore pellets each of our suppliers will deliver to
us. Iron ore pellets are to be delivered to us in even shipments throughout the year with an option, in some cases, to
increase the quantity of iron ore pellets by one shipment of a specified quantity of iron ore pellets per year. Under
our supply contracts, the shipment schedule of iron ore pellets is based on our expected production program. The
free-on-board price of our iron ore pellets is mutually agreed upon between us and our supplier during the quarter
preceding shipment of the iron ore pellets, taking into consideration the international market price for iron ore
pellets of the same grade. If we are unable to agree on a price with our supplier during the quarter preceding
shipment of the iron ore pellets, then the iron ore pellets are shipped to us at the price agreed for the previous quarter,
which price is subject to adjustment once we agree on a price with our supplier.

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 The table below sets out the average price of the imported iron ore pellets that we used in our production for the
three years ended December 31, 2007, 2008 and 2009 and the six-month periods ended June 30, 2009 and 2010.
For the Six-Month
Periods
For the Years Ended December 31, Ended June 30,
2007 2008 2009 2009 2010
(Rp. thousand per metric ton)
Average Price of Iron Ore Pellets . . . . . . . . . . . . . . . . . . 1,047.0 1,898.0 1,251.0 2,335.8 1,133.0

Sponge Iron and Steel Scrap

Our ironmaking facilities produce sponge iron which is then charged together with scrap steel to produce steel
slabs and steel billets. We produce sponge iron in our direct reduction plant using iron ore sourced from external
suppliers. In 2009, our steel making operations used 1,100,000 metric tons of sponge iron and 400,000 metric tons
steel scrap. We import scrap steel primarily from Singapore.
Most of our steel scrap is sourced domestically, including from Batam, Indonesia. We purchase steel scrap
from domestic sources or from international suppliers based on the price of steel scrap in the domestic and
international markets. The table below sets out the average price of the steel scraps that we used in our production
for the three years ended December 31, 2007, 2008 and 2009 and for the six-month periods ended June 20, 2009 and
2010.

For the Six-Month

Periods
For the Years Ended December 31, Ended June 30,
2007 2008 2009 2009 2010
(Rp. thousand per metric ton)
Average Price of Steel Scrap . . . . . . . . . . . . . . . . . . . . . 3,433.0 5,668.0 5,180.0 3,785.2 3,721.0

Steel Slab and Steel Billet

Our hot strip mill uses steel slabs produced by our steel slab plant for further processing into rolled products. In
2009, we used 1,658,375 metric tons of steel slabs in our operations, of which 1,014,965 metric tons were produced
by us, while the rest were purchased from third-party suppliers. We import steel slab from third party suppliers to
supplement the steel slab we produce. While our steel slab plant is capable of producing 1,800,000 metric tons of
steel slab per year, our hot strip mill is capable of producing 2,000,000 metric tons of rolling products per year.
Our steel slab suppliers are major players in the steel industry, which offer us competitive steel slab prices. The
table below sets forth our top steel slab suppliers for the years ended December 31, 2007, 2008 and 2009 and for the
six-month periods ended June 30, 2009 and 2010.
For the Six-Month
Periods
For the Years Ended December 31, Ended June 30,
Steel Slab Supplier 2007 2008 2009 2009 2010
Imported Steel Slab (In thousands of metric tons)
Novolipets . . . . . . . . . . . . . . . . . . ........... 120 134 81 81 263
Blue Scope . . . . . . . . . . . . . . . . . . ........... 118 64 166 101 35
East Metals SA . . . . . . . . . . . . . . . ........... 148 154 119 119 142
AMT . . . . . . . . . . . . . . . . . . . . . . ........... — 197 158 158 263
Others. . . . . . . . . . . . . . . . . . . . . . ........... 106 10 104 131 40
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492 559 628 589 518

We agree in advance of delivery on the annual quantity of steel slabs each of our suppliers will deliver to us.
Steel slabs are delivered to us throughout the year. Delivery takes place every quarter after we have indicated the
quantity and assortment of steel slabs to be delivered to us. Under our steel slab supply agreements, we negotiate the
price of steel slabs on a quarterly basis.
Steel billet is used as an input in our wire rod mill. We are capable of producing 650,000 metric tons of steel
billets per year, which is in excess of our steel billet needs. We sell our excess steel billet products to third-party
customers.

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 Natural Gas, Electricity and Water
Steel production requires significant amounts of gas and electricity to power furnaces and rolling mills. In
2007, 2008, 2009 and the six-month periods ended June 30, 2009 and 2010, our operations consumed
approximately 700.5 million cubic meters, 722.8 million cubic meters, 607.6 million cubic meters,
357.1 million cubic meters, and 357.1 million cubic meters of natural gas, respectively, which was supplied by
PT Pertamina and PT PGN.
The table below sets forth the percentage of natural gas that was used in our operations that was supplied by PT
Pertamina and PT PGN:
For the Six-Month
Periods
For the Years Ended December 31, Ended June 30,
Source of Natural Gas 2007 2008 2009 2009 2010
(%)
PT Pertamina . . . . . . . . . . . . . . . . . . . . . 65.0 52.0 63.0 63.0 60.0
PT PGN . . . . . . . . . . . . . . . . . . . . . . . . . 35.0 48.0 37.0 37.0 40.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0 100.0

In 2009, our operations consumed approximately 1,692.7 million kWh of electricity, of which 697.6 million
kWh was sourced internally from our power plant company, PT KDL. The balance was purchased from the
Government-owned national electricity provider, PT PLN. The table below sets forth the percentage of electricity
that we used in our operations that was supplied by PT PLN and that was sourced internally from PT KDL:
For the Six-Month
Periods
For the Years Ended December 31, Ended June 30,
Source of Electricity 2007 2008 2009 2009 2010
(%)

PT PLN . . . . . . . . . . . . . . . . . . . . . . . . . 54.0 50.0 41.2 54.3 22.4

PT KDL . . . . . . . . . . . . . . . . . . . . . . . . . 46.0 49.1 49.1 45.7 77.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0 100.0

Large amounts of water are also required in the production of steel. Water serves as a solvent, a catalyst and a
cleaning agent. It is used to cool steel, carry away waste, help produce and distribute heat and power and dilute
liquids. We obtain water internally from PT KTI. See ‘‘— Corporate History and Structure” and “— Our Other
Activities — Industrial Water Provider.”

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Revitalization and Expansion Programs
We are focusing on the revitalization and expansion of our production facilities with the goal of increasing
production capacity, reducing our cost of production, enhancing profit margins, and creating a balance between the
production capacity of our upstream and finished steel production facilities. The table below sets forth the total
estimated cost and estimated completion dates of our major revitalization and expansion projects as of June 30,
2010, as well as the production capacity of our facilities before and after the completion of the projects. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital
Expenditures — Capital Expenditures for 2010 to 2014.”
Estimated Year of Capacity
Project Total Estimated Cost Completion Before After
(Rp. in (US$ in (In metric tons per year,
billions) millions) except as indicated)
Revitalization of Existing Facilities . . . . . . 2,087 229.8
Direct Reduction Plant . . . . . . . . . . . . . 558 61.4 2012 1,500,000 1,740,000
Steel Slab Plant . . . . . . . . . . . . . . . . . . 759 83.6 2012 1,800,000 2,100,000
Hot Strip Mill . . . . . . . . . . . . . . . . . . . . 770 84.8 2011 2,000,000 2,400,000
Ironmaking Expansion Project . . . . . . . . . 1,376 151.5 2011 —(1) 315,000
New blast furnace complex and Steel
Making Modernization . . . . . . . . . . . . . 3,397 374.0 2013
New Blast Furnace Complex . . . . . . . . . —(1) 1,200,000
Steel Slab Plant . . . . . . . . . . . . . . . . . . 2,100,000(2) 2,470,000
Hot Strip Mill Expansion . . . . . . . . . . . . . 1,299 143.0 2013 2,400,000(3) 3,500,000
Port Development . . . . . . . . . . . . . . . . . . . 1,276 140.5 2013 10,000,000 28,000,000
Power Plant Development (MW per
year) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,733 190.8 2013 400 580
Water Supply Development (liters per
second) . . . . . . . . . . . . . . . . . . . . . . . . 239 26.3 2014(4) 1,515 1,850

Notes:
(1)
The ironmaking expansion project relates to the construction of new ironmaking facilities in South Kalimantan, Indonesia. Prior to the
construction of the facility, we do not have existing ironmaking facilities in South Kalimantan and, therefore, no production capacity for the
facility. See “— Ironmaking Expansion Project.” Similarly, the new blast furnace complex project relates to the development and
construction of a new blast furnace complex. Prior to the completion of the new blast furnace complex, there is no existing facility
and, therefore, no production capacity for the facility. See “— New Blast Furnace Complex and Steel Making Modernization.”
(2)
Based on the projected production capacity of our steel slab plant in 2012 after modernization of our steel slab plant is completed by 2012.
(3)
Based on the projected production capacity of our hot strip mill in 2011 after modernization of our hot strip mill is completed in
November 2010.
(4)
Our water supply development project includes a water waste recycle project, which is expected to be completed in 2014. Certain work
related to the development and expansion of our water supply is expected to be completed in 2013. We expect to begin receiving additional
water supply upon completion of certain of those projects by 2013.

On October 2, 2010, we temporarily shut down the operation of our hot strip mill in preparation for the
revitalization of our hot strip mill. We originally anticipated our hot strip mill to resume operations in the first week
of November 2010. However, because of delays in the arrival of certain equipment required for our hot strip mill
revitalization project, we now anticipate that we will resume operations at our hot strip mill during the second week
of November 2010. We believe this delay will reduce our HRC and CRC production and sales volumes for
November 2010 in the amount of approximately 30,000 metric tons. In implementing our other revitalization and
expansion programs, similar shut downs may occasionally occur at our other facilities, which would affect those
facilities’ production and could affect our sales volumes.

Revitalization of Existing Facilities

We are currently modernizing our production facilities through the upgrade of obsolete equipment, the
installation of new control systems in our existing direct reduction plant, steel slab plant and hot strip mill and the
upgrading of certain other systems, such as cooling systems, in those facilities. With the installation of modernized
technology and equipment in our production facilities, we expect to increase our use of oxygen in our ironmaking
process, thus reducing our reliance on natural gas, which is more expensive than oxygen. Due to the expected higher
carbon content in DRI, we also expect to use less electrical energy during the EAF melting process.

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 Fabrication work is in progress at our direct reduction plant, and work is expected to be completed in 2012.
Upon completion, we expect our production capacity of sponge iron to increase from 1,500,000 metric tons per year
to 1,740,000 metric tons per year by 2012. We signed the EPC contract for the modernization of our steel slab plant
in April 2010 and are currently conducting engineering work on the project. Upon completion, we expect our steel
slab production capacity to increase from 1,800,000 metric tons per year to 2,100,000 metric tons per year by
210,000. In March 2008, we signed the EPC contract for the modernization of our hot strip mill, where preparation
for construction work is underway. Work is expected to be completed by the fourth quarter of 2010 and we expect
the production capacity of our hot strip mill to increase from 2,000,000 metric tons per year to 2,400,000 metric tons
per year by 2011.
The total projected cost for the revitalization program is approximately Rp.2,087 billion (US$229.8 million),
of which we have recorded Rp.636.0 billion (US$70.0 million) as an addition to our construction in progress as of
June 30, 2010. We expect the revitalization program to be fully funded by export credit agency loans.

Ironmaking Expansion Project

Since 2005, in an effort to help the development of the domestic steel industry, we have been conducting
research on the possible use of local iron ore and coal as raw materials in the production of local steel products. Our
research efforts have been focused in South Kalimantan, Indonesia, which has large deposits of iron ore and coal. In
furtherance of this goal, on June 9, 2008, we entered into a joint venture with Antam, an Indonesian mining
processing company, to form a joint venture company called PT Meratus Jaya Iron & Steel (“PT MJIS”), for the
purpose of developing and constructing ironmaking facilities in South Kalimantan. As of June 30, 2010, we owned a
66.0% stake in PT MJIS.
The new ironmaking facilities are expected to use local iron ore as raw material in the ironmaking process. We
expect that our use of local iron ore in the new ironmaking facilities will reduce our costs of operations by reducing
our cost of raw materials. We are in the process of constructing the ironmaking facilities in South Kalimantan and,
since there is no existing infrastructure at the site of the new ironmaking facilities, we are also planning to develop
and construct a 60 MW power plant and a water treatment plant. We expect operations at the new ironmaking
facilities to commence in 2011 and expect to reduce our reliance on imported iron ore pellets once the new facilities
are operational. The new ironmaking facilities are expected to have a production capacity of 315,000 metric tons of
DRI per year. The total projected cost of the new ironmaking facilities is approximately Rp.1,376 billion
(US$151.5 million), of which we have recorded Rp.551.0 billion (US$60.7 million) as an addition to our
construction in progress as of June 30, 2010. We expect to fund the project through local bank loans and cash
from our operations.

New Blast Furnace Complex and Steel Making Modernization

To improve the efficiency and cost competitiveness of our ironmaking and steel making facilities, we initiated
the tender process for the development and construction of a new blast furnace complex and the further
modernization of our SSP in August 2009. We expect the new blast furnace complex, which is targeted to be
completed in 2013, to increase production in our ironmaking facilities by 1,200,000 metric tons of hot metal per
year.
The new blast furnace complex will complement our existing gas-based DRI furnace. This will diversify the
energy sources used in our ironmaking facilities, which currently are highly reliant on natural gas. It will also
significantly reduce our use of imported scrap in our EAF steel making operations. Upon completion, we expect to
use lower grade iron ore and coking coal as raw materials in our new blast furnace complex. We expect that these
raw materials will be less expensive than DRI grade iron ore and natural gas and that the use of these raw materials
in our new blast furnace complex will lower our cost of operations. The installation of the new blast furnace
complex will be complemented by the modernization of one of our continuous casters and the installation of
additional ladle furnaces in SSP II to help us increase our steel slab production capacity. We expect SSP I and SSP II
to have total steel slab production capacity of 2,470,000 metric tons per year, and expect a reduction in our
electricity input after we begin using the hot metal from the new blast furnace complex on completion of the
revitalization project, which is expected to occur in 2013.
We have completed our pre-feasibility study and are in the process of concluding the tender process for this
project. The current total projected cost of this project is approximately Rp.3,397 (US$374.0 million), which we
expect to fund through export credit agency loans. As of June 30, 2010, we had not yet invested any funds in this
project.

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 Hot Strip Mill Expansion
Upon completion of our revitalization programs (see “— Revitalization of Existing Facilities,”
“— Ironmaking Expansion Project,” and “— New Blast Furnace Complex and Steel Making Modernization”),
we plan to embark on an expansion program aimed at further increasing our hot strip mill’s capacity from 2,400,000
metric tons per year to 3,500,000 metric tons per year. We are in the process of completing a feasibility study for this
project and have received a preliminary offer from suppliers of equipment in connection with the project. We plan to
commence work on the hot strip mill in 2011 and to complete the expansion by 2013. The current total projected
cost for the project is approximately Rp.1,299 billion (US$143.0 million), which we plan to finance through the
proceeds of the Global Offering. See “Use of Proceeds.” We intend to feed the expanded hot strip mill with
1,000,000 metric tons per year of steel produced by our joint venture with POSCO.

Port, Power and Water Supply Development

To support our new blast furnace complex, we plan to add two cranes to our port, modernize our existing
conveyor system and install a new conveyor line at our port by 2012. We expect this to increase the capacity of our
port from 10,000,000 metric tons to 14,500,000 metric tons per year. We also plan to support our joint venture
company with POSCO by extending and upgrading our jetty facilities and by adding a new ship unloader and a new
conveyor system to help us further increase port capacity to 28,000,000 metric tons per year by 2013. Based on our
feasibility study for this project, we expect the expansion and modernization of our port facilities to cost
approximately Rp.1,276 billion (US$140.5 million), which we intend to fund with our own funds, of which we
have already invested Rp.9.9 billion (US$1.1 million) through local bank loans and through the proceeds of the
Global Offering. See “Use of Proceeds.”
We also plan to develop and construct a 120MW combined cycle power plant. The tender process for this
project has started and we expect the power plant to be fully operational by 2013. Based on an external feasibility
study that was prepared for this project, we believe that the project will cost approximately Rp.1,733 billion
(US$190.8 million), which we expect to fund through export credit agency loans and the proceeds from the Global
Offering. Upon completion of the power plant, we expect the power generated by our power plants to increase from
400 MW per year to 580 MW per year.
We have also conducted feasibility studies relating to the development and expansion of our water supply
facilities, and studies of ways we can recycle water in our production processes. We plan to commence the tender
process for this project in 2010 and complete the water supply development project by 2013 and the re-use of waste
water project by 2014. Based on our feasibility study for this project, we believe that it will cost approximately
Rp.239 billion (US$26.3 million), which we plan to fund through local bank loans and the proceeds of the Global
Offering. Upon completion of the water supply facilities, we expect water supply at our facilities to increase from
1,515 liters per second to 1,850 liters per second.

Joint Venture with POSCO

On August 4, 2010, we entered into a joint venture agreement with POSCO, a limited liability company
existing under the laws of South Korea, covering, among others, the development, engineering, financing,
construction, ownership, operation, and maintenance of an integrated steel mill and related structures and
facilities, to be built in the Krakatau Industrial Estate in Cilegon, Indonesia, and the sale and export of steel
products manufactured at the joint venture integrated steel mill. The joint venture integrated steel mill is expected to
have an annual production capacity of approximately 6,000,000 metric tons in aggregate, and is expected to be
completed in two phases. Upon completion of the first phase of the project by 2013, we expect the joint venture
integrated steel mill to have an annual production capacity of approximately 3,000,000 metric tons of steel slab per
year, part of which we plan to off-take for use as raw material for our hot strip mill, part of which the joint venture
company is expected to process into steel plates, and the remainder of which the joint venture company is expected
to be exported from Indonesia. We expect the joint venture integrated steel mill to have an annual production
capacity of approximately 1.4 million metric tons of steel plates per year. The estimated cost for the development
and construction of the Phase I Facilities is US$2,660.0 million. The joint venture is expected to be funded by
contributions of capital by POSCO and us of approximately US$931.0 million and by external financing of
approximately US$1,729.0 million. Our initial equity contribution for the Phase I Facilities is estimated to be
US$279.3 million, a portion of which will be in the form of the 388.0 hectares of land for use as the site for the joint
venture integrated steel mill in Cilegon. During the second phase of the project, we expect the joint venture
company to construct additional facilities to increase production capacity of the integrated steel mill by
approximately 3,000,000 metric tons per year, subject to the completion of feasibility studies and the adoption
of final investment plans.

88
 On September 27, 2010, we received approval for the formation of PT Krakatau POSCO from the Ministry of
Law and Human Rights. POSCO, which is unaffiliated with us, currently owns 70.0% of the shares in the joint
venture company, while we own the remaining 30.0%. Under our joint venture agreement with POSCO, we are
required to increase our stake in the joint venture company by purchasing 15.0% of POSCO’s shares in the joint
venture company one year after the issuance of the final acceptance certificate by the joint venture company for the
Phase I Facilities. We expect production in the Phase I Facilities to commence in 2014. Under the joint venture
agreement, we may off-take on an arm’s-length basis up to 1,000,000 metric tons of steel slab per year for use as raw
material for 10 years from the commercial start of operations of the Phase I Facilities, subject to a ramp-up
arrangement consisting of at least (i) 50.0% of such quantity in the first year of commercial production, (ii) 70.0% of
such quantity in the second year of commercial production, and (iii) 100.0% of such quantity in the third year of
commercial production and for the remainder of the 10-year term. We plan to off-take the entire amount of steel slab
that we can off-take under the joint venture agreement for use as raw material in our hot strip mill. We expect that
steel slabs produced by the joint venture company and not off-taken by us or used to process into steel plates will be
exported.
We expect the joint venture company to produce and sell steel plates within and outside Indonesia in
accordance with a marketing plan to be agreed between POSCO and us, which is expected to focus on meeting
domestic market needs for thicker and wider steel plates. The joint venture company is also expected to engage in
the sourcing of steel raw materials and other supporting materials to be processed in the joint venture integrated
mill, sell and export downstream products, and engage in factory waste management.
In furtherance of the main purposes of the joint venture, and as conditions to each party’s obligation to
consummate completion of the subscription for the shares in the joint venture company (hereinafter referred to as
“completion”), we also expect to enter into various agreements with the joint venture company, including a steel
slab off-take agreement, a port facility sharing agreement, a power supply agreement, a water supply agreement,
and a general support services agreement. As a condition to completion, we are required under the joint venture
agreement to deliver to the joint venture company no later than January 4, 2011 a certificate and other relevant
documents evidencing our legal and beneficial ownership of at least 388.0 hectares of land, including 66.5 hectares
of land in Kubangsari that is under legal dispute. See “Risk Factors — Risks Relating to our Business — Our joint
venture may not be successful and the new steel and plate mill facilities may not commence operation as planned.”
Under the joint venture agreement, we are required to perform site preparation work on the land to be contributed to
the joint venture company in consideration for an amount to be paid by the joint venture company. Completion
under the joint venture agreement is still pending and is expected to take place no later than five months following
the date of the joint venture agreement.
We entered into the joint venture with POSCO to take advantage of opportunities in the steel plate business. We
believe that demand for thicker and wider steel plates, which we are currently unable to meet, will increase in the
future. We also entered into the joint venture because we believe that it will help us maintain our leadership position
in the domestic market, improve our performance through a competitive investment, increase the growth of our
business since we will play a major role in the construction of the production facilities of the joint venture company,
and obtain transfer of knowledge from POSCO, which we believe is one of the most highly regarded steel
companies in the world.

Quality Assurance and Safety

We are focused on maintaining the quality of our products and the safety of our production facilities. As part of
this objective, we conduct regular tests during different stages of the ironmaking, steel making and rolling mill
processes, as well as in our section mill, bar mill and pipe mill processes, to evaluate the quality of our products.

89
 We have developed technologies and processes to ensure that we consistently produce high-quality products.
The following table sets forth the historical acceptance rates for our products for the periods indicated below:
For the Six-
Month Periods
For the Years Ended December 31, Ended June 30,
2005 2006 2007 2008 2009 2009 2010
Customer’s acceptance rate (%)
HRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.2 99.6 99.1 99.8 99.7 99.5 99.3
CRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.5 98.1 98.4 99.7 99.7 99.2 99.1
Wire rods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.8 99.9 99.7 99.9 99.9 99.7 99.9
Steel sections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.8 99.8 99.8 99.5 99.6 99.4 99.5
Bars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.9 99.9 100.0 99.9 99.9 99.9 99.9
Pipes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.9 99.9 99.9 99.9 99.9 100.0 99.9
Some of our defective products are used in our steel making facilities as scrap, while other defective products
are sold at a discount to small and medium enterprises.
We have received national and international product certificates recognizing our ability to produce high quality
steel products. The table below shows some of the key accreditations that we have received for our various products
and management systems:
Accreditation for Product Application
JIS G 3101/G 3106/G3136 Rolled steels for general structure/welded
structure/building structure
JIS G 3131 Hot rolled mill steel plate, sheets and strips (valid
until November 9, 2011)
JIS G 3141 Cold-reduced carbon steel sheets and strips (valid
until November 9, 2011)
JIS G 3503/G 3505 Wire rods for core wire of covered electrode/low
carbon steel wire rods (both valid until November 9,
2011)
Lloyd’s Register (CE marking) Hot rolled products of structural steels, thickness up
to 25mm, valid until January 8, 2013
Germanischer Lloyd Hot rolled hull structural steel plates and coils, Grade
GL-A, GL-B, thickness up to 25mm, valid until April
30, 2011
Det Norske Veritas Steel making and rolled steel products, grade NV-A,
thickness up to 25mm, valid until December 31, 2010
Nippon Kaiji Kyokai Rolled steels for hull
ABS Ordinary and high strength hull structural steel plate
Accreditation for Management System Application

ISO 14001: 2004/SNI 19-14001: 2005 Environmental management systems, valid until
July 8, 2013
ISO 17025: 2005 Calibration and testing laboratory
ISO 9001: 2008 Quality management system, valid until July 8, 2013
Military Worthiness Requirement Design development, production, trading and
customer technical services armor steel plates
OHSAS 18001: 2007 (valid until July 8, 2013) and Occupational health and safety management system
SMK3 (valid until May 4, 2013)
Indonesian Quality Award Quality management system, 2009 assessment based
on Malcolm Baldridge Criteria for Performance
Excellence
We have also adopted certain measures to ensure safety in our operations. These measures include the
identification and assessment of hazards and risks, with input from our legal department. We also implement
emergency response and readiness programs as part of our safety and operation control and maintenance processes.
We monitor and measure our performance against safety standards by conducting internal audits and implementing
corrective and preventive actions. We believe that our safety control measures have helped us to achieve low

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accident rates in our facilities. On February 11, 2010, we received a zero-accident award from the city mayor of
Cilegon and, on May 4, 2010, we received a similar award from the Ministry of Manpower and Transmigration in
recognition of achieving 9,186,546 working hours without a single accident in our wire rod mill from May 1, 2003
to October 31, 2009.
As part of our commitment to ensure the safety of our employees, we have also implemented the following
safety initiatives.
Safety Initiatives Implementation
Internal safety induction course Required for new recruits
Annual safety training programs Conducted internally every year
Routine certification for operators and internal safety Required for relevant personnel; conducted regularly
Routine inspections Conducted internally regularly
“Bulan K3” program, a health, safety and Conducted annually, in the form of a competition
environment month-long program among business units to encourage safety awareness
Random inspections Conducted at random time table
Job safety analysis Conducted regularly each year, identification and
verification whether or not job safety has been
implemented properly
Formed P2K3 sub-organizations, supervisory Two level of organizations are established at company
committees on health, safety and the environment and business unit levels
Emergency response teams Emergency response teams are established at
company and business unit levels

Our Other Activities

When we first started operations in the 1970s, the area around our production facilities did not have the
infrastructure required to support our business. As a result, we built infrastructure to serve our business needs as
well as the needs of the local community in Cilegon. Eventually, we spun off the operations of these various services
to different subsidiaries. See “— Corporate History and Structure.” Listed below are some of the activities that
support our main business.

Power Plant
PT KDL was established on February 28, 1996 and supplies electricity to us and other businesses located in our
industrial estate in Cilegon. PT KDL owns and operates a steam power plant with built-in capacity of 400 MW, as
well as transmission lines and distribution systems within the industrial estate in Cilegon.
As of June 30, 2010, electricity generated by PT KDL was primarily consumed by us. For the six-month period
ended June 30, 2010, revenues generated by PT KDL accounted for 0.7% of our total consolidated net revenues. For
the six-month period ended June 30, 2010, we contributed Rp.565.9 billion (US$62.3 million) to PT KDL’s sales
revenues of Rp.629.2 billion (US$69.3 million), while third party customers contributed the remaining
Rp.63.3 billion (US$7.0 million).

Port Services
The Cigading Port is one of the largest and deepest ports in Indonesia. It is managed by PT KBS, which handles
the loading and shipment of all kinds of bulk cargo for our industrial processes, such as iron ore, dry bulk goods such
as raw sugar, corn, and other cargoes, such as coal. We ship a significant proportion of our exported products
through the Cigading Port, which is 5 kilometers away from our production facilities.
The Cigading Port is located in 2,606,067 square meters of land and provides various facilities and services to
port users, such as a 1,110 meter long outer pier, three hectares of closed warehouses, open storage areas, loading
equipment, loading and unloading services and logistics services. Apart from serving our needs, the Cigading Port
also serves the needs of other port users. For the six-month period ended June 30, 2010, revenues generated by PT
KBS accounted for 1.0% of our total consolidated net revenues. For the six-month period ended June 30, 2010, we
contributed Rp.27.8 billion (US$3.1 million) to PT KBS’s sales revenues of Rp.119.3 billion (US$13.1 million),
while third party customers contributed the remaining Rp.91.5 billion (US$10.1 million).

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 Industrial Water Provider
PT KTI was established on February 28, 1996 to support our steel production business by supplying us with
water. PT KTI distributes water for industrial use and for use in the Cilegon Municipality. Its water supply comes
from the Cidanau River.
Water taken from the river is processed through a water treatment plant to produce clean water. PT KTI has the
capacity to treat 2,000 liters of water per second. As of June 30, 2010, the utilized capacity of the water treatment
plant was 62.8% of installed capacity.
For the six-month period ended June 30, 2010, revenues generated by PT KTI accounted for 0.5% of our total
consolidated net revenues. For the six-month period ended June 30, 2010, we contributed Rp.23.3 billion
(US$2.6 million) to PT KTI’s sales revenues of Rp.67.4 billion (US$7.4 million), while third party customers
contributed the remaining Rp.44.1 billion (US$4.9 million) to PT KTI’s sales revenues.

IT Company
PT Krakatau Information Technology (“PT KITech”) was established on June 4, 1993. It focuses on providing
various information technology services, such as business applications, information technology infrastructure and
factory automation. PT KITech provides support to our business by providing consulting and SAP services and
enterprise system, process automation, system development, infrastructure and procurement services. PT KITech
has created various business applications for us, such as financial information systems, logistics information
systems, a human resources information system, a sales and accounts receivable information system, a production
information system, a retirement fund information system, an e-procurement system, a hospital management
system, and government information systems. In addition, PT KITech has also implemented product packages, such
as financial applications and enterprise resources planning, for us. PT KITech has worked on various IT projects in
different sectors, such as the steel, manufacturing, oil, gas and mining, chemical, financial and banking services
industries.
For the six-month period ended June 30, 2010, revenues generated by PT KITech accounted for 0.01% of our
total consolidated net revenues. For the six-month period ended June 30, 2010, we contributed Rp.28.5 billion
(US$3.1 million) to PT KITech’s sales revenues of Rp.29.8 billion (US$3.3 million), while third party customers
contributed the remaining Rp.1.3 billion (US$0.1 million).

EPC
PT KE was founded on October 12, 1988 to serve as an engineering, procurement and construction contractor,
as well as a consultant, in government and private projects. Since it was established, PT KE has been involved in
engineering and construction projects relating to the development and expansion of our production facilities. It has
also completed projects for other business entities, the Government, and local governments, such as a coal terminal
at Cigading Port for PT Cigading International Bulk Terminal, a fertilizer plant for PT Petrokimia Gresik, a pulp and
paper mill for PT Indah Kiat (Jambi), an urea plant for PT Pupuk Iskandar Muda, Lhokseumawe, Nangro Aceh
Darussalam and cement plants for PT Semen Gresik. PT KE uses the steel products that we manufacture in its
projects.
PT KE has acquired international certification since 1996 in the form of an ISO 9001 certification. For the six-
month period ended June 30, 2010, revenues generated by PT KE accounted for 3.6% of our total consolidated net
revenues. For the six-month period ended June 30, 2010, we contributed Rp.226.1 billion (US$24.9 million) to PT
KE’s sales revenues of Rp.547.5 billion (US$60.3 million), while third party customers contributed the remaining
Rp.321.4 billion (US$35.4 million).

Industrial Estate
PT Krakatau Industrial Estate Cilegon (“PT KIEC”) was established on June 16, 1982 to manage the industrial
estate where our facilities are located, which is located approximately 100 kilometers from Jakarta. We believe that
the industrial estate has grown due mainly to its strategic location and the availability of infrastructure facilities.
PT KIEC has developed the following business lines: industrial property, under which PT KIEC acquires and
develops land and manages estates, warehouses and factory buildings, and commercial property, under which it
manages, operates and maintains properties including hotels, golf courses, office buildings, restaurants, sport
centers and recreational facilities. PT KIEC intends to expand its business lines in the future by developing real
estate for residential purposes. For the six-month period ended June 30, 2010, revenues generated by PT KIEC
accounted for 1.0% of our total consolidated net revenues. For the six-month period ended June 30, 2010, we

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contributed Rp.9.1 billion (US$1.0 million) to PT KIEC’s sales revenues of Rp.101.6 billion (US$11.2 million),
while third party customers contributed the remaining Rp.92.5 billion (US$10.2 million).

Health Care
PT Krakatau Medika (“PT KM”) was founded to provide health services in Cilegon on February 28, 1996. PT
KM provides out-patient and in-patient care within 16 medical specialties and sub-specialties, medical occupational
services, medical check-ups, home care, speech therapy, diabetes care, nutritional consultations, intensive care,
dialysis, psychology consultations, emergency care, surgery, child birth care, radiology, physiotherapy, and
pharmaceuticals and other services. For the six-month period ended June 30, 2010, revenues generated by PT
KM accounted for 0.6% of our total consolidated net revenues. For the six-month period ended June 30, 2010, we
contributed Rp.42.1 billion (US$4.6 million) to PT KM’s sales revenues of Rp.91.7 billion (US$10.1 million) while
third party customers contributed the remaining Rp.49.6 billion (US$5.5 million).

Properties
Our production facilities in Cilegon are located in an area of approximately 2,864 hectares. We generally own
or have a right to manage the properties on which our production facilities are located. As of June 30, 2010, we had
the right to use 1,766 hectares of land, which are registered in our name under certificates of right to build (Hak
Guna Bangunan or “HGB” title). Our land titles over these parcels of land will expire on the dates shown in the table
below. We have a right to manage the remaining 1,098 hectares of land under certificates of right to manage (Hak
Pengelolaan or “HPL” title), which gives us the right to operate Government-owned land for an unlimited period of
time for the purposes set out in the respective HPL titles.
As of June 30, 2010, we own or have the right to use and manage the properties listed below, some areas of
which are currently being used by certain third parties under land lease agreements and agreements for usage rights
over land and/or buildings.
Land Area
(Square
Location in Indonesia meters) Tenure Use

Anyer . . . . . . . . . . . . . . . . . . 18,887 20 years expiring between Towers for electricity

January 20, 2018 and transmission (“towers”) and
May 16, 2035 water pipes
Bandulu . . . . . . . . . . . . . . . . 40,760 20 years expiring between Towers and water pipes
June 28, 2012 and
January 20, 2018
Bendungan . . . . . . . . . . . . . . 6,757 20 years expiring between Unused land
July 3, 2016 and April 29,
2026
Bumihara . . . . . . . . . . . . . . . 100 20 years expiring on May 15, Towers
2030
Cikoneng . . . . . . . . . . . . . . . 48,955 20 years expiring on Water pipes
January 20, 2018
Cinangka . . . . . . . . . . . . . . . 266,282 20 years expiring between Water pump station and water
September 18, 2012 and pipes
June 1, 2035
Citangkil . . . . . . . . . . . . . . . . 626,160 20 years expiring on May 6, Reservoir
2018
Ciwaduk . . . . . . . . . . . . . . . . 12,595 20 years expiring between Green line
July 2, 2016 and February 6,
2035
Grogol/Kotasari . . . . . . . . . . . 314,490 20 years expiring on May 10, Housing complex
2012
Gunung Sugih . . . . . . . . . . . . 633,450 20 years expiring between Towers, surge tanks, roads
January 20, 2013 and and water pipes
February 8, 2018; perpetual
land use rights for 603,000
sq. m. covered by HPL title
Ciwedus . . . . . . . . . . . . . . . . 192,141 30 years expiring between Unused land
November 24, 2035 and
April 17, 2036

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 Land Area
(Square
Location in Indonesia meters) Tenure Use

Kamasan . . . . . . . . . . . . . . . . 21,979 20 years expiring between Towers and water pipes

June 28, 2012 and
January 20, 2018
Kebondalem . . . . . . . . . . . . . 1,313,823 19 to 20 years expiring Police housing complex and
between January 20, 2018 unused land, golf courses,
and March 22, 2024 office buildings and housing
complex
Kebonsari . . . . . . . . . . . . . . . 747,710 20 years expiring between Water purification, reservoir
May 4, 2012 and March 22, and water pipes
2024
Kedaleman . . . . . . . . . . . . . . 675 20 years expiring on June 26, Industrial estate
2028
Kepuh, Banten . . . . . . . . . . . 345,342 20 years expiring between Towers, roads, office
June 28, 2012 and buildings, port and water
December 19, 2036; perpetual pipes
land use rights for 117,250
sq. m. covered by HPL title
Kosambironyok . . . . . . . . . . . 2,020 20 years expiring on June 28, Towers and water pipes
2012
Kotabumi . . . . . . . . . . . . . . . 3,036,858 16 to 20 years expiring Housing complexes, green
between May 4, 2012 and line, hospital and health care
January 20, 2018 facilities
Kotasari . . . . . . . . . . . . . . . . 2,582,790 20 years, expiring between Industrial estate, facilities,
November 19, 2016 and rolling mills
February 21, 2027; perpetual
land use rights for 2,369,330
sq.m. covered by HPL title
Kubangbaros . . . . . . . . . . . . . 259,260 20 years expiring between Towers and water pump
June 28, 2012 and stations
January 20, 2018
Kubangsari . . . . . . . . . . . . . . 2,570,675 20 years expiring between Factories, port, water pipes
May 4, 2012 and January 20, and unused land
2018
Lebakdenok . . . . . . . . . . . . . 158,650 20 years expiring on Water reservoir
January 20, 2018
Masigit . . . . . . . . . . . . . . . . . 42,740 20 years expiring on Industrial estate
January 20, 2018
Mekarsari . . . . . . . . . . . . . . . 28,525 20 years expiring on Water pipes
January 20, 2018
Ramanuju . . . . . . . . . . . . . . . 1,723,650 20 years expiring on Roads, reservoir, unused land
January 20, 2018 and factories
Randakari . . . . . . . . . . . . . . . 509,120 20 years expiring between Towers and water pipes
June 28, 2012 and
November 5, 2039
Samangraya . . . . . . . . . . . . . 4,453,178 3 to 20 years expiring Factories, unused land, port,
between May 4, 2012 and and water pipes
January 20, 2018; perpetual
land use rights for 300,000
sq. m. covered by HPL title
Serdang . . . . . . . . . . . . . . . . 25,433 30 years expiring on Industrial estate
September 6, 2035
Sindanglaya . . . . . . . . . . . . . 138,910 20 to 21 years expiring Towers, water pump stations
between June 28, 2012 and and water pipes
January 20, 2018
Sindang Mandi . . . . . . . . . . . 200 20 years expiring on April 7, Towers
2030

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 Land Area
(Square
Location in Indonesia meters) Tenure Use

Pejaten . . . . . . . . . . . . . . . . . 130,058 6 to 10 years expiring Housing complex

between August 22, 2015 and
August 28, 2039
Taman Baru . . . . . . . . . . . . . 547,020 20 to 30 years expiring Reservoirs
between January 20, 2018
and March 24, 2014
Tanjung Manis . . . . . . . . . . . 300 20 years expiring on April 7, Towers
2030
Tegalratu . . . . . . . . . . . . . . . . 1,613,337 20 years expiring between Cables and towers, unused
January 20, 2018 and land, water pipes and ports
November 5, 2039; perpetual
land use rights for 1,366,550
sq. m. covered by HPL title
Warnasari . . . . . . . . . . . . . . . 6,234,492 20 years expiring on Water pipes, port, and factory
January 20, 2018; perpetual
land use rights for 6,107,500
sq. m. covered by HPL title
Total . . . . . . . . . . . . . . . . . . . 28,647,322
We are currently in the process of obtaining the HGB title as listed below. The table below also includes land on
which we are in the process of constructing our new ironmaking facilities. See ‘— Revitalization and Expansion
Programs — New Ironmaking Facilities.” The local government in Batulicin, Tanah Bumbu, South Kalimantan
contributed approximately 200 hectares of land to us as part of its equity contribution to the new ironmaking
facilities project. Although we expect that our share ownership in the joint venture for the construction of new
ironmaking facilities will decrease as a result of the local government’s equity contribution, we expect to maintain
majority ownership of the joint venture company, PT Meratus Jaya Iron & Steel.
Location in Indonesia Land area (Square meters)

Anyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 92
Batu Licin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 2,000,000
Bendugan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 1,500
Ciwaduk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 7,478
Jombang Wetan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 150
Kepuh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 476
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 2,009,696
We and our subsidiary also own offices located in Jakarta and Batam, Indonesia.
The following table provides a breakdown of our fixed assets as of June 30, 2010, setting out the location,
replacement cost and market value of those assets:
Cost of Replacement Market Value
PT Krakatau Assets (Rp. in billion) (Rp. in billion)

Jl. Industri No. 5 Cilegon, Banten

Land (14,233,577 M2). . . . . . . . . . . . . . . . . . . . . . . ............... 5,825.3 5,825.3
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 2,445.6 1,177.3
Other supporting facilities . . . . . . . . . . . . . . . . . . . . ............... 207.8 87.5
Machineries and equipment . . . . . . . . . . . . . . . . . . . ............... 18,731.2 6,320.1
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 2.0 1.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 27,212.0 13,411.5
Wisma Marina, Kec. Anyer, Serang, Banten
Land (3,000 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 1.1 1.1
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 0.6 0.2
Other supporting facilities . . . . . . . . . . . . . . . . . . . . ............... 0.1 0.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 1.8 1.3

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 Cost of Replacement Market Value
PT Krakatau Assets (Rp. in billion) (Rp. in billion)

Wisma Baja, Jl. Gatot Subroto Kav. 54, Jakarta

Land (3,954M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 93.3 93.3
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 57.0 31.5
Other supporting facilities . . . . . . . . . . . . . . . . . . . . ............... 2.4 0.9
Machineries and equipment . . . . . . . . . . . . . . . . . . . ............... 18.2 8.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 170.9 133.7
Jl. Proklamasi No. 45, Pegangsaan, Menteng, Jakarta
Land (654 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 6.1 6.1
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 1.1 0.4
Other supporting facilities . . . . . . . . . . . . . . . . . . . . ............... 0.1 0.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 7.3 6.5
Jl. Raya Cakung — Cilincing, Cakung Barat, Jakarta
Land (13,720 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 26.4 26.4
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 5.9 1.3
Other supporting facilities . . . . . . . . . . . . . . . . . . . . ............... 0.3 0.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 32.6 27.7
Jl. Asam Baris Raya No. 2, Tebet, Jakarta
Land (326 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 1.7 1.7
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 0.7 0.5
Other supporting facilities . . . . . . . . . . . . . . . . . . . . ............... 0.0 0.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 2.4 2.2
Jl. Batumerah IV, Pasar Minggu, Jakarta
Land (3,758 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 8.3 8.3
Other supporting facilities . . . . . . . . . . . . . . . . . . . . ............... 0.1 0.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 8.4 8.4
Company’s Total . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 27,435.4 13,591.3

Cost of Replacement Market Value

Subsidiary’s Assets (Rp. in billions) (Rp. in billions)

PT KHI Pipe Industries

Jl. Amerika I, Cilegon, Banten
Land (120,000 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.0 72.0
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.8 67.5
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 3.0
Machineries and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253.3 137.7
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438.3 280.8
Jl. Industri Cilegon, Banten
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.4 11.5
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 0.4
Machineries and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.9 37.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.0 49.2
Jl. Imam Bonjol No. 13, Batam
Shop (1 unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.8
Komp. Baloi Garden Blok E No. 42, Batam
Land (217 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.3
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.2
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0

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 Cost of Replacement Market Value
Subsidiary’s Assets (Rp. in billions) (Rp. in billions)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.5

Total for PT KHI Pipe Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . 528.7 331.3
PT Krakatau Bandar Samudera
Jl. Raya Anyer KM 13, Cilegon, Banten
Land (2,267,820 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,385.9 1,385.9
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.7 43.7
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 0.6
Machineries and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445.1 115.2
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.3
Total for PT Krakatau Bandar Samudera . . . . . . . . . . . . . . . . . . . . . . 1,936.0 1,545.7
PT Krakatau Daya Listrik
Jl. Amerika I Cilegon, Banten
Land (845,552 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455.1 455.1
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261.3 130.7
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2 8.4
Machineries and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,345.3 1,214.8
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 0.2
Total for PT Krakatau Daya Listrik . . . . . . . . . . . . . . . . . . . . . . . . . 6,077.1 1,809.2
PT Krakatau Engineering
Jl. Asia Raya Kav. 03, Cilegon, Banten
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.4 13.5
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 1.5
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 0.6
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.0 15.7
Jl. Billet, Cilegon, Banten
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 4.7
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9 0.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 5.3
Total for PT Krakatau Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . 28.5 20.9
PT Krakatau Industrial Estate Cilegon
Wisma Krakatau, Jl. KH Yasin Beji No. 6 Cilegon, Banten
Land (7,490 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.7 12.7
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5 6.7
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.2
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 0.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.7 19.8
Hotel Permata Krakatau Jl. KH Yasin Beji No. 4,Cilegon, Banten
Land (16,985 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.9 28.9
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.6 28.8
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 1.4
Machineries and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 3.0
Hotel Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 4.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81.3 66.1
Wisma Permata Jl. KH Yasin Beji No. 2 Cilegon, Banten
Land (7,705 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 13.1
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6 2.0
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.0 15.3

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 Cost of Replacement Market Value
Subsidiary’s Assets (Rp. in billions) (Rp. in billions)

Permata Golf & Country Club, Jl. KH Yasin Beji No. 6, Kel.
Kebondalem, Kec. Purwakarta, Cilegon, Banten
Land (722,089 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187.6 187.6
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83.4 35.5
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 2.0
Machineris and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 1.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283.8 226.9
Kawasan Industri Krakatau I Kel. Masigit, Kec. Jombang, Cilegon,
Banten
Land (1,375,894 M2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 837.0 837.0
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.7 42.4
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 5.7
Machineris and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 0.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915.0 885.4
Kawasan Industri Krakatau II, Kel. Tegalsari dan Randakari, Kec.
Ciwandan, Cilegon, Banten
Land (248,650 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131.3 131.3
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 4.3
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.4
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136.2 136.0
Jl. Raya Cilegon, Serang Kecamatan Kramatwatu Serang, Banten
Land (25,433 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9 5.9
Total 5.9 5.9
Raya Anyer, Serang, Banten
Land (9,637 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0 4.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0 4.0
Jl. Patra Kuningan XIV, Jakarta Selatan
Land (2,558 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.2 30.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.2 30.2
Total of PT Krakatau Industrial Estate Cilegon . . . . . . . . . . . . . . . . . 1,500.0 1,389.4
PT Laksana Maju Jaya (a subsidiary wholly-owned by PT KIEC)
Komplek Perumahan Bumi Rakata Asri, Cilegon, Banten
Land (162,207 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.8 21.8
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.2 22.1
Perumahan Pejaten Mas, Cilegon, Banten
Land (8,988 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 4.3
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 4.8
Total of PT Laksana Maju Jaya . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.1 26.9
PT Krakatau Information Technology
Jl. Raya Anyer, Kec. Ciwandan
Land (19,073 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4 12.4
Bangunan-bangunan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 1.0
Sarana pelengkap lainnya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.1
Computer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8 4.0
Total of PT Krakatau Information Technology . . . . . . . . . . . . . . . . . 24.0 17.5
PT Krakatau Medika
Jl. Semangraya, Cilegon, Banten
Land (135,740 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95.0 95.0
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.7 52.0

98
 Cost of Replacement Market Value
Subsidiary’s Assets (Rp. in billions) (Rp. in billions)

Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6 0.9

Machineries and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.1 23.1
Total of PT Krakatau Medika . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201.4 171.0
PT Krakatau Tirta Industri
Jl. Ir. Sutami, Cilegon, Banten
Land (3,094,583 M2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388.0 388.0
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.3 11.6
Other supporting facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 4.0
Machineries and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232.0 56.8
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.1
Total of PT Krakatau Tirta Industri . . . . . . . . . . . . . . . . . . . . . . . . . . 650.6 460.5
PT Krakatau Daya Tirta
Jl. Amerika I, Cilegon Banten
Machineries and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 1.4
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 2.2
Komplek Ruko Pondok Cilegon Indah, Blok KKI No. 21, Cilegon,
Banten
Shop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.4
Total of PT Krakatau Daya Tirta . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 2.6
PT Krakatau Wajatama
Jl. Industri, Cilegon, Banten
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193.8 65.1
Other supporting facilite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 1.3
Machineries and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438.1 216.2
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0
Total of PT Krakatau Wajatama . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636.3 282.6
Total of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,593.7 6,057.8
Grand Total (PT Krakatau and subsidiaries) . . . . . . . . . . . . . . . . 39,029.1 19,649.1

Environmental Matters
Our operations are subject to various environmental laws and regulations relating to the management of
hazardous and toxic chemicals, materials and waste, and water and air pollution. We believe that we hold all
necessary environmental licenses for the operations at our facilities, including licenses for the use of water
resources, water discharge, air emissions, waste disposal and waste management.
We have implemented measures to improve our environmental waste management. We collect and put greased
cleaning clothes in special allocated recycle bins and store them, together with used grease, in sealed containers.
Dust, sludge, slurry, slag and other wastes from our facilities are placed temporarily in storage before being
processed by a licensed external hazardous waste processor.
We submit periodic monitoring and compliance reports to the appropriate local authorities in compliance with
environmental impact assessment requirements in Indonesia and we monitor the water and air waste and emissions
resulting from our operations on an on-going basis. In 2008, we were given a “blue” grade after an examination of
our production processes by The Ministry of Environment, signifying our compliance with national regulatory
standards relating to air pollution control, hazardous and toxic waste management. We obtained a certificate
certifying that we have implemented an environmental management system that complies with ISO 14001: 2004/
SNI 19 — 14001: 2005 relating to our manufacture and supply of iron and steel products, including sponge iron,
steel slabs, HRC, CRC, billets and wire rods. See “— Quality Assurance and Safety”). In 2010, we placed third in
the “green industry award competition” held by The Ministry of Industry.
We believe that we are in compliance in all material respects with all mandatory environmental measures and
requirements applicable to our operations.

99
Insurance
In connection with our business, we maintain insurance, including all-risks property insurance, marine cargo
open cover, marine cargo open policy (tug boat and barges) and directors and officers liability insurance. Our
policies expire between December 2010 and May 2011 and we intend to renew all of our existing policies. We have
insured our assets based on the expected risk to the asset. As of June 30, 2010, our insurance policies were provided
primarily by PT Jasa Asuransi Indonesia (Persero), which is one of our affiliates. Our marine cargo open cover
insurance provides maximum coverage of US$25.0 million per shipment and Rp.80 million for fuel only. Our
marine cargo open policy for tug boats and barges provides maximum coverage of US$5.0 million per shipment. We
also maintain all-risks property insurance which provides maximum coverage for fires and other similar causes of
loss or damage of up to US$500.0 million per incident, US$20.0 million per incident for machinery breakdown and
US$2.5 million per incident on surrounding property. While we believe that our insurance coverage is comparable
to other market players in our industry, our all-risks property insurance is less than the declared value of our
production facilities, which was US$2.1 billion as of June 30, 2010. We believe that we have adequately protected
our assets based on the types and amounts of insurance coverage set out above.

Employees
As of December 31, 2007, 2008 and 2009 and as of June 30, 2010, we had the following number of employees,
who can be classified as follows:
As of December 31,
Business Function 2007 2008 2009 As of June 30, 2010

PT Krakatau
Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,203 4,293 3,916 3,833
Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 247 311 301
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 133 134 135
Logistic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 209 198 195
Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480 459 425 453
General Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485 330 531 497
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,733 5,671 5,515 5,414
Subsidiaries
Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,830 1,941 1,784 1,740
Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 112 142 137
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 60 61 61
Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 94 90 89
Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 208 194 206
General Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 149 242 226
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,496 2,564 2,513 2,458

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,229 8,235 8,028 7,872

We have approximately 20 key personnel who have technical and non-technical expertise, including
electricity/instrument expertise, hydraulic expertise, welding expertise, inspection expertise, pass design
expertise, secondary process expertise, SAP expertise and tax expertise. For certain positions, expertise in the
field of work is required before we can hire and/or retain our employees.
Our subsidiaries also had an aggregate number of 3,469 employees, 2,564 employees, 2,513 employees and
2,458 employees for the years ended December 31, 2007, 2008 and 2009 and the six-month period ended June 30,
2010, respectively.
Each of PT Krakatau and of its subsidiaries has one labor union. Our labor union, which was established in
1999, is known as Serikat Karyawan Krakatau Steel (“SKKS”). We have a two year collective labor agreement
(Perjanjian Kerja Bersama) with our employees, which will next expire on December 24, 2010. SKKS has been
involved in the formulation of our collective labor agreement and agreements involving pension benefits and health
care plans for the benefit of our employees. Our relationship with SKKS has been good to date. We have not
experienced any major work stoppage, strike, demonstration or other labor disturbance as a result of labor
disagreements. However, there can be no assurance that our good relationship with SKKS will continue. See “Risk
Factors — Risks Relating to Our Business — Our business, financial condition, results of operations and prospects
could be adversely affected if we fail to maintain satisfactory labor relations.”

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Legal Proceedings
From time to time, we are involved in legal proceedings concerning matters arising in connection with the
conduct of our business. We are not currently involved in, and have not recently been involved in, any legal or
arbitration proceedings that we believe would be likely to have a material effect on our financial condition or results
of operations other than as disclosed in this offering circular.
On December 6, 2004, Djamaluddin Malik filed a lawsuit against us claiming title to a portion of our land in
Kubangsari, Indonesia based on a right of ownership certificate, Certificate No. 7/1972, over 4.47 hectares of land.
The District Court of Serang decided that the plaintiff had the right of ownership over the 4.47 hectare portion of the
land. On appeal, on July 5, 2005, the High Court of Bandung revoked the verdict of the District Court of Serang and
accepted the appeal submitted by us. At the cassation level, the Supreme Court enforced the decision of the District
Court of Serang. On November 19, 2008, we filed an application for judicial review to the Supreme Court. On
September 16, 2009, the Supreme Court rendered a verdict rejecting our claim that only our certificate of title over
the entire portion of land, including the 4.47 hectare portion of land, should be recognized under the law. As a result
of the Supreme Court’s decision, we would have no rights of ownership over the 4.47 hectares of land should
Djamaluddin Malik ask the District Court of Serang to execute the decision of the Supreme Court. In relation to the
foregoing, we are still studying the legal remedies available to us so that our right of ownership over the
4.47 hectares of land will be recognized. We do not have facilities located on the 4.47 hectares of land being claimed
by Djamaluddin Malik.
On September 10, 2009, PT Soltius Indonesia and IDS Scheer Singapore, Pte. Ltd. filed a claim against PT
Krakatau before the Indonesian National Board of Arbitration (“BANI”) for PT Krakatau’s alleged breach of a
contract for the implementation of enterprise resource planning (SAP R/3) (the “ERP Contract”). The claimants
alleged that PT Krakatau unlawfully terminated the ERP Contract and claimed for payment of Rp.15.7 billion
(US$1.7 million) from PT Krakatau. In connection with the proceedings, PT Krakatau has filed a counterclaim
demanding that the claimants indemnify us in an amount equal to the contract value of the ERP contract. On
August 12, 2010, BANI decided against us and required us to pay damages in the amount of Rp.8.6 billion
(US$0.9 million), which we paid on September 30, 2010.
On August 22, 2007, Sugeng Hendra filed a lawsuit against PT Krakatau for the eviction/expulsion of retired
employees from PT Krakatau’s official house, a residential facility provided by us for our employees, but which our
employees are expected to vacate upon their retirement. The District Court of Serang and the High Court of Banten
Province ruled in our favor. As of June 30, 2010, the Indonesian Supreme Court has not ruled on the appeal made by
Sugeng Hendra.
On June 3, 2009, PT Krakatau filed a lawsuit against Aulron Energy (currently known as “Felix Resource
Limited”) in Australia for the restitution of PT Krakatau’s equity contribution for the establishment of a joint
venture company pursuant to a shareholders’ agreement in connection with the aborted Ausmill Mill Project by
South Australian Steel and Energy. On June 9, 2010, the Supreme Court of Adelaide, Australia ruled against PT
Krakatau and required PT Krakatau to pay for the costs and expenses borne by the defendant, which we estimate to
be between approximately A$610,000 to A$900,000 (US$519,903 to US$767,070) (based on the Reserve Bank of
Australia rate of A$1.00 to US$0.8523 as of June 30, 2010). Exact costs and expenses due the defendant are
currently being calculated.
On October 2, 1991, PT Krakatau filed a petition with the Regional Office of the National Land Agency
(“BPN”) of the province of West Java to acquire management rights over an area of 252.0 hectares located in the
Kubangsari, District of Pulo Merak, Serang in West Java, Indonesia. On May 22, 1992, BPN issued HGB
title No. 2/Kubangsari to PT Krakatau over this area. On October 26, 1998, PT Duta Sari Prambanan, based on
Letter No. 171/SPB/KL/X/98, filed a formal request with the Minister of Agrarian Affairs/Head of BPN to revise
our HGB title No. 2/Kubangsari. On July 21, 1999, BPN decided to cancel 66.5 hectares of our 252.0 hectares HGB
title No. 2/Kubangsari. On appeal, the civil court and the State Administrative Court declared that the 66.5 hectares
of land belonged to the Government. On further appeal, the District Court of Serang issued a decree on April 20,
2009 stating that we have priority to obtain rights over the land. As a result of this decision, on July 17, 2009 PT
Duta Sari Prambanan filed a lawsuit against us in the District Court of Jakarta for compensation in the amount of
Rp.361.6 billion (US$39.8 million). Based on a settlement agreement which was ratified in Notarial Deed No. 208
dated July 27, 2010, of Soetjipto, S.H., M.Kn., we agreed to compensate PT Duta Sari Prambanan in the amount of
Rp.34.0 billion (US$3.7 million) after the right of recovery letter and HGB title in our name have been issued by the
BPN and received by us. As of August 15, 2010, the recovery letter and HGB title were still being processed.
In 2003, our President Commissioner, Zacky Anwar, was indicted, and the Deputy General Prosecutor for
Serious Crimes in Timor-Leste initiated related enforcement procedures, in the District Court of Dili, Timor-Leste

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in connection with alleged crimes against humanity in East Timor during 1999. In May 2005, the District Court of
Dili stated that there was no final decision in this case, citing the alleged absence of the defendants from Timor-
Leste. In August 2005, the governments of Indonesia and Timor-Leste established the Indonesia-Timor Leste
Commission of Truth and Friendship (the “CTF”). In July 2008, the CTF released its final report, which assigned
institutional responsibility for the crimes against humanity committed in East Timor during 1999. Although the
indictment against Zacky Anwar is outstanding, to our knowledge, no further action has been taken against him by
the government or courts of Indonesia.
On August 23, 2010, PT Nusantara Buana Cemerlang (“PT NBC”) filed a lawsuit against PT Krakatau, which
was registered at the District Court of Serang with Registration No. 35/PDT.G/2010/PN.SRG. Pursuant to a contract
that was entered into between PT Krakatau and PT NBC, PT NBC provided job chartering services to PT Krakatau.
PT NBC, as plaintiff, filed the civil claim before the District Court of Serang against PT Krakatau for allegedly
conducting unlawful acts by conducting a tender process which resulted in PT Krakatau appointing another job
chartering services company. The plaintiff claims compensation be made by PT Krakatau, comprising of:
(i) severance payments for the workers of PT NBC amounting to Rp.68.5 billion (US$7.2 million) and
severance payments made by PT NBC to 236 employees, amounting to Rp.5.1 billion (US$0.6 million) (or the
equivalent of the deficit of severance payments amounting to Rp. 53.2 billion (US$5.9 million) based on the
admission of PT NBC in its claim letter that it has already received severance payments for its workers from
PT Krakatau in the amount of Rp.20.4 billion (US$2.2 million)); (ii) the return of all the penalties paid by the
plaintiff amounting to Rp.0.9 billion (US$96,147.7); (iii) rental bus services for the outsourced employees from
2005 to 2010 amounting to Rp.1.6 bilion (US$0.2 million); (iv) the deficit of minimum wages amounting to Rp.0.3
bilion (US$35,838.9); (v) the deficit of leave payments for 2008 amounting to Rp.0.8 billion (US$87,637.9);
(vi) the deficit of payments for the uniforms and safety shoes of the outsourced employees in 2010 (covering a
period of six months) amounting to Rp.0.3 billion (US$33,082.9); and (vii) PT NBC’s lost profit from November
2008 to June 2010 amounting to Rp.2.1 billion (US$0.2 million). As of the date of this offering circular, the case is
still under review in the first instance before the District Court of Serang. We believe that the civil suit would not
have any material adverse effect on our business, prospects, financial condition or results of operations.
PT Krakatau filed two lawsuits relating to the “KS POLE” and “KS” trademarks against PT Tobu Indonesia
Steel (“Tobu”) and PT Hasindo Indonesia (“Hasindo”). In the case involving Tobu, the Central Jakarta Commercial
Court issued a verdict on February 11, 2009, stating among others that we are the sole owner of the “KS POLE” and
“KS” trademarks. On June 16, 2009, the Supreme Court revoked the verdict of the Central Jakarta Commercial
Court and rejected our claim. Upon judicial review, on June 15, 2010, the Supreme Court ruled in our favor and
stated that we are the sole owner of “KS POLE” and “KS” trademarks. In the case involving Hasindo, the Central
Jakarta Commercial Court issued a verdict on August 27, 2009, stating among others that we are the sole owner of
the “KS POLE” and “KS” trademarks. On June 3, 2010, the Supreme Court affirmed the decision of the Central
Jakarta Commercial Court and ruled in our favor by rejecting Hasindo’s claim.

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 DESCRIPTION OF MATERIAL INDEBTEDNESS
The following is a summary of our material indebtedness as of June 30, 2010. The following summary does not
purport to be complete. Please refer to our consolidated financial statements and the notes thereto included
elsewhere in this offering circular for additional information with respect to such indebtedness. The total amount of
our interest expense for the six-month period ended June 30, 2010 was Rp.112.2 billion (US$12.4 million), which
we incurred with respect to our indebtedness.

Short-term Bank Loans

Bank Mandiri Working Capital Loan Facilites
We have obtained various working capital loan facilites and one import credit facility from PT Bank Mandiri
(Persero) Tbk (“Bank Mandiri”), a Government-owned bank. The import credit facility is denominated in
U.S. dollars and provides us with up to a maximum amount of US$275.0 million in loans, with a sub-limit for
a trust receipt facility of US$250.0 million. As of June 30, 2010, the outstanding principal indebtedness under this
facility was US$44.7 million. Our two working capital credit facilities with Bank Mandiri denominated in Rupiah
provide us with up to a maximum amount of Rp.270.0 billion and Rp.560.0 billion in loans, respectively. The
interest rate under both facilities was 10.0% per annum as of June 30, 2010. As of June 30, 2010, the outstanding
principal indebtedness under both facilities was Rp.764.3 billion. One of our working capital credit facilities with
Bank Mandiri is denominated in U.S. dollars and provides us with a maximum amount of US$10.0 million in loans
at a 7.0% annual interest rate as of June 30, 2010. As of June 30, 2010, the outstanding principal indebtedness under
this facility was US$10.0 million. The interest rate under these facilities is subject change from time to time at the
discretion of the bank.
The above facilities, which are secured by trade receivables, inventories, land, and machinery, will expire on
June 27, 2011. We are required to maintain our current ratio at a minimum 120.0%, debt to equity ratio at a
maximum of 250.0%, EBITDA to interest expense ratio at a minimum of 1.7 times, and debt service ratio at a
minimum of 1.1 times.

BNI Credit Facilities

We have obtained an import credit and working capital credit facility from PT Bank Negara Indonesia
(Persero) Tbk (“BNI”), a Government-owned bank, that is capped at Rp.3,000.0 billion. The credit facility bears
interest, which as of June 30, 2010, was 10.0% per annum and will expire on May 2, 2011. The amount outstanding
under the facility was Rp.923.2 billion as of June 30, 2010. The interest rate under this facility is subject to change at
the discretion of the bank.

HSBC Credit Facility

We have obtained an import credit facility from The Hongkong and Shanghai Banking Corporation Ltd.
(“HSBC”) with a maximum amount of US$75.0 million. The facility will expire on October 31, 2010. As of
June 30, 2010, the outstanding principal under this facility was Rp.335.8 million.
The facility agreement provides, among others, that prior notice be given to HSBC before we distribute or
declare dividends, pledge assets, obtain borrowings from other parties (except in the ordinary course of business and
on arm’s-length basis), and provide loans to other parties .

Bank CIMB Niaga Credit Facilities

We have obtained import credit facilities from PT Bank CIMB Niaga Tbk (“Bank CIMB Niaga”) in
U.S. dollars with a maximum amount of US$55.0 million. The facilities will expire on February 19, 2011. As
of June 30, 2010, the outstanding principal under this facility was Rp.100.0 billion. With approval from Bank CIMB
Niaga, we can make drawdowns from the facility in Rupiah. The facilities bear interest at 6.75% per annum as of
June 30, 2010 for U.S. dollar drawdowns and 10.0% per annum as of June 30, 2010 for amounts drawn in Rupiah.
The interest rate under this facility is subject to change at the discretion of the bank.

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 The facilities require, among others, that prior notice be given to Bank CIMB Niaga before we distribute
dividends, pledge assets, obtain borrowings from other parties, except in the ordinary course of business, and
provide loans to other parties.

Deutsche Bank, AG Credit Facility

We have obtained a working capital credit facility from Deutsche Bank AG with a maximum of
EUR 9.0 million. This credit facility will expire on October 31, 2010 and can be automatically extended for
another 12 months upon fulfillment of certain conditions. The opening letter of credit fee under the facility is
0.125% per six months. As of June 30, 2010, no amount was outstanding under this facility.
The facility agreement provides, among others, that we promptly inform Deutsche Bank AG, of any changes to
our articles of association, board of directors, board of commissioners or shareholders.

Bank Permata Credit Facility

We have obtained trade facilities from PT Bank Permata Tbk with a maximum amount of US$15.0 million.
The credit facility will expire on November 16, 2010. The fee for opening a letter of credit under the facility is 0.1%
per six months. As of June 30, 2010, no amount was outstanding under the facility.

Standard Chartered Bank Credit Facility

We have obtained an import credit facility from Standard Chartered Bank (“SCB”) with a maximum amount of
US$40.0 million. The terms of the credit facility provides that the facility will expire on July 31, 2010, but shall be
automatically extended for a three-month period, unless amended by SCB. The fee for opening a letter of credit
under the facility is 0.5% per annum. As of June 30, 2010, the outstanding principal under this facility was
US$19.9 million. The facility is in the process of being extended.
The facility agreement provides, among others, that we promptly inform SCB of any changes to our articles of
association, board of directors, board of commissioners or shareholders.

Bank Danamon Credit Facilities

We have obtained working capital loan facilities from Bank Danamon with a maximum amount of
US$40.0 million consisting of an import letter credit facility, trust receipt, and open account financing. These
facilities expired on September 22, 2010 and are in the process of being extended. The opening a letter of credit
under the facility is 0.0625% per annum. As of June 30, 2010, the amount outstanding under the facilities was
US$29.2 million.

Long-term Bank Loans

Bank Mandiri
We have obtained an investment credit facility from Bank Mandiri in Rupiah with a maximum amount of
Rp.684.5 billion. This loan was granted to finance the acquisition of plant machinery and equipment and plant
expansion projects. As of June 30, 2010 the interest rate under this facility was 10.5%. The interest rate payable
under this facility is subject to the regular review of Bank Mandiri and can be changed at their discretion. The loan is
secured on a pari pasu basis with collateral on the working capital credit facilities which we have with the same
bank as described above. In 2004, Bank Mandiri sold part of the facility amounting to Rp.200.0 billion to Lembaga
Pembiayaan Ekspor Indonesia, formerly PT Bank Ekspor Indonesia (Persero). As of June 30, 2010, the amount
outstanding under the facility was Rp.228.2 billion (US$25.1 million). The interest rate under this facility is subject
to change at the discretion of the banks.
The loan will mature on April 7, 2012 and is payable in 24 quarterly installments beginning in the third quarter
of 2006.
The loan agreement requires us, among others, to inform the lender in writing of any change to our articles of
association, authorized capital or paid-up capital, management and status, and a pledge of our assets. Further, we are
required to maintain a current ratio of more than 120.0% and a debt to equity ratio at a maximum of 233.0%.

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Construction Loans
Bank Austria Aktiengesellschaft
We have obtained a loan facility denominated in Austrian schilling from Bank Austria Aktiengesellschaft with
a maximum amount of ATS$562.8 million. This loan was obtained to finance the environmental protection project
(deducting system) at our slab and billet steel plant in 1995. The loan is payable in 36 semi-annual installments from
April 30, 2003 to October 30, 2020. The loan facility bears an annual interest rate of 4.0%. The outstanding
principal amount under the facility was EUR23.9 million (US$29.3 million) (based on the European Central Bank
rate of US$1.2271 to EUR1.00 as of June 30, 2010).

KfW and Bayerische Hypo-und Vereinsbank Aktiengesellschaft

We have obtained a loan facility denominated in euros from KfW and Bayerische Hypo-und Vereinsbank
Aktiengesellschaft (“HVB”) with a maximum amount of EUR38.74 million. The loan agreement was signed in
2009 and was obtained to partially finance the modernization of our hot strip mill. The availability period of the loan
extends to July 31, 2011, and the interest rate is based on the Commercial Interest Reference Rate published by the
Organisation for Economic Co-operation and Development plus 0.75% per annum for the KfW portion of the loan
and EURIBOR plus 1.5% per annum for the HVB portion of the loan. Upon fulfillment of all conditions precedent
to the loan facility on September 29, 2010, we were able to begin drawing down. As of October 4, 2010, we have
drawn down EUR3.7 million under the facility. The agreement contains certain restrictions, including on our ability
to incur any significant indebtedness outside the ordinary course of business without consent from the lenders.

PT Bank Rakyat Indonesia (Persero) Tbk

Pursuant to credit agreements dated July 6, 2009, we, through PT MJIS, obtained an investment credit facility
in Rupiah from PT Bank Rakyat Indonesia (Persero) Tbk (“BRI”) with a maximum amount of Rp.501.3 billion. The
loan was granted to finance the construction of our new ironmaking facilities in South Kalimantan. As of June 30,
2010, the outstanding principal amount under the facility was Rp.213.6 billion (US$23.5 million) and it bore an
interest rate of 12.0% per annum for the six-month period ended June 30, 2010. The loan will mature on July 6, 2016
and is repayable in 16 quarterly installments starting from the third quarter of 2012. The loan is secured by
inventories, lands, buildings and machinery.
The credit agreements include restrictions and covenants pursuant to which PT MJIS, without the prior written
consent of BRI, is not permitted to, among others, act as guarantor and/or pledge its assets as guarantee to other
parties, lease the collateral assets, obtain loans from other banks or financial institutions, conduct any merger, make
any acquisition or investment in shares, sell the collateral assets, change its articles of association, its authorized
capital and its boards of directors and commissioners, distribute dividends, or make any repayment to its
shareholders.

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 MANAGEMENT

Commissioners and Directors

In accordance with Indonesian law, we have a board of commissioners and a board of directors. The two boards
are separate, and no individual may be a member of both boards.
The Government owns a Special Share in our company which gives the Government, represented by the
Ministry of State-Owned Enterprises, certain rights, such as the right to elect and remove commissioners and
directors and approve amendments to our articles of association. All candidates for election to the board of
commissioners the board of directors must be nominated by the holder of the Special Share. The rights of the
Government attached to this Special Share limit the ability of public shareholders to influence certain matters
relating to our company. Under our articles of association, the Government cannot transfer the Special Share. The
Government’s rights with respect to the Special Share will not terminate unless our articles of association are
amended, which would require the approval of the Government as holder of the Special Share. See “Description of
Our Shares — Description of Special Share.”
The rights and obligations of each member of our board of commissioners and board of directors are regulated
by our articles of association and by the decisions of our shareholders during a general meeting of shareholders.
Under our articles of association, the board of directors must consist of at least two directors, including one
President Director. The President Director is entitled and authorized to act for and on behalf of the board of directors
and represent our company. In the event of the absence of the President Director for any reason, the board of
directors will be represented by a member of the board of directors who is appointed in writing by the President
Director and in the event the President Director does not appoint any such member to act on his behalf, then our
longest-serving director shall be entitled to act for and on behalf of our board of directors. If there is more than one
such director of equal length of service, the eldest director shall be entitled to act for and on behalf of our board of
directors and represent our company. Our board of directors requires written approval from our board of
commissioners to perform certain actions, including among others, the incurrence of debt obligations of
medium — or long-term tenor which exceed an amount determined by our board of commissioners, with the
exception of debt that arises in the ordinary course of business, binding our company as guarantor of debt
obligations exceeding a certain minimum amount determined by our board of commissioners and disposing of any
property or pledging or encumbering fixed assets for the purpose of incurring medium- or long-term debt. Our board
of commissioners must consist of at least two commissioners, one of whom is designated the President
Commissioner.
Our commissioners and directors are elected for a term commencing on the date of the general meeting of
shareholders appointing such commissioners and directors and ending on the fifth annual general meeting of
shareholders after the date of their appointment, without prejudice to the rights of shareholders, at a general meeting
of shareholders to dismiss a commissioner or director during his or her term of office or to reappoint a commissioner
or director whose term of appointment has expired. After the expiry of a term of office, a member of our board of
directors or board of commissioners may only be re-appointed for one further term. The officers of our company
serve at the discretion of our board of directors.
Our board of directors is responsible for our overall management and day-to-day operations under the
supervision of our board of commissioners. Our board of commissioners acts as the overall supervisory and
monitoring body of our company and do not have any day-to-day operational duties. Decisions involving
transactions above certain monetary thresholds must be referred to our board of directors, board of
commissioners or shareholders for their review and approval, depending on the threshold.

Board of Commissioners
Our board of commissioners consists of four members, one of whom is designated the President
Commissioner. The members of the board of commissioners are elected and dismissed by shareholders’
resolutions at a general meeting of shareholders. The members of our board of commissioners must be elected
from candidates nominated by the holder of the Special Share. In addition, members of our board of commissioners
can only be elected at a general meeting of shareholders attended by the holder of the Special Share. Further,
resolutions with respect to the election of members to our board of commissioners must be approved by the holder
of the Special Share. Two of the commissioners, Mochammad Imron Zubaidy and Alexander Rusli, have been

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designated as Independent Commissioners. As of July 31, 2010, the four members on our board of commissioners
are:
Name Age Commissioner Since Position
Zacky Anwar . . . . . . . . . . . . . . . . . . . 62 December 3, 2007 President Commissioner
Ansari Bukhari . . . . . . . . . . . . . . . . . . 55 November 8, 2007 Commissioner
Mochammad Imron Zubaidy . . . . . . . . 57 July 15, 2008 Independent Commissioner
Alexander Rusli . . . . . . . . . . . . . . . . . 39 November 8, 2007 Independent Commissioner
Set forth below is a short biography of each of our commissioners:
Zacky Anwar has been our President Commissioner since October 19, 2009 and has been a member of our
board of commissioners since December 3, 2007. He is a former Chairman of The Country’s Crisis Centre.
Prior to 2003, Zacky Anwar was a high ranking (two star general) officer in the Indonesian Armed Forces. He
graduated from the Indonesian military academy in 1971 and received training at Fort Bragg, USA and
Fort Benning, USA, as well as undertook Industry Strategic & Defense Study in Japan.
Ansari Bukhari has been one of our commissioners since November 8, 2007. Anshari Bukhari obtained
his Master’s Degree in Business Administration from Ball State University, USA. He joined the Ministry of
Industry in 2005, and is currently the Director General of Metal of the Ministry of Industry. Prior to that, he
served as the Secretary to the Directorate General of Industrial and Trade Co-operation from 2002 to 2005.
Mochammad Imron Zubaidy has been one of our commissioners since July 15, 2008. Mochammad Imron
Zubaidy obtained his Bachelor’s degree in Physics Engineering from Bandung Institute of Technology in
1980. From 1999 to 2007 he was a director of PT Bukaka Investindo, commissioner of PT Bukaka Corporindo
and director of PT Bukaka Telekomunikasi International. From 1998 to 2008, he was also the President
Director of PT Cidas Supra Metalindo. He was the Deputy President Director at PT Bukaka Teknik Utama
Tbk. from 2002 to 2005. Aside from his current position as a Senior Advisor at PT Bukaka Teknik Utama Tbk.,
he is also the President Director of PT Cidas Supra Metalindo. Mochammad Imron Zubaidy is the Chairman of
our Audit Committee.
Alexander Rusli has been one of our commissioners since November 8, 2007. With his doctoral degree in
information systems from Curtin University of Technology, Australia, Alexander Rusli has broad experience
in information technology. He has been the Advisor to the Minister at the Ministry of State-Owned Enterprises
since June 2007 and a commissioner at PT Kertas Kraft Aceh since July 2007. Prior to such time, he was an
Advisor to the Minister of Ministry of Communication and Information Technology from 2001 to 2007.
Currently, Alexander Rusli is also an independent commissioner of PT Indosat Tbk.

Board of Directors
Our board of directors consists of six members, including one President Director. The members of our board of
directors are elected and dismissed by shareholders’ resolutions at a general meeting of shareholders. The members
of our board of directors must be elected from candidates nominated by the holder of the Special Share. A general
meeting of shareholders where members of our board of directors are elected must be attended by the holder of the
Special Share. Further, resolutions with respect to the election of members to our board of directors must be
approved by the holder of the Special Share. As of July 31, 2010, our board of directors consisted of six members as
listed below:
Name Age Director Since Position
Fazwar Bujang . . . . ....................... 63 August 7, 2003 President Director
Syahrir Syah Pohan ....................... 61 August 7, 2003 Director
Sukandar . . . . . . . . ....................... 51 November 8, 2007 Director
Irvan Kamal Hakim ....................... 46 November 8, 2007 Director
Yerry . . . . . . . . . . . ....................... 52 November 8, 2007 Director
Dadang Danusiri. . . ....................... 48 November 8, 2007 Director
Fazwar Bujang has been our director since August 7, 2003 and has been our President Director since
November 8, 2007. Fazwar Bujang obtained his Bachelor’s degree in Chemical Engineering and a Master’s
Degree in Business Administration from Bandung Institute of Technology. He has served in various positions
within our group since joining us over 35 years ago, including serving as our Finance Director from 2003 to
2007. He was also our Marketing Director from 2006 to 2007. He is currently the Chairman of the Indonesian
Iron and Steel Industry Association and the Chairman of the South East Asia Iron and Steel Institute.

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 Syahrir Syah Pohan has been our director since August 7, 2003 and has been our Production Director
since November 8, 2007. He obtained his Bachelor’s degree in Mechanical Engineering from Trisakti
University, after which he obtained a Master’s Degree in Management from Bandung Institute of
Technology, and a Master’s Degree in Material Engineering from the University of Wollongong,
Australia. Since joining us in 1975, Syahrir Syah Pohan has served in various positions within our group,
including as our Director for Human Resources and General Affairs, the Head of our Internal Audit, the
General Manager of Logistic Planning and Controlling , and the General Manager of Purchasing.
Sukandar has been our Finance Director since November 8, 2007. He obtained his Bachelor’s degree in
Mechanical Engineering from Sepuluh November Institute of Technology, Surabaya, and has extensive field
experience as a petroleum engineer at PT Caltex Pacific Indonesia before pursuing his professional career in
finance. Before being appointed as our Finance Director in 2007, Sukandar served in various key managerial
positions in finance, including as a Vice President of Citibank, N.A., Surabaya Branch, the Managing Director
of PT Bahana Pembinaan Usaha Indonesia, and a marketing head at CIMB Corporate Bank (formerly PT Bank
Niaga).
Irvan Kamal Hakim has been our Marketing Director since November 8, 2007. He obtained his
Bachelor’s degree in Metallurgical Engineering from University of Indonesia, Jakarta, and a Master’s
degree in Business Administration from Maastricht School of Management (The Netherlands). Since
joining us at a junior level in 1988, he has held various positions within our group, including as the Head
of our Market Research Division, the Head of Domestic Sales II Division, the General Manager of Marketing,
the General Manager of Production Planning, an Expert Staff and Assistant to the President Director with
respect to the Global Offering. Before being appointed as our Marketing Director, he was the Expansion
Project Leader for certain of our important projects and is also currently the co-chairman of the Indonesian Iron
and Steel Industry Association.
Yerry has been our Logistics Director since November 8, 2007. He obtained his Bachelor’s degree in
Mechanical Engineering from Sepuluh November Institute of Technology, Surabaya, and his Master’s degree
in Management from the University of Indonesia, Jakarta. Since joining us in 1985, Yerry has served in various
positions within our group, including as the Head of the Export Division, the Head of Sub-directorate, the
General Manager of Purchasing, the Project Manager for the Implementation of ERP/SAP, and the Manager of
HRC Sales.
Dadang Danusiri has been the HR and General Affairs Director since November 8, 2007. He obtained his
Bachelor’s degree in Industrial Engineering from Bandung Institute of Technology and a Master’s degree in
Metallurgical Engineering from University of Wollongong, Australia. Since joining us in 1987, he has served
in various positions, including as the Manager of Organizational Planning and Management System Division,
the General Manager of the Products Handling Division and the General Manager of Production Planning.

Audit Committee
PT Krakatau established an audit committee on January 2, 2008, in accordance with State-Owned Ministry
Decrees No. 103/M-MBU/2002 and No. 117/M-MBU/2002 on audit committee formation for state-owned
companies and implementation of good governance, respectively. The formation of the audit committee is also
in accordance with BAPEPAM-LK Regulation No. Kep-29/PM/2004 dated September 24, 2004 regarding audit
committee formation and implementation for listed companies. The duties of the Audit Committee include the
provision of professional and independent advice to our board of commissioners and the identification of matters
that require the attention of our board of commissioners, including a review of the following: our financial
information (including financial reports), the independence and objectivity of our public accountant, the adequacy
of our public accountant’s audits, the adequacy of our internal controls, our compliance with regulations related to
our business and compliance by the internal auditor with its duties. The Audit Committee also examines and reports
complaints to our board of commissioners, maintains the confidentiality of documents, data and information
relating to us, conducts an audit of any alleged mistake in the resolutions of a board of directors’ meeting or
deviations in the implementation of the resolutions of such meeting and maintains the Audit Committee charter. On
January 4, 2010, Mochammad Imron Zubaidy was appointed as Chairman of our Audit Committee and Natsir Jafar
and Darto Yudhi were elected to our Audit Committee.

Remuneration Committees
Our Remuneration Committee is responsible for providing support to our board of commissioners in carrying
out its duties with respect to the remuneration and compensation of our board of commissioners, board of directors

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and employees. As of July 31, 2010, our Remuneration Committee comprised of Alexander Rusli, as Chairman, and
Sukandar and Dadang Danusiri, as members.

Investment and Business Risks Committee

Based on the decree of our board of commissioners dated March 12, 2007, we established an Investment and
Business Risks Committee, which reports to our board of commissioners. Its main duties and responsibilities are to
ensure the maintenance of risk management principles, and to monitor our board of directors’ activities in managing
risks. Our Investment and Business Risks Committee evaluates and provides recommendations to our board of
commissioners on potential risks regarding our business as well as the types and amounts of insurance obtained by
us. It also evaluates all investment plans made by us with a value of over Rp.50.0 billion (US$5.5 million), and identifies
investment risks that require the attention of the board of commissioners. As of July 31, 2010, our Investment and
Business Risks Committee comprised of Alexander Rusli, as Chairman, and Muhammad Assegaff, as member.

Compensation
Pursuant to a delegation of authority by our shareholder at a general shareholders meeting, the honoria, salaries and
other benefits given to our commissioners and directors are determined by our board of commissioners. In making its
determination, our board of commissioners considers the recommendation of our Remuneration Committee based on
principles of fairness. The annual bonuses for members of our board of directors and board of commissioners are
calculated using the Ministry of State-owned Enterprises’ annual bonus calculation formula. The net amount of
remuneration paid to our company’s commissioners and directors for the year ended December 31, 2009, including the
basic compensation and short and long-term incentives, was Rp.9.6 billion (US$1.1 million).

Management and Employee Share Allocation Program

At an extraordinary general meeting of our shareholders held on August 16, 2010 (the “EGM”), an employee
and management share allocation program (the “Share Allocation Program”) consisting of (a) a bonus share grant,
(b) a discounted share purchase plan, and (c) a fixed allocation purchase plan was approved.
The Share Allocation Program must comply with BAPEPAM-LK regulations which permit a maximum of
10.0% of the Offer Shares being offered to the public in the Global Offering to be reserved on a preferential basis for
employees. The aggregate number of Offer Shares offered pursuant to the Share Allocation Program will be up to
5.0% of the Offer Shares being offered to the public in the Global Offering.
The following are entitled to participate in the Share Allocation Program:
• members of our board of directors, members of our board of commissioners (other than our Independent
Commissioners), certain members of the management and employees that are registered as such with PT
Krakatau as of October 12, 2010; and
• members of the board of directors, members of the board of commissioners, certain members of the
management and employees that are registered as such with a PT Krakatau subsidiary as of October 12,
2010,
(together, the “Participants”).

Bonus Share Grant

We will be granting a number of Offer Shares to Participants as a reward for their contribution to PT Krakatau.
We will grant to Participants Offer Shares equivalent to two months of a Participant’s salary if he is in management
at or is an employee of PT Krakatau and Offer Shares equivalent to one month of a Participant’s salary if the
Participant is in management at or an employee of one of our subsidiaries or our pension fund. These bonus shares
will be subject to a lock-up period of 12 months from the date of the listing of our shares on the IDX during which
time they cannot be transferred by the Participant shareholder. After the lock-up period Participants will be free to
sell and transfer the bonus shares.

Discounted Share Purchase Plan

Under the discounted share purchase plan, Participants will have the opportunity to purchase certain Offer
Shares in the Global Offering. We are paying 20.0% of the price of Offer Shares purchased by Participants in the
Global Offering up to the equivalent of two months of a Participant’s salary if he is in management at or is an
employee of PT Krakatau or up to the equivalent of one month of the a Participant’s salary if he is in management at
or an employee of one of our subsidiaries or our pension fund. Shares purchased under the discounted share

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purchase plan will be subject to a lock-up period of six months from the date of the listing of the shares on the IDX
during which time they cannot be transferred by the Participant shareholder.

Fixed Allocation Purchase Plan

Under the fixed allocation purchase plan, Participants will have the opportunity to purchase Offer Shares in the
Global Offering at the Offer Price up to the equivalent of one month of the Participant’s salary.

Management and Employee Stock Option Plan

A management and employee stock option plan (“MESOP”) was also approved at the EGM. The MESOP is an
incentive program which gives participants the right to buy shares in the future at a predetermined price. Members
of our board of commissioners (other than Independent Commissioners) and certain members of management and
employees of PT Krakatau will be entitled to participate in the MESOP. The maximum amount of new shares we
will issue in relation to the MESOP program is 2.0% of our issued and paid-up capital after the Global Offering.
Under BAPEPAM-LK Rule No IX.D.4, a maximum of 10% of new shares issued by PT Krakatau over a two
year period can be subscribed for under the MESOP. The mechanism for the implementation of the MESOP
program must also be in accordance with IDX Rule No. I.A.
The MESOP will be implemented in three phases:
• During phase one, a maximum of 50.0% of the shares in the MESOP will be distributed on the date of the
listing of the shares on the IDX;
• During phase two, a maximum of 25.0% of the shares in the MESOP will be distributed one year after the
date of the listing of the shares on the IDX; and
• During phase three, a maximum of 25.0% of the shares in the MESOP will be distributed three years after the
date of the listing of the shares on the IDX.
The redemption period for the options has not yet been determined. Under IDX Rule No. I.A, appendix
item V.2.2, the redemption price of the options must be at least 90.0% of the average closing price over the 25 days
prior to redemption. The board of directors will determine the terms and conditions for the redemption of the
options distributed under the MESOP. Options distributed under the MESOP have a one year vesting period and
there will be a maximum of two redemption periods of not more than 30 trading days per year.

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 RELATIONSHIP WITH THE GOVERNMENT

Introduction
We were established in the Republic of Indonesia based on Notarial Deed No. 34 dated October 23, 1971, as
amended by Deed No. 25 dated December 29, 1971, both made before Tan Thong Kie, S.H., notary in Jakarta, to
take over the Trikora steel plant project. The deed of establishment was approved by the Ministry of Justice of the
Republic of Indonesia in its Decision Letter No. J.A.5/224/4 dated December 31, 1971 and was published in the
State Gazette of the Republic of Indonesia No. 11 dated February 8, 1972, Supplement No. 44. Our objective is to
implement and support the various policies and programs of the Government for economic development, especially
with respect to the steel industry. The development of the steel industry has been heavily dependent on the industrial
policy of Indonesia.

Government as Shareholder
PT Krakatau is currently wholly owned by the Government of the Republic of Indonesia. In 2003, based on
Government Regulation No. 41/2003, the Ministry of Finance transferred its authority and duty as shareholder to
the Ministry of State-Owned Enterprises. Thus, the Government currently holds its interest in us through the
Ministry of State-Owned Enterprises. As our sole shareholder, the Government is interested in our performance
both in terms of the benefits we provide to the nation as well as our ability to operate on a commercial basis. After
the Global Offering, the Government will hold at least 80.0% of our shares. Although the Government intends to
privatize various enterprises that it owns and may sell more of its shares in PT Krakatau in the future, we believe that
it has not commenced any specific plans with regard to any such future sales of PT Krakatau’s shares.
The Government is also the holder of our Special Share which has special voting rights. The material rights and
restrictions that are applicable to our shares are also applicable to our Special Share. Additionally, the Government
may not transfer our Special Share and, as the holder of the Special Share, has special rights with respect to (i) the
nomination and approval of resolutions relating to the election of directors; (ii) the nomination and approval of
resolutions relating to the election of commissioners; (iii) the issuance of new shares; (iv) amendments to our
articles of association; and (v) actions to merge or dissolve PT Krakatau, increase or decrease our authorized capital,
or reduce our subscribed capital. See “Management” and “Description of our Shares — Description of Special
Share.” Accordingly, the Government will have effective control of these matters even if its ownership of our shares
were to decline to less than 51%. The Government’s rights with respect to our Special Share will not terminate
unless our articles of association are amended, which would require the consent of the Government as holder of such
Special Share.

Transactions with Affiliates

We have entered into, and expect in the future to enter into, transactions in the ordinary course of business with
the Government and other companies which are controlled by the Government. For a description of debt agreements
entered into between us and certain Government-owned financial institutions, see “Description of Material
Indebtedness — Short-term Bank Loans — Bank Mandiri Working Capital Loan Facilities,” “Description of
Material Indebtedness — Short-term Bank Loans — BNI Credit Facilities” and “Description of Material
Indebtedness — Long-term Bank Loans — Bank Mandiri.”
It is our policy not to enter into transactions with affiliates unless the terms thereof are no less favorable to us
than those which could be obtained by us in an arm’s-length transaction with an unaffiliated third party. The
Ministry of State-Owned Enterprises has advised us that, in its capacity as our controlling shareholder, it will not
cause us to enter into transactions with other entities under its control unless the terms thereof are consistent with
our arm’s-length policy.
Under BAPEPAM-LK Regulation No. 1X.E.1, Attachment of Decree of Chairman of BAPEPAM-LK
No. KEP-412/BL/2009 (“BAPEPAM-LK Regulation No. 1X.E.1”), once we are a public company, any
transaction involving a conflict of interest (as defined below) must be approved by a majority of the holders of
our shares who do not have a conflict of interest with respect to the proposed transaction, unless the conflict of
interest transaction is an existing transaction which is performed after the Global Offering is completed or after our
registration statement as a public company has become effective. In such a case, the conflict of interest transaction
must comply with BAPEPAM-LK Regulation No. 1X.E.1 and the terms and conditions of the continuing
transaction must not result in a loss to us. A conflict of interest is defined in BAPEPAM-LK Reg. No. 1X.E.1
to mean the difference between our economic interest, and the personal economic interests of the members of the
board of commissioners, board of directors or our principal shareholder, which may result in a loss to us, unless
otherwise exempted under BAPEPAM-LK Regulation No. 1X.E.1. BAPEPAM-LK has the power to enforce this

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rule and our shareholders are also entitled to seek enforcement or bring enforcement actions based on this
BAPEPAM-LK rule.
BAPEPAM-LK also regulates affiliate transactions, which we must announce to the public. We are required to
deliver evidence of such announcement, as well as supporting documents, to BAPEPAM-LK within two business
days after the completion of the affiliate transaction, unless otherwise exempted under BAPEPAM-LK
Regulation No. 1X.E.1 An affiliate transaction is defined in BAPEPAM-LK Regulation No. 1X.E.1 to mean a
transaction conducted between us or a company which is directly or indirectly controlled by us with a party
affiliated to us or a party affiliated to a member of our board of directors, a member of our board of commissioners
or our principal shareholder.
Transactions between us and other Government-owned or controlled enterprises could constitute “conflict of
interest” transactions or an affiliate transaction under BAPEPAM-LK regulations, and the approval of disinterested
shareholders would have to be obtained if a conflict of interest exists. We believe that all transactions with
Government-owned or controlled enterprises in the ordinary course of their and our business are on an arm’s-length,
commercial basis and do not constitute “conflict of interest” transactions for which a disinterested shareholder vote
would be required. Moreover, BAPEPAM-LK regulations do not require us to obtain disinterested shareholder
approval for any continuing transaction, the principal terms of which are disclosed in the prospectus for the
Indonesian Offering and which are not changed in a way that disadvantages us. We expect, however, in light of the
substantial presence that enterprises owned or controlled by the Government and its affiliated entities have in
Indonesia, that it may be desirable, in connection with the development and growth of our business, for us to enter
into joint ventures, arrangements or transactions with Government-owned enterprises from time to time. Under such
circumstances, we may seek to consult BAPEPAM-LK in determining whether the proposed joint venture,
arrangement or transaction would require a vote of disinterested shareholders under the terms of the
BAPEPAM-LK regulation, or if it would be characterized as an affiliate transaction only. If BAPEPAM-LK is
of the view that a proposed joint venture, arrangement or transaction would not require a vote of disinterested
shareholders under its regulations, we would proceed without seeking disinterested shareholder approval, with due
regard to applicable affiliate transaction BAPEPAM-LK regulations. If, however, BAPEPAM-LK takes the position
that the proposal would require a vote of disinterested shareholders under its regulation, we would either seek to
obtain the requisite disinterested shareholder approval or abandon the proposed joint venture, arrangement or
transaction. See “Risk Factors — Risks Relating to an Investment in Our Shares — The application of BAPEPAM-
LK conflict of interest rules may cause us to forego transactions that are in our best interests.”

Government as Regulator
The Government regulates the steel industry through the Ministry of Industry. In particular, the Ministry of
Industry has authority to issue decrees implementing laws, which are typically broad in scope, thereby giving the
Ministry of Industry considerable latitude. See “Risk Factors — Risks Relating to Our Business — We are subject
to the control of the Government.”

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 REGULATORY OVERVIEW
The steel industry in Indonesia is subject to and governed by various laws, rules and regulations issued by the
Government.
Currently, the main law and implementing regulations applicable to the steel industry in Indonesia are Law
No. 5 of 1984 (the “Industry Law”), Government Regulation No. 13 of 1995 (“PP 13/1995”) and Regulation of the
Minister of Industry No. 41/M-IND/Per/6/2008 on the terms and procedures for the granting of industrial licenses,
expansion permits and registration of industry (“Permenperin 41/2008”), which deal with the licensing of industrial
businesses. Moreover, activities in the steel industry are also subject to Law No. 25 of 2007 concerning capital
investments (the “Capital Investment Law”) and to the implementing regulations of the Capital Investment Law.
In addition to these regulations, the steel industry is also subject to regulations on the importation of raw
materials for iron and steel production, the protection of the environment and other regulations described below.

Industry
On June 29, 1984, the Government issued the Industry Law as a basis to regulate industrial activities in
Indonesia. The Industry Law authorizes the Government to manage and develop industries in Indonesia with the
following objectives:
• achieve better industrial development in a healthy and effective manner;
• develop better and healthy competition and prevent unfair competition; and
• prevent the centralization or domination of an industry by one group or individual in the form of monopolies,
which could be detrimental to the public.
Within the framework of fulfilling its management and development functions, the Government has the
authority to, among others:
• issue industry business licenses or registration certificates to industrial companies;
• establish business sectors open for capital investments from both domestic and foreign capital;
• set standards for raw materials and products of industries with the aim of guaranteeing the quality of
industrial products;
• specify the types of industries which are reserved specifically for small industry activities; and
• determine regional centers of industrial growth and locations for industrial development.

Industrial Business Permit

On May 23, 1995, the Government issued PP 13/1995 as an implementing regulation of the Industry Law. On
June 25, 2008, it issued Permenperin 41/2008, as the implementing regulation of PP 13/1995. PP 13/1995 and
Permenperin 41/2008 require every industrial company to obtain a business license called the Izin Usaha Industri
(“IUI”). However, companies belonging to industries categorized as small industries are exempt from the obligation
to obtain an IUI. Companies belonging to small industries must be registered and are given industrial registration
certificates, which are valid as licenses. The types of industries that are classified as a small industry are determined
by Government regulations.
An IUI is granted to industrial companies which are comprised of individuals, corporate partnerships, or legal
entities domiciled in Indonesia. An IUI is granted after an industrial company complies with all applicable
regulations and has completed constructing a factory and production facilities, or if at the time of the filing of the
application for the issuance of an IUI, the relevant industrial company is located in an industrial area which has
necessary licenses or permits, or such company’s commodity production process does not damage or endanger the
environment or use natural resources excessively.
Each industrial company that intends to expand its production capacity, as approved in its IUI, by more than
30% is required to obtain permission from the relevant Ministry or other Government agencies to which authority
regarding expansions of production capacity are delegated.
An IUI is valid as long as the industrial company is still conducting its business activities. However, if
industrial companies perform any of the following:
• expanding industrial activities without having expansion permits;

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 • changing the location of their industrial business without the written consent of the relevant permitting
authority;
• causing damage and pollution to the environment through the conduct of their industrial activities,
exceeding environmental quality standards;
• conducting businesses not in accordance with the provisions specified in its permit; or
• failing to submit information regarding the company or deliberately conveying information that is untrue,
the IUI of such industrial companies may be revoked.

Iron or Steel Importation Regulations

In Indonesia, the importation of iron and steel is subject to Government regulations, including regulations
issued by the Minister of Trade of the Republic of Indonesia (“Menperdag”). In 2009, the Ministry of Trade issued
Ministry of Trade Regulation No. 08/M-DAG/PER/2/2009 regarding the terms for the importation of iron or steel
(“Permendag 08/2009”), which was further amended by Ministry of Trade Regulation No. 21/M-DAG/PER/6/2009
(“Permendag 21/2009”).
Importation of iron and steel in Indonesia can only be performed by an importer producer of iron and steel
(“IP-Iron or Steel”), which is an entity that imports, as well as produces iron and/or steel, or a registered importer of
iron or steel (“IT-Iron or Steel”). A company may act either as an IP-Iron or Steel or an IT-Iron or Steel, but not both.
An IT-Iron or Steel may only sell iron and steel to companies which are producers, or to end users. A IP-Iron or Steel
may only use the iron/steel which it imported as input for its finished iron or steel products. To obtain recognition as
an IP-Iron or Steel or as an IT-Iron or Steel, a company must file an application with the relevant Director General,
accompanied by supporting documents. An IP-Iron or Steel or IT-Iron or Steel is required to have an importer
identification number. Recognition as an IP-Iron or Steel or IT-Iron or Steel is valid for one year and may be
renewed annually.
In general, all importations of iron or steel made by an IP-Iron or Steel or IT-Iron or Steel must go through a
verification and import technical search by a surveyor who has obtained authorization from the relevant minister.
The entire cost of such verification and search will be borne by IP-Iron or Steel or IT-Iron or Steel. The provisions
concerning verification are not applicable to, among others, the importation of iron or steel for industrial purposes in
a free trade area or free port and bonded zones.
Each IP-Iron or Steel and IT-Iron or Steel is required to submit a written report to the Director General of
Foreign Trade listing all importation activities, whether realized or not, every three months after obtaining
recognition.

Environmental Management Regulations

Industrial activities have an impact on the environment in the form of environmental pollution and
environmental destruction. Recently, the Indonesian Government issued Law No. 32 of 2009 regarding
Environmental Management and Protection (“UULH”), which revoked and repealed Law No. 23 of 1997.
Every business and/or activity that has a significant impact on the environment is obliged to conduct an
analysis, known as AMDAL, regarding the environmental impact of its operations. The Minister of Environment is
authorized to determine types of businesses and/or activities obliged to conduct an AMDAL. Businesses and/or
activities that are not obliged to conduct an AMDAL are required to implement an Environmental Management
Effort (“UKL”) / Environmental Monitoring Effort (“UPL”) analysis.

Hazardous and Toxic Waste

Hazardous and toxic wastes are wastes that directly or indirectly pollute, damage and/or endanger the
environment, human health and environmental sustainability in general. Every enterprise conducting business
activities which produces hazardous or toxic waste is prohibited from disposing its waste directly into the
environment without prior processing, and is required to conduct hazardous and toxic waste reduction,
processing and/or piling.
The processing and/or piling of hazardous or toxic waste can be conducted independently by the hazardous or
toxic waste producing company or by a hazardous and toxic waste processor and/or hoarder. The assignment of the
processing and/or piling of hazardous or toxic waste to a third party does not reduce the responsibilities of the
hazardous or toxic waste producing company.

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 PROPER Assessment Program
In order to encourage companies to protect the environment, the Government, through the Ministry of
Environment, has established a Corporate Performance Rating Program in Environmental Management program
(the “PROPER Assessment Program”). In 2002, the Minister of Environment issued Minister Regulation No. 127 of
2002 regarding the corporate performance rating program in environmental management (“Kepmen 127/2002”).
The PROPER Assessment Program places companies in one of five categories:
• Gold, for companies that successfully carry out environmental management programs with extraordinary
results;
• Green, for companies that successfully carry out environmental management programs at a level above
regulatory requirements under applicable laws and regulations;
• Blue, for companies that carry out environmental management programs in accordance with the minimum
requirements under applicable laws and regulations;
• Red, for companies that have environmental control programs but do not meet the minimum requirements
under applicable laws and regulations; and
• Black, for companies that do not have environmental control programs and may have caused pollution
and/or destruction of the environment.
Only companies that are categorized as gold and green receive certifications of their achievement. However,
Ministerial Decree 127/2002 does not impose sanctions against companies in the red or black category.

Regulation concerning National Standardization

In order to support competition and improvement in the quality of goods, the Government has put in place
national standards for certain products. Companies that manufacture products which meet national standards
receive a certification from the Government stating that their products meet national standards. The implementation
of standardization is in line with Indonesia’s participation in the approval of the establishment of the World Trade
Organization (“WTO”). The WTO is involved in the standardization issue and imposes an obligation to each
member country to adopt national legislation in the field of standardization.
The Government, through the National Standardization Agency, determines the Indonesian National Standard
(the “SNI”). In general, SNI is voluntary. However, for safety, security, preservation of environmental functions
and/or economic considerations purposes, the relevant technical institutions impose either partial or complete
mandatory technical specifications and/or parameters under the SNI.
In 2009, the Minister of Industry issued Regulation of /M-IND/PER/1/2009, which applies SNI to the production of
steel sheets, steel plates and HRC. In 2010, the Minister of Industry also issued Regulation No. 90/M-IND/PER/8/2010,
which applies SNI to the production of CRC.

Regulation concerning the Imposition of Anti-Dumping Duty on Imported Goods

The Government imposes an anti-dumping duty on imported goods the export prices of which are lower than
normal prices in the exporting country. The implementation of the anti-dumping duty is an act of ratification by the
Government of the Agreement Establishing the World Trade Organization in 1994. The highest anti-dumping duty
that can be imposed is equal to the difference between the normal price and the export price of the goods in the
country of origin of the relevant goods.
To handle the problems related to the efforts to prevent the dumping of imported goods, the Government
through the Ministry of Industry and Trade, established the Indonesian Anti Dumping Committee (“KADI”) which
is comprised of members from the Department of Industry, the Department of Finance, and related departments and
agencies.
KADI is responsible for, among others:
• conducting investigations on dumping of goods;
• collecting, examining and processing evidence and information; and
• proposing the imposition of anti-dumping duties.
The amount of anti-dumping duties is determined by the Minister of Finance.

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Investment Regulations
On April 26, 2007, the Government issued the Capital Investment Law, which revoked previous regulations on
foreign and domestic investment. To encourage capital investment, the Government provides several incentives,
such as:
• not nationalizing or taking ownership rights of investors, except as allowed by law;
• providing tax incentives, including a relief facility or exemption from import duties;
• easy service and/or licensing of immigration facilities for foreign workers; and
• easy service and/or licensing of import licensing facilities.
The Government, through the President, has stipulated a list of businesses that are closed to foreign
investments, and those that are open, with certain conditions, all within the framework of the Capital
Investment Law and its regulations.

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 DESCRIPTION OF OUR SHARES

Ordinary Shares
Our authorized share capital as of June 30, 2010 was 8,000,000 shares with a par value of Rp.1,000,000 per
share and our issued share capital was comprised of 2,000,000 shares. During the extraordinary general meeting of
shareholders held on August 16, 2010, which was subsequently drawn up in Deed No. 135 dated August 21, 2010,
our shareholder approved (i) the increase of our authorized share capital from Rp.8,000.0 billion to
Rp.20,000.0 billion representing 40,000,000,000 shares each with a par value of Rp.500.0, consisting of the
Special Share and 39,999,999,999 Series B ordinary shares, (ii) the capitalization of Rp.2,043.5 billion
(US$225.0 million) of retained earnings as of June 30, 2010 and Rp.956.5 billion (US$105.3 million) of net
income for the six-month period ended June 30, 2010 to increase PT Krakatau’s issued and paid-up capital to
Rp.5,000.0 billion (US$550.5 million) and (iii) changes in PT Krakatau’s existing issued and paid-up shares to
10,000,000,000 shares of Rp.500 each through a stock split, comprising the Special Share and 9,999,999,999
Series B ordinary shares. Based on Deed No. 75 dated October 7, 2010, our shareholder approved (i) the
capitalization of Rp.6.5 billion (US$0.7 million) of retained earnings and Rp.1,303.5 billion
(US$143.5 million) of other paid-in capital as of June 30, 2010 to further increase PT Krakatau’s issued and
paid-up capital to Rp.6,310.0 billion (US$694.7 million) and (ii) changes in PT Krakatau’s shares to
12,620,000,000 shares of Rp.500 each, comprising the Special Share and 12,619,999,999 Series B ordinary shares.
All transfers of our shares must be evidenced by an instrument of transfer signed by or on behalf of the
transferor and by or on behalf of the transferee or based on other documents. In addition, any transfer of our shares
must comply with rules and regulations applicable in the Indonesian capital market and of the IDX. Transfers of
shares take effect only after the transfer is registered in our register of shareholders (the “Register”). The transferor
of any shares will be treated as the owner of such shares until the name of the transferee has been recorded in the
Register by the board of directors, through our Share Registrar. Under the scripless system, KSEI will be registered
as the holder of the shares in our Register, in its capacity as the central securities depositary institution which holds
the shares on behalf of KSEI participants which in turn hold the shares on behalf of the investors (the “Beneficial
Shareholders”). The holders of shares whose names are recorded in the Register (“Registered Shareholders”) are
entitled to pre-emptive rights in the event we issue new shares, convertible bonds, warrants or other securities
convertible into equity securities, except as provided below. See “Risk Factors — Risks Relating to an Investment
in Our Shares — Your right to participate in our rights offerings could be limited, which would cause dilution to
your holdings.” For shares deposited with KSEI, all ownership rights are automatically distributed by KSEI, through
KSEI participants, to investors ultimately holding the shares as Beneficial Shareholders (or their assignees). Such
pre-emptive rights may be sold and transferred to third parties without the consent of any party to the extent
permitted by the rules and regulations applicable in the Indonesian capital market and of the IDX. If the Registered
Shareholders or the Beneficial Shareholders (or their respective assignees) do not exercise their pre-emptive rights
within a period of time determined by the board of directors (in accordance with the prevailing regulations) after the
issuance of new securities, our board of directors may issue such shares, convertible bonds, warrants or other
securities to third parties on the same terms and conditions. Under the Indonesian Company Law No. 40 of 2007
(the “Company Law”), the provisions set forth therein and our articles of association shall be applicable to PT
Krakatau, provided, however, that if our articles of association conflict with the Company Law, then the applicable
provisions of the Company Law shall apply instead. In accordance with our articles of association and the prevailing
capital market regulations, we may increase our capital without providing a pre-emptive right to the Registered
Shareholders or the Beneficial Shareholders to subscribe for securities if, within any two-year period, the increase in
our issued share capital without pre-emptive rights for existing shareholders is no more than 10% of our paid-in
capital. Other than as described above, our authorized share capital may only be increased or decreased by a
resolution passed at a general meeting of shareholders, after which our articles of association will be amended. Any
such amendment will be effective only after the approval of the Minister of Law and Human Rights is obtained. In
the case of a decrease in our authorized share capital, the approval from the Minister of Law and Human Rights may
only be given if (i) such decrease has been approved at a general meeting of shareholders; (ii) there are no written
objections from our creditors; (iii) a settlement has been reached on any objection raised; and (iv) any creditors’
lawsuit as a result of objections by creditors has been resolved through a final and binding judgment rendered by the
court.

Description of Special Share

All of our shares are registered shares and registered under the name of the holder recorded in the Register. Our
shares consist of the Special Share, which may only be owned by the Government, and Series B ordinary shares,
which may be owned by anyone. The Special Share is not transferable. The Government’s rights with respect to the

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Special Share will not terminate unless our articles of association are amended, which would require the approval of
the Government as holder of the Special Share. All candidates for election to the board of commissioners and to the
board of directors must be nominated by the holder of the Special Share.
The approval of the holder of the Special Share is also required for certain decisions of our company, including
decisions to:
• approve any increases in capital;
• elect and remove directors and commissioners;
• approve any amendments to our articles of association;
• approve any merger, consolidation, acquisition or spin-off of our company; and
• approve any dissolution and liquidation.
Otherwise, the material rights and restrictions which are applicable to shares are also applicable to the Special
Share.

Shareholders’ Meetings and Voting Rights

Each share entitles the owner thereof to cast one vote at a general meeting of shareholders. In the case of shares
held by KSEI, prior to our taking any corporate action, KSEI must provide details to us concerning the share
entitlements of all the Beneficial Shareholders on whose behalf it holds shares A KSEI participant holding shares on
behalf of a Beneficial Shareholder is obliged to notify such Beneficial Shareholder of the exercise of any pre-
emptive rights, deliver annual reports and other notices, including with respect to general meetings of shareholders.
Beneficial Shareholders or their legal representatives have the right to be present and vote at our general meetings of
shareholders. See “Indonesian Capital Markets.” Our annual general meeting of shareholders must be held by no
later than June 30 of each year. At such annual general meeting, the board of directors must (i) submit for approval
the report on our affairs and management and the results for the most recent financial year, which have been
reviewed by our board of commissioners; (ii) submit for ratification the audited balance sheet and audited profit and
loss statement for the prior financial year; (iii) submit for ratification the report of the board of commissioners
relating to its supervision of our company for the most recent financial year; (iv) submit a plan for the use of profits
and the amount of dividends, if any, to be declared with respect to the prior financial year; (v) propose, for
appointment by the shareholders, the registered public accountant; (vi) to the extent necessary, propose, for election
and appointment by the shareholders, members of the board of commissioners and the board of directors; and
(vii) submit all other matters to be addressed in the meeting. All materials associated with the matters described
above must be made available in our office for inspection by any shareholder from the day such shareholder is
notified of the annual general meeting through the date of the annual general meeting. Proposals duly submitted by
one or more shareholders owning an aggregate of at least 10% of our subscribed shares must be included in the
agenda of such meeting, provided that such proposals are received by the board of directors at least seven days prior
to such meeting and the board of directors is of the opinion that the proposal is directly related to PT Krakatau’s
business activities. The board of directors may convene an extraordinary general meeting of shareholders based on a
written request from the board of commissioners. In addition, an extraordinary general meeting of shareholders
must be convened upon receipt of written notice requesting a meeting from either the holder of our Special Share or
one or more shareholders owning an aggregate of at least 10% of our shares. In the event neither the board of
directors nor the board of commissioners provides a notice of an extraordinary general meeting of shareholders
within 15 days of receipt of such written notice, the applicable shareholders may call a meeting at our expense after
obtaining the approval from the District Court. At least 14 days prior to the issuance of notice of either an
extraordinary general meeting or an annual general meeting of shareholders (excluding the date of the
announcement and the date of the notice), an announcement that a shareholders’ meeting is to be called must
be made by placing an advertisement in at least two daily newspapers published in Bahasa Indonesia, which must
have a wide circulation in Indonesia. The quorum for an annual general meeting of shareholders requires
shareholders and/or authorized proxies representing more than 50.0% of the issued shares with voting rights to
be represented either in person or by a power of attorney at such meeting. The quorum requirement for an
extraordinary general meeting of shareholders may be greater, depending on the nature of the resolutions to be
considered at such meeting. Shareholders may be represented in a general meeting of shareholders by any person
holding a power of attorney, provided that if the proxy is our commissioner, director or employee, then the vote of
any such proxy shall not be counted. In order to be adopted resolutions of our shareholders must receive the
affirmative vote of shareholders holding more than 50.0% of the shares which are either present or represented in the
meeting (except for resolutions concerning certain transactions such as (i) the transfer or disposal of rights of the net
assets of PT Krakatau within one financial year or more or the encumbrance of all or a majority of our total assets,

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(ii) amendments to our articles of association, (iii) a merger, consolidation, acquisition, spin-off or dissolution or
(iv) a transaction which involves a conflict of interest).

Dividends
A portion of our net profits, as determined during an annual general meeting of shareholders, after deduction of
reserve funds as required under law, may be distributed as dividends and/or used for certain other purposes.
Dividends may only be distributed if our company has positive retained earnings. Dividends, if any, are paid in
accordance with a resolution adopted at an annual general meeting of shareholders, on the recommendation of the
board of directors, which resolution must establish the amount, the time and the manner of payment of the
dividends. All shares which are fully paid and outstanding at the time a dividend or other distribution is declared are
entitled to share equally in such dividend or other distribution. Dividends are payable to the persons whose names
are recorded in the Register. Our articles of association provide that unless the dividends are to be paid to the
Government, dividends unclaimed after a period of five years will be placed in a special reserve fund. Under the
Company Law, shareholders may exercise their rights to collect their dividends from the special reserve fund in
compliance with the applicable procedures, as determined in the general meeting of shareholders. Dividends which
have been placed in a special reserve fund and which have not been collected by shareholders within a 10-year
period shall become the property of PT Krakatau. A reserve fund, up to an amount of at least 20% of our subscribed
capital, shall be set aside to cover our company’s future losses. Amounts in the reserve fund that exceed 20% of our
subscribed capital may be used for working capital or other purposes, subject to the approval of our shareholders at a
general meeting. Any interest or other profit earned from such reserve fund must be recorded in our profit and loss
account. Under the PKBL Regulation, as a non-public Government-related company, we were obliged to establish a
community development program (Program Kemitraan dan Bina Lingkungan), or a PKBL. Upon completion of the
Global Offering, as a public Government-related company, we may contribute annually to the PKBL, based on a
decision of our shareholders, an amount of up to 2% of our net profits, in addition to any interest income (net of
operational charges) attributable to bank accounts set up for the administration of the PKBL. With respect to the
years ended December 31, 2007, 2008 and 2009, our aggregate contributions to our PKBL were Rp.0.4 billion,
Rp.9.2 billion and Rp.19.8 billion (US$2.2 million), respectively.

Amendments to the Articles of Association

Our articles of association may only be amended pursuant to a resolution approved at a general meeting of
shareholders attended by shareholders or their proxies representing at least two-thirds of the total number of shares
outstanding, with the holder of the Special Share present, and approved by more than two-thirds of the votes cast
with respect thereto, including the affirmative vote of the holder of the Special Share. Pursuant to the Company Law,
any amendment that would change the name, domicile or the objectives and purpose of PT Krakatau, or would
increase or reduce our authorized capital, reduce the subscribed capital or change the status of PT Krakatau will
only be effective upon approval by the Minister of Law and Human Rights. Notice of other amendments must be
delivered to the Ministry of Law and Human Rights and will be effective as of the date of the letter from the Ministry
of Law and Human Rights confirming acceptance of the notice. Notices of any resolution reducing our capital must
be sent to our creditors by publishing the same in one or more newspapers published in Indonesia with wide
circulation within seven days after such resolution is passed. If a quorum is not obtained at a general meeting
convened for such purpose, then no earlier than 10 days and no later than 21 days after the date of such original
general meeting, a second meeting may be held to render a legal and binding resolution on matters which were not
resolved at the previous meeting. The second meeting must be attended by shareholders representing at least three-
fifths of the total issued shares and by the holder of the Special Share, and resolutions adopted at such a meeting
must be approved by more than two-thirds of the total votes present and cast at the meeting and by the holder of the
Special Share. If a quorum is not obtained at the second meeting, the Chairman of BAPEPAM-LK determines the
timing of, the quorum required for and the number of votes required for a third meeting.

Rights of Shareholders
In general, Indonesian law has traditionally afforded shareholders fewer rights than those available in common law
jurisdictions such as the United States. See “Risk Factors — Risks Relating to an Investment in Our Shares — You may
be subject to limitations on minority shareholders rights.” The Company Law affords certain rights to each shareholder,
and certain additional rights to one or more shareholders collectively representing at least 10% of all voting shares of a
company (“minority shareholders”). A shareholder generally has the right to initiate legal action against us if it has been
harmed by any unfair and unreasonable action we have taken. In addition, because PT Krakatau is a public company,
each shareholder of PT Krakatau has the right to request PT Krakatau to repurchase the shareholder’s shares at the then
prevailing market price if such shareholder believes certain of our actions would harm the interests of shareholders.

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These actions include the amendment of our articles of association, transfer or disposal of rights to or encumbrances of
more than 50% of PT Krakatau’s assets, or PT Krakatau’s merger, consolidation, acquisition or spin-off. Under the
Company Law, we may repurchase shares, provided that (i) such repurchase must not cause our net assets (as stated in
our most recent balance sheet, as approved by the shareholders within the last six months) to fall below paid-in capital
and reserves; (ii) the total number of shares repurchased and the share pledge or other encumbrance on the shares held by
PT Krakatau itself and/or another company which shares are directly or indirectly owned by PT Krakatau, do not exceed
10% of our outstanding shares; and (iii) the repurchase complies with the procedure and other requirements under the
Indonesian Capital Market Law, in particular by BAPEPAM-LK Regulation No. XI.B.2 attached to the decision of
BAPEPAM-LK No. Kep. 105/BL/2010 on Share Buy Back by the Issuer or Public Company dated April 13, 2010. To the
extent that a request to repurchase shares does not comply with these limitations, we will be required to seek a third-party
purchaser for such shares. Under Article 40 of the Company Law, shares repurchased by us may not be voted in a general
meeting of shareholders, and will not be counted in determining whether the quorum has been satisfied in accordance
with the Company Law and our articles of association.
Our minority shareholders have certain other rights. These include the right to call a general meeting of
shareholders in the event that our directors or commissioners fail to convene such meeting within the stipulated
time. Minority shareholders also have the right to lodge a derivative action on our behalf against the directors or
commissioners who, through error or negligence, have caused us losses. Under the Company Law, directors and
commissioners are obliged to act in good faith, with full responsibility and in the best interests of PT Krakatau when
carrying out their corporate duties. The minority shareholders may request that we be examined by a court-
appointed third party if there is suspicion that we or any of our directors or commissioners have committed an act
contrary to law. Minority Shareholders may also apply to a court for our dissolution.

Liquidation
A resolution for our dissolution must be approved at a general meeting of shareholders attended by holders of at
least three-fourths of the total number of issued shares, with the holder of the Special Share present, and approved by
more than three-fourths of the total votes cast at the meeting, including the affirmative vote of the holder of the Special
Share. Pursuant to the Company Law, if a quorum is not obtained at a general meeting convened for such purpose, then
no earlier than 10 days and no later than 21 days after such extraordinary general meeting, a second meeting may be
held to render a legal and binding resolution on matters which were not resolved at the previous meeting. The second
meeting must be attended by shareholders representing at least two-thirds of the total issued shares with the holder of
the Special Share present, and resolutions adopted at such a meeting must be approved by more than three-fourths of
the total votes present and cast at the meeting, including the affirmative vote of the holder of the Special Share. If a
quorum is not obtained at the second meeting, the Chairman of BAPEPAM-LK determines the timing of, the quorum
required for and the number of votes required for a third meeting. In the event we are wound up, dissolved or declared
bankrupt, by reason of insolvency or for any other reason provided under the Company Law, shareholders in a general
meeting must appoint a liquidator to perform certain liquidation procedures. If shareholders fail to appoint a liquidator
at the general meeting, the board of directors shall act as liquidator. The liquidator, within 30 days of the resolution for
our dissolution, shall notify creditors of our liquidation by publishing the resolution for our dissolution in the State
Gazette and in two daily newspapers published in Indonesia with nationwide circulation, and notify the Minister of
Law and Human Rights, BAPEPAM-LK and the IDX, pursuant to prevailing laws and regulations.

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 INDONESIAN CAPITAL MARKETS

Background and Development

In 1976, the Government established the Capital Market Executive Agency (Badan Pelaksana Pasar Modal),
the Capital Market Development Agency (Badan Pembina Pasar Modal) and a national investment trust company,
PT Danareksa, to reactivate and promote the development of a securities market in Indonesia. In 1990, the Capital
Market Executive Agency and the Capital Market Development Agency became the Capital Market Supervisory
Board (Badan Pengawas Pasar Modal) or BAPEPAM-LK. The first share issue listed on the Jakarta Stock
Exchange (the “JSX”) took place in August 1977. Up until the end of 1988, the shares of only 24 companies were
listed on the JSX and the volume of shares traded was relatively low.
On July 13, 1992, the operation of the JSX was transferred from BAPEPAM-LK to PT Bursa Efek Jakarta, with
the principal goal of ensuring the orderly and fair operation of the securities exchanges. Over the last eighteen years,
a number of reform measures affecting the Indonesian Capital Markets have been announced. This led to, among
others, the privatization of the JSX, or PT Bursa Efek Jakarta, and its establishment as a limited liability company
consisting of 221 securities trading companies as initial shareholders.
In December 2005, the Capital Market Supervisory Board (Badan Pengawas Pasar Modal) merged with the
Financial Institution Supervisory Agency (Badan Pengawas Lembaga Keuangan) under the Department of
Finance, and changed its name to the Capital Markets and Financial Institution Supervisory Board (Badan
Pengawas Pasar Modal dan Lembaga Keuangan), referred to herein as BAPEPAM-LK.
The various reforms over the past few years have sought to strengthen the operational and supervisory
framework of the Indonesian securities market and to improve the Indonesian securities market’s trading
environment. The measures also established an over-the-counter market (the “Bursa Paralel”) and private stock
exchanges outside Jakarta, the first of which was the Surabaya Stock Exchange (the “SSX”), which was established
in Surabaya. The Bursa Paralel was later merged with the SSX in 2005.
The JSX and the SSX were effectively merged on November 30, 2007, with the JSX as the surviving entity. As
a result of the merger, the JSX is now operating under a new name, PT Bursa Efek Indonesia or IDX.
Other reforms were also introduced to provide increased protection for minority shareholders, improve
disclosure requirements and clarify listing procedures. As of June 30, 2010, there were 402 firms listed on the IDX
with a total market capitalization of Rp.2,401.0 trillion as compared to 24 listed companies with a capitalization of
approximately Rp.100 billion in December 1987, just prior to the introduction of the capital market reform
measures.

Overview of the IDX

As of June 30, 2010, the IDX was comprised of 120 members and the 20 most active members in total trading
volume handled transactions for 105,391 million shares and approximately 48.7% of total shares traded on the IDX
for the month ended June 30, 2010. The 20 most active members accounted for Rp.96,218 billion in terms of trading
value, or about 65.3% of the overall value of buying and selling transactions on the IDX for the six-month period
ended June 30, 2010.
Trading rules on the IDX are at present generated in the form of decisions issued by the IDX. There are currently
two daily trading sessions for the regular market, the negotiated market, and the cash market from Monday to
Thursday: a morning session from 9:30 am to 12:00 noon, followed by an afternoon session from 1:30 pm to 4:00 pm.
There are two trading sessions on Friday, from 9:30 am to 11:30 am and from 2:00 pm to 4:00 pm. There is only one
cash market trading session from Monday to Thursday, 9:30 am to 12:00 noon, and on Friday, 9:30 am to 11:30 am.
Trading is divided into three market segments: regular market, negotiated market and cash market (except for
rights issues, which may only be traded in the cash market and in the first session of the negotiated market). The
regular market is the mechanism for trading stock in standard lots on a continuous auction market during exchange
hours. Regular market trading is generally carried out in unit lots of 500 shares, except for bank shares which must
trade in unit lots of 5,000. Price movement units (“fraction”) of traded securities are as follows:
• for shares with a previous price of less than Rp.200, the fraction is fixed at Rp.1 and each step value should be
no more than Rp.10;
• for shares with a previous price between the range of Rp.200 up to less than Rp.500, the fraction is fixed at
Rp.5 and each step value should be no more than Rp.50;

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 • for shares with a previous price between the range of Rp.500 up to less than Rp.2,000, the fraction is fixed at
Rp.10 and each step value should be no more than Rp.100;
• for shares with a previous price between the range of Rp.2,000 up to less than Rp.5,000, the fraction is fixed
at Rp.25 and each step value should be no more than Rp.250; and
• for shares with a previous price of Rp.5,000 or more, the fraction is fixed at Rp.50 and each step value should
be no more than Rp.500.
Auctioning takes place according to price priority and time priority. Price priority gives priority to buying
orders at a higher price or selling orders at a lower price. If buying or selling orders are placed at the same price,
priority is given to the buying or selling order placed first in time (i.e. time priority).
Negotiated market trading is carried out by (i) direct negotiation between members of IDX, (ii) between clients
through one member of IDX, (iii) between a client and a member of IDX or (iv) between a member of IDX with the
Indonesian Stock Clearing and Guarantee, PT Kliring dan Penjaminan Efek Indonesia (“KPEI”). Negotiated market
trading does not use round lots.
Transactions on the IDX regular market are required to be settled no later than the third trading day after the
transactions, except for cross trading. The settlement for transactions on the IDX negotiated market is determined
based on agreements between the selling IDX member and the buying IDX member, and are settled in single
transactions. In the event the selling and buying IDX members have not determined the period for settlement, then
the settlement is required to be completed no later than the third trading day after the transaction. Transactions on
the IDX cash market are required to be settled on the trading day of the transactions. In case of a default by an
exchange member on settlement, cash market trading takes place, pursuant to which trading of securities by means’
of direct negotiation on cash and carry terms will be conducted. All cash market transactions must be reported to the
IDX. An exchange member defaulting in settlement may be sanctioned by the IDX by, among others, (i) a fine up to
Rp.500,000,000; (ii) a written warning; (iii) a written admonition; (iv) a temporary suspension of trading; and (v) a
revocation of trading license.
All transactions involving shares listed only on the IDX that use the services of brokers must be conducted on
the IDX. In order for a trade to be made on the IDX, both the cash and securities settlement must be conducted
through the facilities of the IDX. Short selling transactions may be conducted as long as they are in compliance with
BAPEPAM-LK Regulation No. V.D.6, an attachment to the decision of the Chairman of BAPEPAM-LK on
BAPEPAM-LK No. KEP-258/BL/2008. Furthermore, the IDX may cancel a transaction if proof exists of fraud,
market manipulation or the use of insider information. The IDX may also suspend trading if there are indications of
fraudulent transactions or artificial inflation of share prices, misleading information, use of insider information,
counterfeit securities or securities blocked from trading or any other material event. IDX may suspend trading of
certain securities or suspend certain members of the stock exchange.
Members of the IDX charge a brokerage fee for their services, based on an agreement with their clients of up to a
maximum of 1.0% of the transaction value. When conducting share transactions on the IDX, exchange members are
required to pay a transaction levy equal to 0.04% of the cumulative transaction value for each month (subject to a
minimum fee of Rp.250,000 a month) for transaction of shares and other registered securities. Exchange members
generally pass on the cost of this levy to their clients. Clients are also responsible for paying a 10.0% value-added tax
on the amount of the brokerage fee and transaction levy. Indonesian sellers are also required to pay a withholding tax
of 0.1% (0.6% for founder shares) of the total transaction value. A stamp duty of Rp.3,000 is also payable on any
transaction with a value between Rp.250,000 and Rp.1,000,000 and a stamp duty of Rp.6,000 is payable on every
transaction with a value of more than Rp.1,000,000. See the chapter titled “Taxation — Indonesian Taxation.”
Shareholders or their appointees may request, at any time during working hours, the issuer or a securities
administration bureau appointed by the issuer to register their shares in the issuer’s registry of shareholders.
Reporting of share ownership to BAPEPAM-LK is mandatory for shareholders and members of an issuer’s board of
directors or board of commissioners, whose ownership has reached 5.0% or more of an issuer’s issued and fully
paid-up capital, upon meeting such share ownership threshold or upon a change of the level of their ownership in an
issuer, and such reporting must occur at the latest within 10 days of such changes to ownership.

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 The following table sets forth key figures for the IDX for the years 2005 to 2009:
2005 2006 2007 2008 2009
Market capitalization (billion Rp.) . . . . . . . . . . . . . 801,253 1,249,074 1,988,326 1,076,491 2,019,.375
Total Trading Volume (million shares) . . . . . . . . . . 401,868 436,336 1,039,542 787,846 1,467,659
Average daily trading volume (million shares) . . . . . 1,654 1,806 4,226 3,283 6,090
Total Trading value (billion Rp.) . . . . . . . . . . . . . . 406,006 445,708 1,050,154 1,064,528 975,135
Average daily trading value (billion Rp.). . . . . . . . . 1,671 1,842 4,269 4,436 4,046
Number of listed companies. . . . . . . . . . . . . . . . . . 336 344 383 396 398

Source: IDX Statistics 2009

Offering, Listing and Reporting Regulations

BAPEPAM-LK regulates and monitors securities issues that are publicly offered or listed in Indonesia. Initial
securities offerings are generally conducted as underwritten public offers for sale by subscription. BAPEPAM-LK
regulates offering and allocation procedures.
Unless waived, companies are required to meet certain historical financial requirements in order to become
listed on the IDX. Requirements for the listing on the IDX were changed by certain rules issued in June 2000, and
most recently amended in July 2004.
Listed companies are required to submit to BAPEPAM-LK and the IDX the following documents:
• an annual report to be submitted not later than four months after the end of the financial year of the company;
• consolidated financial statements consisting of:
(i) an annual financial report audited by an accountant registered with BAPEPAM-LK, to be
submitted not later than three months after the date of such report;
(ii) any of the following mid-year reports: (a) a mid-year report (unaudited), to be submitted not later
than one month after the date of such report; (b) a mid-year report with limited review by an
accountant registered with BAPEPAM-LK, to be submitted not later than two months after the
date of such report; or (c) a mid-year report audited by an accountant registered with BAPEPAM-
LK containing a full opinion on the fairness of such report, to be submitted not later than three
months after the date of such report; and
(iii) quarterly reports, the preparation of which is required by the rules of the IDX, to be submitted to
the IDX: (a) a quarterly report (unaudited and unreviewed) to be submitted not later than one
month after the end of each quarter; (b) a quarterly report with limited review by an accountant
registered with BAPEPAM-LK, to be submitted not later than two months after the end of each
quarter; or (c) a quarterly report audited by an accountant registered with BAPEPAM-LK
containing a full opinion on the fairness of such report, to be submitted not later than three
months after the end of each quarter;
• information that is important and relevant according to BAPEPAM-LK regulations and which may affect the
value of the security or an investment decision, such as a merger, acquisition, consolidation, stock split, stock
dividend, change in management, replacement of public accountant, replacement of trustee, material legal
claims and other important information possibly affecting share prices on the exchange, no later than two
working days after the occurrence of such material information;
• a copy of any amendment to a company’s articles of association;
• notice of any change in the composition of a company’s board of directors or board of commissioners; and
• notice of any material deviation from projections published by such companies.
The annual financial statements submitted to BAPEPAM-LK for any subsidiary of a listed company must be
audited by a public accountant if the subsidiary in question fulfills any of the following requirements:
• such subsidiary is a public company;
• such subsidiary is engaged in a line of business related to the generation of public funds;
• such subsidiary issues an acknowledgement of indebtedness;
• such subsidiary has assets equal to or greater than Rp.25,000,000; or
• the terms of any such subsidiary’s existing debt require it to audit its annual financial statements.

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 Insider trading, fraud and market manipulation of securities are prohibited under Indonesian capital markets
laws. In such circumstances, a transaction may be cancelled, or suspended by the IDX or BAPEPAM-LK may
suspend or revoke the license of the capital market supporting institution and supporting professionals involved. A
party engaging in (i) misleading conduct, fraud or falsification in connection with the sale of securities; (ii) other
actions to mislead the public regarding trading activities, market conditions or price or (iii) insider trading, is liable
for the loss incurred and faces a fine of up to Rp.15.0 billion and imprisonment of up to 10 years.

IDX Delisting and Corporate Governance Rules

Effective from 2004, the IDX issued new listing rules for equity securities aimed at enhancing good corporate
governance and clarifying delisting criteria.
A company can be delisted voluntarily or involuntarily by the stock exchange. A company can be delisted if it,
among other things, fulfills one of the following conditions: (i) suffers certain conditions which adversely affect the
going concern of the company, financially or legally, or adversely affect the continuing status of the company as a
publicly listed company and the company has not shown any sufficient remedial actions; or (ii) the shares are
suspended from regular market and cash market trading and may only be traded in the negotiation market at least for
the last 24 months.
Under IDX Listing Regulation No. I-A, a listed company must have:
• independent commissioners comprising at least 30.0% of the total number of members of the board of
commissioners;
• an audit committee;
• a corporate secretary;
• at least one non-affiliated director; and
• a nominal value of shares of at least Rp.100.
Based on a decision of the Chairman of BAPEPAM-LK No. Kep-29/PM/2004 on Regulation No. IX.I.5
concerning the Formation and Implementation Guidance for Audit Committee, issued in September 24, 2004
(“BAPEPAM-LK Regulation No. IX.I.5”) and IDX Listing Regulation No. I-A, an independent commissioner in a
listed company must:
• come from outside of the listed company;
• not own any shares of the listed company, directly or indirectly;
• not have an affiliated relationship with the listed company, or with any commissioner, director or controlling
shareholder or principal shareholders of the listed company concerned;
• have no business relationship which is directly or indirectly related to the listed company’s business activity;
• not hold a dual position as a director of another company which is an affiliate of the listed company; and
• have adequate knowledge of all relevant capital markets regulations.
A listed company’s audit committee must be comprised of at least three members, one of whom must be an
independent commissioner who will serve as chairman of the audit committee. The other members must also be
independent persons, at least one of whom must be an expert in the field of accounting and/or finance.
Pursuant to BAPEPAM-LK Regulation No. IX.I.5 and a Circular letter by the IDX issued in 2001, the
following persons are prohibited from becoming members of the audit committee of a listed company:
• any inside person of any public accountant, legal consultant or other party who gives audit, non-audit and, or
other consultation services to the company that personally audits the financial statements of the listed
company in the last six months before his appointment as a member of the audit committee;
• any person that has the authority and responsibility to plan, direct or control the activity of the listed
company in the last six months before his appointment as a member of the audit committee;
• any person that owns shares, either directly or indirectly, in the listed company;
• any person that has a family relationship, either by marriage or blood, up to the second degree vertically or
horizontally, with commissioners, directors or a principal shareholder of the listed company; and

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 • any person that has a business relationship which is directly or indirectly related to the listed company’s
business activity.
In addition, each member of the audit committee must:
• have high integrity, ability, knowledge and adequate experience (including any relevant educational
qualifications) and be able to communicate properly;
• be capable of reading and understanding financial reports, with at least one of the members of the audit
committee having an educational qualification in accountancy or finance; and
• have adequate knowledge of capital market regulations and other relevant statutory regulations.
Pursuant to IDX Listing Regulation No. I-A, a non-affiliated director in a listed company:
• may not have an affiliated relationship with the company’s controlling shareholders for at least six months
before his appointment as a non-affiliated director in a listed company;
• may not have an affiliated relationship with commissioners or other directors of the listed company;
• may not act as a director of another company; and
• may not be an insider at a capital market supporting professional or institution of which his/its service was
used by the listed company for six months before his appointment as a director of the listed company.
The function of the corporate secretary is performed by one of the directors of the listed company, by an official
of the listed company designated to carry out such function. The corporate secretary acts as a liaison or contact
person between the listed company, Government authorities, including BAPEPAM-LK, and the public. The
corporate secretary must have access to material and relevant information relating to the listed company and must
be familiar with all statutory regulations relating to capital markets, particularly on disclosure matters.

Scripless Trading
In 1997, a private limited company, the Indonesian Central Securities Depository (PT Kustodian Sentral Efek
Indonesia, or KSEI), was established to serve as an Indonesian central securities clearing house. On November 11,
1998, KSEI obtained a license from BAPEPAM-LK to act as an approved central securities depositary and
settlement institution. The shareholders of KSEI and currently composed of 31 securities firms, nine custodian
banks, four Share Registrars (Biro Administrasi Efek), the IDX and the Indonesian Stock Clearing and Guarantee
Company, PT Kliring dan Penjamin Efek Indonesia (KPE). In 2000, KSEI introduced the Central Depositary and
Book Entry Settlement System (“C-Best”), a computerized system for the registration and settlement of securities.
In 2000, BAPEPAM-LK implemented regulations to provide for the scripless trading system. Under the scripless
system, a member broker, sub-broker or local custodian (“KSEI Participant”) may deposit with KSEI certificates
evidencing ownership of securities upon making KSEI the registered holder of those securities. Any institution becoming a
KSEI participant is required to open at least one account with KSEI for deposit, withdrawal or transfer of securities. After
KSEI has accepted a deposit of any securities, it will hold such securities on behalf of its participants’ clients and, as such,
investors obtain a beneficial (rather than direct) interest in the shares, which is convertible into a physical share certificate
at the direction of the investor. Thus, to establish ownership rights, each holder of an account for deposit, withdrawal
and/or transfer of securities (“KSEI Account Holder”) is obliged to maintain a list of the owners of securities deposited
with it. Sales and purchases of securities are settled on the relevant securities deposit account via a computer system. At the
end of each trading day, KSEI delivers a statement showing the balance of securities held for each participant.
A company that intends to register their securities with KSEI enters into a standard registration agreement with
KSEI. Subsequently, KSEI Account Holders or KSEI Participants must issue confirmations for the benefit of KSEI
for the entire value of the securities deposited with KSEI.
Securities registered with KSEI are recorded and administered electronically in securities accounts opened
with KSEI (“KSEI Securities Accounts,”) and KSEI Account Holders administer deposits, withdrawals and
transfers of securities through their KSEI Securities Accounts. Parties that are eligible to become KSEI Account
Holders are (i) securities companies, (ii) custodian banks and (iii) other parties determined by the prevailing capital
market laws and regulations. In addition, any institution becoming a KSEI Participant is required to open at least
one securities account with KSEI. Each KSEI Account Holder who maintains subscribers’ securities and funds must
also open sub-accounts for the deposit of securities and funds on behalf of their customers.
In accordance with KSEI rules on Central Depository Services, C-Best is the central computerized system for
depository services and the settlement of securities transactions by book entry settlement. C-Best is provided by

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KSEI to KSEI Account Holders. Sales, purchases and conveyances of securities are settled through the C-Best
system by setting off the relevant securities in the appropriate KSEI Securities Accounts. At the end of each trading
day, KSEI delivers, through the C-Best system, a statement to each KSEI Account Holder showing the balance of
securities held by that KSEI Account Holder.
Pursuant to a circular letter issued by BAPEPAM-LK dated November 23, 2001, issuers of shares were
required to register their shares with the central depositary prior to June 30, 2002. Further, on January 15, 2003,
BAPEPAM-LK issued a new regulation, effective as at May 1, 2003, which requires each KSEI Participant holding
securities on behalf of client to:
• establish a securities sub-account on behalf of each client and record each client’s securities account in such
sub-account;
• ensure that the balance in the client’s security account in KSEI participant’s records is always equivalent to
the balance in the client’s sub-account with KSEI;
• take measures to ensure that the identity of each client is properly recorded by KSEI Participant; and
• take measures to ensure that the securities sub-account balance of each client is and remains correct.

KSEI
KSEI is a self-regulating organization and is licensed and regulated by BAPEPAM-LK. Under KSEI’s rules,
securities companies or custodian banks fulfilling certain criteria and authorized by BAPEPAM-LK may become
KSEI Participants. As discussed above, the principal shareholders of KSEI are large custodian banks, broker
dealers, share registrars, the stock exchanges and KPEI. In the scripless system, the role of KSEI is to settle the
transaction and act as central securities depositary, while fund settlement is conducted by KPEI.
KSEI is managed by a board of directors as supervised by a board of commissioners who are subject to the
provisions of the Company Law. KSEI is also a member of several international associations that are related to
securities depositories, including the Association of National Numbering Agency, the International Society of
Securities Administrators, the Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) and Asia
Pacific Central Securities Depositories Group (ACG).
BAPEPAM-LK sets strict standards for the internal controls of KSEI. These standards call for daily
reconciliation of account balances between KSEI and the issuers whose securities are held in the name of
KSEI. This daily reconciliation is required to be verified continuously by the head of the audit unit of KSEI who
must report this verification to the board of directors of KSEI. Each KSEI Participant has the right to send auditors
to KSEI to verify the reconciliation of its accounts with those of KSEI including the right of KSEI Participant to
send auditors to verify the registry of the securities on the books of the issuer.
The internal control systems of KSEI are required to be audited annually by an independent auditor with
international experience and an international reputation, including a review of the protections against fraud,
embezzlement, natural disruptions and electronic damage. This report is to be sent to all KSEI shareholders along
with KSEI’s Annual Report.
The regulations call for a number of fundamental security measures to ensure the integrity of KSEI:
• access to the data processing functions, record-keeping functions and customer account services areas of
KSEI is required to be restricted;
• KSEI must have a primary computer and back-up computer at a different location that allows continued
processing within two hours of a breakdown of the primary computer;
• duplicate electronic records are required to be maintained in repositories that are at least 30 kilometers apart
from each other;
• software development and maintenance are required to be segregated from data processing operations; and
• a special security division of KSEI’s own funds is required to be segregated from data processing operations,
all debits and credits to securities accounts must be based on instructions of account holders and controlled
by a division that is separate from the data processing division.
In addition to the oversight of internal controls and specific regulations regarding recovery and security, the
legal basis for securities accounts permits recovery of an investor’s assets even in the event of destruction of all
records of KSEI. This is done based on investor’s confirmations and statements and records of the issuer, all of
which are maintained independently from records of KSEI. With daily reconciliation of key records, strong internal

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control supervision by major banks, special security measures, and legal safeguards, recovery is possible even if
there is a catastrophic occurrence.

Transfers of Shares
Transfers of listed shares on the IDX are governed by the Company Law and IDX Rules. Under the Company
Law, as a general matter, ownership of shares is based on the registration of ownership in the relevant company’s
share register. To be valid against the issuing company, a request for an entry of the transfer into a share registry must
be received by the company. To be valid against a third party, the entry of the transfer must actually be made into the
share register.
Transfers of scripless shares are made by way of appropriate instructions to the relevant brokers, sub-brokers or
custodians with whom the transferor and the transferee involved maintain securities accounts in accordance with the
individual arrangements with such brokers, sub-brokers or custodians. Upon receipt of such instructions, the
relevant brokers, sub-brokers or custodians will, in accordance with such arrangements, effect the relevant changes
in the register they are required to maintain for rights and entitlements purposes.
As at June 30, 2002, only shares held through KSEI (and which have not been pledged, foreclosed upon based
on a court order or seized for the purpose of criminal proceedings) may be traded on the IDX.
Securities transaction settlement services are part of the central depository services. Such services consist of
the fulfillment of the rights and obligations resulting from stock exchange transactions or over-the counter
transactions by means of the transfer of securities and or funds between securities accounts. The settlement of stock
exchange transactions is performed by KSEI based on transfer instructions received from a selling Clearing
Member (defined as a member of the stock exchange registered as KSEI Clearing Member). Alternatively, KSEI
may settle over-the-counter transactions based on a transfer instruction from a selling KSEI Account Holder and
acceptance from a buying KSEI Account Holder and the availability of sufficient securities in the sub-account,
which must include the requirement of payment or without payment. Upon the complete transfer of securities
and/or funds, KSEI submits a report to KPEI or to the Clearing Member on the settlement of stock exchange
transaction and confirmation is given to the relevant KSEI Account Holder on the settlement of over-the-counter
transactions.

Reporting Requirements
According to the decision of the Chairman of BAPEPAM-LK No. Kep-82/PM/1996, dated January 17, 1996
on Regulation No. X.M.1 concerning the Disclosure Requirements for Certain Shareholders, the director or
commissioner of a listed company or a public company must report to BAPEPAM-LK with regard to their
ownership and the changes of ownership of the shares in the listed company or public company within 10 days of the
transaction. Such reporting obligation also applies to a shareholder that owns 5% or more of the paid up capital in
the listed company or public company.

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 TAXATION
The following summary is based on tax laws of Indonesia and the United States as in effect on the date of this
offering circular, and is subject to changes in United States or Indonesian law, including changes that could have
retroactive effect. The following summary does not take into account or discuss the tax laws of any countries other
than the United States and Indonesia. Prospective purchasers in all jurisdictions are advised to consult their own
tax advisors as to United States, Indonesian or other tax consequence of the purchase, ownership and disposition of
the Offer Shares.

Indonesian Taxation
The following is a summary of the principal Indonesian income tax consequences of the ownership and
disposition of our shares for a non-resident individual or non-resident entity (a “Non-Indonesian Holder”) that holds
shares in an Indonesian resident company. As used in the preceding sentence, a “non-resident individual” is a
foreign national who does not reside in Indonesia or is not physically present in Indonesia for more than 183 days
during any twelve-month period, during which period such non-resident individual receives income in respect of the
ownership or disposition of shares, and a “non-resident entity” is a corporation or non-corporate body that is
established under the laws of a jurisdiction other than Indonesia, is not domiciled in Indonesia and does not have a
fixed place of business or permanent establishment in Indonesia during an Indonesian tax year in which such non-
resident entity receives income in respect of the ownership or disposition of shares.

Taxation of Dividends
Dividends declared by our company out of retained earnings and distributed to a Non-Indonesian Holder in
respect of shares are subject to Indonesian withholding tax, currently at the rate of 20.0%, on the amount of the
distribution (in the case of cash dividends) or on the relevant Non-Indonesian Holder’s proportional share of the
value of the distribution (in the case of stock dividends). Pursuant to Director General of Tax
Regulation No. PER-61/PJ/2009 and PER-62/PJ/2009, as amended by PER-24/PJ/2010 and PER-25/PJ/2010, a
lower withholding rate provided for under certain double taxation treaties may be applicable provided that, among
others, the recipient is the beneficial owner of the dividend and is a resident of a treaty country. The Non-Indonesian
Holder has to provide our company with an original Certificate of Domicile (the “Certificate”), which is a specific
form designed by the Indonesian tax authority completed by the Non-Indonesian Holder and certified by the
competent tax authorities or their authorized representatives, of the jurisdiction where the Non-Indonesian Holder is
domiciled. The Certificate is only valid for twelve months from the date of certification and must be renewed
subsequently. A copy of the Certificate must be submitted to the appropriate Indonesian tax office that has
jurisdiction over our company.

Tax Treaties
Indonesia has concluded double taxation treaties with a number of countries including Australia, Belgium,
Canada, France, Germany, Japan, Luxembourg, The Netherlands, Singapore, Sweden, Switzerland, the
United Kingdom and the United States of America. Under the U.S.-Indonesia tax-treaty, the withholding tax
on dividends is generally reduced to 10.0% for holdings of at least 25.0% of voting stock and 15.0% for all other
cases.

Taxation on the Disposition of Shares

Pursuant to Government Regulation No. 41 of 1994 regarding the withholding of income tax on income arising
from share trading transactions on the stock exchange dated December 23, 1994 and its amendments in Government
Regulation No. 14 of 1997 dated May 29, 1997, the sale or transfer of shares that are listed on the IDX is subject to
final income tax of 0.1% of the gross amount of the transaction value and should be withheld by the broker handling
the transaction.
Exemption from the 0.1% income tax may be available to a Non-Indonesian Holder under a double taxation
treaty, subject to compliance with the requirements under PER-61/PJ/2009 and PER-62/PJ/2009, as amended by
PER-24/PJ/2010 and PER-25/PJ/2010. In practice, however, the 0.1% final income tax is applied irrespective of the
existence of any tax treaty protection. Pursuant to PER-40/PJ/2010, the Indonesian tax authorities allow a Non-
Indonesian Holder to request a refund on the 0.1% final income tax, in the case of a double taxation treaty
exemption.

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 Taxation of Rights Issue
Our company’s grant of statutory subscription rights for its shares in compliance with Indonesian Law (a
“Rights Issue”) should not be subject to Indonesian tax in the hands of a Non-Indonesian Holder. Should a Non-
Indonesian Holder sell such rights, the proceeds from any such sale will be considered as income for income tax
purposes. However, any income from the sale of rights by a Non-Indonesian Holder is arguably not subject to
Indonesian income tax, since the existing implementing regulations do not currently extend to rights of this nature.

Stamp Duty
According to Government Regulation No. 24 of 2000, a document that effects a sale of Indonesian shares is
subject to stamp duty. Currently, the nominal amount of the Indonesian stamp duty is Rp.6,000 for transactions
having a value greater than Rp.l,000,000 and Rp.3,000 for transactions having a value of up to Rp.l,000,000.
Generally, the stamp duty is due at the time the document is executed.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

ANY DISCUSSION OF UNITED STATES FEDERAL TAX ISSUES SET FORTH IN THIS
OFFERING CIRCULAR WAS WRITTEN IN CONNECTION WITH THE PROMOTION AND
MARKETING BY THE COMPANY AND THE UNDERWRITERS OF THE OFFER SHARES. SUCH
DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE LEGAL OR TAX ADVICE TO ANY
PERSON AND WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED,
BY ANY PERSON FOR THE PURPOSE OF AVOIDING ANY UNITED STATES FEDERAL TAX
PENALTIES THAT MAY BE IMPOSED ON SUCH PERSON. EACH INVESTOR SHOULD SEEK
ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX
ADVISOR.
The following summary describes certain United States federal income tax consequences of the purchase,
ownership and disposition of Offer Shares as of the date hereof. The discussion set forth below is applicable to
U.S. Holders (as defined below). Except where noted, this summary applies only to persons who purchase Offer
Shares in the International Offering and who hold such Offer Shares as capital assets.
As used herein, the term “U.S. Holder” means a holder of an Offer Share that is for United States federal
income tax purposes: (1) an individual citizen or resident of the United States; (2) a corporation (or other entity
treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of
the United States, any state thereof or the District of Columbia; (3) an estate the income of which is subject to United
States federal income taxation regardless of its source; or (4) a trust if it (i) is subject to the primary supervision of a
court within the United States and one or more United States persons have the authority to control all substantial
decisions of the trust or (ii) has a valid election in effect under applicable United States Treasury regulations to be
treated as a United States person.
This summary does not represent a detailed description of the United States federal income tax consequences
applicable to you if you are subject to special treatment under the United States federal income tax laws, including if
you are:
• a dealer in securities or currencies;
• a financial institution;
• a regulated investment company;
• a real estate investment trust;
• an insurance company;
• a tax-exempt organization;
• a person holding Offer Shares as part of a hedging, integrated or conversion transaction, a constructive sale
or a straddle;
• a trader in securities that has elected the mark-to-market method of accounting for your securities;
• a person liable for alternative minimum tax;
• a person who owns directly, indirectly or constructively 10% or more of our company’s voting stock;
• a U.S. expatriate;

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 • a partnership or other pass-through entity for United States federal income tax purposes; or
• a person whose “functional currency” is not the United States dollar.
The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the
Code, and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be
replaced, revoked or modified, possibly with retroactive effect; so as to result in United States federal income tax
consequences different from those discussed below.
If a partnership holds Offer Shares, the tax treatment of a partner will generally depend upon the status of the
partner and the activities of the partnership. If you are a partner of a partnership holding Offer Shares, you should
consult your tax advisors.
This summary does not contain a detailed description of all the United States federal income tax consequences
to you in light of your particular circumstances and does not address the effects of any state, local or non-United
States tax laws. This summary does not address any United States federal tax consequences (such as the estate tax,
gift tax or the medicare tax on net investment income) other than United States federal income tax consequences. If
you are considering the purchase, ownership or disposition of Offer Shares, you should consult your own tax
advisors concerning the United States federal income tax consequences to you in light of your particular
situation as well as any consequences arising under the laws of any other taxing jurisdiction.

Taxation of Dividends
Subject to the discussion under “— Passive Foreign Investment Company” below, the gross amount of
distributions on our Offer Shares (including the amount of foreign tax withheld, if any), other than certain pro rata
distributions of Offer Shares, will be taxable as dividends to the extent paid out of our company’s current or
accumulated earnings and profits, as determined under United States federal income tax principles. Because we do
not maintain calculations of earnings and profits under U.S. federal income tax principles, it is expected that
distributions generally will be reported to you as dividends. Such income will be includable in your gross income as
ordinary income on the day actually or constructively received by you.
Dividends will not be eligible for the dividends received deduction allowed to corporations under the Code. For
taxable years beginning before January 1, 2011, “qualified dividend income” received by an individual is subject to
federal income taxation at rates lower than those applicable to ordinary income. Dividends paid on the Offer Shares
will be treated as qualified dividends if (i) we are eligible for the benefits of a comprehensive income tax treaty with
the United States that the Internal Revenue Service has approved for the purposes of the qualified dividend rules and
(ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the
dividend is paid, a passive foreign investment company (a “PFIC”) and certain other requirements are met. The
income tax treaty between Indonesia and the United States (the “Treaty”) has been approved for the purposes of the
qualified dividend rules. As discussed under “— Passive Foreign Investment Company” below, we believe that we
are currently not a PFIC and we do not expect to become a PFIC in the foreseeable future. You should consult your
tax advisors regarding the availability of the lower rate for dividends paid with respect to the Offer Shares.
Subject to generally applicable limitations, you may claim a deduction or a foreign tax credit for foreign tax
withheld from distributions on the Offer Shares at the appropriate rate. Dividends paid on the Offer Shares generally
will be categorized as “passive category income” or, in the case of some U.S. Holders, as “general category income”
for foreign tax credit limitation purposes. You are urged to consult your own tax advisors regarding the availability
of the foreign tax credit under your particular circumstances.
Dividends paid in a currency other than U.S. dollars will be includable in a U.S. Holder’s income as a
U.S. dollar amount based on the exchange rate in effect on the date such dividend is received whether or not the
currency is converted into U.S. dollars at that time. If the dividend is converted to U.S. dollars on the date of receipt,
a U.S. Holder generally will not recognize a foreign currency gain or loss. However, if the U.S. Holder converts the
currency into U.S. dollars on a later date, the U.S. Holder must include in income any gain or loss resulting from any
exchange rate fluctuations during the period from the date a U.S. Holder included the dividend in income to the date
such holder converts the currency into U.S. dollars (or otherwise disposes of the currency). Generally, any gain or
loss resulting from currency exchange rate fluctuations will be ordinary income or loss and will be treated as from
sources within the United States for foreign tax credit limitation purposes. You should consult your own tax advisors
regarding the tax consequences to them if we pay dividends in Rupiah or any other non-U.S. currency.

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 Taxation of Sale, Exchange or other Disposition of Offer Shares
Subject to the discussion below under “— Passive Foreign Investment Company,” a U.S. Holder generally will
recognize capital gain or loss upon the sale, exchange or other disposition of Offer Shares in an amount equal to the
difference, if any, between the amount realized on the sale, exchange or other disposition and the U.S. Holder’s
adjusted tax basis in such Offer Shares, each determined in U.S. dollars. If foreign income taxes are withheld upon
the sale, exchange or other disposition of the Offer Shares, the amount realized by a U.S. Holder will include the
gross amount of the proceeds of that sale, exchange or other disposition before deduction of the income tax. A
U.S. Holder’s adjusted tax basis in an Offer Share will generally be its U.S. dollar cost. The U.S. dollar cost of an
Offer Share purchased with foreign currency will generally be the U.S. dollar value of the purchase price paid in the
International Offering. The capital gain or loss will be long-term capital gain or loss if a U.S. Holder has held the
Offer Shares for more than one year. The deductibility of capital losses is subject to limitations. You are urged to
consult your own tax advisors regarding the availability of a foreign tax credit or deduction for taxes withheld on the
sale, exchange, or other disposition of Offer Shares under your particular circumstances.
A U.S. Holder that receives currency other than U.S. dollars upon the sale or other disposition of our Offer
Shares will realize an amount equal to the U.S. dollar value of the foreign currency at the spot rate on the date of sale
or other disposition (or, if the Offer Shares are traded on an established securities market and the holder is a cash
basis and electing accrual basis taxpayer, at the spot rate on the settlement date). A U.S. Holder will have a tax basis
in the foreign currency received equal to the U.S. dollar amount realized. Generally, any gain or loss realized by a
U.S. Holder on a subsequent conversion or disposition of such foreign currency will be United States source
ordinary income or loss.

Passive Foreign Investment Company

Based on the projected composition of our income and valuation of our assets we believe that we are currently
not a PFIC and we do not expect to become a PFIC in the foreseeable future, although there can be no assurance in
this regard. In general, we will be a PFIC for any taxable year in which: (i) at least 75% of our gross income is
passive income, or (ii) at least 50% of the value (determined based on a quarterly average) of our assets is
attributable to assets that produce or are held for the production of passive income.
For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties
and rents derived in the active conduct of a trade or business and not derived from a related person). If we own at
least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning
our proportionate share of the other corporation’s assets and receiving our proportionate share of the other
corporation’s income.
In determining that we are not a PFIC, we are relying on our projected acquisition and capital expenditure
plans for the current year and for future years. In addition, this determination is based on our current valuation of our
assets. We must make a separate determination each year of whether we are a PFIC and, as a result, our PFIC status
may change. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to
changes in our asset or income composition. If we are a PFIC for any taxable year during which you hold Offer
Shares, you will be subject to special tax rules discussed below. In addition, dividends on Offer Shares would not be
eligible for the preferential tax rate applicable to qualified dividend income received by individuals and certain
other non-corporate persons.
You will be required to file United States Internal Revenue Service (“IRS”) Form 8621 regarding distributions
received on Offer Shares and any gain realized in the disposition of Offer Shares if you hold Offer Shares in any year
in which we are classified as a PFIC. In addition, under recently enacted legislation, if you hold Offer Shares in any
year in which we are a PFIC, you are generally required to file an annual report containing such information as the
United States Treasury may require.
If we are or become a PFIC, a U.S. Holder that realized gain upon a sale or disposition of Offer Shares would be
treated as realizing gain from such sale or disposition and certain “excess distributions” received ratably over such
holder’s holding period for Offer Shares and would be taxed at the highest tax rate in effect for each such year to
which the gain or excess distribution was allocated, together with an interest charge on the tax attributable to each
prior year. An election may be available to avoid these adverse tax consequences but only if (i) the U.S. Holder may
and does elect to annually mark-to-market the Offer Shares, or (ii) assuming certain conditions which are unlikely to
apply to us, the U.S. Holder elects to include in income annually its share of our income and gain.
If we are a PFIC for any taxable year during which you hold Offer Shares and any of our non-United States
subsidiaries is also a PFIC, you will be treated as owning a proportionate amount (by value) of the shares of the

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lower-tier PFIC for purposes of the application of these rules. You are urged to consult your tax advisors about the
application of the PFIC rules to any of our subsidiaries.
Should we ever be classified as a PFIC, U.S. Holders are advised to consult their tax advisors concerning the
United States federal income tax consequences of holding the Offer Shares and of making the mark-to-market
election.

Information reporting and backup withholding

Dividends on and proceeds from the sale or other disposition of our Offer Shares that are made within the
United States or through certain United States-related financial intermediaries may be reported to the IRS unless the
U.S. Holder is a corporation or otherwise establishes a basis for exemption. Backup withholding tax may apply to
amounts subject to reporting if the U.S. Holder fails to provide an accurate taxpayer identification number or
otherwise establish a basis for exemption or fails to report all interest and dividends required to be shown on its
United States federal income tax returns. Backup withholding is not an additional tax.
Any amounts withheld under the backup withholding tax rules will be allowed as a credit against a
U.S. Holder’s United States federal income tax liability, if any, or will be refunded, if such U.S. Holder
furnishes required information to the IRS. Prospective investors should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for establishing an exemption.
Recently enacted legislation may require certain U.S. individual investors to report information with respect to
their investment in Offer Shares not held through an account with U.S. financial institution to the IRS. Investors who
fail to report required information could become subject to substantial penalties. Potential investors are encouraged
to consult with their own tax advisors regarding the possible implications of this legislation on their investment in
our Offer Shares.
THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS
THAT MAY BE IMPORTANT TO A PARTICULAR INVESTOR. EACH PROSPECTIVE INVESTOR SHOULD
CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES OF AN INVESTMENT IN OUR
OFFER SHARES UNDER THE INVESTOR’S OWN CIRCUMSTANCES.

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 PLAN OF DISTRIBUTION

The Global Offering

We are offering 3,155,000,000 of our newly-issued Series B ordinary shares in the Global Offering. The Global
Offering consists of the concurrent International Offering and Indonesian Offering. The closing of the International
Offering is conditional upon the closing of the Indonesian Offering.
Credit Suisse (Singapore) Limited and Deutsche Bank AG, Hong Kong Branch are the Joint Lead International
Selling Agents in the International Offering.
PT Bahana Securities, PT Danareksa Sekuritas and PT Mandiri Sekuritas are the Joint Lead Underwriters, and
the Underwriters named in the Underwriting Agreement (as defined below), are the underwriters participating in the
Indonesian Offering.
As compensation to the Joint Lead International Selling Agents and the Underwriters for their commitments to
purchase the Offer Shares, we will pay or cause to be paid to the Joint Lead International Selling Agents and the
Joint Lead Underwriters (on behalf of the Underwriters) an amount equal to 1.5% of the gross proceeds from the
sale of the Offer Shares (except that such compensation shall be 1.25% of the gross proceeds for Offer Shares sold
pursuant to the Share Allocation Program). Purchasers of the shares in the International Offering may be required to
pay stamp taxes and other similar charges in accordance with the laws and practices of the country of purchase, in
addition to the Offer Price. Retail purchasers in the Indonesian Offering will not be required to pay brokerage. We
have agreed to reimburse the Underwriters and the Joint Lead International Selling Agents for certain expenses and
taxes in connection with the Global Offering.

The International Offering

In connection with the International Offering, the Underwriters and the Joint Lead International Selling Agents
have entered into a Selling Agency and Manager’s Agreement pursuant to which the Joint Lead International
Selling Agents have agreed to procure international purchasers to purchase the Offer Shares at the Offer Price.
Subject to the terms and conditions of the Selling Agency and Managers’ Agreement, the Joint Lead International
Selling Agents have agreed to purchase from the Underwriters the following number of shares:
Number of % of Global
Purchaser shares Offering
Credit Suisse (Singapore) Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . 688,633,000 21.7%
Deutsche Bank AG, Hong Kong Branch . . . . . . . . . . . . . . . . . . . . . . 370,802,500 11.7%
Pursuant to an International Coordination Agreement to be dated the pricing date, we have agreed to indemnify
the Joint Lead International Selling Agents against certain liabilities in connection with the offer and sale of the
Offer Shares, and to contribute to payments which the Joint Lead International Selling Agents may make in respect
thereof. In addition, we have agreed to reimburse the Joint Lead International Selling Agents for certain expenses
and taxes in connection with the Global Offering.

The Indonesian Offering

In connection with the Indonesian Offering, we have entered into an Underwriting Agreement dated
September 4, 2010 (as may be amended or supplemented, the “Underwriting Agreement”) with the
Underwriters. The Underwriters have agreed, upon the terms and conditions specified in the Underwriting
Agreement, to offer the Offer Shares on our behalf at the Offer Price. If any of the Offer Shares are not
subscribed and paid for pursuant to the Indonesian Offering, the Underwriters have agreed to subscribe and pay for
such shares at the Offer Price.
In addition, under our Share Allocation Program, which covers up to 5.0% of the Offer Shares being offered to
the public in the Global Offering, we are paying:
• 100.0% of the price of Offer Shares purchased by us on behalf of our employees as a bonus. These shares will
be subject to a lock-up period of 12 months from the date of the listing of our shares on the IDX; and
• 20.0% of the price of Offer Shares purchased by employees under our discounted share purchase plan. These
shares will be subject to a lock-up period of six months from the date of the listing of our shares on the IDX.
For more information, see “Management — Employee Share Allocation Program.”

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Important Dates
The following events have taken place or are expected to take place on the following dates in connection with
the Global Offering:
Event Date
Effective date of BAPEPAM-LK registration statement . . . . . . . . . . . ....... October 29, 2010
Offering Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 2-4, 2010
Allotment of shares to successful applicants . . . . . . . . . . . . . . . . . . . ....... November 8, 2010
Payment due by purchasers in the International Offering. . . . . . . . . . ....... November 9, 2010
Settlement Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... November 9, 2010
Listing of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 10, 2010
These dates are subject to change.

Registration with BAPEPAM-LK

We submitted a Registration Statement to BAPEPAM-LK on September 6, 2010 in accordance with BAPEPAM-
LK Rule No. IX.A.1 as attached to the Decision of the Chairman of BAPEPAM-LK No. KEP-111/PM/1996 dated
December 24, 1996. The Chairman of BAPEPAM-LK issued a letter, dated October 29, 2010, declaring the registration
statement effective, and stating that we may proceed with the Global Offering and the listing of our shares.

Offering Period
The Offering Period is expected to begin on November 2, 2010 and end on November 4, 2010. The Joint Lead
Underwriters and the Joint Lead International Selling Agents may offer their customers preferential allocations
through a fixed allotment of Offer Shares (as described under “Allotment of Shares” below).
It is expected that the Joint Lead Underwriters and the Joint Lead International Selling Agents will make payment
of the net proceeds to us on November 9, 2010 and that listing of the Offer Shares on the IDX will occur on
November 10, 2010.

Application for Shares

In accordance with Indonesian regulations, each non-Indonesian citizen and non-Indonesian resident must
properly complete and submit a share application form in order to be eligible to purchase shares in the International
Offering. Share applications and allocations in connection with the International Offering and the Indonesian
Offering are regulated by BAPEPAM-LK regulations. The Joint Lead International Selling Agents will prepare and
submit share application forms on behalf of purchasers in the International Offering.
Share applications must be for a minimum amount of 500 shares and multiples thereof. Each investor may only
submit one share application form. The Joint Lead Underwriters are entitled to accept or refuse a share application
in full or in part, except that they will not be entitled to refuse share applications by or from the Joint Lead
International Selling Agents. Multiple share applications submitted using more than one share application form
may either be treated as a single application for allotment purposes or treated, in full or in part, as invalid
applications at the sole discretion of the Joint Lead Underwriters.
Full payment by non-Indonesian citizens and non-Indonesian residents for the number of shares will be made
in immediately available funds on November 9, 2010. Information as to wire transfer instructions will be made
available by the Joint Lead Underwriters or the Joint Lead International Selling Agents to eligible purchasers upon
request. All bank and transfer charges with respect to these payments will be borne by the purchasers.

Allotment of Shares
Fixed Allotment and Pooling
At the conclusion of the Offering Period, the allotment of the Offer Shares will be made by PT Danareska
Sekuritas, on behalf of the Joint Lead Underwriters, using a combined system of “fixed allotment” and “pooling” in
accordance with BAPEPAM-LK Rule No. IX.A.7 as attached to the Decision of the Chairman of BAPEPAM-LK
No. Kep-45/ PM/2000 dated October 27, 2000. Under this rule, underwriters may determine how to apportion the
allotment of the Offer Shares between the “fixed allotment” and “pooling” systems. The last date by which the Joint
Lead Underwriters will determine the number of shares allotted for each applicant is expected to be November 8,
2010.

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 The Joint Lead Underwriters have determined that the equivalent of 98.0% of the Offer Shares will be subject
to a fixed allotment system. The allotment of the equivalent of 2.0% of the Offer Shares will be by a system of
pooling.

Allocation to Foreign Institutions

There is generally no limit on the purchase of shares by foreign institutions. Allocation to foreign institutions
will be on the same basis as to domestic institutions.

Allocation to Affiliated Parties

“Affiliated Applicants” include commissioners, directors or employees seeking to purchase shares, or other
parties holding at least 20.0% of the share capital in any of the Joint Lead Underwriters or the Joint Lead
International Selling Agents or any other party affiliated with persons involved in the Global Offering. Affiliated
Applicants will only be allotted Offer Shares if there are excess shares. Once the applications of non-Affiliated
Applicants are satisfied, Affiliated Applicants may be allocated the remaining shares on a pro-rata basis.

Delivery of Shares
We expect that delivery of the Offer Shares will be made against payment therefor on or about November 9,
2010, which will be on the same business day as the expected date of final allotment of the shares in the Global
Offering. The shares may not be traded by the purchasers thereof prior to the listing of the shares on the IDX.

Cancellation or Suspension of the Offerings

Under the Underwriting Agreement and pursuant to BAPEPAM-LK Rule No. IX.A.2, prior to the close of and
during the Offering Period, we retain the right to cancel or suspend the Global Offering under certain circumstances
as described in the Underwriting Agreement and BAPEPAM-LK Rule No. IX.A.2. The closing of the International
Offering is conditional upon the closing of the Indonesian Offering. In addition, the Joint Lead International Selling
Agents are entitled to terminate the International Coordination Agreement and Selling Agency and Managers’
Agreement in certain circumstances.

Restrictions on the Disposition of Our Shares

We have agreed that, for a period of 12 months following the Listing Date, we will not, and will procure that
none of our subsidiaries will, directly or indirectly, offer, sell or contract to sell, pledge or otherwise dispose of, or
enter into any transaction (including swap transactions), which is designed to, or might reasonably be expected to,
result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or
otherwise) by us or any of our subsidiaries of any of our shares or any securities convertible into or exchangeable or
exercisable for (including swap transactions) or warrants or other rights to purchase our shares, or publicly disclose
the intention to effect any such transaction, without the prior written consent of the Joint Lead International Selling
Agents and the Joint Lead Underwriters, except for the issuance of shares in connection with the MESOP as
described in “Management — Management and Employee Stock Option Plan”.
The Government of the Republic of Indonesia, acting through the Ministry of State-Owned Enterprises
(“MSOE”), which is our controlling shareholder, has informed the Joint Lead Underwriters, the Joint Lead
International Selling Agents and us that, for a period of six months following the listing date of our shares, it does
not intend to offer, sell, contract to sell, or otherwise dispose directly or indirectly, of any of its shares in us. The
MSOE has further advised us that any offer, sale, contract to sell or other arrangement to sell its shares would require
the approval of the Parliament of the Government of Indonesia. However, the MSOE has not entered into any
lock-up agreement with the Joint Lead Managing Underwriters or the Joint Lead International Selling Agents.

Registration of Our Shares with KSEI

Our shares have been registered in the depository facilities of KSEI in accordance with the Agreement for the
Registration of Shares into Central Deposit entered into between KSEI and our company on September 3, 2010.
By registering the shares in KSEI, we will not issue individual share certificates to successful applicants, but
any shares allotted to an investor will be distributed electronically. In order to submit an application for our shares,
each investor must hold a securities account with a securities company or custodian bank which is a KSEI
participant to manage and administer any shares allotted to it on the investor’s behalf.

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 At the end of the Offering Period, the Joint Lead Underwriters will undertake the allotment in the manner set
out above and report the allotment result to us. We will issue to KSEI a confirmation of registration in the register of
shares, in the name of KSEI, of the number of shares allotted as part of the Global Offering. We will then instruct
KSEI to credit the Joint Lead Underwriters and the Joint Lead International Selling Agents’ securities accounts with
KSEI to receive and hold the shares allotted to the successful applicants. The Joint Lead Underwriters will then
instruct KSEI to distribute the number of shares allotted to a successful applicant from their securities accounts to
the securities account of the relevant KSEI participant.
As evidence of the allotment of the shares, the Joint Lead Underwriters will deliver allotment confirmation
forms to KSEI participants, which must then be passed on to the relevant investor, in exchange for a subscription
receipt. Distribution of the allotment confirmation forms is expected to occur at the latest three working days after
the last day of the Offering Period. The Joint Lead Underwriters will receive the allotment confirmation forms on
behalf of purchasers in the International Offering. Proof of ownership of the shares will be in the form of a written
confirmation letter from KSEI or KSEI participant charged with managing the relevant investor’s shares.
The transfer of shares held with KSEI will be by way of electronic book-entry between securities accounts. A
shareholder holding our shares through KSEI will be entitled to withdraw its shares from central deposit and receive
a share certificate registered in its name. Only those shares which are registered in KSEI will be tradable over the
IDX.
Article 60 of the Indonesian Capital Market Law provides that all rights attaching to shares held with KSEI,
including dividends, interest, bonus shares and other ownership entitlements on securities will be automatically
distributed by KSEI to a beneficial shareholder holding through the depository system via its KSEI participant who
holds the shares on such beneficial shareholder’s behalf. KSEI participant is obliged to immediately pass such rights
and entitlements onto its customers.
Prior to corporate action being taken by us, KSEI must provide details to us concerning the share entitlements
of all the beneficial shareholders on whose behalf shares are held. A KSEI participant is obliged to notify a
beneficial shareholder of the exercise of any pre-emptive rights, delivery of annual reports and other notices by us as
well as notices of General Meetings of Shareholders. The beneficial shareholder, KSEI participant it holds through,
or its legal representative, has the right to be present and vote at General Meetings of Shareholders.
KSEI is obliged to give us details of KSEI participants holding shares on behalf of beneficial shareholders
either:
• within one working day after the record date set for the purposes of assessing the identity of the shareholders
entitled to a dividend or other such rights attaching to shares which have been declared by us;
• prior to the holding of our General Meeting of Shareholders; or
• at our request based on an instruction from an authorized person or agency to us in accordance with the
prevailing laws and regulations.
A beneficial shareholder that wishes to obtain a share certificate may withdraw its shares from the depository
once all of those shares have been distributed to the securities account of its KSEI participant. An application for the
withdrawal of shares must be forwarded to KSEI by KSEI participant, on behalf of the beneficial shareholder, in a
specified form. Collective share certificates in the name of the beneficial shareholder will be issued for any shares
that are withdrawn from KSEI no later than five business days from the receipt of the withdrawal request by KSEI,
unless KSEI rejects the withdrawal of shares based on written orders from BAPEPAM-LK or certain other
authorized persons if required for the purposes of civil or criminal court proceedings. Only shares remaining in
KSEI which have not been pledged, foreclosed upon based on a court order or seized for the purposes of criminal
court investigation, can be traded on the IDX. Purchasers wishing to trade withdrawn shares on the IDX must return
them to KSEI. The process of depositing withdrawn shares can take up to five business days.

Declaration of Interest
The Joint Lead International Selling Agents and the Underwriters have engaged in, and may in the future
engage in, investment banking or financial consulting activities and other commercial dealings in the ordinary
course of business with our company. They have received and expect to continue to receive customary fees and
commissions for these transactions.

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Distribution and Solicitation Restrictions
The distribution of this offering circular or any offering material and the offering, sale or delivery of the Offer
Shares is restricted by law in certain jurisdictions. Therefore, persons who may come into possession of this offering
circular or any offering material are advised to consult with their own legal advisors as to what restrictions may be
applicable to them and to observe such restrictions. This offering circular may not be used for the purpose of an offer
or invitation in any circumstances in which such offer or invitation is not authorized.

United States of America

The Offer Shares have not been and will not be registered under the Securities Act and may not be offered or
sold in the United States or to, or for the account or benefit of, U.S. persons except, in either case, pursuant to an
effective registration statement or in accordance with an applicable exemption from the registration requirements of
the Securities Act. Accordingly, the Offer Shares are being offered and sold by the Joint Lead International Selling
Agents only (1) in the United States to “qualified institutional buyers” pursuant to Rule 144A under the Securities
Act and (2) outside the United States to non-U.S. persons in reliance upon Regulation S.
Each Joint Lead International Selling Agent has agreed that it will not offer, sell or deliver any Offer Shares as
part of its distribution at any time except, in accordance with Regulation S or to persons who it reasonably believes
to be “qualified institutional buyers” pursuant to Rule 144A.
As used in this paragraph and the immediately preceding two paragraphs, the terms “United States” and
“U.S. person” have the meanings given to them by Regulation S under the Securities Act.

Australia
This offering circular is not a disclosure document under Chapter 6D of the Corporations Act 2001 (Cth) (the
“Australian Corporations Act”), has not been lodged with the Australian Securities & Investments Commission and
does not purport to include the information required of a disclosure document under the Australian Corporations
Act. (i) The offer of Offer Shares under this offering circular is only made to persons to whom it is lawful to offer
Offer Shares without disclosure to investors under Chapter 6D of the Australian Corporations Act under one or more
exemptions set out in Section 708 of the Australian Corporations Act; (ii) this offering circular is made available in
Australia to persons as set forth in clause (i) above; and (iii) by accepting this offer, the offeree represents that the
offeree is such a person as set forth in clause (ii) above and agrees not to sell or offer for sale within Australia any
Offer Shares sold to the offeree within 12 months after their transfer to the offeree under this offering circular.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus
Directive (each, a “Relevant Member State”), an offer to the public of any Offer Shares may not be made in that
Relevant Member State except that an offer to the public in that Relevant Member State of any Offer Shares may be
made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in
that Relevant Member State:
(i) to legal entities which are authorized or regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to invest in securities; or
(ii) to any legal entity which has two or more of (a) an average of at least 250 employees during the last
financial year; (b) a total balance sheet of more than A43,000,000 and (c) an annual net turnover of
more than A50,000,000, as shown in its last annual or consolidated accounts; or
(iii) to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus
Directive) subject to obtaining the prior consent of the Joint Lead International Selling Agents; or
(iv) in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of Offer Shares shall result in a requirement for the publication by us or the
Joint Lead International Selling Agents of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of shares to the public” in relation to any Offer
Shares in any Relevant Member State means the communication in any form and by any means of sufficient
information on the terms of the offer and the Offer Shares to be offered so as to enable an investor to decide to
purchase or subscribe for the Offer Shares, as the same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member State; and the expression “Prospectus Directive”
means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

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 Hong Kong
No Offer Shares have been offered or sold, and no Offer Shares may be offered or sold, in Hong Kong, by
means of any document, other than to persons whose ordinary business is to buy or sell equity shares or debentures,
whether as principal or agent; or to “professional investors” as defined in the Securities and Futures Ordinance (Cap.
571) of Hong Kong and any rules made under that Ordinance; or in other circumstances which do not result in the
document being a prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not
constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong. No
document, invitation or advertisement relating to the Offer Shares has been issued or may be issued, which is
directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if
permitted under the securities laws of Hong Kong) other than with respect to Offer Shares which are intended to be
disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and
Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance.

Indonesia
This offering circular may only be distributed outside Indonesia to persons who are neither citizens of
Indonesia (wherever located) nor residents of Indonesia.

Japan
The Offer Shares have not been and will not be registered under the Securities and Exchange Law of Japan.
The Offer Shares have not been offered or sold and will be offered or sold in Japan or to, or for the benefit of, any
resident of Japan (which term shall mean any person resident in Japan or any corporation or other entity organized
under the laws of Japan), or to others for reoffering or resale, directly or indirectly, in Japan or to, or for the benefit
of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in
compliance with, the Securities and Exchange Law of Japan and other applicable laws, regulations and
governmental guidelines in Japan.

Malaysia
No prospectus or other offering material or document in connection with the offer and sale of the Offer Shares
has been or will be registered with the Securities Commission of Malaysia pursuant to the Securities Commission
Act, 1993 as the offer for purchase of, or invitation to purchase the Offer Shares is meant to qualify as an “excluded
offer or excluded invitation” within the meaning of Section 38 of the Securities Commission Act, 1993. Each Joint
Lead International Selling Agent has severally represented, warranted or agreed that that Offer Shares will not be
offered, sold, transferred or otherwise disposed, directly or indirectly, nor any document or other material in
connection therewith distributed, in Malaysia, other than to persons falling within any one of the categories or
person specified in Schedule 2 and/or Schedule 3 of the Securities Commission Act, 1993 who are also persons to
whom any offer or invitation to purchase or sell would be an excluded offer or invitation within the meaning of
Section 38 of the Securities Commission Act, 1993.

South Korea
The Offer Shares have not been and will not be registered under the Securities and Exchange Law of Korea.
Each Joint Lead International Selling Agent will not, directly or indirectly, offer, sell or deliver the Offer Shares in
Korea or to, or for the account or benefit of, any resident of Korea, or to others for reoffering or resale, directly or
indirectly, in Korea or to, or for the account or benefit of, any resident of Korea, except as otherwise permitted by
applicable Korean laws and regulations.

Singapore
This offering circular has not been registered as a prospectus with the Monetary Authority of Singapore under
the Securities and Futures Act, Chapter 289 of Singapore (the “Securities and Futures Act”). Accordingly, the Offer
Shares may not be offered or sold or made the subject of an invitation for subscription or purchase nor may this
offering circular or any other document or material in connection with the offer or sale, or invitation for subscription
or purchase, of any Offer Shares be circulated or distributed, whether directly or indirectly, to any person in
Singapore other than (i) to an institutional investor under Section 274 of the Securities and Future Act, (ii) to a
relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A) of the Securities and Futures
Act, and in accordance with the conditions specified in Section 275 of the Securities and Futures Act, or
(iii) pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and
Futures Act.

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 Where the Offer Shares are subscribed or purchased under Section 275 of the Securities and Futures Act by a
relevant person which is:
(a) a corporation (which is not an accredited investor) (as defined in Section 4A of the Securities and
Futures Act) the sole business of which is to hold investments and the entire share capital of which is
owned by one or more individuals, each of whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and
each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest
(howsoever described) in that trust shall not be transferable for six months after that corporation or that trust has
acquired the Offer Shares under Section 275 of the Securities and Futures Act except:
(1) to an institutional investor (for corporations under Section 274 of the Securities and Futures Act) or
to a relevant person defined in Section 275(2) of the Securities and Futures Act, or to any person
pursuant to an offer that is made on terms that such shares, debentures and units of shares and
debentures of that corporation or such rights and interest in that trust are acquired at a consideration
of not less than S$200,000 (or its equivalent in foreign currency) for each transaction, whether such
amount is to be paid for in cash or by exchange of securities or other assets, and further for
corporations in accordance with the conditions, specified in Section 275 of the Securities and
Futures Act;
(2) where no consideration is given for the transfer; or
(3) where the transfer is by operation of law.

United Kingdom
Each Joint Lead International Selling Agent has severally represented, warranted and agreed that:
(i) (a) it is a person whose ordinary activities involve them in acquiring, holding, managing and
disposing of investments (as principal or agent) for the purposes of their business and (b) it has not
offered or sold and will not offer or sell the Offer Shares other than to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold,
manage or dispose of investments (as principal or agent) for the purposes of their businesses where
the issue of the shares would otherwise constitute a contravention of Section 19 of the Financial
Services and Markets Act 2000 (the “FSMA”) by our company;
(ii) it has only communicated or caused to be communicated and will only communicate or cause to be
communicated an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the FSMA) received by it in connection with the issue or sale of the Offer Shares in
circumstances in which Section 21(1) of the FSMA does not apply to the International Offering; and
(iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything
done by it in relation to the shares in, from or otherwise involving the United Kingdom.

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 TRANSFER RESTRICTIONS
Because the following restrictions will apply to the offering of the Offer Shares, purchasers are advised to
consult their own legal counsel prior to making any offer, resale, pledge or transfer of the shares.
The Offer Shares have not been registered under the Securities Act and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S) except to (a) “qualified
institutional buyers” (as defined in Rule 144A) in reliance on the exemption from the registration requirements of
the Securities Act provided by Rule 144A and (b) persons in offshore transactions in reliance on Regulation S.

Rule 144A
Each purchaser of the Offer Shares within the United States pursuant to Rule 144A, by accepting delivery of
this offering circular, will be deemed to have represented, agreed and acknowledged that:
(1) It is (a) a “qualified institutional buyer” (as defined in Rule 144A), (b) acquiring such shares for its own
account or for the account of a “qualified institutional buyer” and (c) aware, and each beneficial owner of
such shares has been advised, that the sale of such shares to it is being made in reliance on Rule 144A.
(2) It understands that such shares have not been and will not be registered under the Securities Act and may
not be offered, sold, pledged or otherwise transferred except (a) in accordance with Rule 144A to a person
that it and any person acting on its behalf reasonably believe is a qualified institutional buyer purchasing
for its own account or for the account of a “qualified institutional buyer,” (b) in an offshore transaction in
accordance with Rule 903 or Rule 904 of Regulation S or (c) pursuant to an exemption from registration
under the Securities Act provided by Rule 144 thereunder (if available), in each case in accordance with
any applicable securities laws of any State of the United States.
(3) It understands that such shares (to the extent they are in certificated form), unless otherwise agreed by us
in accordance with applicable law, will bear a legend to the following effect:
“THESE SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR WITH ANY
SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF
THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES
ACT TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF
REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER, (2) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH
CASE IN ACCORDANCE WITH ANYAPPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE
EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF
THESE SHARES. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING,
THE SHARES MAY NOT BE DEPOSITED INTO ANY UNRESTRICTED DEPOSITARY FACILITY
IN RESPECT OF THE SHARES ESTABLISHED OR MAINTAINED BY A DEPOSITARY BANK.”
(4) We, the Joint Lead International Selling Agents, the Underwriters and their affiliates, and others will rely
upon the truth and accuracy of the foregoing acknowledgments, representations and agreements. If it is
acquiring any shares for the account of one or more “qualified institutional buyers,” it represents that it
has sole investment discretion with respect to each such account and that it has full power to make the
foregoing acknowledgments, representations and agreements on behalf of each such account.
Prospective purchasers are hereby notified that sellers of the shares may be relying on the exemption
from the provisions of Section 5 of the Securities Act provided by Rule 144A.

Regulation S
Each purchaser of the Offer Shares outside the United States pursuant to Regulation S and each subsequent
purchaser of such shares in resales prior to the expiration of the distribution compliance period, by accepting

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delivery of this offering circular and the Offer Shares, will be deemed to have represented, agreed and
acknowledged that:
(1) It is, or at the time such shares are purchased will be, the beneficial owner of such shares and (a) it is not a
U.S. person and it is located outside the United States (within the meaning of Regulation S), (b) it is
purchasing such shares in an offshore transaction pursuant to Regulation S, and (c) it is not an affiliate of
ours or a person acting on behalf of such affiliate.
(2) It understands that such shares have not been and will not be registered under the Securities Act and that,
prior to the expiration of the distribution compliance period (within the meaning of Regulation S), it will
not offer, sell, pledge or otherwise transfer such shares except (a) in accordance with Rule 144A under the
Securities Act to a person that it and any person acting on its behalf reasonably believe is a “qualified
institutional buyer” purchasing for its own account or the account of a “qualified institutional buyer” or
(b) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, in each case in
accordance with any applicable securities laws of any State of the United States.
(3) We, the Joint Lead International Selling Agents, the Underwriters, their affiliates and others will rely
upon the truth and accuracy of the foregoing acknowledgements, representations and agreements.

General
Each purchaser of the Offer Shares will be deemed to have represented and agreed that it is relying on this
offering circular and not on any other information or representation concerning us or the Offer Shares and neither
we nor any other person responsible for this offering circular or any part of it, nor the Joint Lead International
Selling Agents nor the Underwriters, will have any liability for any such other information or representation.

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 LEGAL MATTERS
Certain legal matters in connection with the Global Offering will be passed upon for us by Sidley Austin LLP
with respect to matters of United States federal and New York laws, and by Makes & Partners with respect to matters
of Indonesian law and for the Joint Lead International Selling Agents by Milbank, Tweed, Hadley & McCloy LLP
with respect to matters of United States federal and New York laws, and by Soemarjono, Herman & Rekan with
respect to matters of Indonesian law.

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 INDEPENDENT PUBLIC ACCOUNTANTS
Our restated audited consolidated financial statements as of and for the year ended December 31, 2005, which
are not included in this offering circular, have been audited by Kanaka Puradiredja, Suhartono, independent public
accountants, in accordance with auditing standards established by the IICPA, as stated in their re-issued audit report
with an unqualified opinion, which is not included in this offering circular.
Our audited consolidated financial statements as of and for the year ended December 31, 2006, which are not
included in this offering circular, have been audited by Purwantono, Suherman & Surja (formerly Purwantono,
Sarwoko & Sandjaja) (the Indonesian member firm of Ernst & Young Global Limited), independent public
accountants, in accordance with auditing standards established by the IICPA, as stated in their audit report, which is
not included in this offering circular. As also stated in their audit report, Purwantono, Suherman & Surja (formerly
Purwantono, Sarwoko & Sandjaja) did not audit the financial statements as of and for the year ended December 31,
2006 of certain subsidiaries, which statements reflect approximately 7.0% of our consolidated total assets as of
December 31, 2006 and approximately 4.0% of our consolidated net revenues for the year ended December 31,
2006. Those financial statements were audited by Syarief Basir & Rekan, independent public accountants, in
accordance with auditing standards established by the IICPA, whose audit reports expressed an unqualified opinion
and which are not included in this offering circular.
Our audited consolidated financial statements as of and for the years ended December 31, 2007, 2008, and
2009, and as of and for the six-month period ended June 30, 2010, included in this offering circular, have been
audited by Purwantono, Suherman & Surja (formerly Purwantono, Sarwoko & Sandjaja) (the Indonesian member
firm of Ernst & Young Global Limited), independent public accountants, in accordance with auditing standards
established by the IICPA, as stated in their audit report appearing in this offering circular.
Our unaudited consolidated financial statements as of and for the six-month period ended June 30, 2009
included in this offering circular have been reviewed by Purwantono, Suherman & Surja (formerly Purwantono,
Sarwoko & Sandjaja) (the Indonesian member firm of Ernst & Young Global Limited), independent public
accountants, in accordance with SA 722 established by the IICPA, as stated in their review report appearing in this
offering circular (presented combined with the audit report mentioned above). A review conducted in accordance
with SA 722 established by the IICPA is substantially less in scope than an audit conducted in accordance with
auditing standards established by the IICPA and, as stated in their review report appearing in this offering circular
(presented combined with the audit report mentioned above), Purwantono, Suherman & Surja (formerly
Purwantono, Sarwoko & Sandjaja) did not audit and do not express any opinion on such unaudited
consolidated financial statements included in this offering circular. Accordingly, the degree of reliance on their
review report (presented combined with the audit report mentioned above) on such information should be restricted
in light of the limited nature of the review procedures applied.
The audited consolidated financial statements as of and for the years ended December 31, 2007, 2008, and
2009, and as of and for the six-month period ended June 30, 2010, and the unaudited consolidated financial
statements as of and for the six-month period ended June 30, 2009, and their related audit report and review report
(presented combined with the audit report) have been included in this offering circular with the agreement of
Purwantono, Suherman & Surja (formerly Purwantono, Sarwoko & Sandjaja) (the Indonesian member firm of
Ernst & Young Global Limited), independent public accountants.

143
 STEEL INDUSTRY EXPERT
The “Industry Overview” included in this offering circular has been prepared by CRU Strategies Ltd., which
has given its written consent to the issue of this offering circular with the inclusion of the Industry Overview in the
form and context in which it is included.

144
 SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES
BETWEEN INDONESIAN GAAP AND U.S. GAAP
Our consolidated financial statements included in this offering circular are prepared and presented in
accordance with Indonesian GAAP. Significant differences exist between Indonesian GAAP and U.S. GAAP, which
might be material to the consolidated financial statements appearing elsewhere in this offering circular. The matters
described below should not be expected to reveal all differences between Indonesian GAAP and U.S. GAAP that are
relevant to us. Management has made no attempt to quantify the impact of the differences discussed below, nor has
any attempt been made to identify all disclosure, presentation, or classification differences that would affect the
manner in which transactions or events are presented in the consolidated financial statements disclosed in this
offering circular. Had any such quantification or identification been undertaken by Management, other potential
significant accounting and disclosure differences may have come to its attention, which are not summarized below.
Accordingly, the following summary of certain significant differences between Indonesian GAAP and U.S. GAAP
should not be construed to be exhaustive. Regulatory bodies that promulgate Indonesian GAAP and U.S. GAAP
have significant ongoing projects that could affect future comparisons such as this one. Further, no attempt has been
made to identify future differences between Indonesian GAAP and U.S. GAAP as a result of prescribed changes in
accounting standards and regulations. Finally, no attempt has been made to identify all future differences between
Indonesian GAAP and U.S. GAAP that may affect our consolidated financial statements as a result of transactions
or events that may occur in future.
Management believes that the application of U.S. GAAP to our consolidated financial statements could have a
material and significant impact upon our consolidated financial statements which are reported under Indonesian
GAAP. In making an investment decision, investors must rely upon their own examination of us, terms of the offering,
and our consolidated financial statements included elsewhere in this offering circular. Potential investors should
consult their own professional advisors for an understanding of the differences between Indonesian GAAP and
U.S. GAAP, and how those differences might affect our consolidated financial statements included elsewhere in this
offering circular.

Consolidation
Under Indonesian GAAP, when an entity owns, directly or indirectly through one or more subsidiaries, more
than 50 percent of the voting rights of another entity, it should present consolidated financial statements. An entity
that owns 50 percent or less of the voting rights of a company is required to prepare consolidated financial
statements if it can prove that control exists. Control is presumed to exist when the parent company owns, directly or
indirectly through subsidiaries, more than 50 percent of the voting rights of an entity. When an entity owns
50 percent or less of the voting rights of another entity, control exists when one of the following conditions is met:
(i) having more than 50 percent of the voting rights by virtue of an agreement with other investors; (ii) having the
right to govern the financial and operating policies of the entity under the articles of association or an agreement;
(iii) having the ability to appoint or remove the majority of the members of management; and (iv) having the ability
to control the majority of votes at meetings of management.
Under Indonesian GAAP, a special-purpose entity (“SPE”) will be consolidated if the substance of the
relationship between an entity and the SPE indicates that the SPE is controlled by that entity. Control may exist
through the predetermination of the activities of the SPE or otherwise. The application of the control concept
requires consideration of all relevant factors.
Under U.S. GAAP, consolidation generally is required when one of the companies in a group directly or
indirectly has a controlling financial interest in the other companies. The usual condition for controlling financial
interest is ownership of a majority of the voting interest and, therefore, as a general rule, ownership by one entity,
directly or indirectly, of over 50 percent of the outstanding voting shares of another entity is a condition pointing
towards consolidation. Consolidation of majority-owned subsidiaries is required in the preparation of consolidated
financial statements, unless control is likely to be temporary or if it does not rest with the majority owner.
Under U.S. GAAP, an entity is also to be considered for consolidation if the entity is a variable-interest entity
(“VIE”). An entity shall consolidate a VIE if that entity has a variable interest that will absorb a majority of the
VIE’s expected losses, receive a majority of the entity’s expected residual returns, or both. An entity shall consider
the rights and obligations conveyed by its variable interests and the relationship of its variable interests with variable
interests held by other parties to determine whether its variable interests will absorb a majority of the VIE’s
expected losses, receive the majority of the VIE’s expected residual returns, or both. If one entity will absorb a
majority of a VIE’s expected losses and another entity will receive a majority of that VIE’s expected residual
returns, the entity absorbing a majority of the losses shall consolidate the VIE. The entity that consolidates a VIE is
called the primary beneficiary of that VIE.

145
Inventories
Under Indonesian GAAP, inventories are measured at the lower of cost or net realizable value. Net realizable
value is defined as the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.
Under Indonesian GAAP, prior to the issuance of the Indonesian Statement of Financial Accounting Standards
(“PSAK”) No. 14 (Revised 2008), “Inventories” (“PSAK 14(R)”), which applies to financial statements relating to
periods beginning on or after January 1, 2009, the cost of inventory should be determined using either the
first-in-first-out (“FIFO”) method, weighted average or moving average methods, or last-in-first-out (“LIFO”)
method. Earlier application of PSAK 14(R) is permitted. Under PSAK 14(R), the use of LIFO method in
determining the cost of inventory is no longer permitted.
Under Indonesian GAAP, the amount of any reversal of any write-down of inventories, arising from an increase
in net realizable value, should be recognized as a reduction in the amount of inventories (i.e. an expense) in the
period in which the reversal occurs.
Under U.S. GAAP, inventories are carried at the lower of cost or market value. Market value is defined as the
current replacement cost (by purchase or by reproduction), provided that it meets both of the following conditions:
(i) market value shall not exceed net realizable value, and (ii) market value shall not be less than net realizable value
reduced by an allowance for an approximately normal profit margin.
Under US GAAP, the cost of inventory should be determined using either the FIFO method, average cost
method, or LIFO method. Under U.S. GAAP, inventories that were previously written-down below cost cannot be
reversed.

Revaluation of Fixed Assets

Prior to the issuance of PSAK No. 16 (Revised 2007), “Fixed Assets” (“PSAK 16(R)”), which applies to
financial statements relating to periods beginning on or after January 1, 2008, Indonesian GAAP did not allow
companies to recognize an increase in the value of fixed assets that occurs subsequent to acquisition, other than for
revaluations made in accordance with specific government regulations. PSAK 16(R) permits fixed assets to be
accounted for using either the cost model (which was the model used before PSAK 16(R) became effective) or the
revaluation model. Under the revaluation model, fixed assets, the fair value of which can be reliably measured shall
be recorded at a revalued amount, which is the fair value as of the date of the revaluation, less the accumulated
depreciation and accumulated impairment losses subsequent to the revaluation date. If a fixed asset is revalued, then
all fixed assets within the same category are also required to be revalued.
Under U.S. GAAP, revaluation of fixed assets is not permitted.

Impairment of Long-Lived Assets

Under Indonesian GAAP, if indicators of impairment exist with respect to an asset, a determination should be
made as to whether the asset’s recoverable amount is less than its carrying amount. An asset’s recoverable amount is
the higher of net selling price or value in use. Net selling price is the amount obtained from the sale of an asset in an
arm’s length transaction, after deducting the related costs. Value in use is the present value of estimated future cash
flows expected to arise from the use of an asset and from its disposal at the end of its useful life. Where an asset’s
recoverable amount is less than its carrying amount, an impairment loss should be recognized in an amount equal to
the excess of the carrying amount over its recoverable amount. Carrying values are increased for subsequent
recoveries of fair value, provided that such increase does not exceed the original carrying value adjusted for
depreciation.
Under U.S. GAAP, if indicators of impairment are present, a determination should be made as to whether the
sum of the estimated undiscounted future cash flows attributable to the long-lived asset in question is less than its
carrying amount. Where the sum of estimated undiscounted future cash flows is less than the asset’s carrying
amount, an impairment loss, equal to the excess of the carrying amount over its fair value, should be recognized.
Reversal of impairment loss is not permitted.

Land Rights
In Indonesia, except for ownership rights granted to individuals, the title to land rests with the Government
under the Agrarian Law No. 5 of 1960. Land use is accomplished through land rights, whereby the holder of the
rights enjoys the full use of the land for a stated period of time, subject to extensions. Under Indonesian GAAP, land
right is not depreciated, unless if management believes that it is highly unlikely that extensions of the land right will

146
not be granted by the Government. The predominant practice is to capitalize (and not to amortize) the costs of
acquired land rights. Management believes that extensions or renewals of land rights will be granted by the
Government. Other expenses associated with the acquisition of Government permits to use land, including legal
fees, area survey and re-measurement fees, notary fees, and taxes, are capitalized and amortized over the period of
the right to use the land.
Under U.S. GAAP, the costs and other expenses associated with the acquisition of land rights are capitalized
and amortized over the period of the right to use the land.

Capitalization of Borrowing Costs

Under Indonesian GAAP, exchange differences arising from foreign currency borrowings can be capitalized to
the extent that they are regarded as an adjustment to interest costs.
Under U.S. GAAP, exchange differences arising from foreign currency borrowings cannot be capitalized.

Employee Benefits
Under Indonesian GAAP, an entity is required to recognize a liability in the balance sheet equal to the present
value of the defined benefit obligation plus or minus any actuarial gains and losses not yet recognized, minus
unrecognized past service costs, minus the fair value of any plan assets. If this liability results in a negative balance
(i.e. an asset), this liability is subject to a “ceiling test”.
Under Indonesian GAAP, in computing the employee benefits liability, projected unit credit method is required
in all cases.
Under Indonesian GAAP, past service costs are amortized on a straight-line basis over the average remaining
service period or, if already vested, immediately recognized. Deferred actuarial gains and losses are amortized on a
straight-line basis over the average remaining service period or, for inactive employees, immediately recognized.
Under Indonesian GAAP, gains or losses from settlement or curtailment are recognized when occurred.
Under U.S. GAAP, an entity is required to recognize in the balance sheet the over or under funded status as the
difference between the fair value of plan assets and the benefit obligation (i.e. projected benefit obligation for
pension plans or accumulated projected benefit obligation for any other postretirement plans).
Under U.S. GAAP, in computing the employee benefits liability, different methods are required dependent on
the characteristics of the benefit calculation of the plan.
Under U.S. GAAP, past service costs and deferred actuarial gains and losses are amortized on a straight-line
basis over the future service lives of employees or, for inactive employees, over the remaining life expectancy of
those participants.
Under U.S. GAAP, settlement gain or loss is recognized when obligation is settled. Curtailment losses are
recognized when there is a probability of curtailment occurring, while curtailment gains are recognized only to the
extent that they exceed any unrecognized actuarial losses at the curtailment date.

Income Taxes
Under Indonesian GAAP, there is no specific accounting standard which prescribes the accounting for
uncertainty in income taxes, such as the likelihood of amendments to taxation obligations. The general practice for
amendments to taxation obligations is that they are recorded when an assessment is received from the tax authorities
or, for assessment amounts appealed against by the entity when: (i) the result of the appeal is determined, unless if
there is significant uncertainty as to the outcome of such appeal, in which event the impact of the amendment to
taxation obligations based on an assessment is recognized at the time of making such appeal, or (ii) the positive
outcome of the entity’s appeal is adjudged to be significantly uncertain (based on knowledge of developments in
similar cases involving matters appealed by the entity, which is based on rulings by the tax authorities), in which
event the impact of the amendment of taxation obligations based on the assessment of the amounts appealed is
recognized.
Under U.S. GAAP, an entity is required to recognize and measure its uncertain tax positions, which requires a
two-step process, separating recognition from measurement. A benefit is recognized when it is “more likely than
not” to be sustained based on the technical merits of the position. The amount of benefit to be recognized is based on
the largest amount of tax benefit that is more than 50 percent likely of being realized upon ultimate settlement.

147
Revenue Recognition
Under Indonesian GAAP, revenue from the sale of goods or services should be recognized when all the
following conditions have been met: (i) the seller has transferred to the buyer the significant risks and rewards of
ownership of the goods or services, (ii) the seller retains neither continuing managerial involvement nor effective
control over the goods or services sold, (iii) the amount of revenue can be measured reliably, (iv) it is probable that
the economic benefits associated with the transaction will flow to the seller, and (v) the costs incurred or to be
incurred with respect to the transaction can be measured reliably.
Under U.S. GAAP, revenue is generally measured by the exchange values of the assets (goods or services) or
liabilities involved, and recognition involves consideration of two factors: (a) whether revenue has been realized or
is realizable, and (b) whether revenue has been earned. Revenue generally is realized or realizable and earned when
all of the following criteria are met: (i) persuasive evidence of an arrangement (i.e. a final understanding between
the parties as to the specific nature and terms of the agreed-upon transaction) exists, (ii) delivery has occurred or
services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectibility is
reasonably assured.

148
 GLOSSARY OF TECHNICAL TERMS
Angle . . . . . . . . . . . . . . . . . . . . . . . . . .
API. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billet . . . . . . . . . . . . . . . . . . . . . . . . . .
Blast furnace . . . . . . . . . . . . . . . . . . . . .
Capacity utilization rate . . . . . . . . . . . . .
Carbon steel . . . . . . . . . . . . . . . . . . . . .
Channel . . . . . . . . . . . . . . . . . . . . . . . .
Coil . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coking coal. . . . . . . . . . . . . . . . . . . . . .
Cold rolling. . . . . . . . . . . . . . . . . . . . . .
Continuous casting . . . . . . . . . . . . . . . .
Continuous casting machines . . . . . . . . .
CRC . . . . . . . . . . . . . . . . . . . . . . . . . . .
EAF or Electric arc furnace . . . . . . . . . .
EPC . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ferroalloy . . . . . . . . . . . . . . . . . . . . . . .
Angle-shaped section for construction.
American Petroleum Institute.
A usually square, semi-finished product obtained by continuous
casting or rolling of blooms. Sections, rails, wire rod and other
rolled products are made from billets.
A towering cylinder lined with heat-resistant (refractory) bricks, used
by integrated steel mills to smelt iron from iron ore. Its name comes
from the blast of hot air and gases forced up through the iron ore,
coking coal and limestone that load the furnace.
This rate is calculated by dividing the actual output of each facility by
the production capacity of that relevant facility.
A type of steel generally having no specified minimum quantity of any
alloying element and containing only an incidental amount of any
element other than carbon, silicon, manganese, copper, sulphur and
phosphorus.
U-shaped section used for construction.
Steel sheet that has been wound. A slab, once rolled in a hot strip mill,
can be more than one mile long; coils are the most efficient way to
store and transport sheet steel.
A metallurgical coal that exhibits the physical and chemical properties
that are necessary to form coke. By virtue of its carbonization
properties, it is used in the manufacture of the coke which is used
in the steelmaking process.
Changes in the structure and shape of steel achieved through rolling
the steel at a low temperature (often room temperature). It is used to
create a permanent increase in the hardness and strength of the steel. It
is effected by the application of forces to the steel which causes change
in the composition, enhancing certain properties. In order for these
improvements to be sustained, the temperature must be below a certain
range because the structural changes in the steel are eliminated by
higher temperatures.
A method of pouring steel directly from a ladle through a tundish into
a mold shaped to form billets, blooms or slabs. Continuous casting
avoids the need for large mills for rolling ingots into slabs. Continuous
cast slabs also solidify in a few minutes, versus several hours for an
ingot. Because of this, the chemical composition and mechanical
properties are more uniform.
Machines designed to process the continuous casting whereby molten
metal is solidified into a semifinished billet, bloom, or slab for
subsequent rolling in the finishing mills.
Cold rolled coil and sheets, unless the context otherwise requires.
A steel making furnace where scrap is generally 100% of the charge.
Heat is supplied from electricity that arcs from the graphite electrodes
to the metal bath.
Engineering, procurement, and construction.
A metal product commonly used as a raw material feed in steel
making, usually containing iron and other metals, to aid various
stages of the steel making process such as deoxidation,
desulfurization, and adding strength. Examples are ferrochrome,
ferromanganese, and ferrosilicon.
149
Flat products . . . . . . . . . . . . . . . . . . . . .
Galvanized steel . . . . . . . . . . . . . . . . . .
H-beam . . . . . . . . . . . . . . . . . . . . . . . . .
Hot strip mill . . . . . . . . . . . . . . . . . . . .
Hot rolled . . . . . . . . . . . . . . . . . . . . . . .
HRC . . . . . . . . . . . . . . . . . . . . . . . . . . .
INP. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iron ore. . . . . . . . . . . . . . . . . . . . . . . . .
IWF . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long products . . . . . . . . . . . . . . . . . . . .
Pellets . . . . . . . . . . . . . . . . . . . . . . . . . .
Pipe . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profile. . . . . . . . . . . . . . . . . . . . . . . . . .
Rebar (Reinforcing bar) . . . . . . . . . . . . .
Rolled steel product. . . . . . . . . . . . . . . .
SAP . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scrap . . . . . . . . . . . . . . . . . . . . . . . . . .
Semi-finished products . . . . . . . . . . . . .
Classification of steel products that includes sheet, strip and tin plate,
among others.
Steel coated with a thin layer of zinc to provide corrosion resistance in
underbody auto parts, garbage cans, storage tanks and fencing wire,
among others. Sheet steel normally must be cold-rolled prior to
galvanizing. Galvanized steel is subdivided into hot-dipped
galvanized and electrogalvanized steel. Electrogalvanizing
equipment is more expensive to build and operate than hot-dipping
equipment, but it gives the steel maker more precise control over the
weight of the zinc coating.
H-shaped section for construction.
The rolling mill that reduces a hot slab into a coil of specified
thickness; the whole processing is done at a relatively high
temperature (when the steel is still red).
Product that is sold in its “as-produced” state off the hot mill with no
further reduction or processing steps, aside from being pickled and
oiled (if specified).
Hot rolled coil and plates, unless the context otherwise requires.
An I-shaped narrow profile for steel bars.
Mineral containing enough iron to be a commercially viable source of
the element for use in steel making.
An I-shaped wide protruding rim.
Classification of steel products that includes bars, rods and structural
products that are “long” rather than “flat” and that are produced from
blooms or billets.
An enriched form of iron ore shaped into small balls or pellets. Pellets
are used as raw material in the steel making process.
A tube used to transport fluids or gases. Pipe and tube are often used
interchangedly, with a given label applied primarily as a matter of
historical use.
A product manufactured by rolling reheated concast billets and
blooms to produce particular product shapes. Sections are used in
the construction, engineering, hardware and mining industries and
railways.
A commodity-grade steel used to strengthen concrete in highway and
building construction.
Steel produced to a desired thickness by being passed through a set of
rollers.
An acronym for System Analysis and Program Development, an
enterprise-wide information system which consolidates information
from various functions/departments of an organization.
Ferrous (iron-containing) material that generally is remelted and
recast into new steel in electric arc furnaces. Scrap includes waste
steel generated from within the steel mill, through edge trimming and
rejects, as well as excess steel trimmed by auto and appliance
stampers, which is auctioned to scrap buyers as factory bundles.
A product category that includes pig iron, slabs, blooms and billets.
Slabs, blooms and billets are the first solid forms in the steel making
process. These usable shapes are further processed to become more
finished products - rebars and shapes, structural steel and wire rod.
150
Steel sheet. . . . . . . . . . . . . . . . . . . . . . .
Steel slab . . . . . . . . . . . . . . . . . . . . . . .
Strips . . . . . . . . . . . . . . . . . . . . . . . . . .
Tube . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wire . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wire rod . . . . . . . . . . . . . . . . . . . . . . . .
Thin, flat-rolled steel created in a hot strip mill by rolling a cast slab
flat while maintaining the side dimensions. The malleable steel
lengthens to several thousand feet as it is squeezed by the rolling
mill. The most common differences among steel bars, strip, plate and
sheet are merely their physical dimensions of width and gauge
(thickness).
The most common type of semi-finished steel. Subsequent to casting,
slab is sent to the hot strip mill to be rolled into coiled sheet and plate
products.
Strips are delivered as coil, sheet and narrow strip in a wide range of
alloys, widths and thicknesses and are mostly delivered to specific
customer specifications.
See “Pipe.”
A broad range of products produced by cold and hot reducing, or
drawing, wire rod through a series of dies to reduce the diameter,
improve surface finish, dimensional accuracy, and physical properties.
Typical applications include nets, screws, rivets, upholstery springs,
furniture wire, concrete wire, electrical conductors, rope wire and
structural cables.
Formed from billets, wire rod in coils is an intermediate product of
uniform round cross-section dimension.
151
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 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

Page

Audited consolidated financial statements of PT Krakatau Steel (Persero) Tbk. and its
subsidiaries as of and for the six-month period ended June 30, 2010, and as of and for the years
ended December 31, 2009, 2008, and 2007, and unaudited consolidated financial statements as
of and for the six-month period ended June 30, 2009, with the related audit report and review
report (presented combined with the audit report):
Independent auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Consolidated statements of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Consolidated statements of changes in shareholder’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
Consolidated statements of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12
Notes to the consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13

F-1
PT Krakatau Steel (Persero)
and subsidiaries

Consolidated financial statements

with independent auditors’ report
six months ended June 30, 2010 and 2009 (unaudited)
and years ended December 31, 2009, 2008 and 2007

F-2
 PT KRAKATAU STEEL (PERSERO)
Jakarta Office : Gd Krakatau Steel Jl. Gatot Subroto Kav. 54 PO. Box 1174 Jakarta 12950 - Indonesia
Phone : (62-21) 5221255, (Hunting), Facsimile : (62-21) 5200876, 5204208, 5200793
Cilegan Office : Jl. Industri No. 5 PO. Box 14 Cilegon 42435 - Indonesia
Phones : (62-254) 392159, 392003 (Hunting)
Facsimile : 392163 (Production), 391966 (Finance), 392953, 392954 (Logistic)
395178 (Personnel), 398814 (Technology)

DIRECTORS’ STATEMENT
REGARDING THE RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 AND THE YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES
We, the undersigned:
1. Name : Fazwar Bujang
Office address : Jl. Gatot Subroto Kav. 54, Jakarta Selatan
Domicile address : Jl. Santani No: 7 Cilegon, Banten
Telephone number : 021 - 5204003
Position : President Director
2. Name : Sukandar
Office address : Jl. Gatot Subroto Kav. 54, Jakarta Selatan
Domicile address : Jl. Santani No: 3, Cilegon, Banten
Telephone number : 021 -5207595
Position : Finance Director
State that:
1. We are responsible for the preparation and presentation of the Consolidated Financial Statements of PT
Krakatau Steel (Persero) and Subsidiaries;
2. The Consolidated Financial Statements of PT Krakatau Steel (Persero) and Subsidiaries have been prepared
and presented in accordance with generally accepted accounting principles in Indonesia; and
a. All information in the Consolidated Financial Statements of PT Krakatau Steel (Persero) and Subsidiaries
has been fully disclosed in a complete and truthful manner;
b. The Consolidated Financial Statements of PT Krakatau Steel (Persero) and Subsidiaries do not contain
any incorrect information or material fact, nor do they omit correct information or material facts.
3. We are responsible for the internal control system of PT Krakatau Steel (Persero).
We certify the accuracy of this Statement.

PT KRAKATAU STEEL (PERSERO)

Jakarta, September 23, 2010

F-3
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
WITH INDEPENDENT AUDITORS’ REPORT
SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

Table of Contents

Page
Independent Auditors’ Report F-5
Consolidated Balance Sheets F-7
Consolidated Statements of Income F-9
Consolidated Statements of Changes in Shareholder’s Equity F-10
Consolidated Statements of Cash Flows F-12
Notes to the Consolidated Financial Statements F-13

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F-4
 Indonesia S tock E xc h a n g e B uildin g
To w er 2 , 7 th F lo or
J l . J e n d. S u dir m a n K av. 52 - 5 3
J a ka rta 1 2 1 9 0 , In d o n e sia
Tel : + 6 2 2 1 5 2 8 9 5 0 0 0
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This report is originally issued in the Indonesian language.

Independent Auditors’ Report

Report No. RPC-307/PSS/2010

The Shareholder, Boards of Commissioners and Directors

PT Krakatau Steel (Persero)

We have audited the consolidated balance sheets of PT Krakatau Steel (Persero) (“the Company”) and Subsidiaries
as of June 30, 2010 and December 31, 2009, 2008 and 2007, and the related consolidated statements of income,
changes in shareholder’s equity, and cash flows for the six months ended June 30, 2010 and the years ended
December 31, 2009, 2008 and 2007. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards established by the Indonesian Institute of Certified
Public Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of PT Krakatau Steel (Persero) and Subsidiaries as of June 30, 2010 and December 31, 2009, 2008
and 2007, and the results of their operations and their cash flows for the six months ended June 30, 2010 and the
years ended December 31, 2009, 2008 and 2007, in conformity with generally accepted accounting principles in
Indonesia.
The consolidated financial statements of the Company and Subsidiaries as of June 30, 2009 and for the six months
then ended were reviewed by us and our report dated September 23, 2010 stated that we were not aware of any
material modifications that should be made to those statements for them to be in conformity with generally accepted
accounting principles in Indonesia. A review of interim financial statements consists principally of applying
analytical procedures to financial data and making inquiries of persons responsible for financial and accounting
matters. However, a review is substantially less in scope than an audit conducted in accordance with auditing
standards established by the Indonesian Institute of Certified Public Accountants, and does not provide a basis for
the expression of an opinion on the financial statements taken as a whole.

Purwantono, Suherman & Surja

Registered Public Accountants K M K No. 38 1 / K M. 1 /2 0 1 0
A me mber firm of Ernst & Young Global Limited

F-5
This report is originally issued in the Indonesian language.

As discussed in Notes 2q and 31 to the consolidated financial statements, starting January 1, 2010, the Company and
Subsidiaries adopted Statements of Financial Accounting Standards (PSAK) No. 50 (Revised 2006), “Financial
Instruments: Presentation and Disclosure” and PSAK No. 55 (Revised 2006), “Financial Instruments: Recognition
and Measurement”. These revised PSAKs have been applied prospectively.
We have previously issued Independent Auditors’ Report No. RPC-250/PSS/2010 dated August 18, 2010, except
for Notes 2r and 36 as to which the date is August 21, 2010, on the consolidated financial statements for the six
months ended June 30, 2010 and the years ended December 31, 2009, 2008 and 2007. In relation with the
Registration Statement of the Company’s Initial Public Offering of its shares, the Company reissued its consolidated
financial statements referred to above to include amendments and additional disclosures in the notes to the
consolidated financial statements.

Purwantono, Suherman & Surja

Indrajuwana Komala Widjaja

Public Accountant License No. 98.1.0511

September 23, 2010

The accompanying consolidated financial statements are not intended to present the financial position, results
of operations and cash flows in accordance with accounting principles and practices generally accepted in
countries and jurisdictions other than Indonesia. The standards, procedures and practices applied to audit such
consolidated financial statements are those generally accepted and applied in Indonesia.

F-6
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
June 30, 2010 and 2009 (Unaudited),
December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

June 30,
June 30, 2009 December 31,
Notes 2010 (Unaudited) 2009 * 2008 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents 2c,2o,2q, 1,518,889 1,100,156 1,759,964 1,100,493 636,600
3,31,35
Short-term investments 2d,2q,4,31 1,950 6,067 142,550 5,341 44,938
Restricted time deposits 2c,2q,5,31 260,000 - - - -
Trade receivables 2e,2o,2q,
(net of allowance for doubtful 6,15,22,
accounts of Rp45,034 in period 31,35
2010, Rp48,416 in period 2009,
Rp38,122 in 2009, Rp46,368 in
2008 and Rp41,538 in 2007)
Third parties 1,630,876 1,828,541 1,572,725 1,843,295 2,116,820
Related parties 2g, 9 94,681 97,456 69,487 151,163 222,084
Other receivables 2e,2o,2q,8,
(net of allowance for doubtful 18,31,35
accounts of Rp5,422 in period
2010, Rp6,355 in period 2009,
Rp6,685 in 2009, Rp7,915 in
2008 and Rp6,140 in 2007)
Third parties 58,618 73,956 54,858 61,844 57,882
Related parties 2g,9 15,721 1,831 2,658 3,017 4,322
Inventories, net 2h,10,15,22 5,163,754 4,306,219 4,871,981 8,159,937 4,258,611
Advances and prepaid expenses 2j,2o,11 148,842 141,465 141,823 100,435 81,691
Prepaid taxes 2p,19 49,097 28,706 15,116 22,668 5,024
Factoring receivables 2f,7,17 - - - 109,509 -
Total Current Assets 8,942,428 7,584,397 8,631,162 11,557,702 7,427,972
NON-CURRENT ASSETS
Estimated claims for tax refund 2p,19 128,304 88,516 186,791 262,906 155,974
Investments in shares of stock, net 2i,2q,12,31 142,102 44,662 136,753 34,154 34,027
Deferred tax assets, net 2p,19 18,580 462,694 202,468 91,418 23,306
Fixed assets
(net of accumulated depreciation
of Rp4,306,289 in period 2010,
Rp4,069,351 in period 2009,
Rp4,144,163 in 2009,
Rp3,933,308 in 2008 and
Rp3,617,891 in 2007) 2k,13,15,22 3,943,540 3,129,348 3,378,928 3,162,273 3,183,847
Other assets
Long-term receivables, net 2e,2q,14,31 628 41,622 78,121 85,344 95,343
Real estate assets 2l 51,256 52,542 52,246 50,417 57,410
Assets not used in operations 2k,13 32,773 38,944 31,144 41,694 56,080
Restricted time deposits 2c,2o,2q, 20,535 44,122 21,180 36,938 35,346
22,31,35
Others 2k,2o,2q,31,35 63,555 51,352 77,010 51,581 47,719
Total Non-Current Assets 4,401,273 3,953,802 4,164,641 3,816,725 3,689,052
TOTAL ASSETS 13,343,701 11,538,199 12,795,803 15,374,427 11,117,024

* PT Pelat Timah Nusantara Tbk was deconsolidated since the date the Company sold its investment to third parties (Note 12)

The accompanying notes form an integral part of these consolidated financial statements.

F-7
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)
June 30, 2010 and 2009 (Unaudited),
December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

June 30,
June 30, 2009 December 31,
Notes 2010 (Unaudited) 2009 * 2008 2007
LIABILITIES AND
SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Short-term bank loans 2o,2q,6,10, 3,439,438 4,345,616 4,209,254 6,701,510 2,789,100
13,15,31,35
Trade payables 2o,2q,
Third parties 16,31,35 1,111,734 606,145 699,875 801,037 817,050
Related parties 2g,9 45,594 48,849 38,944 32,950 17,893
Other payables 2o,2q,
Third parties 31,35 81,510 49,010 27,645 27,856 23,767
Related parties 2g,9 157,960 119,109 246,541 5,809 6,428
Taxes payable 2p,19 85,727 71,984 101,031 181,769 93,493
Accrued expenses 2o,2q, 336,144 280,635 271,879 285,153 216,362
20,31,35
Sales and other advances 2o,21,35 221,475 308,854 309,904 195,550 218,820
Current portion of long-term 2o,2q,6,10,
loans 13,22,31,35 202,254 235,532 222,390 240,443 261,334
Current portion of long-term 2o,2q,22,
liabilities 31,35 3,331 3,815 2,890 11,962 7,621
Factoring payables 2f,7,17 - - - 108,285 -

Total Current Liabilities 5,685,167 6,069,549 6,130,353 8,592,324 4,451,868

NON-CURRENT LIABILITIES
Deferred tax liabilities, net 2p,19 87,273 2,329 5,768 1,978 209,315
Long-term loans, net of current 2o,2q,6,10,
portion 13,22,31,35 584,548 595,419 568,640 711,321 868,301
Long-term liabilities, net of current 2o,2q,22,
portion 31,35 38,006 26,201 20,617 17,538 29,832
Estimated liabilities for employee
benefits 2n,23 241,369 617,409 223,635 574,162 468,725
Total Non-Current Liabilities 951,196 1,241,358 818,660 1,304,999 1,576,173

TOTAL LIABILITIES 6,636,363 7,310,907 6,949,013 9,897,323 6,028,041

MINORITY INTEREST IN NET

ASSETS OF SUBSIDIARIES 2b,24 71,367 35,673 40,952 37,343 14,651

SHAREHOLDER’S EQUITY
Share capital - par value
Rp1,000,000 (full amount) per share
Authorized - 8,000,000 shares
Issued and fully paid - 2,000,000 shares 25 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
Other paid-in capital 25 1,303,465 1,303,465 1,303,465 1,303,465 1,303,465
Difference arising from transactions resulting
in changes in the equity of Subsidiaries 2i,26 18,468 - 18,468 - 381
Retained earnings (accumulated losses)
Appropriated 3,393,443 3,066,959 3,066,959 2,754,450 2,534,786
Unappropriated (79,405) (2,178,805) (583,054) (618,154) (764,300)
SHAREHOLDER’S EQUITY, NET 6,635,971 4,191,619 5,805,838 5,439,761 5,074,332

TOTAL LIABILITIES AND

SHAREHOLDER’S EQUITY 13,343,701 11,538,199 12,795,803 15,374,427 11,117,024

* PT Pelat Timah Nusantara Tbk was deconsolidated since the date the Company sold its investment to third parties (Note 12)

The accompanying notes form an integral part of these consolidated financial statements.

F-8
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2009
2010 (Six Months) 2009 * 2008 2007
Notes (Six Months) (Unaudited) (One Year) (One Year) (One Year)
2g,2m,9,
NET REVENUES 28,36 9,000,210 7,827,913 16,913,535 20,631,431 14,836,019
2g,2m,9,
COST OF REVENUES 29,36 7,105,629 8,409,586 15,728,146 17,915,367 13,063,417
GROSS PROFIT (LOSS) 1,894,581 (581,673) 1,185,389 2,716,064 1,772,602
2e,2g,2j,2k,
OPERATING EXPENSES 2m,2n,30
Selling 148,703 132,225 267,408 340,931 241,586
General and administrative 530,034 428,834 892,041 1,014,745 738,283
Total Operating Expenses 678,737 561,059 1,159,449 1,355,676 979,869
INCOME (LOSS) FROM OPERATIONS 1,215,844 (1,142,732) 25,940 1,360,388 792,733
OTHER INCOME (CHARGES)
Gain (loss) on foreign exchange, net 2o,2q,18 118,855 (119,000) 71,568 (474,778) (120,578)
Interest expense 15,22 (112,191) (328,351) (458,339) (366,989) (285,720)
Sales of waste products 26,460 16,800 26,268 6,782 5,571
Interest income 3,4 22,816 21,747 41,348 45,987 26,772
Gain from settlement of post-retirement
healthcare benefits liability 2n,23 - - 127,298 - -
Gain on sale of investment 2b,12 - - 374,648 - -
2p,2q,4,
Miscellaneous, net 12,13,19 71,369 127,063 259,928 169,433 78,585
Other Income (Charges), Net 127,309 (281,741) 442,719 (619,565) (295,370)

INCOME (LOSS) BEFORE TAX

EXPENSE (BENEFIT) 1,343,153 (1,424,473) 468,659 740,823 497,363
TAX EXPENSE (BENEFIT) 2p,19
Current tax 80,897 47,242 88,688 552,663 132,275
Deferred tax, net 265,393 (370,925) (116,233) (275,449) 48,568
Tax Expense (Benefit), Net 346,290 (323,683) (27,545) 277,214 180,843

INCOME (LOSS) BEFORE MINORITY

INTEREST IN NET (INCOME) LOSS
OF SUBSIDIARIES 996,863 (1,100,790) 496,204 463,609 316,520
MINORITY INTEREST IN NET
(INCOME) LOSS OF SUBSIDIARIES 2b,24 890 (289) (1,532) (4,038) (3,079)
NET INCOME (LOSS) 997,753 (1,101,079) 494,672 459,571 313,441
BASIC NET INCOME (LOSS)
PER SHARE - As Restated
(in full Rupiah amount) 2r,37 100 (110) 49 46 31

* PT Pelat Timah Nusantara Tbk was deconsolidated since the date the Company sold its investment to third parties (Note 12)

The accompanying notes form an integral part of these consolidated financial statements.

F-9
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)
Difference Arising
from Transactions
Resulting in
Retained Earnings
Issued Changes
(Accumulated Losses)
and Fully Paid Other in the Equity Shareholder’s
Notes Share Capital Paid-in Capital of Subsidiaries Appropriated Unappropriated Equity, Net

Balance as of December 31, 2006 2,000,000 1,303,465 1,766 2,485,771 (1,025,646) 4,765,356
Net income for 2007 (one year) - - - - 313,441 313,441
Allocation of funds for partnership
and community development
program 27 - - - - (1,103) (1,103)
Payment for tantiem, net of tax 27 - - - - (1,977) (1,977)
Difference arising from transaction
resulting in changes in equity of
Subsidiary 26 - - (1,385) - - (1,385)
Appropriation for general reserve 27 - - - 49,015 (49,015) -
Balance as of December 31, 2007 2,000,000 1,303,465 381 2,534,786 (764,300) 5,074,332
Net income for 2008 (one year) - - - - 459,571 459,571
Cash dividends 27 - - - - (94,142) (94,142)
Difference arising from transaction
resulting in changes in equity of
Subsidiary 26 - - (381) - 381 -
Appropriation for general reserve 27 - - - 219,664 (219,664) -
Balance as of December 31, 2008 2,000,000 1,303,465 - 2,754,450 (618,154) 5,439,761
Net loss for 2009 (six months) - - - - (1,101,079) (1,101,079)
Cash dividends 27 - - - - (137,872) (137,872)
Allocation of funds for partnership
and community development
program 27 - - - - (9,191) (9,191)
Appropriation for general reserve 27 - - - 312,509 (312,509) -
Balance as of June 30, 2009
(Unaudited) 2,000,000 1,303,465 - 3,066,959 (2,178,805) 4,191,619

The accompanying notes form an integral part of these consolidated financial statements.

F-10
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY (continued)
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)
Difference Arising
from Transactions
Resulting in
Retained Earnings
Issued Changes
(Accumulated Losses)
and Fully Paid Other in the Equity Shareholder’s
Notes Share Capital Paid-in Capital of Subsidiaries Appropriated Unappropriated Equity, Net

Balance as of December 31, 2008 2,000,000 1,303,465 - 2,754,450 (618,154) 5,439,761

Net income for 2009 (one year) - - - - 494,672 494,672
Cash dividends 27 - - - - (137,872) (137,872)
Allocation of funds for partnership and
community development program 27 - - - - (9,191) (9,191)
Issuance of new shares in the Subsidiary 2i,26 - - 18,468 - - 18,468
Appropriation for general reserve 27 - - - 312,509 (312,509) -
Balance as of December 31, 2009 2,000,000 1,303,465 18,468 3,066,959 (583,054) 5,805,838
Effect of applying Statement of Financial
Accounting Standards No. 55 (Revised
2006) “Financial Instruments:
Recognition and Measurement” 2q - - - - (9.325) (9.325)
Net income for 2010 (six months) - - - - 997,753 997,753
Cash dividends 27 - - - - (148,402) (148,402)
Allocation of funds for partnership program 27 - - - - (9,893) (9,893)
Appropriation for general reserve 27 - - - 326,484 (326,484) -
Balance as of June 30, 2010 2,000,000 1,303,465 18,468 3,393,443 (79,405) 6,635,971

The accompanying notes form an integral part of these consolidated financial statements.

F-11
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2009
2010 (Six Months) 2009 * 2008 2007
Notes (Six Months) (Unaudited) (One Year) (One Year) (One Year)
CASH FLOWS FROM OPERATING
ACTIVITIES
Receipts from customers 9,144,426 8,887,596 16,811,147 22,374,497 14,997,367
Receipts from claims for tax refund 136,668 218,242 246,089 118,555 115,867
Receipts from interest income 20,797 19,011 35,862 43,608 28,867
Payments to suppliers (5,863,544) (6,142,018) (12,672,227) (17,998,454) (12,396,574)
Payments for operating expenses and others (1,247,885) (548,171) (1,269,302) (1,491,388) (643,707)
Payments to employees (741,086) (644,493) (1,130,051) (1,237,655) (1,086,452)
Payments for taxes (408,772) (404,152) (635,863) (899,330) (505,476)
Payments for interest and bank charges (98,133) (413,388) (502,276) (302,710) (234,696)
Net cash provided by operating activities 942,471 972,627 883,379 607,123 275,196

CASH FLOWS FROM INVESTING

ACTIVITIES
Withdrawal (placement) of short-term
invesments 136,644 (60,078) (105,612) 36,276 (27,967)
Placement of restricted time deposits (259,227) (10,337) (7,883) - -
Receipts of cash dividends 2,808 54 32,628 2,638 -
Proceeds from disposal of subsidiary, net ** 12 - - 536,062 - -
Proceeds from long-term investments - - - - 2,680
Purchase of fixed assets (502,636) (156,047) (473,600) (247,417) (167,558)
Proceeds from sale of fixed assets - 162 189 5,293 22,127
Net cash used in investing activities (622,411) (226,246) (18,216) (203,210) (170,718)

CASH FLOWS FROM FINANCING

ACTIVITIES
Net proceeds from (payments of) bank loans (558,081) (703,989) (51,280) 67,919 (388,674)
Capital contribution from minority
shareholders of Subsidiaries 24 30,909 - 18,990 21,250 -
Proceeds from related parties, net - - - - 73,511
Payments of cash dividends 27 - (26,918) (137,872) (95,128) -
Payments for partnership and community
development program (719) (2,795) (13,839) (1,509) (1,468)
Net cash used in financing activities (527,891) (733,702) (184,001) (7,468) (316,631)

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS (207,831) 12,679 681,162 396,445 (212,153)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,759,964 1,100,493 1,100,493 636,600 851,821
Effect of foreign exchange rate changes (33,244) (13,016) (21,691) 67,448 (3,068)

CASH AND CASH EQUIVALENTS AT

END OF PERIOD 3 1,518,889 1,100,156 1,759,964 1,100,493 636,600

* PT Pelat Timah Nusantara Tbk was deconsolidated since the date the Company sold its investment to third parties (Note 12)
** Net of cash and cash equivalents of divested subsidiary, at divestment date of Rp29,612

The accompanying notes form an integral part of these consolidated financial statements.

F-12
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

1. GENERAL
a. The Company’s Establishment
PT Krakatau Steel (Persero) (the “Company”) was established in the Republic of Indonesia based on the
Notarial Deed No. 34 of Tan Thong Kie, S.H., dated October 27, 1971 to take over the Trikora steel plant
project. The deed of establishment was approved by the Ministry of Justice of the Republic of Indonesia
in its Decision Letter No. J.A.5/224/4 dated December 31, 1971 and was published in the State Gazette of
the Republic of Indonesia No. 44 dated February 8, 1972, Supplement No. 19.
The Company’s Articles of Association have been amended several times, most recently by Notarial
Deed No. 89 dated June 26, 2008 of Masjuki, S.H., concerning the changes to the Company’s Articles of
Association as a whole to align with Law No. 40 Year 2007 regarding Limited Liability Company. The
amendment deed was approved by the Ministry of Laws and Human Rights of the Republic of Indonesia
in its Decision Letter No. AHU-45322.AH.01.02 Year 2008 dated July 28, 2008 and was published in the
State Gazette of the Republic of Indonesia No. 32 dated April 21, 2009, Supplement No. 11022 (Note 37).
The Company’s objective is to implement and support the various policies and programs of the
Government for economic development, especially with respect to the steel industry.
In accordance with Article 3 of the Company’s Articles of Association, the scope of its activities mainly
comprises production, trading and rendering of services.
Currently, the Company is engaged in, among others:
(i) Integrated steel industry, which produces sponge iron, slabs, billets, hot rolled coils, cold rolled coils
and wire rods.
(ii) Trading activities, comprising marketing, distribution and agency work, both in the domestic and
international markets.
(iii) Services, such as designing and construction, machine maintenance, technical consultancy and
provision of infrastructure to support the activities of the Company.
The Company and its production facilities are located in Cilegon, Banten. The Company started its
commercial operations in 1971. Currently, the Company’s production facilities have a production
capacity of 2.45 million metric tons (unaudited) of crude steel per year and 2.45 million metric tons
(unaudited) of finished steel products per year. The production capacity of finished steel products will
increase to 2.85 million metric tons (unaudited) per year upon completion of hot strip mill revitalization
in 2011 (Note 13).
The Company’s head office is located at Jalan Industri No. 5, Cilegon.

F-13
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

1. GENERAL (continued)
b. The Subsidiaries
The percentage of ownership of the Company, either directly or indirectly, and total assets of the
Subsidiaries are as follows:
Percentage of Ownership Total Assets Before Elimination

Domicile and June 30, December 31, June 30, December 31,
Subsidiaries and its Year of Commercial 2009 2009
Business Activities Operations 2010 (Unaudited) 2009 2008 2007 2010 (Unaudited) 2009 2008 2007
PT Krakatau Wajatama
(“PT KWT”)
Reinforcing bars and Cilegon,
steel wires production 1992 100.00 100.00 100.00 100.00 100.00 1,063,223 747,248 818,876 833,752 738,118
PT Krakatau Daya Listrik
(“PT KDL”)
Generation and
distribution Cilegon,
of electricity 1996 100.00 100.00 100.00 100.00 100.00 610,917 642,237 617,848 632,832 627,319
PT KHI Pipe Industries
(“PT KHIP”) Cilegon,
Steel pipe production 1973 98.48 98.48 98.48 98.48 98.48 599,052 700,549 596,944 691,655 557,309
PT Pelat Timah Nusantara
Tbk
(“PT Latinusa”)1)
Tin plate steel Cilegon,
production 1986 20.10 93.87 20.10 93.87 93.87 – 470,588 – 792,222 489,330
PT Krakatau Industrial
Estate
Cilegon (“PT KIEC”)
and Subsidiary (PT
Laksana Maju Jaya) Cilegon,
Real estate industry 1982 100.00 100.00 100.00 100.00 100.00 392,982 327,269 333,646 315,009 290,733
PT Krakatau Engineering
(“PT KE”)
Construction and Cilegon,
engineering 1988 100.00 100.00 100.00 100.00 100.00 681,837 454,965 575,755 403,474 226,438
PT Krakatau Bandar
Samudera
(“PT KBS”) Cilegon,
Port services provider 1996 100.00 100.00 100.00 100.00 100.00 255,702 192,973 229,541 182,326 172,313
PT Krakatau Tirta
Industri
(“PT KTI”)
and Subsidiary (PT
Krakatau Daya Tirta)
Water treatment and Cilegon,
distribution 1996 100.00 100.00 100.00 100.00 100.00 197,646 160,908 177,909 152,380 145,485
PT Krakatau Medika (“PT
KM”)2)
Medical services Cilegon,
provider 1996 97.55 99.81 97.55 99.65 99.65 98,394 87,404 86,007 82,440 79,562
PT Krakatau Information
Technology (“PT
KITech”)
Computer technology Cilegon,
provider 1993 100.00 100.00 100.00 100.00 100.00 61,976 33,191 43,307 30,884 37,801
PT Meratus Jaya Iron &
Steel (“PT MJIS”)
Iron and steel Jakarta
production - 66.00 66.00 66.00 66.00 - 609,846 108,724 259,328 61,090 -
Total 4,571,575 3,926,056 3,739,161 4,178,064 3,364,408
1)
The Subsidiary was divested in November 2009 (Note 12)
2)
3.07% is owned by PT Latinusa

F-14
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

1. GENERAL (continued)
b. The Subsidiaries (continued)
PT KHIP’s plan to conduct initial public offering was postponed as announced in the Letter No. 419/
DU-KHI/VI/07 dated June 14, 2007 to the Capital Market and Financial Institution Supervisory Agency.
Expenses incurred in relation with such initial public offering were charged to operations and recorded as
part of “Other Income (Charges)” in the 2007 consolidated statement of income. The amendment of PT
KHIP’s Articles of Association with respect to the change of its status to a private company was approved
by the Ministry of Laws and Human Rights in its Decision Letter No. AHU-73762.AH.01.02 Year 2008
dated October 15, 2008.
PT KIEC owns shares of PT Laksana Maju Jaya (“PT LMJ”) with the percentage of ownership of 99.99%.
PT LMJ is engaged in the business of real estate and commenced its commercial operations in 2001.
On August 16, 2006, PT Krakatau Daya Tirta (“PT KDT”) was established as a subsidiary of PT KDL
with share composition of 55% owned by PT KDL and 45% owned by PT KTI. PT KDT was established
with the objective to take over Quelle mineral water business which was previously a business unit of
PT KDL. Based on the Share Sale and Purchase Agreement dated September 9, 2009, PT KDL sold its
25% ownership in PT KDT to PT KTI resulting in the reduction of PT KDL’s percentage of ownership to
30% and increase of PT KTI’s percentage of ownership in PT KDT to 70%.
The Company together with PT Aneka Tambang (Persero) Tbk (“PT Antam”) established PT MJIS on
June 9, 2008 with the percentage of ownership of 66% for the Company and 34% for PT Antam. PT MJIS
is engaged in iron and steel production, trading and services relating to iron and steel products and is
located in Jakarta. Up to June 30, 2010, PT MJIS has not yet commenced its commercial operations.
On November 11, 2009, the Company sold its shares in PT Latinusa totaling 1,387,842,500 shares or 55%
of its ownership to third parties (Note 12). Therefore PT Latinusa is no longer consolidated since
November 11, 2009.

c. Boards of Commissioners and Directors, and Employees

The Boards of Commissioners and Directors of the Company are as follows:
June 30, 2010 and December 31, 2009
Board of Commissioners Board of Directors
President Commissioner : Zacky Anwar President Director : Fazwar Bujang
Commissioner : Mochammad Imron Zubaidy Production Director : Syahrir Syah Pohan
Commissioner : Ansari Bukhari Logistics Director : Yerry
Commissioner : Alexander Rusli Finance Director : Sukandar
Human Resources and
General Affairs Director : Dadang Danusiri
Marketing Director : Irvan Kamal Hakim

June 30, 2009 and December 31, 2008

Board of Commissioners Board of Directors
President Commissioner : Taufikurachman Ruki President Director : Fazwar Bujang
Commissioner : Zacky Anwar Production Director : Syahrir Syah Pohan
Commissioner : Mochammad Imron Zubaidy Logistics Director : Yerry
Commissioner : Ansari Bukhari Finance Director : Sukandar
Commissioner : Alexander Rusli Human Resources and
General Affairs Director : Dadang Danusiri
Marketing Director : Irvan Kamal Hakim

F-15
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

1. GENERAL (continued)
c. Boards of Commissioners and Directors, and Employees (continued)
December 31, 2007
Board of Commissioners Board of Directors
President Commissioner : Taufikurachman Ruki President Director : Fazwar Bujang
Commissioner : Zacky Anwar Production Director : Syahrir Syah Pohan
Commissioner : Ansari Bukhari Logistics Director : Yerry
Commissioner : Alexander Rusli Finance Director : Sukandar
Commissioner : Anwar Supriadi Human Resources and
Commissioner : Kemal Azis Stamboel General Affairs Director : Dadang Danusiri
Marketing Director : Irvan Kamal Hakim

The members of the Company’s Audit Committee are as follows:

June 30, December 31,
2010 2009 2009 2008 2007
Chairman Mochammad Imron Mochammad Imron Mochammad Imron Kemal Azis Stamboel Dodi Syarifudin
Zubaidy Zubaidy Zubaidy
Member Muhammad Assegaf Muhammad Assegaf Muhammad Assegaf Kanaka Puradiredja Bambang Pamungkas
Member Natsir Jafar Natsir Jafar Natsir Jafar Muhammad Hassan Enan Hasan Sjadili
Remuneration for the Company’s Boards of Commissioners and Directors for the six months ended
June 30, 2010 and 2009 and the years ended December 31, 2009, 2008 and 2007 amounted to Rp4,094,
Rp3,764, Rp9,606, Rp11,500 and Rp6,408, respectively. Remuneration of the Subsidiaries’ Boards of
Commissioners and Directors for the six months ended June 30, 2010 and 2009 and the years ended
December 31, 2009, 2008 and 2007 amounted to Rp11,062, Rp11,186, Rp38,514, Rp33,473 and
Rp20,228, respectively.
As of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007, the Company and Subsidiaries
have 7,681, 8,186, 7,637, 8,240 and 8,293 permanent employees (unaudited), respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of preparation of the consolidated financial statements
The consolidated financial statements have been prepared in accordance with generally accepted
accounting principles and practices in Indonesia, which are the Statements of Financial Accounting
Standards (“PSAK”), Regulation and Disclosure Guidance issued by the Capital Market and Financial
Institution Supervisory Agency (“Bapepam-LK”) for those publicly-listed companies engaged in
manufacturing industry.
The consolidated financial statements have been prepared using the accrual basis, except for the
consolidated statements of cash flows, and the measurement basis used is historical cost, except for
certain accounts which are measured on the bases as described in the related accounting policies.
The consolidated statements of cash flows present cash receipts and payments classified into operating,
investing and financing activities using the direct method.
The reporting currency used in the preparation of the consolidated financial statements is Indonesian
Rupiah.
The consolidated financial statements of the Company and Subsidiaries for the six months ended June 30,
2010 and 2009 and the years ended December 31, 2009, 2008 and 2007 have been prepared in connection
with the Company’s plan for the Initial Public Offering of its shares.

F-16
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

b. Principles of consolidation
The consolidated financial statements cover the financial statements of the Company and all Subsidiaries
in which the Company has direct or indirect ownership of more than 50% and a controlling interest.
If there is a transfer/sale of investment in Subsidiary which results in the parent losing control of a
Subsidiary, the result of operations of Subsidiary included in the consolidation is the results of operations
up to the date of the sales/transfer of the investment. The difference between the parent’s investment and
the transfer/sale price of Subsidiary is recognized as gain or loss in the consolidated statements of income.
The proportionate shares of minority shareholders in net assets and net income or loss of the consolidated
subsidiaries are presented as “Minority Interest in Net Assets of Subsidiaries” in the consolidated balance
sheets and as “Minority Interest in Net (Income) Loss of Subsidiaries” in the consolidated statements of
income.
The losses applicable to the minority interests in a Subsidiary may exceed the minority interests in the
equity of the Subsidiary. The excess and any further losses applicable to the minority interests are absorbed
by the Company as the majority shareholder, except to the extent that minority interests have other long-
term interest in the related Subsidiary or have binding obligations to, and are able to make good of the
losses. If the Subsidiary subsequently reports profits, all such profits are allocated to the majority interest
holder, in this case, the Company, until the minority share of losses previously absorbed by the Company
has been recovered.
All material intercompany accounts and transactions, including unrealized gains or losses, if any, are
eliminated to reflect the financial position and the results of operations of the Company and its Subsidiaries
as one business entity.

c. Cash equivalents
Cash and cash equivalents are defined as short-term, highly liquid investments and readily convertible to
known amounts of cash.
Time deposits with maturity periods of three months or less at the time of placement and not pledged as
collateral are classified as cash equivalents. Time deposits which are pledged as collateral or their use is
restricted for short-term loans are presented as “Restricted Time Deposits” as part of current assets in the
consolidated balance sheets.
Time deposits which are pledged as collateral or their use is restricted for long-term loans and project work
are classified as “Restricted Time Deposits” and presented as a part of “Other Assets” account in the
consolidated balance sheets.

d. Short-term investments
Prior to 2010, the Company and Subsidiaries stated and classified short-term investments as follows:
1. Time deposits with maturity periods of more than three months at the time of placement are classified
as short-term investments and stated at their nominal value.

F-17
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Short-term investments (continued)
2. Investments in securities which fair values are available, can be in the form of debt securities and
equity securities, are classified into the following three categories:
a. Trading
This category includes securities purchased and held for resale in the near future, which category
is usually characterized by a very high frequency of purchases and sales. These securities are
owned with the objective of obtaining profit from short-term price differences. Investments in
securities under this category are presented at their fair value. The difference between the carrying
value and the fair value is charged to current year operations.
b. Held to maturity
Investments in debt securities where the intention is to hold the securities until their maturities are
presented at their acquisition cost after amortization of premiums or discounts.
c. Available-for-sale
Investments in securities which are not classified either under trading or held-to-maturity
categories are classified under the available-for-sale category and presented at their fair value.
The difference between the carrying value and the fair value is presented as “Unrealized Gain/
Loss from Increase/Decrease in Market Value of Available-for-Sale Securities” under the
shareholder’s equity section in the consolidated balance sheets. In computing the realized
gain (loss) from the sale of investments, the carrying value of securities sold is determined
using the specific identification method.
Effective January 1, 2010, short-term investments are stated and classified in accordance with the adoption
of PSAK No. 50 (Revised 2006) and PSAK No. 55 (Revised 2006).

e. Allowance for doubtful accounts

Allowance for doubtful accounts is provided based on a review of the collectibility of the individual
outstanding amounts at the end of period. Receivables which are outstanding for two years or more are
fully provided, while receivables which are outstanding for less than two years are not provided except for
amounts identified as uncollectible.

f. Factoring receivables
In accordance with PSAK No. 43, “Accounting for Factoring Receivables”, factoring receivables sold with
recourse are recorded in the consolidated balance sheets as factoring payables at the amount of transferred
receivables. The difference between the amount of transferred receivables and the fund received plus
retention is recognized as interest expense during the factoring period.

g. Transaction with related parties

The Company and Subsidiaries have transactions with entities which have related party relationships as
defined under PSAK No. 7, “Related Party Disclosures”.
All significant transactions with related parties are disclosed in the notes to the consolidated financial
statements.

F-18
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Transaction with related parties (continued)
The transactions of the Company and Subsidiaries with the State-Owned/Region-Owned companies,
which are conducted in the normal course of operations, are not disclosed as transactions with related
parties.

h. Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of inventories is measured using
the weighted-average method except for the cost of inventories of a Subsidiary which is measured using the
specific identification method.
Allowance for inventory obsolescence is provided based on a review of the physical condition of the
inventories at the end of period.
In 2009, the Company changed the cost calculation method for raw material of imported slab, from the
“First-In, First-Out” (FIFO) method to the weighted-average method. The effect of the change on prior
period financial statements before 2009 was considered immaterial and directly charged to the 2009
consolidated financial statements.

i. Investments in shares of stock

Long-term investments in shares of stock whose fair values are not readily available:
1. Investments in shares of stock of less than 20% ownership are accounted for at the lower of cost or net
realizable value.
2. Investments in shares of stock with 20% ownership or more but less than 50% and where the Company
has the ability to exercise significant influence over the operating and financial policies of the
associated company, are accounted for using the equity method. Investments in shares of stock are
stated at cost and added or deducted by the share in the net income or loss of the associated company.
Dividend earned is recorded as deduction from the carrying value of investments.
In compliance with PSAK No. 40, “Accounting for Changes in Equity of Subsidiaries/Associates”, if the
Company’s share in the equity of a Subsidiary change subsequent to a transaction (wherein such
transaction is defined to be other transaction not conducted between the Company and a Subsidiary
but resulting in a change in the equity of a Subsidiary), the difference or the change is recognized as
“Difference Arising from Transactions Resulting in Changes in the Equity of Subsidiaries” account as part
of the Shareholder’s Equity section in the consolidated balance sheets.
Allowance for decline in value of investments is determined to reduce the carrying value of the investments
to reflect a permanent decline.

j. Prepaid expenses
Prepaid expenses are amortized over the periods benefited using the straight-line method.

k. Fixed assets
Prior to January 1, 2008, fixed assets were stated at cost less accumulated depreciation, except for land that
is not depreciated.
Effective January 1, 2008, the Company and Subsidiaries applied PSAK No. 16 (Revised 2007), “Fixed
Assets”, which supersedes PSAK No. 16 (1994), “Fixed Assets and Other Assets” and PSAK No. 17

F-19
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

k. Fixed assets (continued)
(1994), “Accounting for Depreciation”, whereby the Company and Subsidiaries have chosen the cost
model. The adoption of this revised PSAK did not result in a significant effect to the consolidated financial
statements.
Fixed assets are stated at cost less accumulated depreciation and impairment losses. Such cost includes the
cost of replacing part of fixed assets when that cost is incurred, if the recognition criteria are met. Likewise,
when a major inspection is performed, its cost is recognized in the carrying amount of fixed assets as a
replacement if the recognition criteria are satisfied. All repairs and maintenance costs that do not meet the
recognition criteria are recognized in profit or loss as incurred.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets as
follows:
Useful Lives (Years)

Buildings 20-50
Machineries and equipment 5-40
Plant and project equipment 2-20
Transportation equipment 3-30
Office and housing equipment 3-6
An item of fixed assets is derecognized upon disposal or when no future economic benefits are expected
from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the
year the asset is derecognized.
The assets’ residual values, useful lives and methods of depreciation are reviewed, and adjusted
prospectively if appropriate, at each financial year end.
The carrying amount of fixed assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Impairment in asset value, if
any, is recognized as loss in the consolidated statements of income.
Construction in progress is presented under “Fixed Assets” and stated at cost. The accumulated cost of the
asset constructed is transferred to the appropriate fixed assets account when the construction is completed
and the asset is ready for its intended use.
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying
asset are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the
period they occur. Borrowing costs consist of interest and other financing charges that the Company incurs
in connection with the borrowing of funds.
Capitalization of borrowing costs commences when the activities to prepare the qualifying asset for its
intended use have started and the expenditures for the qualifying asset and the borrowing costs have been
incurred. Capitalization of borrowing costs ceases when all the activities necessary to prepare the
qualifying assets for their intended use are substantially completed.
Fixed assets not used in operations are stated at the lower of cost or their recoverable amount and presented
as a part of “Other Assets” account in the consolidated balance sheets.
In accordance with PSAK No. 47, “Accounting for Land”, land acquired after January 1, 1999, is stated at
acquisition cost and not amortized. Specific costs associated with the acquisition or renewal of land titles

F-20
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

k. Fixed assets (continued)
are deferred and presented as a part of “Other Assets” account in the consolidated balance sheets and
amortized over the legal term or the economic life of the land, whichever is shorter.

l. Real estate assets

Land held by certain Subsidiaries for resale, is valued at the lower of cost or net realizable value. Cost is
determined based on the weighted-average method and adjusted by land development costs charged
proportionally to each classification of land.
The acquisition cost of land under development consists of the cost of land acquired but not yet developed,
plus direct and indirect cost of the development attributable to the activities of the real estate development,
including interest cost. The cost of land under development will be transferred to land available for sale (or
inventory) when the land is ready for sale or is already developed.
The cost of land development, including land used for road and public utilities or other area unavailable for
sale, is allocated to the project based on area available for sale.
Real estate assets are presented as part of “Other Assets” account in the consolidated balance sheets.

m. Revenue and expense recognition

Revenues from sale of goods are recognized when the title of ownership of the goods has been passed on to
the customer, either upon delivery, or in the case of finished products held in the Company’s warehouse at
the request of the customer, upon invoicing.
Revenues from construction and engineering services and computer installation services are recognized
based on the percentage of completion method. Losses are recognized as soon as they become apparent.
Revenues from sale of real estates are recognized using the full accrual method in accordance with PSAK
No. 44, “Accounting for Real Estate Development Activities”.
Revenues from room rental, parking facilities, warehouse facilities, hotel and sports facilities, and
environmental services are recognized when the services have been rendered.
Revenues from other services are recognized when the services have been rendered.
Expenses are recognized when incurred.
The cost of land sold is determined based on the acquisition cost of land and other disbursement relating to
the land development.

n. Employee benefits
The Company and Subsidiaries adopted PSAK No. 24 (Revised 2004), “Employee Benefits”, which
provides the accounting and disclosures for employee benefits.
The cost of providing employee benefits under the Collective Labor Agreement is determined using the
Projected Unit Credit method. Actuarial gains or losses are recognized as income or expenses when the net
cumulative unrecognized actuarial gains or losses for each individual plan at the end of the previous
reporting year exceed the greater of 10% of the present value of the defined benefit obligation and 10% of
the fair value of any plan assets at that date. These gains or losses are recognized on a straight-line method
over the expected average remaining working lives of the employees.

F-21
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

n. Employee benefits (continued)
Furthermore, past service costs arising from the introduction of a defined benefit plan or changes in the
benefit payable of an existing plan are required to be amortized using the straight-line method over the
period until the benefits concerned become vested.
Gains or losses on the curtailment or settlement of a defined benefit plan are recognized when the
curtailment or settlement occurs.
A curtailment occurs when an entity either:
i. Is demonstrably committed to make a significant reduction in the number of employees covered by a
plan; or
ii. Amends the terms of a defined benefit plan so that a significant element of future service by current
employees will no longer qualify for benefits, or will qualify only for reduced benefits.
A settlement occurs when an entity enters into a transaction that eliminates all further legal or constructive
obligation for part or all of the benefits provided under a defined benefit plan.
Long-term employee benefits of the Company and Subsidiaries comprise of:

Pension Plan
The Company has defined benefit and defined contribution pension plan for all of its eligible permanent
employees. The Subsidiaries have defined contribution pension plan for all of their eligible permanent
employees.
For financial reporting purposes, the defined benefit pension plan is calculated using the actuarial
assumptions based on the Projected Unit Credit method as required by PSAK No. 24 (Revised 2004).
For funding purposes, the actuarial method used is Projected Benefit Cost Method, attained age normal.
Where the funding status shows a surplus, an asset is recognized in the consolidated financial statements if
that surplus can be recovered through refunds or reductions in future contributions.
For the defined contribution pension plan, contributions payable are charged to current period operations.

Long-term employee benefits

The Company and Subsidiaries also provide long-term employment benefits other than pension which
include long-term compensation leave, post-retirement healthcare benefits and other long-term employee
benefits which are unfunded. These long-term employee benefits are calculated using the Projected Unit
Credit method in accordance with PSAK No. 24 (Revised 2004).

o. Foreign currency transactions and balances

Transactions in foreign currencies are recorded at the exchange rates prevailing at the time of the
transactions. At balance sheet dates, monetary assets and liabilities denominated in foreign currencies are
translated to Rupiah using the middle exchange rates at the last bank transaction date as published by Bank
Indonesia.
Exchange rate gains or losses arising from the foreign currency transactions and from the translation of
foreign currency denominated monetary assets and liabilities are recognized in the current period
operations.

F-22
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

o. Foreign currency transactions and balances (continued)
The exchange rates (in full amount) used to translate the monetary assets and liabilities denominated in
foreign currencies as of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007 are as follows:
June 30, December 31,
2010 2009 2009 2008 2007
EURO (EUR) 1 11,087 14,432 13,510 15,433 13,760
United States Dollar (US$)1 9,083 10,225 9,400 10,950 9,419
Singapore Dollar (SG$) 1 6,482 7,055 6,698 7,608 6,502
Australian Dollar (AUD$) 1 7,730 8,291 8,432 7,556 8,229
Japanese Yen (JP¥) 1 103 107 102 121 83

p. Income tax
Non-final income tax
Current tax expense is determined based on the taxable income for the period computed using the
prevailing tax rates.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the carrying amounts of existing assets and liabilities in the financial statements and their
respective tax bases at the balance sheet date. Deferred tax liabilities are recognized for all taxable
temporary differences and deferred tax assets are recognized for deductible temporary differences and
accumulated fiscal losses to the extent that it is probable that taxable income will be available in future
years against which the deductible temporary differences and accumulated fiscal losses can be utilized.
Deferred tax is calculated at the tax rates that have been enacted or substantively enacted at balance sheet
date. Changes in the carrying amount of deferred tax assets and liabilities due to a change in tax rates are
charged to current year operations, except to the extent that they relate to items previously charged or
credited to equity.
Deferred tax assets and liabilities are offset in the consolidated balance sheets, except if they are for
different legal entities, consistent with the presentation of current tax assets and liabilities.

Final income tax

Based on Government Regulation No. 51 Year 2008 dated July 20, 2008 which was amended by No.
40 Year 2009 dated June 4, 2009, income derived from construction services is subject to final income tax.
This regulation is effective on August 1, 2008. For contract agreements signed before August 1, 2008, the
income derived from payments made up to December 31, 2008 is still subject to non-final tax.
Based on Government Regulation No. 71/2008 dated November 4, 2008, income derived from sale or
transfer of land and building for developer is subject to final tax. This regulation is effective January 1,
2009.
Current tax expense related to income subject to final income tax is recognized in proportion to total
income recognized during the current year for accounting purposes. The difference between the final
income tax paid and the final income tax expense for the current year is recognized as prepaid tax or tax
payable.
The differences between the carrying amounts of existing assets or liabilities related to the final income tax
and their respective tax bases are not recognized as deferred tax assets or liabilities. With the issuance of
the Government Regulations stated above, the related deferred tax assets or liabilities as of December 31,

F-23
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

p. Income tax (continued)
Final income tax (continued)
2008 for entities affected by those regulations are considered no longer recoverable in the future, hence, the
entire balance at such date has been written-off.
Adjustments to tax obligations are recorded when a tax assessment letter is received or, if appealed againts,
when the result of the appeal is determined.

q. Financial instruments
Effective January 1, 2010, the Company and Subsidiaries adopted PSAK No. 50 (Revised 2006),
“Financial Instruments: Presentation and Disclosures” and PSAK No. 55 (Revised 2006), “Financial
Instruments: Recognition and Measurement” which supersede PSAK No. 50, “Accounting for Investments
in Certain Securities” and PSAK No. 55 (Revised 1999), “Accounting for Derivative Instruments and
Hedging Activities” (Note 31).
PSAK No. 50 (Revised 2006) prescribes the requirements for the presentation of financial instruments and
information that should be disclosed in the financial statement, whereas PSAK No. 55 (Revised
2006) prescribes the principles for recognizing and measuring financial assets, financial liabilities and
some contracts to buy or sell non-financial items. This Standard provides for the definitions and
characteristics of a derivative, the categories of financial instruments, recognition and measurement,
hedge accounting and determination of hedging relationships, among others.
The cumulative effect from the prospective adoption of the above revised PSAKs which amounted to
Rp9,325, has been recorded in the retained earnings at January 1, 2010.

Financial assets
Initial recognition
Financial assets within the scope of PSAK No. 55 (Revised 2006) are classified as financial assets at fair
value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale
financial assets, or as derivatives designated as hedging instruments in an effective hedge.
On January 1, 2010, the Company and Subsidiaries did not have financial assets other than
available-for-sale financial assets and loans and receivables. The Company and Subsidiaries
determined the classification of their financial assets at initial recognition and, where allowed and
appropriate, re-evaluate the classification of those assets at each financial period end.
Financial assets are recognized initially at fair value plus, in the case of financial assets not at fair value
through profit or loss, directly attributable transaction costs.

Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
• Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial
assets designated upon initial recognition at fair value through profit or loss.
Derivative assets are classified as held for trading unless they are designated as effective hedging
instruments. Financial assets at fair value through profit or loss are carried in the consolidated balance
sheets at fair value with gains or losses recognized in the consolidated statements of income.

F-24
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

q. Financial instruments (continued)
Financial assets (continued)
Subsequent measurement (continued)
• Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. After initial measurement, such financial assets are carried at amortized
cost using the effective interest rate method, and gains and losses are recognized in the consolidated
statements of income when the loans and receivables are derecognized or impaired, as well as through
the amortization process.
The Company and Subsidiaries have cash and cash equivalents, short-term investments, restricted time
deposits, trade receivables, other receivables and long-term receivables in this category.
• Available-For-Sale (“AFS”) financial assets
AFS financial assets are non-derivative financial assets that are designated as available-for-sale or are
not classified in any of the two preceding categories. After initial measurement, AFS financial assets are
measured at fair value with unrealized gains or losses recognized in the shareholder’s equity until the
investment is derecognized. At that time, the cumulative gain or loss previously recognized in the
shareholder’s equity shall be reclassified to profit or loss as a reclassification adjustment.
The Company and Subsidiaries have investments in shares of stock that do not have readily determinable
fair value in which the ownership of equity interest is less than 20%. These investments are carried at cost.
Derecognition of financial assets
A financial asset, or where applicable, a part of a financial asset or part of a group of similar financial
assets, is derecognized when:
i. the contractual rights to receive cash flows from the asset have expired; or
ii. the Company and Subsidiaries have transferred their rights to receive cash flows from the asset or have
assumed an obligation to pay the received cash flows in full without material delay to a third party
under a “pass-through” arrangement; and either (a) substantially transferred all the risks and rewards
of the asset, or (b) neither transferred nor retained substantially all the risks and rewards of the asset,
but has transferred control of the asset.
When the Company and Subsidiaries have transferred their rights to receive cash flows from an asset or
have entered into a pass-through arrangement, and have neither transferred nor retained substantially all
the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of
the Company and Subsidiaries’ continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the transferred asset, is measured at the
lower of the original carrying amount of the asset and the maximum amount of consideration that the
Company and Subsidiaries could be required to repay.
On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum
of (i) the consideration received, including any new assets obtained less any new liabilities assumed, and
(ii) any cumulative gain or loss which had been recognized in the shareholder’s equity, should be
recognized in the consolidated statements of income.

F-25
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

q. Financial instruments (continued)
Financial assets (continued)
Impairment of financial assets
At each balance sheet date, the Company and Subsidiaries assess whether there is any objective evidence
that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial
assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one
or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that
loss event has an impact on the estimated future cash flows of the financial asset or the group of financial
assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing
significant financial difficulty, default or delinquency in interest or principal payments, the probability that
they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is
a measurable decrease in the estimated future cash flows, such as changes in arrears or economic
conditions that correlate with defaults.
• Financial assets carried at amortized cost
For loans and receivable carried at amortized cost, the Company and Subsidiaries first assess whether
objective evidence of impairment exists individually for financial assets that are individually significant,
or collectively for financial assets that are not individually significant. If the Company and Subsidiaries
determine that no objective evidence of impairment exists for an individually assessed financial asset,
whether significant or not, the asset is included in a group of financial assets with similar credit risk
characteristics and collectively assessed them for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is, or continues to be recognized, are not included in a
collective assessment of impairment.
If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as
the difference between the asset’s carrying amount and the present value of estimated future cash flows
(excluding future expected credit losses that have not yet been incurred). The present value of the
estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan
and receivable has a variable interest rate, the discount rate for measuring impairment loss is the current
effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the amount of
the loss is recognized in the consolidated statements of income. Interest income continues to be accrued
on the reduced carrying amount based on the original effective interest rate of the asset. Loans and
receivable, together with the associated allowance, are written off when there is no realistic prospect of
future recovery and all collateral, if any, has been realized or has been transferred to the Company and
Subsidiaries.
If in a subsequent period, the amount of the estimated impairment loss increases or decreases because of
an event occurring after the impairment was recognized, the previously recognized impairment loss is
increased or reduced (reversed) by adjusting the allowance account. The recovery should not lead to the
carrying amount of the asset exceeds its amortized cost that would have been determined had no
impairment loss been recognized for the asset at the reversal date. The amount of reversal is recognized
in the consolidated statements of income. If a future write-off is later recovered, the recovery is
recognized in the consolidated statements of income.

F-26
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

q. Financial instruments (continued)
Financial assets (continued)
Impairment of financial assets (continued)
• Financial assets carried at cost
If there is objective evidence that an impairment has occurred over equity instruments that do not have the
quotation and is not carried at fair value because fair value can not be measured reliably, then the amount
of any impairment loss is measured as the difference between the carrying value of financial assets and the
present value of estimated future cash flows discounted at the prevailing rate of return on the market for a
similar financial asset. Impairment losses were not recoverable in the next period.

Financial liabilities
Initial recognition
Financial liabilities within the scope of PSAK No. 55 (Revised 2006) are classified as financial liabilities at
fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments
in an effective hedge, as appropriate. The Company and Subsidiaries determine the classification of their
financial liabilities at initial recognition.
Financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, inclusive
of directly attributable transaction costs.
The Company and Subsidiaries’ financial liabilities include trade payables, other payables, accrued
expenses, bank loans, long-term loans, long-term liabilities and derivative financial instruments.

Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
• Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and
financial liabilities designated upon initial recognition at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are acquired for the purpose of selling or
repurchasing in the near term. Derivative liabilities are also classified as held for trading unless they are
designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the consolidated statements of income.
• Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized
cost using the effective interest rate method. At balance sheet date, the accrued interest is recorded
separately from the respective principal loans as part of current liabilities. Gains and losses are
recognized in the consolidated statements of income when the liabilities are derecognized as well as
through the amortization process using the effective interest rate method.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or
has expired.

F-27
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

q. Financial instruments (continued)
Financial liabilities (continued)
Derecognition of financial liabilities (continued)
When an existing financial liability is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and the recognition of a new liability, and the difference
in the respective carrying amounts is recognized in the consolidated statements of income.
Derivative financial instruments
The Company and Subsidiaries enter into and engage in permitted foreign currency swap contracts, if
considered necessary, for the purpose of managing the foreign exchange exposures emanating from the
Company and Subsidiaries’ loans in foreign currencies. These derivative financial instruments are not
designated in a qualifying hedge relationship and are initially recognized at fair value on the date on which
a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried
as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value of derivatives during the period that do not qualify for
hedge accounting are taken directly to profit or loss.
Derivative assets and liabilities are presented under current assets and current liabilities, respectively.
Embedded derivative is presented with the host contract on the consolidated balance sheets which
represents an appropriate presentation of overall future cash flows for the instrument taken as a whole.
Net changes in fair value of derivative instruments and settlement of derivative instruments are charged or
credited to current operations and presented as part of “Gains (Loss) on Foreign Exchange” in the
consolidated statements of income.

Amortized cost of financial instruments

Amortized cost is computed using the effective interest rate method less any allowance for impairment and
principal repayment or reduction. The calculation takes into account any premium or discount on
acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance
sheets if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there
is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

Fair value of financial instruments

The fair value of financial instruments that are actively traded in organized financial markets is determined
by reference to quoted market bid prices at the close of business at the end of the reporting period. For
financial instruments where there is no active market, fair value is determined using valuation techniques
permitted by PSAK No. 55 (Revised 2006), such techniques may include using recent arm’s length market
transactions; reference to the current fair value of another instrument that is substantially the same;
discounted cash flow analysis; or other valuation models.

F-28
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

r. Basic net income (loss) per share
Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average
number of shares outstanding during the period. Total weighted average shares amounted to
10,000,000,000 shares for the six months ended June 30, 2010 and 2009 and the years ended
December 31, 2009, 2008, and 2007. Basic net income (loss) per share for the years ended December 31,
2009, 2008, and 2007 are restated after giving effect to the stock split and the capitalization of retained
earnings to share capital (Note 37e).
Diluted basic net income (loss) per share has the same amount with basic net income (loss) per share since
there is no potential dilutive effects.

s. Segment information
The primary segment information of the Company and Subsidiaries is presented based on business
segments and the secondary segment information is presented based on geographical segments.
A business segment is a distinguishable component of an enterprise that is engaged in producing products
or services (both as individual goods or services or a group of related products or services) and that is
subject to risks and returns that are different from those of other segments.
A geographical segment is a distinguishable component of an enterprise that is engaged in providing
products or services within a particular economic environment and that is subject to risks and returns that
are different from those of components operating in other economic environments.

t. Use of estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting
principles requires management to make estimations and assumptions that affect amounts reported therein.
Due to inherent uncertainty in making estimates, actual results reported in future periods may be based on
amounts that differ from those estimates.

u. Standards issued but not yet effective

Accounting Standards issued by Indonesian Accounting Standards Board (DSAK) up to the date of
completion of the consolidated financial statements of the Company and Subsidiaries but not yet effective
are summarized below:

Effective on or after January 1, 2011:

PSAK 1 (Revised 2009) “Presentation of Financial Statements”
Prescribes the basis for presentation of general purpose financial statements to ensure comparability both
with the entity’s financial statements of previous periods and with the financial statements of other entities.
PSAK 2 (Revised 2009) “Statement of Cash Flows”
Requires the provision of information about the historical changes in cash and cash equivalents by means
of a statement of cash flows which classifies cash flows during the period from operating, investing and
financing activities.
PSAK 4 (Revised 2009) “Consolidated and Separate Financial Statements”
Shall be applied in the preparation and presentation of consolidated financial statements for a group of
entities under the control of a parent and in accounting for investments in subsidiaries, jointly controlled
entities and associates when separate financial statements are presented as additional information.

F-29
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

u. Standards issued but not yet effective (continued)
Effective on or after January 1, 2011: (continued)
PSAK 5 (Revised 2009) “Operating Segments”
Segment information is disclosed to enable users of financial statements to evaluate the nature and
financial effects of the business activities in which the entity engages and the economic environments in
which it operates.
PSAK 7 (Revised 2010) “Related Party Disclosures”
Requires disclosure of related party relationships, transactions and outstanding balances including
commitments, in the consolidated and separate financial statements of a parent, and also applies to
individual financial statements.
PSAK 15 (Revised 2009) “Investments in Associates”
Shall be applied in accounting for investments in associates. Supersedes PSAK 15 (1994) “Accounting for
Investments in Associates” and PSAK 40 (1997) “Accounting for Changes in Equity of Subsidiaries/
Associates”.
PSAK 19 (Revised 2010) “Intangible Assets”
Prescribe the accounting treatment for intangible assets that are not dealt with specifically in another
PSAK. Requires to recognize an intangible asset if, and only if, specified criteria are met, and also specifies
how to measure the carrying amount of intangible assets and requires specified disclosures about intangible
assets.
PSAK 22 (Revised 2010) “Business Combination”
Applies to a transaction or other event that meets the definition of business combination to improve the
relevance, reliability and comparability of the information that a reporting entity provides in its financial
statement about a business combination and its effects.
PSAK 23 (Revised 2010) “Revenue”
Revenue is recognized when it is probable that future economic benefits will flow to the entity and these
benefits can be measured reliably. This Standard identifies the circumstances in which these criteria will be
met and, therefore, revenue will be recognized. It also provides practical guidance on the applications of
these criteria.
PSAK 25 (Revised 2009) “Accounting Policies, Changes in Accounting Estimates and Errors”
Prescribes the criteria for selecting and changing accounting policies, together with the accounting
treatment and disclosure of changes in accounting policies, changes in accounting estimates and
corrections of errors.
PSAK 48 (Revised 2009) “Impairment of Assets”
Prescribes the procedures applied to ensure that assets are carried at no more than their recoverable amount
and if the assets are impaired, an impairment loss should be recognized.
PSAK 57 (Revised 2009) “Provisions, Contingent Liabilities and Contingent Assets”
Aims to provide that appropriate recognition criteria and measurement bases are applied to provisions,
contingent liabilities and contingent assets and to ensure that sufficient information is disclosed in the notes
to the financial statements to enable users to understand the nature, timing and amount related to the
information.

F-30
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

u. Standards issued but not yet effective (continued)
Effective on or after January 1, 2011: (continued)
PSAK 58 (Revised 2009) “Non-Current Assets, Held for Sale and Discontinued Operations”
Aims to specify the accounting for assets held for sale, and the presentation and disclosure of discontinued
operations.
Interpretation of Financial Accounting Standards (“ISAK”) 9 “Changes in Existing Decommissioning,
Restoration and Similar Liabilities”
Applies to changes in the measurement of any existing decommissioning, restoration or similar liability
recognised as part of the cost of an item of fixed assets in accordance with PSAK 16 and as a liability in
accordance with PSAK 57.
ISAK 10 “Customer Loyalty Programmes”
This Interpretation applies to customer loyalty award credits that an entity grants to its customers as part of
a sales transaction and subject to meeting any further qualifying conditions, the customers can redeem in
the future for free or discounted goods or services.
ISAK 11 “Distributions of Non-Cash Assets to Owners”
Applies to types of non-reciprocal distributions of assets by an entity to its owners acting in their capacity
as owners, i.e., distributions of non-cash assets and distributions that give owners a choice of receiving
either non-cash assets or a cash alternative.
ISAK 14 “Intangible Asset-Web Site Costs”
Web site that arises from development and is for internal or external access is an internally generated
intangible asset and any internal expenditure on the development and operation of the web site shall be
accounted for in accordance with PSAK 19 (R2010).

Effective on or after January 1, 2012:

PSAK 10 (Revised 2010) “The Effect of Changes in Foreign Exchange Rates”
Prescribes how to include foreign currency transactions and foreign operations in the financial statements
of an entity and how to translate financial statements into a presentation currency.
ISAK 13 “Hedges of Net Investment in Foreign Operation”
Applies to an entity that hedges the foreign currency risk arising from its net investments in foreign
operations and wishes to qualify for hedge accounting in accordance with PSAK 55 (R2006), refers to such
an entity as a parent entity and to the financial statements in which the net assets of foreign operations are
included as consolidated financial statements.
The Company and Subsidiaries are presently evaluating and have not yet determined the effects of these
revised and new Standards and Interpretations on their consolidated financial statements.

F-31
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

3. CASH AND CASH EQUIVALENTS

This account consists of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
Cash 1,225 1,174 1,147 1,079 1,138
Bank - Third parties
Rupiah accounts
PT Bank Rakyat Indonesia (Persero) Tbk 35,692 840 775 263 98
The Hongkong and Shanghai Banking
Corporation Ltd. 27,017 819 4,223 96 16,414
PT Bank Negara Indonesia (Persero) Tbk 14,900 11,192 405,729 47,669 6,790
PT Bank Central Asia Tbk 11,224 16,956 1,498 4,325 5,582
PT Bank CIMB Niaga Tbk 3,296 2,804 2,302 4,244 3,626
PT Bank Danamon Indonesia Tbk 2,643 4,602 122,803 17,180 107,064
PT Bank Syariah Mandiri 2,453 2,102 5,722 2,461 121
Standard Chartered Bank 1,931 263 224 310 55
PT Bank Mandiri (Persero) Tbk 1,783 6,193 27,856 6,185 20,478
PT Bank Permata Tbk 1,354 135 128 308 1,099
PT Bank Bukopin Tbk 1,090 547 692 266 589
PT Bank Pembangunan Daerah Jawa Barat
dan Banten 844 2,333 3,398 919 483
PT Bank Pembangunan Daerah Jawa Timur – 16 16 5,730 3
Others (each below Rp1,000) 1,590 725 1,016 482 1,373
United States Dollar accounts
PT Bank Mandiri (Persero) Tbk
(US$17,648,429, US$28,490,135,
US$16,721,822, US$12,532,956 and
US$594,939) 160,311 291,312 157,185 137,236 5,604
PT Bank Syariah Mandiri (US$2,579,591,
US$64,887, US$212,553, US$1,885 and
US$2,683) 23,430 663 1,998 21 25
Standard Chartered Bank (US$1,817,575,
US$383,132, US$97,423, US$2,663,053
and US$16,825) 16,509 3,918 916 29,160 159
PT Bank Negara Indonesia (Persero) Tbk
(US$1,530,157, US$525,607,
US$5,476,423, US$676,376 and
US$3,010,865) 13,898 5,374 51,478 7,406 28,359
The Hongkong and Shanghai
Banking Corporation Ltd.
(US$616,787, US$64,475, US$98,027,
US$67,814 and US$241,953) 5,602 659 921 743 2,279
PT Bank CIMB Niaga Tbk (US$562,909,
US$7,798, US$285,944, US$1,836,440 and
US$20,542) 5,113 80 2,688 20,109 194
PT Bank Danamon Indonesia Tbk
(US$451,913, US$1,556,503,
US$3,203,730, US$18,132,951 and
US$622,310) 4,105 15,915 30,115 198,556 5,861
PT Bank Rakyat Indonesia (Persero) Tbk
(US$253,623, US$157,730, US$170,009,
US$226,434 and US$238,057) 2,355 1,615 1,598 2,480 2,242

F-32
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

3. CASH AND CASH EQUIVALENTS (continued)

June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Bank - Third parties (continued)

PT Bank Permata Tbk
(US$63,047, US$27,296, US$25,063,
US$1,794,311 and US$147,550) 573 279 236 19,648 1,390
PT Bank Pembangunan Daerah
Jawa Barat dan Banten
(US$32,642, US$6,038,
US$25,124 and US$24,711) 296 62 236 271 -
PT Bank Central Asia Tbk
(US$5,054, US$5,026, US$5,041,
US$5,008 and US$238,872) 46 51 47 55 2,250
PT Bank Bukopin Tbk
(US$1,323, US$2,838, US$6,364,
US$3,957 and US$11,607) 12 29 60 44 109
Others
(US$18,832, US$11,171, US$21,994,
US$55,918 and US$95,854) 171 114 207 612 903
Euro accounts
PT Bank Mandiri (Persero) Tbk
(EUR18,997, EUR31,665, EUR1,158,661,
EUR18,404 and EUR150,120) 211 457 15,653 284 2,065
PT Bank Negara Indonesia (Persero) Tbk
(EUR12,896, EUR8,865, EUR7,935 dan
EUR8,690) 143 128 108 134 -
PT Bank Rakyat Indonesia (Persero) Tbk
(EUR2,095, EUR27, EUR1,113 and
EUR45) 30 - 15 - 1
PT Bank Permata Tbk
(EUR1,604, EUR1,669, EUR1,637,
EUR1,698 and EUR43,532) 18 24 23 26 599
Others
(EUR10,925, EUR399 and EUR11,266) 121 6 152 - -
Japanese Yen accounts
PT Bank Mandiri (Persero) Tbk
(¥51, ¥52, ¥161,950 and ¥51) - - 17 - -
Singapore Dollar accounts
PT Bank Mandiri (Persero) Tbk
(SG$31, SG$98, SG$66 and SG$417) - - - 3 -
Sub-total 338,761 370,213 840,035 507,226 215,815

Time deposits - Third parties

Rupiah
PT Bank Mandiri (Persero) Tbk 412,162 333,353 236,081 218,725 89,283
PT Bank CIMB Niaga Tbk 103,700 54,470 149,200 109,200 137,033
PT Bank Syariah Mandiri 70,000 18,010 15,000 20,000 21,000
PT Bank Rakyat Indonesia (Persero) Tbk 50,000 1,000 12,004 - -
PT Bank Pembangunan Daerah Jawa Barat
dan Banten 27,000 14,000 20,000 10,000 17,500

F-33
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

3. CASH AND CASH EQUIVALENTS (continued)

June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Time deposits - Third parties (continued)

PT Bank Negara Indonesia (Persero) Tbk 18,677 94,500 6,677 16,350 38,200
PT Bank Bukopin Tbk 12,000 6,000 4,000 4,000 10,900
The Hongkong and Shanghai Banking
Corporation Ltd. 5,100 3,950 11,200 1,100 -
PT Bank Tabungan Negara (Persero) Tbk - - 10,000 - 1,500
PT Bank Permata Tbk - - 10,000 - -
PT Bank Danamon Indonesia Tbk - 10,000 - - 40,000
PT Bank Mega Tbk - - - - 2,000
United States Dollar
PT Bank Negara Indonesia (Persero) Tbk
(US$52,500,000, US$10,002,467,
US$16,500,000 and US$19,095,000) 476,858 102,275 155,100 209,090 -
PT Bank Pembangunan Daerah Jawa Barat
dan Banten (US$300,000, US$19,003) 2,725 194 - - -
PT Bank Mandiri (Persero) Tbk (US$75,000,
US$980,172, US$30,800,000, US$340,000
and US$6,606,965) 681 10,022 289,520 3,723 62,231
PT Bank Danamon Indonesia Tbk
(US$7,900,000) - 80,778 - - -
PT Bank CIMB Niaga Tbk (US$2,278) - 23 - - -
PT Deutsche Bank AG (US$18,939) - 194 - - -
Sub-total 1,178,903 728,769 918,782 592,188 419,647
Total 1,518,889 1,100,156 1,759,964 1,100,493 636,600
Interest rates per annum for time deposits
Deposits in Rupiah 4.3% - 9.3% 2.5% - 12.0% 2.5% - 13.0% 2.5% - 10.3% 2.7% - 9.5%
Deposit in US Dollar 2.3% - 3.5% 1.6% - 3.8% 0.3% - 3.0% 1.5% - 7.0% 1.5% - 6.5%
Interest rates per annum for on call cash
pooling (Note 15) 7.8% 8.0% 7.0% 11.0% 11.0%

4. SHORT-TERM INVESTMENTS
This account consists of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Third parties
Trading securities
Investment funds - 4,517 - 3,291 6,325
Mutual funds - - - - 36,063
- 4,517 - 3,291 42,388
Time deposits 1,950 1,550 142,550 2,050 2,550
Total 1,950 6,067 142,550 5,341 44,938

F-34
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

4. SHORT-TERM INVESTMENTS (continued)

The balance of mutual and investment funds is placed with the following investment companies:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Third parties
PT Panca Global Capital - 4,517 - 3,057 3,325
PT Optima Kharya Capital - - - 234 3,000
PT Synergy Asset Management - - - - 30,135
PT Samuel Aset Manajemen - - - - 4,992
PT Dhanawibawa Artha Cemerlang - - - - 936
Total - 4,517 - 3,291 42,388

Changes in the fair value of mutual funds and investment funds both realized or unrealized amounting to nil and
Rp3,559 for the six months ended June 30, 2010 and 2009, respectively, and the years ended December 31,
2009, 2008 and 2007 amounting to Rp3,559, Rp6,348 and Rp6,840, respectively, are recognized in current
period operations and presented as part of “Other Income (Charges)” in the consolidated statements of income.
The balances of time deposits are as follows:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

PT Bank CIMB Niaga Tbk 1,550 1,550 1,550 1,550 1,550

PT Bank Mandiri (Persero) Tbk 400 - - - 500
PT Bank Negara Indonesia (Persero) Tbk
(US$15,000,000 in 2009) - - 141,000 - -
PT Bank Bukopin Tbk - - - 500 500
Total 1,950 1,550 142,550 2,050 2,550
Interest rates per annum for time deposits
Deposits in Rupiah 6.0% - 8.5% 7.5% - 13% 4.5% - 8.0% 5.5% - 7.0% 6.5% - 8.0%
Deposits in US Dollar - - 3.0% - -

5. RESTRICTED TIME DEPOSITS

Time deposits placed in PT Bank Mandiri (Persero) Tbk amounting to Rp260,000 as of June 30, 2010 are
pledged as collateral for opening import Letter of Credit (L/C) through Bank Mandiri which will expire in June
2011.

F-35
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

6. TRADE RECEIVABLES
This account consists of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Third parties
Local 1,642,459 1,841,419 1,552,711 1,823,476 2,062,891
Export 33,451 35,538 58,136 66,187 95,467
Sub-total 1,675,910 1,876,957 1,610,847 1,889,663 2,158,358
Allowance for doubtful accounts (45,034) (48,416) (38,122) (46,368) (41,538)
Third parties, net 1,630,876 1,828,541 1,572,725 1,843,295 2,116,820
Related parties (Note 9) 94,681 97,456 69,487 151,163 222,084
Net 1,725,557 1,925,997 1,642,212 1,994,458 2,338,904

Trade receivables of the Company and certain Subsidiaries are pledged as collateral to the loan facilities
obtained from creditors (Notes 15 and 22).
The details of trade receivables based on business segments are as follows:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Steel products 1,332,386 1,637,593 1,402,067 1,650,857 2,051,171

Real estate and hotels 76,102 46,678 10,022 13,142 12,152
Other services 317,069 241,726 230,123 330,459 275,581
Total 1,725,557 1,925,997 1,642,212 1,994,458 2,338,904

The details of aging of trade receivables based on invoice dates are as follows:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Current-not due 1,370,075 1,600,600 1,256,678 1,447,235 1,724,017

Past due:
1 - 30 days 225,819 199,148 308,349 386,445 447,870
31 - 60 days 42,788 76,072 26,528 78,551 36,390
61 - 90 days 19,230 17,486 14,875 50,763 5,931
91 - 720 days 87,756 41,434 37,638 42,264 134,108
More than 720 days 24,923 39,673 36,266 35,568 32,126
Total 1,770,591 1,974,413 1,680,334 2,040,826 2,380,442
Allowance for doubtful accounts (45,034) (48,416) (38,122) (46,368) (41,538)
Net 1,725,557 1,925,997 1,642,212 1,994,458 2,338,904

F-36
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

6. TRADE RECEIVABLES (continued)

The changes in the allowance for doubtful accounts are as follows:
2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)

Beginning balance 38,122 46,368 46,368 41,538 27,366

Additional provision 7,813 11,319 1,953 9,835 22,816
Recovery of allowance (901) (9,271) (9,806) (5,005) (8,644)
Effect on disposal of subsidiary
(Note 12) - - (393) - -
Ending balance 45,034 48,416 38,122 46,368 41,538

Based on the review of the status of the individual receivable accounts at the end of period, the management of
the Company and Subsidiaries is of the opinion that the allowance for doubtful accounts is adequate to cover
possible losses that may arise from uncollectible trade receivables.
The details of trade receivables based on currencies are as follows:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Rupiah 1,538,232 1,671,811 1,427,499 1,645,053 2,022,801

United States Dollar (US$20,623,689 in
period 2010, US$24,859,301 in period
2009, US$22,822,153 in 2009,
US$31,909,114 in 2008 and
US$32,876,345 in 2007) 187,325 254,186 214,528 349,405 309,662
Other foreign currencies (EUR13,724 in
2009, EUR465,000 and SG$6,545 in
2007) - - 185 - 6,441
Total 1,725,557 1,925,997 1,642,212 1,994,458 2,338,904

7. FACTORING RECEIVABLES
Factoring receivables as of December 31, 2008 represents trade receivables which were sold with recourse to
PT Bank Mandiri (Persero) Tbk. The balance of factoring receivables in 2008 amounted to Rp109,509
(Note 17). As of June 30, 2010 and 2009 and December 31, 2009 and 2007, there were no outstanding factoring
receivables and payables.

F-37
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

8. OTHER RECEIVABLES
This account consists of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
Third parties 64,040 80,311 61,543 69,759 64,022
Allowance for doubtful accounts (5,422) (6,355) (6,685) (7,915) (6,140)

58,618 73,956 54,858 61,844 57,882

Related parties (Note 9) 15,721 1,831 2,658 3,017 4,322

Net 74,339 75,787 57,516 64,861 62,204

The changes in the allowance for doubtful accounts are as follows:

2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)
Beginning balance 6,685 7,915 7,915 6,140 5,953
Additional provision 26 - - 1,820 943
Recovery of allowance (1,289) (1,560) (1,230) (45) (756)

Ending balance 5,422 6,355 6,685 7,915 6,140

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

June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
Rupiah 72,676 71,851 25,218 55,128 57,026
United States Dollar
(US$183,092 in period 2010,
US$384,961 in period 2009,
US$3,434,686 in 2009, US$870,996
in 2008 and US$549,751 in 2007) 1,663 3,936 32,286 9,537 5,178
Euro
(EUR905 in 2009 and
EUR12,695 in 2008) - - 12 196 -
Total 74,339 75,787 57,516 64,861 62,204

Other receivables from third parties include the receivable arising from the payment to CV Fajar Indah for
purchase of scrap by PT KBS for Rp4,000 in 2006, which became a legal case and until June 30, 2010 has not
been settled yet. Based on a decision of the District Court of North Jakarta No. 326/Pdt.G/2006/
PN.Jkt.Ut dated October 8, 2007, PT KBS’ claim against CV Fajar Indah was rejected. Upon this
decision, on October 22, 2007, PT KBS filed an appeal to the High Court of DKI Jakarta. Based on the
Appeal Decision No. 503/PDT/2008/PT.DKI dated December 16, 2008, which is stated in the Decision
Circular dated March 12, 2009, the High Court of DKI Jakarta approved PT KBS’ claim and instructed CV
Fajar Indah to return the payment of Rp4,000.
In October 2009, CV Fajar Indah filed cassation to the Supreme Court. Up to September 23, 2010, the judge
has not yet reached the verdict. As of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007, PT KBS
has provided full allowance for doubtful accounts on such receivable.
Based on the review of the status of the individual other receivables at the end of period, the management of the
Company and Subsidiaries is of the opinion that the allowance for doubtful accounts is adequate to cover
possible losses that may arise from uncollectible receivables.

F-38
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

9. SIGNIFICANT BALANCES AND TRANSACTIONS WITH RELATED PARTIES

In the normal course of business, the Company and Subsidiaries entered into trade and financial transactions
with related parties. The concerned entities are considered related parties of the Company and Subsidiaries in
view of their common ownership and management. Sales or purchase price among related parties is
determined based on agreed prices using the same basis as for third parties.
The details of nature of relationship and types of significant transactions with related parties are as follows:
Related Parties Nature of Relationship Nature of Transactions
PT Kerismas Witikco Makmur Associated company Sales of steel
PT Pelat Timah Nusantara Tbk Associated company Sales of steel
PT Krakatau Prima Dharma Sentana Associated company Aluminium tolling services
PT Cipta Damas Karya Controlled by DPKS Distributor of the Company’s products
PT Purna Sentana Baja Controlled by DPKS Vehicle rental services
PT Purna Baja Heckett Controlled by DPKS Provider and management of scrap
PT Multi Sentana Baja Controlled by DPKS Vessel stevedoring services
PT Wahana Sentana Baja Controlled by DPKS Product handling and transportation services
PT Sigma Mitra Sejati Controlled by DPKS Provider of refractories
PT Sankyu Indonesia Internasional Controlled by DPKS Heavy equipment services
PT Kapurindo Sentana Baja Controlled by DPKS Purchase of lime
Yayasan Dana Pensiun Krakatau Steel Controlled by the Company Management of pension fund
(“DPKS”)
Yayasan Badan Pengelola Kesejahteraan Controlled by the Company Management of healthcare benefits fund
Krakatau Steel
Primer Koperasi Krakatau Steel The Company’s employee cooperation The Company’s employee prime necessity
Koperasi Wredatama Krakatau Steel The Company’s retired employee The Company’s retired employee prime
cooperation necessity
Yayasan Pendidikan Warga Krakatau Steel The Company’s educational foundation –
Koperasi Sejahtera Bersama PT KIEC’s employee cooperation Provider for labor and office equipment

Significant transactions with related parties are as follows:

2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)
Net revenues
PT Kerismas Witikco Makmur 202,201 172,951 365,753 551,099 435,522
PT Cipta Damas Karya 99,768 132,799 290,168 277,366 247,901
PT Purna Baja Heckett 2,329 1,302 - - -
PT Purna Sentana Baja 1,152 1,787 - - -
Others (each below Rp1,000) 3,747 3,716 - - -
Total 309,197 312,555 655,921 828,465 683,423
Percentage from total consolidated
net revenues 3.44% 3.99% 3.88% 4.02% 4.61%

Purchases
PT Krakatau Prima Dharma Sentana 26,716 12,226 - 31,677 -
PT Purna Sentana Baja 21,025 15,868 20,038 84,558 23,913
PT Indonesia Asri Refactories 14,667 15,138 - 67,269 -
Koperasi Sejahtera Bersama 7,343 4,990 - - -
Primer Koperasi Krakatau Steel 4,659 4,380 8,939 19,786 3,746
Koperasi Wredatama Krakatau Steel 1,820 72 1,448 2,776 -
Others (each below Rp1,000) 1,467 4,046 1,562 1,975 -
Total 77,697 56,720 31,987 208,041 27,659
Percentage from total consolidated
cost of revenues 1.09% 0.67% 0.20% 1.16% 0.21%

The Company and Subsidiaries provides non-interest bearing loans to their employees for housing facilities.
These loans are settled through salary deductions.

F-39
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

9. SIGNIFICANT BALANCES AND TRANSACTIONS WITH RELATED PARTIES (continued)

Significant balances with related parties are as follows:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
Trade receivables (Note 6)
PT Kerismas Witikco Makmur 65,530 55,558 27,501 114,928 157,436
PT Cipta Damas Karya 21,341 39,116 32,994 34,279 62,995
PT Pelat Timah Nusantara Tbk 2,715 - 6,379 - -
Others (each below Rp1,000) 5,095 2,782 2,613 1,956 1,653
Total 94,681 97,456 69,487 151,163 222,084
Percentage from total consolidated
assets 0.71% 0.84% 0.54% 0.98% 2.00%
Other receivables (Note 8)
PT Kerismas Witikco Makmur 12,330 7 - - -
Others (each below Rp1,000) 3,391 1,824 2,658 3,017 4,322
Total 15,721 1,831 2,658 3,017 4,322
Percentage from total consolidated
assets 0.12% 0.02% 0.02% 0.02% 0.04%

Other receivables from PT Kerismas Witikco Makmur as of June 30, 2010 included dividends receivable
amounting to Rp12,310 (Note 12).
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
Trade payables (Note 16)
Primer Koperasi Krakatau Steel 14,017 3,911 1,404 8,039 -
PT Purna Baja Heckett 7,817 11,159 8,242 2,785 4,539
PT Purna Sentana Baja 5,693 11,023 5,504 8,873 4,914
PT Multi Sentana Baja 5,491 7,504 6,702 738 2,774
PT Wahana Sentana Baja 4,120 6,449 2,460 5,467 540
PT Sankyu Indonesia Internasional 3,560 2,380 2,984 2,316 115
PT Sigma Mitra Sejati 3,148 2,566 6,255 3,501 133
PT Purna Sentana Wahana - 2,042 - - -
Yayasan Dana Pensiun Krakatau Steel - 719 3,115 - -
PT Kapurindo Sentana Baja - - - 76 2,017
Others (each below Rp1,000) 1,748 1,096 2,278 1,155 2,861

Total 45,594 48,849 38,944 32,950 17,893

Percentage from total consolidated

liabilities 0.69% 0.67% 0.56% 0.33% 0.30%
Other payables
Dividends payable 148,402 112,872 - - -
Yayasan Dana Pensiun Krakatau Steel 6,635 3,225 - 4,403 4,406
Yayasan Badan Pengelola
Kesejahteraan
Krakatau Steel (Note 23) 2,158 1,351 243,197 - -
Others (each below Rp1,000) 765 1,661 3,344 1,406 2,022

Total 157,960 119,109 246,541 5,809 6,428

Percentage from total consolidated

liabilities 2.38% 1.63% 3.55% 0.06% 0.10%

F-40
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

10. INVENTORIES
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
Steel products
Finished goods 2,489,035 2,284,991 2,113,858 4,080,056 1,987,619
Raw materials 1,405,430 1,062,504 990,196 3,447,969 1,128,709
Supplies and spare parts 629,911 467,774 457,640 654,770 687,411
Goods in transit 391,945 227,480 1,033,180 310,962 440,927
Others 214,149 206,339 222,840 285,181 10,811
Non-steel products
Others 91,720 153,847 122,132 163,022 49,000
Total 5,222,190 4,402,935 4,939,846 8,941,960 4,304,477
Allowance for decline in value of
inventory (12,871) (52,874) (23,254) (738,421) -
Allowance of inventory obsolescence (45,565) (43,842) (44,611) (43,602) (45,866)
Total (58,436) (96,716) (67,865) (782,023) (45,866)
Net 5,163,754 4,306,219 4,871,981 8,159,937 4,258,611

The changes in the allowance for decline in value of inventory and inventory obsolescence are as follows:
2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)
Beginning balance 67,865 782,023 782,023 45,866 55,108
Additional provision 1,572 281,421 281,922 741,128 2,939
Recovery of allowance (11,001) (966,728) (995,812) (4,971) (12,181)
Effect on disposal of subsidiary - - (268) - -
Ending balance 58,436 96,716 67,865 782,023 45,866

As of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007, the Company and Subsidiaries provided
allowance for decline in value of inventory for raw materials amounting to nil, nil, Rp72, Rp374,932 and nil,
respectively, and finished goods amounting to Rp618, Rp280,731, Rp23,182, Rp363,489 and nil, respectively,
since the carrying value of such inventories were higher than the net realizable value. In 2009 and 2010, the
Company and Subsidiaries have already used the raw materials for production process and sold the finished
goods, therefore the Company and Subsidiaries recognized the recovery on such allowance.
The inventories of the Company and certain Subsidiaries are pledged as collateral to the loan facilities obtained
from creditors (Notes 15 and 22).
Based on the review of the net realizable value of inventories and physical condition of inventories at the end of
period, the management of the Company and Subsidiaries is of the opinion that the allowances for decline in
value of inventory and inventory obsolescence are adequate to cover possible losses arising from such
conditions.
As of June 30, 2010, the Company’s and Subsidiaries’ inventories, except for steel scrap, steel billets and steel
slabs, are covered by insurance against fire and other risks under certain blanket policies together with the
Company’s and Subsidiaries’ fixed assets (Note 13). The management of the Company and Subsidiaries is of
the opinion that the sums insured are adequate to cover possible losses that may arise from such risks.

F-41
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

11. ADVANCES AND PREPAID EXPENSES

This account consists of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
Prepaid expenses — work in progress 69,275 75,404 91,477 24,460 20,249
Advance payments 51,127 41,753 31,589 61,689 46,642
Insurance 18,890 11,577 9,125 7,064 6,441
Others 9,550 12,731 9,632 7,222 8,359
Total 148,842 141,465 141,823 100,435 81,691

Prepaid expenses - work in progress represent costs incurred by PT KE, a Subsidiary engaged in the
construction and engineering, which will be charged to cost of revenues based on percentage of
completion of the construction contract.
Advance payments mainly represent project advances paid by PT KE to sub-contractors and project leaders in
relation to the performance of project work.

12. INVESTMENTS IN SHARES OF STOCK

This account consists of:
June 30, 2010
Percentage of Carrying Value Share in Cash Carrying Value
Ownership January 1, 2010 Net Income Dividends June 30, 2010
Equity method
PT Pelat Timah Nusantara Tbk 20.10% 85,916 11,111 (2,586) 94,441
PT Kerismas Witikco Makmur 29.31% 49,423 9,105 (12,310) 46,218
PT Krakatau Prima Dharma Sentana 25.00% 257 29 - 286
Total equity method 135,596 20,245 (14,896) 140,945
Cost method
PT Maleo Emtiga 51.64% 50,000 - - 50,000
PT Seamless Pipe Indonesia Jaya 3.24% 10,470 - - 10,470
South Australian Steel and Energy 6.67% 5,850 - - 5,850
PT Marga Mandala Sakti 0.47% 675 - - 675
PT Metbelosa 15.00% 482 - - 482
PT Indonesia Asri Refractories 10.00% 212 - - 212
Total cost method 67,689 - - 67,689
Allowance for decline in value of
investment (66,532) - - (66,532)
Net 136,753 20,245 (14,896) 142,102

F-42
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

12. INVESTMENTS IN SHARES OF STOCK (continued)

June 30, 2009 (Unaudited)
Percentage of Carrying Value Share in Cash Carrying Value
Ownership January 1, 2009 Net Income Dividends June 30, 2009
Equity method
PT Kerismas Witikco Makmur 29.31% 32,775 10,506 - 43,281
PT Krakatau Prima Dharma Sentana 25.00% 222 2 - 224
Total equity method 32,997 10,508 - 43,505
Cost method
PT Maleo Emtiga 51.64% 50,000 - - 50,000
PT Seamless Pipe Indonesia Jaya 3.24% 10,470 - - 10,470
South Australian Steel and Energy 6.67% 5,850 - - 5,850
PT Marga Mandala Sakti 0.47% 675 - - 675
PT Metbelosa 15.00% 482 - - 482
PT Indonesia Asri Refractories 10.00% 212 - - 212
Total cost method 67,689 -- - 67,689
Allowance for decline in value of
investment (66,532) - - (66,532)
Net 34,154 10,508 - 44,662

December 31, 2009

Carrying
Value Effect on Carrying
Percentage January 1, Disposal Share in Cash Value
of Ownership 2009 of Subsidiary Net Income Dividends Dec 31, 2009
Equity method
PT Pelat Timah Nusantara Tbk 20.10% - 84,665 1,251 - 85,916
PT Kerismas Witikco Makmur 29.31% 32,775 - 25,440 (8,792) 49,423
PT Krakatau Prima Dharma
Sentana 25.00% 222 - 35 - 257
Total equity method 32,997 84,665 26,726 (8,792) 135,596
Cost method
PT Maleo Emtiga 51.64% 50,000 - - - 50,000
PT Seamless Pipe Indonesia Jaya 3.24% 10,470 - - - 10,470
South Australian Steel and Energy 6.67% 5,850 - - - 5,850
PT Marga Mandala Sakti 0.47% 675 - - - 675
PT Metbelosa 15.00% 482 - - - 482
PT Indonesia Asri Refractories 10.00% 212 - - - 212
Total cost method 67,689 - - - 67,689
Allowance for decline in value of
investment (66,532) - - - (66,532)
Net 34,154 84,665 26,726 (8,792) 136,753

F-43
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

12. INVESTMENTS IN SHARES OF STOCK (continued)

December 31, 2008
Percentage of Carrying Value Share in Cash Carrying Value
Ownership January 1, 2008 Net Income Dividends Dec 31, 2008
Equity method
PT Kerismas Witikco Makmur 29.31% 32,775 - - 32,775
PT Krakatau Prima Dharma Sentana 25.00% 95 127 - 222
Total equity method 32,870 127 - 32,997
Cost method
PT Maleo Emtiga 51.64% 50,000 - - 50,000
PT Seamless Pipe Indonesia Jaya 3.24% 10,470 - - 10,470
South Australian Steel and Energy 6.67% 5,850 - - 5,850
PT Marga Mandala Sakti 0.47% 675 - - 675
PT Metbelosa 15.00% 482 - - 482
PT Indonesia Asri Refractories 10.00% 212 - - 212
Total cost method 67,689 - - 67,689
Allowance for decline in value of investment (66,532) - - (66,532)
Net 34,027 127 - 34,154

December 31, 2007

Percentage of Carrying Value Share in Cash Carrying Value
Ownership January 1, 2007 Net Income Dividends Dec 31, 2007
Equity method
PT Kerismas Witikco Makmur 29.31% 32,775 - - 32,775
PT Krakatau Prima Dharma Sentana 30.00% - 95 - 95
Total equity method 32,775 95 - 32,870
Cost method
PT Maleo Emtiga 51.64% 50,000 - - 50,000
PT Seamless Pipe Indonesia Jaya 3.24% 10,470 - - 10,470
South Australian Steel and Energy 6.67% 5,850 - - 5,850
PT Marga Mandala Sakti 0.47% 675 - - 675
PT Metbelosa 15.00% 482 - - 482
PT Indonesia Asri Refractories 10.00% 212 - - 212
Total cost method 67,689 - - 67,689
Allowance for decline in value of
investment (66,532) - - (66,532)
Net 33,932 95 - 34,027

PT Pelat Timah Nusantara Tbk (“PT Latinusa”)

On December 4, 2009, PT Latinusa obtained the effective statement from Bapepam-LK to conduct public
offering of its 504,670,000 new shares with nominal value of Rp100 (full amount) per share at a price of Rp325
(full amount) per share. PT Latinusa’s shares were listed on the Indonesia Stock Exchange on December 14,
2009.
Based on Sale and Purchase Agreement dated November 11, 2009, the Company sold its 1,387,842,500 shares
in PT Latinusa (55% of PT Latinusa’s total shares) to Nippon Steel Corporation, Nippon Steel Trading Co.,
Ltd., Mitsui & Co., Ltd. and Metal One Corporation which will be effective after PT Latinusa’s Initial Public
Offering. The sale (divestment) of PT Latinusa’s shares owned by the Company has been approved by the
Ministry of State-Owned Enterprises on October 19, 2009.
The shares were sold at US$0.0432 per share or totaling Rp565,674 and resulted in a gain on sale of investment
of Rp374,648 (net of other expenses related to the sale of shares) which is presented as part of “Other Income
(Charges)” in the 2009 consolidated statement of income. The sale of PT Latinusa’s shares was subjected to
final tax.

F-44
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

12. INVESTMENTS IN SHARES OF STOCK (continued)

PT Pelat Timah Nusantara Tbk (“PT Latinusa”) (continued)
Upon the completion of the transaction, the Company’s ownership interest in PT Latinusa decreased to 20.1%.
As a result, PT Latinusa was deconsolidated as of December 31, 2009 and going forward are presented as an
investment under the equity method.
Summarized below is the 2009 financial data of PT Latinusa which was no longer consolidated as of
December 31, 2009 (before elimination) (with comparative figures for 2008 and 2007):
December 31,
2009*) 2008 2007

Total assets 466,677 792,222 489,330

Total liabilities 198,510 532,517 286,295
Net income 35,774 72,719 53,309
*) As at/up to effective date of divestment

PT Kerismas Witikco Makmur (“PT Kerismas”)

Before 2009, investment in PT Kerismas was stated at acquisition cost and was not adjusted with changes in the
equity since the management believes that the impact is immaterial.
Based on the general meeting of shareholders of PT Kerismas, the shareholders agreed to pay cash dividends
amounting to Rp42,000, Rp30,000, Rp9,000 and Rp1,500 for the six months ended June 30, 2010 and the years
ended December 31, 2009, 2008 and 2007, respectively. The Company received its share of the dividends
amounting to Rp12,310 and Rp8,792 for the six months ended June 30, 2010 and the year ended December 31,
2009 which were recorded as deduction to the carrying amount of investment while for the amount of Rp2,638
and Rp439 for the years ended December 31, 2008 and 2007, respectively, are presented as other income in the
consolidated statements of income.
Allowance for decline in value of investment is provided for investments in PT Maleo Emtiga (Rp50,000), PT
Seamless Pipe Indonesia Jaya (Rp10,470), South Australian Steel and Energy (Rp5,850) and PT Indonesia
Asri Refractories (Rp212). The Company’s management is of the opinion that the allowance for decline in
value of investment is adequate to cover possible losses.
As a follow-up for the Company’s investment in PT Maleo Emtiga, the Company intended to dissolve and
liquidate PT Maleo Emtiga. The plan has been approved by the the Ministry of State-Owned Enterprises on
August 2, 2010. As of September 23, 2010, the execution of the dissolution and liquidation is still in process.
The Company believes that the ultimate resolution of the liquidation process is unlikely to have a material
effect on the results of the Company’s operations, financial position or liquidity and, therefore, the Company
did not provide provision in relation to liquidation process in the consolidated financial statements.

F-45
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

13. FIXED ASSETS

This account consists of:
June 30, 2010
Beginning Ending
Balances Additions Deductions Reclassifications Balances
Acquisition cost
Land 170,597 - - - 170,597
Buildings 1,080,822 3,411 433 5,574 1,089,374
Machineries and equipment 4,992,619 34,151 4,538 35,429 5,057,661
Plant and project equipment 34,220 947 - 891 36,058
Transport equipment 11,760 15 - - 11,775
Office and housing equipment 532,981 19,101 834 232 551,480
Construction in progress 700,092 674,918 - (42,126) 1,332,884
Total acquisition cost 7,523,091 732,543 5,805 - 8,249,829

Accumulated depreciation
Buildings 699,455 20,393 119 - 719,729
Machineries and equipment 2,976,831 133,064 4,855 - 3,105,040
Plant and project equipment 32,420 4,034 - - 36,454
Transport equipment 9,180 396 - - 9,576
Office and housing equipment 426,277 9,314 101 - 435,490
Total accumulated depreciation 4,144,163 167,201 5,075 - 4,306,289
Carrying amount 3,378,928 565,342 730 - 3,943,540

June 30, 2009 (Unaudited)

Beginning Ending
Balances Additions Deductions Reclassifications Balances
Acquisition cost
Land 172,045 - - - 172,045
Buildings 1,054,368 7,633 - 25,801 1,087,802
Machineries and equipment 5,045,531 10,308 70,979 12,204 4,997,064
Plant and project equipment 34,622 568 - - 35,190
Transport equipment 12,321 290 370 - 12,241
Office and housing equipment 463,131 6,242 1,668 65,491 533,196
Construction in progress 313,563 151,094 - (103,496) 361,161
Total acquisition cost 7,095,581 176,135 73,017 - 7,198,699

Accumulated depreciation
Buildings 672,383 25,515 - - 697,898
Machineries and equipment 2,811,349 140,055 46,186 - 2,905,218
Plant and project equipment 25,808 3,917 - - 29,725
Transport equipment 9,872 481 361 - 9,992
Office and housing equipment 413,896 13,636 1,014 - 426,518
Total accumulated depreciation 3,933,308 183,604 47,561 - 4,069,351
Carrying amount 3,162,273 (7,469) 25,456 - 3,129,348

F-46
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

13. FIXED ASSETS (continued)

December 31, 2009

Beginning Ending
Balances Additions Deductions Reclassifications Balances
Acquisition cost
Land 172,045 183 1,631 - 170,597
Buildings 1,054,368 24,360 25,627 27,721 1,080,822
Machineries and equipment 5,045,531 48,221 156,168 55,035 4,992,619
Plant and project equipment 34,622 1,659 2,061 - 34,220
Transport equipment 12,321 1,061 1,622 - 11,760
Office and housing equipment 463,131 16,617 12,409 65,642 532,981
Construction in progress 313,563 534,927 - (148,398) 700,092
Total acquisition cost 7,095,581 627,028 199,518 - 7,523,091

Accumulated depreciation
Buildings 672,383 46,974 19,902 - 699,455
Machineries and equipment 2,811,349 277,986 112,504 - 2,976,831
Plant and project equipment 25,808 7,748 1,136 - 32,420
Transport equipment 9,872 794 1,486 - 9,180
Office and housing equipment 413,896 22,581 10,200 - 426,277
Total accumulated depreciation 3,933,308 356,083 145,228 - 4,144,163
Carrying amount 3,162,273 270,945 54,290 - 3,378,928

December 31, 2008

Beginning Ending
Balances Additions Deductions Reclassifications Balances
Acquisition cost
Land 173,028 - 983 - 172,045
Buildings 1,005,510 4,361 1,589 46,086 1,054,368
Machineries and equipment 4,812,482 25,646 56,862 264,265 5,045,531
Plant and project equipment 24,719 12,366 2,463 - 34,622
Transport equipment 12,485 344 508 - 12,321
Office and housing equipment 441,725 19,720 1,335 3,021 463,131
Construction in progress 331,789 295,146 - (313,372) 313,563
Total acquisition cost 6,801,738 357,583 63,740 - 7,095,581

Accumulated depreciation
Buildings 626,630 46,255 502 - 672,383
Machineries and equipment 2,583,516 266,680 38,847 - 2,811,349
Plant and project equipment 19,636 7,398 1,226 - 25,808
Transport equipment 9,254 1,126 508 - 9,872
Office and housing equipment 378,855 35,995 954 - 413,896
Total accumulated depreciation 3,617,891 357,454 42,037 - 3,933,308
Carrying amount 3,183,847 129 21,703 - 3,162,273

F-47
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

13. FIXED ASSETS (continued)

Beginning December 31, 2007 Ending

Balances Additions Deductions Reclassifications Balances
Acquisition cost
Land 176,905 630 4,507 - 173,028
Buildings 978,539 6,064 - 20,907 1,005,510
Machineries and equipment 4,741,810 58,413 50,143 62,402 4,812,482
Plant and project equipment 42,451 2,950 22,030 1,348 24,719
Transport equipment 11,559 1,781 855 - 12,485
Office and housing equipment 408,727 29,803 1,310 4,505 441,725
Construction in progress 141,365 279,586 - (89,162) 331,789
Total acquisition cost 6,501,356 379,227 78,845 - 6,801,738

Accumulated depreciation
Buildings 584,837 42,676 883 - 626,630
Machineries and equipment 2,372,654 258,453 47,591 - 2,583,516
Plant and project equipment 34,347 870 15,581 - 19,636
Transport equipment 9,026 1,066 838 - 9,254
Office and housing equipment 328,002 50,853 - - 378,855
Total accumulated depreciation 3,328,866 353,918 64,893 - 3,617,891
Carrying amount 3,172,490 25,309 13,952 - 3,183,847

Allocation of depreciation expense is as follows:

2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)
Cost of revenues 158,074 173,578 337,072 336,602 332,668
Operating expenses 9,127 10,026 19,011 20,852 21,250
Total 167,201 183,604 356,083 357,454 353,918

Borrowing costs capitalized to construction in progress amounted to Rp11,583, Rp619, Rp3,927, Rp1,305 and
Rp1,497 for the six months ended June 30, 2010 and 2009 and the years ended December 31, 2009, 2008 and
2007, respectively.
The titles of landrights covering total area of 51.3 hectares (“Ha”) are in the process of transfer to the
Company’s name. The landrights will expire in various years, ranging from 2012 to 2035. The management is
of the opinion that the landrights are extendable.
Deductions of fixed assets in 2009 included the divestment of PT Latinusa and assets of SSP 1 plant that were
damaged due to a fire accident. The acquisition cost of PT Latinusa’s divested assets amounted to Rp118,715
with accumulated depreciation of Rp91,569. The acquisition cost of the burned assets of SSP 1 plant amounted
to Rp70,037 with accumulated depreciation of Rp45,277. In 2009, the Company received insurance claim
payment of the burned assets from PT Asuransi Jasa Indonesia amounting to US$2,320,000 (equivalent to
Rp22,640). The net loss from insurance claim was presented as part of “Other Income (Charges)” in the 2009
consolidated statement of income.
In 2009 and 2008, PT KDL recorded income from insurance claim amounting to Rp48,501 and Rp51,695,
respectively, as part of “Other Income (Charges)”. This income represents insurance claims for damage caused
by fire in boiler machine (carrying amount of Rp1,220) in 2007 and transformer machine (carrying amount of
Rp7,874) in 2008.

F-48
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

13. FIXED ASSETS (continued)

Details of construction in progress as of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007 are as
follows:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
HSM plant revitalization 398,068 131,963 282,700 108,904 96
SSP 1 plant revitalization 169,354 2,308 12,291 167 -
ERP SAP 34,148 11,607 37,211 68,064 46,065
DR plant revitalization 68,560 49,640 55,673 43,294 29,598
Fuel conversion of CRM plant 36,085 5,593 12,214 - -
Construction of ironmaking plant 550,952 77,169 244,017 21,052 -
Others 75,717 82,881 55,986 72,082 256,030
Total 1,332,884 361,161 700,092 313,563 331,789

HSM plant revitalization

Hot Strip Mill (“HSM”) plant revitalization project was aimed to replace old equipment with new equipment
that has modern technology to increase production capacity from 2.0 million metric tons (unaudited) of HRC
per year to 2.45 million metric tons (unaudited) of HRC per year. The Company has appointed SMS Demag
AG, Siemens AG, PT Siemens Indonesia, PT Lykamandiri and Tenova-LOI S.p.A. (Consortium) to carry out
the project (Note 33f). As of June 30, 2010, the Company’s management estimates the percentage of
completion of HSM revitalization in financial terms is 51.85% (unaudited). The project is expected to be
completed in May 2011.

SSP 1 plant revitalization

Slab Steel Plant 1 (“SSP 1”) revitalization project was aimed to replace old equipment with new equipment
that has modern technology to increase production capacity from 1.0 million metric tons (unaudited) of slab to
1.3 million metric tons (unaudited) of slab per year. This project involves the replacement of Electronic Arc
Furnaces, Continuous Casting Machine, Dedusting and Water Treatment and Utility. The Company has
appointed Siemens VAI Metal Technologies GmbH, Siemens AG and PT Siemens Indonesia to carry out the
project (Note 33i). As of June 30, 2010, the Company’s management estimates that the percentage of
completion of SSP 1 revitalization in financial terms is 18.98% (unaudited). The project is expected to be
completed in December 2012.

ERP SAP
To improve and integrate business processes and information system, the Company entered into an ERP
(“Enterprise Resources Planning”) project by using SAP software. This project involves creating a network,
procurement of hardware, online software support and SAP Early Watch Service which are divided into several
modules. The Company has appointed PT KITech as the implementation consultant which was previously
handled by PT Soltius Indonesia and IDS Scheer Singapore, Pte. Ltd. (Note 33e). As of June 30, 2010, the
Company’s management estimates that the percentage of completion of ERP SAP project in financial terms is
88.48% (unaudited). The project is expected to be completed in December 2010.

DR plant revitalization
The Company’s sponge iron manufacturing (“Direct Reduction, DR”) facility consists of natural gas-based
direct reduction plant. DR plant revitalization project includes the modification of HYL III technology to Zero
Reformer and the expansion of production capacity from 1.5 million metric tons (unaudited) of sponge iron
(direct reduced iron) to 1.74 million metric tons (unaudited) of sponge iron per year. In relation to this

F-49
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

13. FIXED ASSETS (continued)

DR plant revitalization (continued)
revitalization project, the Company has signed a license agreement and technical assistance with HYLSA, S.A
de C.V and a work contract of Migration Automation System of HYL III with PT Honeywell Indonesia
(Note 33j). As of June 30, 2010, the Company’s management estimates that the percentage of completion of
DR plant revitalization in financial terms is 11.13% (unaudited). The project is expected to be completed in
January 2012.

Fuel conversion of CRM plant

The energy conversion project in Cold Rolling Mill (“CRM”) plant was aimed to reduce energy cost by
replacing the use of more expensive fuel with more cheaper natural gas, including changing the combustion
system. The Company has appointed a consortium of LOI Thermprocess GMBH and PT Grand Kartech and a
consortium of Key Technologies GMBH Industriebau to implement the project (Note 33g). As of June 30,
2010, the Company’s management estimates that the percentage of completion of this project in financial
terms is 85.63% (unaudited). The project is expected to be completed in December 2010.

Ironmaking plant
The Company, through PT MJIS, is constructing an ironmaking facility in Batulicin, South Kalimantan. The
facility will utilize local iron ore with coal-based technology to support the Company’s effort to reduce its
dependency on imported iron ore. The facility is planned to have a production capacity of 315,000 metric tons
(unaudited) of sponge iron per year. As of June 30, 2010, the management of PT MJIS estimates the percentage
of completion of this project in financial terms is 53% (unaudited), which is expected to operate in March
2011.
Other construction in progress at December 31, 2007 mainly represents PT KDL’s and PT KHI’s construction
in progress that consists of boiler reconditioning project amounting to Rp114,784, procurement and
construction of gas pipeline phase II project amounting to Rp47,650, and procurement projects for Three
Layer Coating machine, SPM 1800 and online slitting at ERW amounting to Rp61,834. Those projects have
been completed in 2008.
Assets not used in operations consist of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
Land 22,686 25,445 21,135 26,287 26,438
Buildings 3,434 3,093 4,751 5,220 5,785
Machineries 1,943 2,628 306 2,043 22,913
Insurance spare 4,710 7,778 4,952 8,144 944
Total 32,773 38,944 31,144 41,694 56,080

Land, buildings, machinery and certain manufacturing equipment of the Company and certain Subsidiaries are
pledged as collateral for loans obtained from creditors (Notes 15 and 22).
Fixed assets and inventories of the Company and certain Subsidiaries, except steel slab, steel scrap, steel billet,
land, vehicles, office and laboratory equipment, have been insured against risk of fire and other risks under
blanket policies of Krakatau Steel Group with a maximum sum insured of US$500,000,000 per incident. For
machinery breakdown risk with a maximum sum insured of US$20,000,000 per incident and for the
surrounding asset loss risk with a maximum sum insured of US$2,500,000 per incident.

F-50
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

13. FIXED ASSETS (continued)

PT KHIP’s fixed assets have been insured against risk of fire and other risks with a maximum sum insured of
Rp34,600 per incident. Against the risk of damage to machinery and equipment with a maximum sum insured
of Rp5,000 per incident and for the surrounding asset loss risk with a maximum sum insured of US$8,880,000
per incident.
PT MJIS fixed assets have been insured against Erection All Risk, Construction All Risk and other risks under
blanket policies with a sum insured of Rp629,348.
The management of the Company and Subsidiaries believes that the insurance coverage is adequate to cover
possible losses that may arise from such risks.
Based on the assessment of the management of the Company and Subsidiaries, there are no events or changes
in circumstances that indicate any impairment in the value of fixed assets as of June 30, 2010 and 2009 and
December 31, 2009, 2008 and 2007.

14. LONG-TERM RECEIVABLES

This account consists of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
PT Boma Bisma Indra 72,093 72,093 72,093 72,093 72,093
Others (each below Rp1,000) 628 1,529 38,028 37,251 23,250
Total 72,721 73,622 110,121 109,344 95,343
Allowance for doubtful accounts (72,093) (32,000) (32,000) (24,000) -
Net 628 41,622 78,121 85,344 95,343

Based on a letter from the Ministry of State-Owned Enterprises No. S-58/M-BUMN/2003 dated May 7, 2003,
the Company granted loans amounting to Rp80,000 for restructuring program of PT Boma Bisma Indra
(“BBI”). Based on the Lending and Borrowing Agreement No. 29/CU-DUKS/KONTR/2003 and its
Amendment No. 08/CU-DUKS/KONTR/2005, this loan bears interest rate at 8% per annum and will be
repaid at each March, starting 2006 to 2015. The Company did not recognize interest receivable on this loan
since the Company’s management believes that the interest receivable is not collectible. Up to September 23,
2010, BBI has not yet fulfilled its obligation to pay as stipulated under the above agreements. The Company is
still in the process of discussion with BBI for the settlement of such receivables. As of June 30, 2010, the
Company determined the allowance for doubtful accounts on this receivable amounting to Rp72,093.
The Company’s management is of the opinion that the allowance for doubtful accounts is adequate to cover
possible losses that may arise from uncollectible receivables.

F-51
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

15. SHORT-TERM BANK LOANS

The Company and Subsidiaries have obtained loan facilities from several banks as follows:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
The Company – Third parties
PT Bank Mandiri (Persero) Tbk
Working Capital Loan for Import
(US$44,729,768 and EUR13,990
for period 2010, US$116,127,694
and Rp323,155 for period 2009,
US$134,879,715 and EUR343,630
in 2009, US$258,893,753,
EUR387,293 and Rp659,248
in 2008, US$210,715,787 and
Rp14,390 in 2007) 406,436 1,510,560 1,272,512 3,500,112 1,999,122
Working Capital Loan in Rupiah 764,300 793,975 270,000 270,000 -
Working Capital Loan in US Dollar
(US$10,000,000 for period 2010
and 2009, in 2009, 2008
and 2007) 90,830 102,250 94,000 109,500 94,190
PT Bank Negara Indonesia (Persero) Tbk
Working Capital Loan for Import
(US$52,098,052 and Rp450,000
for period 2010, Rp1,343,001 for
period 2009, US$113,237,001 and
Rp627,065 in 2009, US$79,525,911
and Rp558,654 in 2008) 923,206 1,343,001 1,691,493 1,429,463 -
The Hongkong and Shanghai Banking
Corporation Ltd.
Working Capital Loan
(US$36,965,740 for period 2010,
US$250,560 and Rp404,675 in
2009, US$51,914,016
in 2008, US$1,015,337
and SG$46,714 in 2007) 335,760 - 407,030 568,458 9,867
PT Bank CIMB Niaga Tbk
Working Capital Loan for Export
(Rp100,000 for period 2010,
Rp200,000 for period 2009,
Rp100,000 in 2009, Rp250,000
in 2008, US$10,000,000 in 2007) 100,000 200,000 100,000 250,000 94,190
Deutsche Bank AG
Letter of Credit Import - - 45,305 - -
PT Bank Danamon Indonesia Tbk
Open Account Facility
(US$1,356,241 for period 2009,
US$4,116,676 and Rp100,293 in 2008) - 13,868 - 145,370 -
Letter of Credit Import
(US$29,247,679 for period 2010,
US$1,833,709 for period 2009,
US$186,904 in 2008,
US$3,767,597 in 2007) 265,657 18,750 - 2,047 35,487
The Hongkong and Shanghai Banking
Corporation Ltd. – Murabahah
Working Capital Loan
(US$22,249,317 in 2007) - - - - 209,567

F-52
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

15. SHORT-TERM BANK LOANS (continued)

June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
The Company – Third parties (continued)
Standard Chartered Bank
Letter of Credit Import
(US$19,940,089 and US$11,010,683
for period 2010 and 2009) 181,116 112,584 - - -
The Subsidiaries – Third parties

PT Krakatau Wajatama
PT Bank Negara Indonesia (Persero) Tbk
(US$26,884,987 for period 2010,
US$4,133,697 and Rp10,000
for period 2009, US$11,505,230 and
Rp10,000 in 2009, US$5,591,042
in 2008, US$16,026,238 in 2007) 244,196 52,267 118,149 61,222 150,951
PT Bank Permata Tbk
(US$8,197,529 for period 2010,
US$5,673,705 for period 2009,
US$7,013,639 and Rp19,732 in
2009, US$5,046,956 in 2008) 74,458 58,014 85,661 55,264 -
PT Bank Danamon Indonesia Tbk
(US$3,685,943 for period 2010,
Rp17,883 for period 2009,
US$8,866,983 in 2009,
Rp75,357 in 2008) 33,479 17,883 83,350 75,357 -

PT Krakatau Engineering
PT Bank Negara Indonesia (Persero) Tbk 20,000 - 20,000 - -
PT Bank Pembangunan Daerah Jawa
Barat dan Banten - 6,507 6,754 10,000 -

PT KHI Pipe Industries

PT Bank Rakyat Indonesia (Persero) Tbk
(Rp15,000 in 2009, Rp6,401
and US$3,798,016 in 2007) - - 15,000 - 42,175

PT Pelat Timah Nusantara Tbk *)

PT Bank Mandiri (Persero) Tbk
(US$5,330,982 and Rp61,448 for period
2009, US$5,612,713 and Rp161,112
in 2008, US$8,806,782 and
Rp70,000 in 2007) - 115,957 - 222,571 152,951

PT Krakatau Daya Listrik

PT Bank Mandiri (Persero) Tbk
(EUR139,038) - - - 2,146 -

PT Krakatau Industrial Estate Cilegon

PT Bank CIMB Niaga Tbk - - - - 600
Total 3,439,438 4,345,616 4,209,254 6,701,510 2,789,100

*) Pelat Timah Nusantara Tbk was deconsolidated since the date the Company sold its investment to third parties (Note 12)

F-53
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

15. SHORT-TERM BANK LOANS (continued)

The Company
PT Bank Mandiri (Persero) Tbk (Bank Mandiri)
The Company obtained working capital loan facilities from Bank Mandiri as described below:
Import credit facility in US Dollar for a maximum amount of US$275,000,000, US$275,000,000,
US$275,000,000, US$335,000,000 and US$500,000,000 as of June 30, 2010 and 2009 and December 31,
2009, 2008 and 2007, respectively, with sub-limit for Trust Receipt facility of US$250,000,000, Rp2,300,000,
Rp2,300,000, US$210,000,000 and US$159,250,000 as of June 30, 2010 and 2009 and December 31, 2009,
2008 and 2007, respectively. The outstanding payables related to such facility amounted to Rp406,436,
Rp1,510,560, Rp1,272,512, Rp3,500,112 and Rp1,999,122 as of June 30, 2010 and 2009 and December 31,
2009, 2008 and 2007, respectively.
Working capital credit facility in Rupiah I with a maximum amount of Rp270,000 and working capital credit
facility II with a maximum amount of Rp560,000. This loan bears annual interest at 10.0% and 12.5% for the
six months ended June 30, 2010 and 2009 and 10.5%, 13.0% and 12.0% for the years ended December 31,
2009, 2008 and 2007, respectively. The outstanding payables related to such facility amounted to Rp764,300,
Rp793,975, Rp270,000, Rp270,000 and nil as of June 30, 2010 and 2009 and December 31, 2009, 2008 and
2007, respectively.
Working capital credit facility in US Dollar with a maximum amount of US$10,000,000 and interest at 7.0%
and 8.5% per annum for the six months ended June 30, 2010 and 2009 and 8.5%, 7.3% and 8.0% per annum for
the years ended December 31, 2009, 2008 and 2007, respectively. The outstanding payables related to such
facility amounted to Rp90,830, Rp102,250, Rp94,000, Rp109,500 and Rp94,190 as of June 30, 2010 and 2009
and December 31, 2009, 2008 and 2007, respectively.
These facilities are secured by land covering area of 1,228,909 square meters (“m2”) with guarantee value of
Rp1,107,988, machineries and equipment with guarantee value of Rp3,598,634, inventories and trade
receivables with guarantee value of Rp3,502,000 (Notes 6, 10 and 13).
These facilities will expire on June 27, 2011.
The loan agreements include certain restrictions, among others, obtaining loan from another party, except in
the normal course of business, providing guarantee or pledging of assets to another party. The Company is also
required to maintain current ratio of more than 120%, debt to equity ratio of less than 250%, EBITDA to
interest expense (EBITDA/Interest) ratio of more than 1.7 times, and debt service coverage ratio of more than
1.1 times.
On March 7, 2007, the Company and Subsidiaries entered into an agreement with Bank Mandiri regarding cash
pooling services. This agreement has been extended and valid up to July 31, 2012. Under the agreement, all the
parties agreed to arrange the use of fund and interest calculation in cash pooling accounts and also provide
overdraft facilities based on the pooling consolidated balance. As of June 30, 2010 and 2009 and December 31,
2009, 2008 and 2007, there is no outstanding balance related to this facility.

PT Bank Negara Indonesia (Persero) Tbk (BNI)

The Company obtained Credit Line facilities with maximum amounts of Rp750,000 and US$75,000,000 and
working capital credit facility, which in total cannot exceed a maximum amount of Rp3,000,000, which can be
used for Non Cash Loan facility with a maximum amount of Rp1,650,000 and Cash Loan facility with a
maximum amount of Rp1,350,000 switchable to become Non Cash Loan facility. This loan facility bears
annual interest at 10.0% and 13.0% for the six months ended June 30, 2010 and 2009 and 10.5% and 13.0% for
the years ended December 31, 2009 and 2008, respectively. This loan facility will expire on May 2, 2011. The

F-54
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

15. SHORT-TERM BANK LOANS (continued)

The Company (continued)
PT Bank Negara Indonesia (Persero) Tbk (BNI) (continued)
outstanding payables related to such facility amounted to Rp923,206, Rp1,343,001, Rp1,691,493,
Rp1,429,463 and nil as of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007, respectively.
The loan facilities are secured by land covering area of 3,357,280 m2 and building covering area of 81,617 m2
with a guarantee value of Rp610,515 to guarantee the Company’s debt, Rp551,230 to guarantee PT KWT’s
debt and Rp300,000 to guarantee PT KE’s debt and inventories with a guarantee value of Rp1,875,000
(Notes 10,13 and 22). The Company is also required to maintain current ratio at a minimum of 1 time, debt to
equity ratio at a maximum of 2.5 times, and debt service coverage ratio at a minimum of 100%.

The Hongkong and Shanghai Banking Corporation Ltd. (HSBC)

The Company obtained import credit facility from HSBC with maximum amounts of US$75,000,000,
US$60,000,000, US$60,000,000, US$95,000,000 and US$45,000,000 as of June 30, 2010 and 2009 and
December 31, 2009, 2008 and 2007, respectively. This facility bears annual interest at 10.60% and 10.87% for
the six months ended June 30, 2010 and 2009 and 10.87%, SIBOR+1.8% and SIBOR+1.9% for the years
ended December 31, 2009, 2008 and 2007, respectively. This facility expired on October 31, 2009. On
March 25, 2010 the credit facility agreement has been extended under the same conditions which will expire on
October 30, 2010. The outstanding payables related to such facility amounted to Rp335,760, nil, Rp407,030,
Rp568,458 and Rp9,867 as of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007, respectively.
The loan agreement requires, among others, that prior notice be given to the bank before distributing dividends,
pledging of assets, obtaining borrowings from other parties except in the ordinary course of business, and
providing borrowings to other parties.

PT Bank CIMB Niaga Tbk (Bank CIMB Niaga)

The Company obtained working capital loan facilities with a maximum amount of US$55,000,000,
US$55,000,000, US$55,000,000, US$30,000,000, and US$20,000,000 as of June 30, 2010 and 2009 and
December 31, 2009, 2008, and 2007, respectively, which can be used as L/C facility. The Company with the
approval from the bank is allowed to withdraw the loan in Rupiah.
This facility in US Dollar bears annual interest at 6.75% for the year ended December 31, 2007, and for Rupiah
at 10.0% and 12.75% for the six months ended June 30, 2010 and 2009, respectively, 10.0% for the year ended
December 31, 2009 and 1.0% above Bank Indonesia’s interest rate for December 31, 2008. This facility is
secured by the Company’s buildings and land under the Right to Build certificate (“HGB”) No. 876 located in
Kecamatan Pulo Merak, Cilegon covering an area of 315,380 m2 with a guarantee value of US$18,750,000,
(Note 13). The facility will expire on February 19, 2011. The outstanding payables related to such facility
amounted to Rp100,000, Rp200,000, Rp100,000, Rp250,000 and Rp94,190 as of June 30, 2010 and 2009 and
December 31, 2009, 2008 and 2007, respectively.
The loan agreement includes restrictions, among others, without prior written notice from the bank, on
changing the scope of activities, changing the boards of directors and commissioners, merger or acquisition,
providing borrowing to other party except in the ordinary course of business, and providing guarantee to other
party.

Deutsche Bank AG
The Company obtained a working capital credit facility from Deutsche Bank AG with a maximum amount of
EUR9,000,000 as of June 30, 2010 and December 31, 2009 and EUR10,000,000 as of June 30, 2009 and

F-55
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

15. SHORT-TERM BANK LOANS (continued)

The Company (continued)
Deutsche Bank AG (continued)
December 31, 2008 and 2007. This facility can be used as L/C, bank guarantee, Trust Receipt and export bill
purchase. This credit facility will expire on October 31, 2010 and can be automatically extended for another
12 months upon fulfillment of certain conditions. The outstanding payables related to such facility amounted
to nil and Rp45,305 as of June 30, 2010 and December 31, 2009. As of June 30, 2009 and December 31, 2008
and 2007, the credit facility has not yet been used.

PT Bank Danamon Indonesia Tbk (Bank Danamon)

The Company obtained working capital loan facilities (Omnibus Trade Finance Facility) from Bank Danamon
with a maximum amount of US$40,000,000, US$50,000,000, US$40,000,000, US$50,000,000 and
US$34,000,000 as of June 30, 2010, and 2009 and December 31, 2009, 2008 and 2007, respectively,
which consist of:
1. Import L/C facility for Sight and/or Usance and/or Usance Payable at Sight (UPAS) financing. This
facility bears interest at BDI CoF+1.5% to 1.75% per annum for the six months ended June 30, 2010,
SIBOR+1.75% per annum and/or SBI+2.0% per annum for the six month ended June 30, 2009 and the
years ended December 31, 2009, 2008 and 2007. The outstanding payables related to such facility
amounted to Rp153,934, Rp18,750, nil, Rp2,047 and Rp35,487 as of June 30, 2010 and 2009 and
December 31, 2009, 2008 and 2007, respectively.
2. Trust Receipt and L/C Negotiation for Sight and/or Usance facilities. These facilities bear interest at BDI
CoF+2% for the six months ended June 30, 2010, SIBOR+1.0% to 1.75% per annum and/or SBI+1.0% to
2.0% per annum for the six months ended June 30, 2009 and the years ended December 31, 2009, 2008
and 2007. The outstanding payables related to such facilities amounted to Rp111,723 as of June 30, 2010
and nil as of June 30, 2009 and December 31, 2009, 2008 and 2007.
3. Open Account Financing (OAF) 1 (Short Term) facility with maximum amount of US$40,000,000,
US$50,000,000, US$40,000,000, US$50,000,000 and US$34,000,000 as of June 30, 2010 and 2009 and
December 31 2009, 2008 and 2007, respectively, which was used to finance the Company’s receivables or
liabilities. The facility bears interest at BDI CoF+1.75% for the six months ended June 30, 2010,
SIBOR+1.75% per annum and/or SBI+2.0% per annum for the six months ended June 30, 2009 and the
years ended December 31, 2009, 2008 and 2007, respectively.
4. OAF 2 (Long Term) facility with a maximum amount of US$4,500,000 in 2009, 2008 and 2007 which
was used to finance the Company’s receivables or liabilities. The facility bears interest rate at
SIBOR+2.0% per annum and/or SBI+2.5% per annum for the years ended December 31, 2009, 2008
and 2007, respectively. As of June 30, 2010, the facility has not been extended.
5. OAF 3 (Short Term) facility with a maximum amount of US$20,000,000 in 2009 and 2008 which was
used to finance PT Latinusa’s receivables or liabilities. This facility bears interest at BDI CoF+3.0% for
the six months ended June 30, 2010 and SIBOR+2.75% per annum and/or SBI+3.0% per annum for the
six months ended June 30, 2009 and the years ended December 31, 2009 and 2008, respectively. The
outstanding payables related to such facility amounted to nil, Rp13,868, nil, Rp145,370 and nil as of
June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007, respectively. The facility was extended
until September 22, 2010.
These facilities are secured by the Company’s trade receivables with a guarantee value of US$62,500,000
(Note 6).

F-56
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

15. SHORT-TERM BANK LOANS (continued)

The Company (continued)
PT Bank Danamon Indonesia Tbk (Bank Danamon) (continued)
These facilities will expire on September 22, 2010. Up to September 23, 2010, the extension of these facilities
is still in process.
The loan agreement includes restrictions, among others, that the Company cannot provide guarantee to third
party and conduct merger or acquisition without prior written notice from the bank.

The Hongkong and Shanghai Banking Corporation Ltd. (HSBC) - Murabahah

On May 21, 2007, the Company entered into a Master Murabahah Agreement with HSBC - Murabahah to
finance the purchase of raw materials and components with a maximum contract amount of US$50,000,000 as
of December 31, 2007. This facility agreed the profit portion at LIBOR+1.6% per annum and will expire
600 days after the signing date of the agreement. The outstanding payables related to such facility amounted to
Rp209,567 as of December 31, 2007. This facility had been fully paid and no longer extended.

Standard Chartered Bank (SCB)

The Company obtained a working capital credit facility from SCB with a maximum amount of US$40,000,000
as of June 30, 2010 and 2009. This facility can be used as L/C, UPAS, and export bill purchase. This credit
facility will expire on July 31, 2010 and it can be automatically extended for another 3 months upon fulfillment
of certain conditions. The outstanding payables related to such facility amounted to Rp181,116 and Rp112,584
as of June 30, 2010 and 2009 and nil as of December 31, 2009. As of December 31, 2008 and 2007, the credit
facility has not yet been used.

The Subsidiary - PT KWT

PT Bank Negara Indonesia (Persero) Tbk (BNI)
Opening L/C facility with a maximum amount of US$40,000,000, which is used for the importation of raw
materials, supporting materials and spare parts. The credit facility will expire on May 2, 2011. This facility is
secured by the same collateral pledged for the long-term loans obtained by PT KWT from the same bank
(Note 22). As of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007, the outstanding balances of
the related facility amounted to Rp244,196, Rp42,267, Rp108,149, Rp61,222 and Rp150,951, respectively.
PT KWT also obtained working capital credit facility with a maximum amount of Rp10,000. The credit facility
will expire on May 2, 2011 and bears annual interest rate at 10.5%. This facility is secured by the same
collateral pledged for the long-term loans obtained by PT KWT from the same bank (Note 22). As of June 30,
2009 and December 31, 2009, the outstanding balances of the related facility amounted to Rp10,000.

PT Bank Permata Tbk (Bank Permata)

PT KWT obtained Letter of Credit, Post Import Loan, Bill of Purchase Line, Bank Guarantee and Invoice
Financing facilities (or in overall is referred to trade facilities) from Bank Permata with maximum amounts of
US$35,000,000 as of June 30, 2010, Rp50,000 and US$15,000,000 as of December 31, 2009 and
US$15,000,000 as of December 31, 2008. The credit facility will expire on May 19, 2011.
As of June 30, 2010 and 2009 and December 31, 2009 and 2008, the outstanding payable of this facility
amounted to Rp74,458, Rp58,014, Rp85,661 and Rp55,264, respectively. The Invoice Financing facility is
used to finance PT KWT’s receivables or liabilities with the maximum financing of 100% from the value of
invoices taken part in the Invoice Financing transactions and valid 30 days since the date of drawdown. The

F-57
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

15. SHORT-TERM BANK LOANS (continued)

The Subsidiary - PT KWT (continued)
PT Bank Permata Tbk (Bank Permata) (continued)
Invoice Financing facility bears annual interest at 11.5% for the six months ended June 30, 2010 and 10.5% for
the year ended December 31, 2009.
The loan agreements include restrictions, among others, that without prior written notification to the bank, PT
KWT is not permitted to enter into merger, change the articles of association, members of the boards of
commissioners and directors, make repayment to shareholder, distribute dividends, obtain loans from other
parties except in the ordinary course of business, and pledge assets as guarantee to other parties. PT KWT also
shall maintain current ratio at a minimum of 1 time and debt to equity ratio at a maximum of 3 times.
As of June 30, 2010, PT KWT was unable to meet the requirements to maintain the financial ratios stated
above. However, based on Letter from Bank Permata No. 546/PB-LCC/VII/10 dated July 20, 2010, PT KWT
obtained release of such requirements for period 2010.

PT Bank Danamon Indonesia Tbk (Bank Danamon)

PT KWT obtained working capital facilities (Omnibus Trade Finance Facility) which can be used in the form
of L/C, T/R, Negotiation L/C, OAF, Bank Guarantee and Standby L/C (SBLC) facilities, with the aggregate
maximum amount of US$20,000,000. These facilities will expire on July 30, 2010. As of June 30, 2010 and
2009 and December 31, 2009 and 2008, the outstanding payable related to such facilities amounted to
Rp33,479, Rp17,883, Rp83,350 and Rp75,357, respectively. The OAF facility is used to finance PT KWT’s
receivables or liabilities with the maximum financing of 80% from the value of invoices taken part in the OAF
transactions and valid 180 days since the date of drawdown. The OAF facility bears annual interest at
SIBOR+1.75% and/or SBI+2.0% and secured by trade receivables with the coverage ratio of 125% from the
usage of OAF facility.
PT KWT entered into the extention of credit agreement with Bank Danamon, which was signed on July 22,
2010. Bank Danamon agreed to provide credit extension in the form of the Omnibus Trade Finance with a
maximum principal amount of US$20,000,000. This agreement will expire on September 22, 2010. Up to
September 23, 2010, the extension of this facility is still in process.
The loan agreement includes restrictions, among others, without prior written notice from Bank Danamon, PT
KWT cannot provide guarantee to third party and conduct merger or acquisition.

The Subsidiary - PT KE
PT Bank Negara Indonesia (Persero) Tbk (BNI)
PT KE obtained working capital credit facility from BNI with a maximum amount of Rp50,000. This loan
facility is used to finance working capital for the Terminal Transit project of PT Pertamina (Persero) — Bau-
bau. This loan will mature in 12 months up to May 2, 2011 with an interest of 13.25% per annum for the six
months ended June 30, 2010 and 13.0% per annum for the year ended December 31, 2009. This loan is secured
by fixed assets of PT KE and land owned by the Company which has been authorized by the Company to be
pledged as collateral (Note 13). The outstanding payable of this facility amounted to Rp20,000 as of June 30,
2010 and December 31, 2009. PT KE shall also maintain current ratio at a minimum of 1 time and debt to
equity ratio at a maximum of 2.5 times and also debt service coverage ratio at a minimum of 100%.
As of June 30, 2010, PT KE was unable to meet the requirements to maintain the financial ratios stated above.
However, based on Letter from BNI No. KPS/2.2/1020/R dated July 29, 2010, PT KE obtained release of such
requirements for period 2010.

F-58
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

15. SHORT-TERM BANK LOANS (continued)

The Subsidiary - PT KE (continued)
PT Bank Pembangunan Daerah Jawa Barat dan Banten (Bank Jabar Banten)
PT KE obtained working capital credit facility from Bank Jabar Banten with a maximum amount of Rp20,000.
This loan facility is used to finance working capital for the Rural Organizing Project (ROP) Granul I, Nitrogen
Phosphorus and Potasium (NPK) III and IV PT Petrokimia Gresik projects in 2008 and the Naptha project of
PT Pertamina (Persero) — Balongan in 2009. This loan will mature in 12 months up to September 11, 2009
and has been extended until April 19, 2010, and bear annual interest rate of 14.0% and 13.0% for the years
ended December 31, 2009 and 2008, respectively, and 13.0% for the six months ended June 30, 2009. This loan
is secured by cessie of the projects. The outstanding payable of this facility amounted to nil, Rp6,507, Rp6,754,
Rp10,000 as of June 30, 2010 and 2009 and December 31, 2009 and 2008, respectively.

The Subsidiary - PT KHIP

PT Bank Rakyat Indonesia (Persero) Tbk (BRI)
a. Working Capital Loan - Construction
On March 22, 2007, PT KHIP obtained a working capital loan facility from BRI amounting to Rp300,000
which was used as additional working capital for PT KHIP’s ongoing projects. This loan bears annual
interest at 12.5% for the year ended December 31, 2009 and 13.0% per annum for the years ended
December 31, 2008 and 2007, respectively. PT KHIP has fully paid the loan in May 2008.
Based on Notarial Deed No. 9 of Imas Fatimah, S.H. dated August 7, 2009, this facility was extended until
December 31, 2009. In November 2009, PT KHIP use this facility amounting to Rp15,000 for financing
the McConnell Dowell project with interest rate at 12.5% per year.
Based on Letter dated June 16, 2010 as notarized in the Notarial Deeds No. 72 and No. 73 of Imas
Fatimah, S.H. dated June 21, 2010, BRI agreed to extend the loan facility to December 31, 2010 and split
the facility into KMK construction with a maximum amount of Rp151,000 at interest rate of 12.0% per
annum and KMK construction with a maximum amount of US$16,000,000 or equivalent to Rp149,000 at
interest rate of 7.75% per annum.
b. Working Capital Loan - Discounted
PT KHIP also obtained working capital loans with maximum amounts of US$3,800,000 and Rp6,400.
These loans bear annual interest at 13.0% for Rupiah facility and 9.0% for US Dollar facility. This loan is
secured by PT KHIP’s receivable from PT Perusahaan Gas Negara (Persero) Tbk. The credit facility will
expire 24 months since the withdrawal of the facility or at maximum based on the retention term agreed in
the contracts. PT KHIP has fully paid the loan in June 2008.
The outstanding payables related to such facility amounted to nil, nil, Rp15,000, nil and Rp42,175 as of
June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007, respectively.
The covenants as well as the collateral of the credit facility are the same with those pledged for long-term
loan facilities obtained by PT KHIP from BRI (Note 22).

The Subsidiary - PT Latinusa

PT Bank Mandiri (Persero) Tbk (Bank Mandiri)
Working capital credit facility with a maximum amount of Rp100,000, switchable to Non Cash Loan facility
with a maximum amount of Rp50,000 as of December 31, 2008 and Rp70,000 as of December 31, 2007 and

F-59
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

15. SHORT-TERM BANK LOANS (continued)

The Subsidiary - PT Latinusa (continued)
PT Bank Mandiri (Persero) Tbk (Bank Mandiri) (continued)
bears interest ranged between 12.5% to 13.0% for the six months ended June 30, 2009 and 11.5% to 13.0% and
12.5% for the years ended December 31, 2008 and 2007. The outstanding payables related to such facility
amounted to Rp50,000, Rp92,101 and Rp70,000 as of June 30, 2009 and December 31, 2008 and 2007,
respectively.
Opening L/C facility with a maximum amount of US$28,000,000, US$28,000,000 and US$23,000,000 as of
December 31, 2009, 2008 and 2007, respectively, which was used for the importation of raw materials,
supporting materials and spare parts. The credit facility expired on June 27, 2010. The outstanding payables
related to such facility amounted to Rp14,432, Rp61,459 dan Rp82,951 as of June 30, 2009 and December 31,
2008 and 2007, respectively.
PT Latinusa also obtained Trust Receipt (T/R) facility as sub-limit of L/C facility with a maximum amount of
Rp140,000, US$9,800,000 and US$8,050,000 as of December 31, 2009, 2008 and 2007, respectively. On
December 19, 2008, Bank Mandiri agreed the usage of T/R facility in Rupiah currency at the rates of exchange
prevailing at the time of the transaction. T/R facility used as of June 30, 2009 and December 31, 2008
amounted to Rp51,525 and Rp69,011, respectively.
All credit facilities are secured by time deposits placed in the same bank, trade receivables, inventories and
fixed assets except vehicles (Notes 6, 10 and 13).
The loan agreement includes restrictions and covenants whereby PT Latinusa, without prior written agreement
from Bank Mandiri, is not permitted to, among others, obtain loans from other parties except in the ordinary
course of business and from shareholders (non-interest bearing), provide borrowings to other parties including
shareholders except trade payables in the normal course of business, provide guarantee to other parties, change
the articles of association, share capital, the shareholders, members of the boards of commissioners and
directors, enter into mergers, declare dividends and open new business.
PT Latinusa is also required to use the bank for all of its financial activities and maintain debt to equity ratio at
maximum of 233%, current ratio above 120%, EBITDA/Interest ratio at a minimum of 1.7 times and Debt
Service Ratio at a minimum of 1.1 times.

The Subsidiary - PT KDL

PT Bank Mandiri (Persero) Tbk (Bank Mandiri)
PT KDL obtained L/C loan facility of EUR139,038 for purchase of spare parts which is secured by time
deposits of EUR139,080. As of December 31, 2008, the outstanding payable of such facility amounted to
Rp2,146 which had been fully paid by PT KDL in February 2009.

16. TRADE PAYABLES

This account consists of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
Third parties 1,111,734 606,145 699,875 801,037 817,050
Related parties (Note 9) 45,594 48,849 38,944 32,950 17,893
Total 1,157,328 654,994 738,819 833,987 834,943

F-60
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

16. TRADE PAYABLES (continued)

Details of aging of trade payables based on invoice dates are as follows:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
Current - not due 843,448 505,228 701,544 768,627 804,157
Past due:
1 - 30 days 280,353 85,416 24,804 25,696 16,994
31 - 60 days 22,439 44,684 1,490 16,840 4,915
61 - 90 days 5,565 2,485 1,771 3,462 1,356
91 - 720 days 4,692 16,429 8,041 18,693 7,402
More than 720 days 831 752 1,169 669 119

Total 1,157,328 654,994 738,819 833,987 834,943

Details of trade payables based on currency:
Rupiah 615,239 472,511 419,146 367,838 452,259
United States Dollar
(US$56,308,281 for period 2010,
US$15,309,694 for period 2009,
US$30,619,309 in 2009, US$39,442,787
in 2008 and US$29,576,219 in 2007) 511,448 156,542 287,822 431,898 278,578
Euro
(EUR2,010,482 for period 2010,
EUR1,447,384 for period 2009,
EUR2,071,627 in 2009, EUR1,809,765
in 2008 and EUR7,290,202 in 2007) 22,290 20,889 27,987 27,930 100,314
Singapore Dollar
(SG$447,255 for period 2010,
SG$340,260 for period 2009,
SG$320,711 in 2009, SG$282,479 in
2008 and SG$267,449 in 2007) 2,899 2,401 2,148 2,149 1,739
Japanese Yen
(¥52,935,328 for period 2010,
¥24,145,510 for period 2009,
¥16,826,690 in 2009, ¥34,362,189 in
2008 and ¥16,354,861 in 2007) 5,452 2,584 1,716 4,158 1,357
Other foreign currencies - 67 - 14 696

Total 1,157,328 654,994 738,819 833,987 834,943

Trade payables of the Company and Subsidiaries are mainly represents payable for purchases of raw materials.

F-61
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

17. FACTORING PAYABLES

This account represents payables from the sale of receivables with recourse to the following bank (Note 7):
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
PT Bank Mandiri (Persero) Tbk - - - 109,509 -
Less unamortized interest - - - (1,224) -
Net - - - 108,285 -

As of June 30, 2010 and 2009 and December 31, 2009 and 2007, there were no outstanding factoring
receivables and payables.

18. DERIVATIVE FINANCIAL INSTRUMENTS

The Company and Subsidiaries entered into foreign exchange forward contracts. Below is information relating
to the contracts and their fair values:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
Forward Receivables
The Company
PT Bank Permata Tbk - 309 - - -
PT Bank Danamon Indonesia Tbk - 193 - 8,758 -
PT Bank Mandiri (Persero) Tbk - 174 - - -
Citibank N.A. Indonesia - - - 3,612 -
Total - 676 - 12,370 -
Forward Payables
The Company
PT Bank Negara Indonesia (Persero) Tbk 1,454 - - - -
PT Bank Mandiri (Persero) Tbk 1,376 793 - - -
The Hongkong and Shanghai Banking
Corporation Ltd. 1,240 - - - -
PT Bank CIMB Niaga Tbk 895 - - - -
Standard Chartered Bank 515 - - - -
Citibank N.A. Indonesia 216 66 - - -
PT Bank Danamon Indonesia Tbk 198 - - - -
PT Bank Permata Tbk 90 - - - -
PT Danareksa (Persero) - - - - -
Deutsche Bank AG - - - - -
5,984 859 - - -
The Subsidiaries
PT Danareksa (Persero) - - - - -
Total 5,984 859 - - -

F-62
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

18. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Outstanding receivables and payables are presented as part of “Other Receivables” and “Other Payables” in the
consolidated balance sheets and changes in fair value during the current period are presented as part of “Gain
(Loss) on Foreign Exchange” in the consolidated statements of income.

The Company
a. The Company obtained a foreign exchange facility from BNI for a maximum facility of US$15,000,000
forward transactions. This facility will expire on May 2, 2011.
In connection with the above facility, the Company made the following transactions:
Contract Beginning Period Settlement Dates The Company Receives The Company Pays
June 14, 2010 - July 6, 2010 - US$15,000,000 Rp137,699
June 29, 2010 July 29, 2010
September 16, 2009 November 18, 2009 US$2,000,000 Rp19,676

b. The Company obtained a foreign exchange line from Bank Mandiri whereby Bank Mandiri agreed to
provide forward transactions and other currencies with maximum amounts of US$15,000,000,
US$15,000,000, US$15,000,000 and US$50,000,000 as of June 30, 2010 and 2009 and
December 31, 2009 and 2008, respectively. This facility will expire on June 27, 2011.
In connection with the above facility, the Company made the following transactions:
Contract Beginning Period Settlement Dates The Company Receives The Company Pays
June 14, 2010 - July 2, 2010 - US$16,000,000 Rp146,704
June 29, 2010 July 30, 2010
January 4, 2010 - February 8, 2010 - US$30,000,000 Rp277,591
April 6, 2010 May 3, 2010
June 16, 2009 - August 14, 2009 - US$49,400,000 Rp468,393
November 16, 2009 December 23, 2009
May 26, 2008 - July 1, 2008 - US$81,000,000 Rp749,700
Agustus 7, 2008 November 12, 2008

On June 30, 2010, the Company used the facility exceeding the maximum amount and for that, the
Company has paid the additional funds amounting to Rp1,366.
c. The Company entered into foreign exchange netting agreement with HSBC, Jakarta, in which HSBC
agreed to provide spot transactions and/or currency forward and/or currency options and/or combine
transaction facilities with maximum exposure to the risk amounting to US$5,000,000, US$28,000,000,
US$28,000,000 and US$25,000,000 as of June 30, 2010 and 2009 and December 31, 2009, and 2008,
respectively. This facility will expire on October 31, 2010.

F-63
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

18. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The Company (continued)
In connection with the above facility, the Company made the following transactions:
Contract Beginning Period Settlement Dates The Company Receives The Company Pays
June 14, 2010 - July 6, 2010 - US$13,000,000 Rp119,319
June 30, 2010 August 20, 2010
January 4, 2010 - February 8, 2010 - US$3,000,000 Rp27,874
January 11, 2010 March 4, 2010
November 13, 2009 December 14, 2009 US$2,000,000 Rp18,770
May 15, 2008 - Juni 2, 2008 - US$42,000,000 Rp388,429
August 8, 2008 December 23, 2008

d. The Company obtained a forward transaction from PT Bank CIMB Niaga Tbk with a maximum amount
of US$45,000,000 as of December 16, 2009. This facility will expire on December 16, 2010.
Between the dates of June 16, 2010 until June 30, 2010, the Company entered into several forward
transactions whereby the Company agreed to receive US$12,000,000 and pay Rp109,891 between
July 19, 2010 until August 8, 2010.
e. The Company obtained a foreign exchange transaction facility from Standard Chartered Bank (SCB),
Jakarta, whereby SCB agreed to provide spot transactions and/or forward, currency swap, interest rate
options and other derivative transactions. This facility will expire on July 31, 2010. Up to the completion
date of the consolidated financial statements, extension of this facility is still in process.
In connection with the above facility, the Company made the following transactions:
Contract Beginning Period Settlement Dates The Company Receives The Company Pays
June 18 2010 - July 15, 2010 - US$9,000,000 Rp82,262
June 30, 2010 August 10, 2010
January 4, 2010 - February 4, 2010 - US$11,000,000 Rp101,610
April 6, 2010 May 10, 2010
September 9, 2009 - November 2, 2009 - US$7,000,000 Rp68,235
November 13, 2009 December 23, 2009
Mei 15, 2008 - June 2, 2008 - US$38,000,000 Rp351,299
Agustus 7, 2008 November 12, 2008

f. The Company obtained a foreign exchange facility from Citibank N.A. Indonesia (Citibank) in which
Citibank agreed to provide spot transactions, forwards and options with a maximum amount of
US$350,000,000. This facility will expire based on Citibank’s credit risk analysis of the prevailing
market.
In connection with the above facility, the Company made the following transactions:
Contract Beginning Period Settlement Dates The Company Receives The Company Pays
June 18, 2010 - July 22, 2010 - US$6,000,000 Rp54,714
June 21, 2010 August 2, 2010
January 4, 2010 - February 8, 2010 - US$11,000,000 Rp101,980
January 11, 2010 March 10, 2010
June 2, 2008 - August 4, 2008 - US$71,000,000 Rp652,240
August 20, 2008 January 5, 2009

F-64
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

18. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The Company (continued)
g. The Company obtained a foreign exchange transaction facility from PT Bank Danamon Tbk (Danamon)
with maximum amounts of US$5,000,000, US$30,000,000, US$5,000,000 and US$34,000,000 as of
June 30, 2010 and 2009 and December 31, 2009, 2008, respectively. This facility will expire on July 30,
2010 and has been extended until September 1, 2010. Up to September 23, 2010, the extension of this
facility is still in process.
In connection with the above facility, the Company made the following transactions:
Contract Beginning Period Settlement Dates The Company Receive The Company Pays
June 18, 2010 July 22, 2010 US$3,000,000 Rp27,477
January 4, 2010 - February 4, 2010 - US$5,000,000 Rp46,751
January 11, 2010 March 4, 2010
June 26, 2009 - August 21, 2009 - US$10,650,000 Rp107,501
September 17, 2009 November 24, 2009
May 26, 2008 - July 1, 2008 - US$3,500,000 Rp309,975
August 22, 2008 January 5, 2009

h. The Company obtained a forward transaction facility from Bank Permata with maximum credit risk
amounts of US$10,000,000, US$26,000,000, US$10,000,000 and US$26,000,000 as of June 30, 2010
and 2009 and December 31, 2009 and 2008, respectively. This facility will expire on November 16, 2010.
In connection with the above facility, the Company made the following transactions:
Contract Beginning Period Settlement Dates The Company Receives The Company Pays
June 30, 2010 August 2, 2010 US$3,000,000 Rp27,339
January 4, 2010 - February 4, 2010 - US$9,000,000 Rp83,833
January 11, 2010 March 15, 2010
June 26, 2009 - August 21, 2009 - US$18,000,000 Rp178,415
November 13, 2009 December 17, 2009

i. The Company obtained a foreign exchange facility from Deutsche Bank AG, with a maximum amount of
EUR1,000,000. This facility will expire on October 31, 2010 but can be automatically extended for
12 months.
In connection with the above facility, the Company made the following transactions:
Contract Beginning Period Settlement Dates The Company Receives The Company Pays
January 11, 2010 March 4, 2010 US$3,000,000 Rp27,645
September 28, 2009 December 1, 2009 US$2,000,000 Rp19,460
June 18, 2008 - September 8, 2008 - US$9,000,000 Rp83,010
July 11, 2008 October 24, 2008

j. The Company obtained a foreign exchange facility from PT Danareksa (Persero) (Danareksa) whereby
Danareksa agreed to provide spot transactions, forwards, swaps and options with a maximum amount of
US$100,000,000. This facility expired on November 5, 2009.
Between the date of May 22, 2008 until the date of August 20, 2008, the Company made some forward
transactions whereby the Company agreed to accept a total of US$35,000,000 and pay Rp321,805
between the date of June 6, 2008 until December 22, 2008.

F-65
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

18. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The Subsidiaries
In 2008, PT KWT and PT Latinusa entered into a spot FX target redemption forward contract agreement with
Danareksa. Based on the contract, each PT KWT and PT Latinusa has obligation to buy US$250,000 if the
exchange rate equals or higher than strike price of Rp9,250 (full amount) and has obligation to buy
US$500,000 if the exchange rate equals or less than Rp9,250 (full amount). If the accumulated gain
reaches Rp1,000, the FX transaction will automatically be canceled. All of the exchange transactions had
been terminated in September 2008.
On July 15, 2008, PT KWT entered into an agreement with PT Danareksa associated with hedging transactions
“Knock-Out Window” with a term from July 15, 2008 until July 14, 2009. The entire exchange was ended in
September 2008.
In 2008, PT KDL entered into an agreement with Danareksa in relation to target participant forward with
european knock out facilities with the period from June 13, 2008 until December 12, 2008 with strike price of
US$1 equals to Rp9,275 (full amount) on purchase amount of US$250,000 and US$500,000.
Based on Letter No. S17/332/TRE dated July 16, 2008, regarding pre-confirmation hedging transaction from
Danareksa, PT KDL entered into a hedging transaction of “Participant Forward with European Knock Out”
with Danareksa with the period from July 16, 2008 until December 24, 2008, all in total of 23 fixings. The letter
also mentioned the conditions applicable as follows:
1. If the spot rate of US Dollar is higher than Rp9,075 (full amount) but less than Rp9,210 (full amount), PT
KDL has a right to buy US$200,000 at the rate of US$1 equals to Rp9,075 (full amount).
2. If the spot rate of US Dollar is lower than or equals to Rp9,075 (full amount), PT KDL has an obligation to
buy US$400,000 at the rate of US$1 equals to Rp9,075 (full amount).
3. If the spot rate of US Dollar is higher or equals to Rp9,210 (full amount), PT KDL does not have a right nor
obligation to buy US Dollar.
All of the exchange transactions had been terminated in September 2008.

19. TAXATION
This account consists of:

a. Prepaid taxes
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Value-Added Tax 49,097 28,706 15,116 22,668 5,024

F-66
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

19. TAXATION (continued)

b. Taxes payable
Income taxes:
Article 21 16,091 9,914 52,047 48,983 27,926
Article 22 3,277 4,558 3,773 4,628 4,719
Article 23/26 5,239 2,993 3,274 2,457 5,083
Article 25 4,055 2,339 1,257 5,158 2,631
Article 29 5,005 22,956 24,148 108,146 24,681
Article 4(2) 15,427 2,198 - - -
Value-Added Tax 28,064 22,780 11,327 5,536 20,677
Regional tax and
retribution 8,569 4,246 5,205 6,861 7,776
Total 85,727 71,984 101,031 181,769 93,493

c. Tax expense (benefit)

2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)
Current tax expense
The Company 39,246 – – 401,570 47,392
The Subsidiaries 41,651 47,242 88,688 151,093 84,883
Sub-total 80,897 47,242 88,688 552,663 132,275
Deferred tax expense
(benefit)
The Company 251,574 (377,492) (131,149) (237,356) 37,614
The Subsidiaries 13,819 6,567 14,916 (38,093) 10,954
Sub-total 265,393 (370,925) (116,233) (275,449) 48,568
Tax expense (benefit), net 346,290 (323,683) (27,545) 277,214 180,843

F-67
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

19. TAXATION (continued)

d. Current tax
The reconciliation between income (loss) before tax expense (benefit) as reported in the consolidated
statements of income and the Company’s estimated taxable income (tax loss) is as follows:
2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)
Income (loss) before tax expense
(benefit) per consolidated
statements of income 1,343,153 (1,424,473) 468,659 740,823 497,363
Income before tax expense of
the Subsidiaries (54,580) (54,098) (105,136) (117,038) (98,916)
Income (loss) before tax expense
(benefit) of the Company 1,288,573 (1,478,571) 363,523 623,785 398,447
Temporary differences:
Provision for (recovery of) decline
in value of inventory (5,322) (563,771) (588,604) 604,458 -
Depreciation and loss from sale
of fixed assets 16,819 56,987 91,623 114,437 63,485
Provision for doubtful accounts, net 43,783 5,215 5,108 27,364 806
Employees’ benefits 9,996 (51) 8,430 19,863 15,474
Share in net income of Subsidiaries (167,251) (151,384) (268,418) (150,944) (198,320)
Provision for inventory obsolescence - - - (3,901) (7,033)
Sub-total (101,975) (653,004) (751,861) 611,277 (125,588)
Permanent differences:
Post-retirement healthcare benefits - 38,716 (335,132) 72,002 61,947
Non-deductible expenses 32,041 12,837 48,652 51,538 25,415
Interest expense 8,139 8,508 12,757 18,471 10,361
Corporate social responsibility expenses 13,607 2,999 2,829 2,626 365
Interest income already subject
to final income tax (10,854) (10,252) (17,206) (24,307) (12,155)
Income already subject to
final income tax (973) (1,283) (395,134) (16,769) (2,652)
Sub-total 41,960 51,525 (683,234) 103,561 83,281
Estimated taxable income (tax loss) 1,228,558 (2,080,050) (1,071,572) 1,338,623 356,140
Tax loss carry forward (1,071,572) - - - (198,111)
Estimated taxable income (tax loss)
after compensation of
tax loss carry forward 156,986 (2,080,050) (1,071,572) 1,338,623 158,029

F-68
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

19. TAXATION (continued)

d. Current tax (continued)
The current tax expense, estimated income tax payable and claims for tax refund are as follows:
2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)
Estimated taxable income
(tax loss) – the Company 156,986 (2,080,050) (1,071,572) 1,338,623 158,029
Current tax expense – the Company 39,246 - - 401,570 47,392
Prepayments of income taxes
Income tax article 22 101,533 35,075 135,726 339,188 157,967
Income tax article 23 122 154 937 753 190
Income tax article 25 - - - 315 -
Fiscal exit tax - - - 210 153
Sub-total 101,655 35,229 136,663 340,466 158,310
Estimated income tax payable - - - 61,104 -

June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Estimated claims for tax refund

Current year
The Company 62,409 35,229 136,663 - 110,918
The Subsidiaries 19,403 14,739 12,814 17,873 16,604
Previous years
The Subsidiaries 29,077 31,430 20,352 13,556 11,307
Sub-total 110,889 81,398 169,829 31,429 138,829
Value-Added Tax 17,415 7,118 16,962 231,477 17,145
Total 128,304 88,516 186,791 262,906 155,974

The calculations of corporate income tax for 2009, 2008 and 2007 conform with the amounts that had
been reported by the Company to the Tax Office in its Annual Tax Return (“SPT”).

F-69
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

19. TAXATION (continued)

e. Deferred tax
The details of deferred tax expense (benefit) are as follows:
2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)
The effect of temporary differences
at the prevailing tax rates:
The Company
Provision for doubtful accounts (10,944) (1,303) (1,278) (6,229) (242)
Provision for decline in value of
inventory 1,330 159,076 165,285 (169,248) -
Provision for inventory
obsolescence - - - 2,886 2,110
Employee benefits (2,500) 227 (1,893) 548 (4,642)
Depreciation (4,205) (15,479) (25,370) (65,313) (19,046)
Tax loss 267,893 (520,013) (267,893) - 59,434

Sub-total 251,574 (377,492) (131,149) (237,356) 37,614

The Subsidiaries
Provision for doubtful accounts (313) (848) (231) 5,252 (2,004)
Provision for decline in value of
inventory 1,265 33,332 34,784 (36,271) -
Provision for inventory
obsolescence (238) (51) (403) 30 773
Employee benefits (1,051) (1,220) (1,117) 2,086 (7,012)
Depreciation (2,651) (1,183) (2,479) (8,451) (1,207)
Tax loss 12,373 (26,518) (16,756) 28 25,134
Others 4,434 3,055 1,118 (767) (4,730)
Sub-total 13,819 6,567 14,916 (38,093) 10,954
Deferred tax expense
(benefit), net 265,393 (370,925) (116,233) (275,449) 48,568

The tax effects of temporary differences between accounting and tax reporting are as follows:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
The Company
Deferred tax assets
Allowance for doubtful accounts 22,126 11,207 11,182 9,904 3,675
Allowance for decline in value of
inventory 2,633 10,172 3,963 169,248 -
Allowance for inventory obsolescence 8,577 8,577 8,577 8,577 11,463
Estimated liabilities for employee
benefits 38,211 33,591 35,711 33,818 34,366
Tax loss - 520,013 267,893 - -
Deferred tax liability Fixed assets (140,119) (154,215) (144,324) (169,694) (235,007)
Deferred tax assets (liability), net (68,572) 429,345 183,002 51,853 (185,503)

F-70
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

19. TAXATION (continued)

e. Deferred tax (continued)
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
The Subsidiaries
Deferred tax assets
PT KHI Pipe Industries 9,767 13,226 11,564 11,494 9,832
PT Krakatau Daya Listrik 3,473 849 3,863 1,830 -
PT Meratus Jaya Iron & Steel 3,049 1,414 2,131 - -
PT Krakatau Medika 2,265 1,742 1,855 1,351 852
PT Krakatau Daya Tirta 26 61 53 68 45
PT Pelat Timah Nusantara Tbk - 8,660 - 16,994 7,490
PT Krakatau Wajatama - 7,397 - 7,828 -
PT Krakatau Engineering - - - - 4,756
PT Krakatau Information Technology - - - - 209
PT Laksana Maju Jaya - - - - 122
Total 18,580 33,349 19,466 39,565 23,306
Deferred tax liabilities
PT Krakatau Wajatama (16,635) - (3,137) - (17,582)
PT Krakatau Bandar Samudera (625) (895) (978) (789) (1,031)
PT Krakatau Tirta Industri (548) (381) (717) (223) (414)
PT Krakatau Industrial Estate Cilegon (342) (690) (550) (841) (531)
PT Krakatau Information Technology (551) (363) (386) (125) -
PT Krakatau Daya Listrik - - - - (4,254)
Total (18,701) (2,329) (5,768) (1,978) (23,812)

Consolidated deferred tax

assets, net 18,580 462,694 202,468 91,418 23,306

Consolidated deferred tax

liabilities, net (87,273) (2,329) (5,768) (1,978) (209,315)

Deferred tax assets (other than accumulated fiscal losses) and deferred tax liabilities arose from the
differences in the methods or basis used for accounting and tax reporting purposes, which mainly consist
of depreciation on fixed assets, allowance for doubtful accounts, allowance for decline in value of
inventory, allowance for inventory obsolescence and provision for employee benefits, The difference in
the basis of recording of fixed assets is due to the differences in the estimated useful lives of the assets
and depreciation method used for accounting and tax reporting purposes.
The difference in the basis of allowance for doubtful accounts, allowance for decline in value of
inventory, allowance for inventory obsolescence, and provision for employee benefits is due to the
difference in the timing of recognition of expenses for accounting and tax reporting purposes.
The management of the Company and Subsidiaries is of the opinion that deferred tax assets are
recoverable.

F-71
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

19. TAXATION (continued)

e. Deferred tax (continued)
The reconciliation between tax expense (benefit) computed using the prevailing tax rates (2010: 25%,
2009: 28%, 2008 and 2007: 30%) on the accounting income (loss) before tax expense (benefit) and the
net tax expense (benefit) as reported in the consolidated statements of income is as follows:
2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)

Income (loss) before tax expense

(benefit) of the Company 1,288,573 (1,478,571) 363,523 623,785 398,447
Tax expense computed using the
prevailing tax rate 322,143 (414,000) 101,786 187,136 119,534
Tax effect of permanent differences 10,490 14,427 (191,305) 31,068 24,968
Effect of change in tax rates - 64,469 33,527 (8,689) -
Share in net income of Subsidiaries (41,813) (42,388) (75,157) (45,283) (59,496)
Progressive tax rate effect - - - (18) -

Tax expense (benefit) of the

Company 290,820 (377,492) (131,149) 164,214 85,006

Tax expense (benefit) of the

Subsidiaries
Current tax 41,651 47,242 88,688 151,093 84,883
Deferred tax 13,819 6,567 14,916 (38,093) 10,954

Tax expense of the Subsidiaries - net 55,470 53,809 103,604 113,000 95,837

Tax expense (benefit), net 346,290 (323,683) (27,545) 277,214 180,843

In September 2008, Law No. 7 Year 1983 regarding “Income Tax” has been revised for the fourth time
with Law No. 36 Year 2008. The revised Law stipulates changes in corporate tax rate from progressive
tax rates to a single rate of 28% for fiscal year 2009 and 25% for fiscal year 2010 onwards. The Company
and Subsidiaries recorded the impact of the changes in tax rates which amounted to Rp64,649 and
Rp4,219 for the six months ended June 30, 2009, Rp33,527 and Rp3,007 for the year ended
December 31, 2009 and Rp8,689 and Rp3,985 for the year ended December 31, 2008, respectively,
as part of deferred tax expense (benefit) in the current year operations. The revised Law is effective on
January 1, 2009.

f. Tax Assessment Letters

The Company
On May 26, 2010, the Company received Preliminary Refund of Tax Overpayment (“PPKP”) for its
2009 Corporate Income Tax amounting to Rp136,650 which was received by the Company in June 2010.
On February 12, 2009, the Company received PPKP for its December 2008 Value-Added Tax amounting
to Rp218,228, which was received by the Company in March 2009. On August 24, 2009, the Company
received Refund of Tax Overpayment for its 2008 Corporate Income Tax amounting to Rp18,426 which
was received in August 2009.
In September 2008, the Company received PPKP for its 2007 Corporate Income Tax amounting to
Rp106,620. The Company already received the refund in October 2008. The difference between the

F-72
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

19. TAXATION (continued)

f. Tax Assessment Letters (continued)
The Company (continued)
amount claimed by the Company and the amount refunded by the Tax Office is charged to current year
operations and presented as part of “Other Income (Charges)” in the 2008 consolidated statement of
income.
On September 18, 2007, the Company received Tax Assessment Letters of Overpayment (“SKPLB”) for
its 2006 Corporate Income Tax amounting to Rp111,183. The Company already received the refund in
October 2007. The difference between the amount claimed by the Company and the amount refunded by
the Tax Office was charged to current year operations and presented as part of “Other Income (Charges)”
in the 2007 consolidated statement of income.

The Subsidiary - PT KHIP

On July 9, 2009, PT KHIP received SKPLB for its 2007 Corporate Income Tax amounting to Rp1,615
and Tax Assesment Letters of Underpayment (“SKPKB”) for its 2007 income tax articles 21 and 23 and
VAT totaling Rp192. PT KHIP also received SKPLB for its December 2007 VAT amounting to Rp7,112
which was received by PT KHIP in July 2009. The difference between the amount claimed by PT KHIP
and the amount refunded by the Tax Office was charged to current year operations and presented as part
of “Other Income (Charges)” in the 2009 consolidated statement of income.
On March 18, 2008, PT KHIP received SKPLB for its December 2006 VAT amounting to Rp7,238. PT
KHIP also received SKPKB for its VAT articles 14(4), 16C and 16D totaling Rp2,263. The difference
between the amount claimed by PT KHIP and the amount refunded by the Tax Office was charged to
current year operations and presented as part of “Other Income (Charges)” in the 2008 consolidated
statement of income.

The Subsidiary - PT KIEC

In February 2008, PT KIEC received SKPLB for its 2006 Corporate Income Tax amounting to Rp4,532.
PT KIEC also received several SKPKB for its 2006 income tax articles 21 and 23 and VAT totaling
Rp47. The net overpayment of Rp4,485 was already received by PT KIEC in March 2008.

The Subsidiary - PT KDL

In March 2010, PT KDL received SKPKB and Tax Collection Letter (“STP”) for its 2008 income tax
article 21 amounting to Rp708.

The Subsidiary - PT KE
In 2009, PT KE received SKPLB for its 2007 Corporate Income Tax amounting to Rp3,195. PT KE also
received several SKPKB for its 2007 income tax articles 4(2), 21 and 23 amounting to Rp75.

F-73
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

20. ACCRUED EXPENSES

This account consists of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Wages and employee compensation 249,299 172,618 148,872 152,811 127,153

Delivery expenses 36,244 33,146 43,008 27,749 43,496
Project expenses 4,777 3,357 14,586 5,965 3,821
Royalty and retribution to District
Government 4,587 3,490 4,645 5,948 6,579
Professional fees 4,287 4,241 22,192 5,317 4,337
Port services 3,710 4,094 3,582 1,317 850
Rent 3,555 5,167 5,785 5,185 4,645
Interest 3,245 29,201 5,702 56,176 7,769
Others 26,440 25,321 23,507 24,685 17,712
Total 336,144 280,635 271,879 285,153 216,362

21. SALES AND OTHER ADVANCES

This account consists of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Advances from customers 220,752 307,002 261,375 155,146 193,605

Retention - - 45,493 35,073 18,385
Others 723 1,852 3,036 5,331 6,830
Total 221,475 308,854 309,904 195,550 218,820

22. LONG-TERM LOANS AND LIABILITIES

This account consists of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Long term loans - Third parties

Bank loans
The Company
PT Bank Mandiri (Persero) Tbk
(Rp161,510 for period 2010,
Rp242,265 for period 2009,
Rp201,888 in 2009, Rp282,642
in 2008, Rp363,397 and
US$255,435 in 2007) 161,510 242,265 201,888 282,642 365,803
Lembaga Pembiayaan Ekspor Indonesia
(formerly PT Bank Ekspor Indonesia
(Persero)) 66,667 100,000 83,334 116,667 150,000

F-74
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

22. LONG-TERM LOANS AND LIABILITIES (continued)

June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

The Subsidiaries
PT Meratus Jaya Iron & Steel
PT Bank Rakyat Indonesia (Persero) Tbk 213,587 - 79,943 - -

PT KHI Pipe Industries

PT Bank Rakyat Indonesia (Persero) Tbk
(Rp55,656 and US$1,120,000 for
period 2010, Rp72,083 and
US$2,005,000 for period 2009,
Rp64,810 and US$2,005,000 in 2009,
Rp71,141 and US$2,890,000
in 2008, Rp77,630 and
US$3,654,550 in 2007) 65,829 92,584 83,657 102,786 112,052

PT Krakatau Wajatama
PT Bank Negara Indonesia (Persero) Tbk 14,493 18,371 4,233 27,770 39,370

PT Krakatau Information Technology

PT Bank Rakyat Indonesia (Persero) Tbk
(US$21,853 for period 2010,
Rp69 and US$42,812 for period
2009, US$31,847 in 2009,
Rp264 and US$56,459 in 2008,
Rp396 and US$77,517 in 2007) 198 506 299 882 1,126
PT Bank Bukopin Tbk
(US$9,170 for period 2009,
US$19,529 in 2008,
US$39,152 in 2007) - 94 - 214 369

PT Krakatau Medika
PT Bank CIMB Niaga Tbk - - - - 20,310

PT Pelat Timah Nusantara Tbk *)

PT Bank Mandiri (Persero) Tbk - - - - 14,282

Construction loans - Third parties

Company
Bank Austria Aktiengesellschaft qq.
PT Bank Negara Indonesia (Persero) Tbk
(EUR23,858,915 for period 2010,
EUR26,131,193 for period 2009,
EUR24,995,054 in 2009, EUR27,267,332
in 2008, EUR29,539,610 in 2007) 264,518 377,131 337,676 420,803 406,465

F-75
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

22. LONG-TERM LOANS AND LIABILITIES (continued)

June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Two-step loans - Third parties

Company
Kreditanstait Fur Wiederaufbau (KfW),
Frankfurt
(EUR1,443,147 in 2007) - - - - 19,858

Total 786,802 830,951 791,030 951,764 1,129,635

Less current portion of long-term loans 202,254 235,532 222,390 240,443 261,334

Long-term portion, net 584,548 595,419 568,640 711,321 868,301

Long-term liabilities - Third parties

Payables from procurement of
computer hardware
(US$1,014,736 for period 2010,
US$259,766 for period 2009,
Rp109 and US$259,766 in 2009,
Rp184 and US$416,517 in 2008,
US$879,324 in 2007) 9,217 2,646 2,550 7,433 13,121
Estimated liabilities for development of
infrastructure and public facilities 19,890 13,912 14,882 16,488 6,029
Deposits for electricity and water 10,857 9,619 3,800 2,743 7,098
Others
(Rp674 and US$77,000 for period 2010,
Rp1,702 and US$209,000 for period 2009,
Rp1,034 and US$132,000 in 2009, Rp420
and US$220,675 in 2008,
Rp9,407 and US$190,933 in 2007) 1,373 3,839 2,275 2,836 11,205

Total 41,337 30,016 23,507 29,500 37,453

Less current portion of long-term liabilities 3,331 3,815 2,890 11,962 7,621

Long-term portion, net 38,006 26,201 20,617 17,538 29,832

*) Pelat Timah Nusantara Tbk was deconsolidated since the date the Company sold its investment to third parties (Note 12)

The Company
PT Bank Mandiri (Persero) Tbk (Bank Mandiri)
The Company obtained investment credit facility in Rupiah with a maximum amount of Rp684,529. This loan
was granted to finance the acquisition of plant machinery and equipment and plant expansion. The annual
interest rate is 10.5% and 13.0% for the six months ended June 30, 2010 and 2009 and 10.8%, 13.0% and
12.0% for the years ended December 31, 2009, 2008 and 2007, respectively. The loan is secured on paripasu
basis with the collateral pledged for the working capital credit facility obtained from the same bank (Note 15).
In 2005, Bank Mandiri sold part of the facility amounting to Rp200,000 to Lembaga Pembiayaan Ekspor
Indonesia (formerly PT Bank Ekspor Indonesia (Persero)) as stipulated in the Notarial Deed No. 51 dated
December 22, 2004 of Imas Fatimah, S.H.

F-76
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

22. LONG-TERM LOANS AND LIABILITIES (continued)

The Company (continued)
PT Bank Mandiri (Persero) Tbk (Bank Mandiri) (continued)
This loan will mature on April 7, 2012 and is payable in 24 (twenty four) quarterly installments starting from
the third quarter of 2006. The loan agreement requires the Company, among others, to inform in writing any
changes to the articles of association, authorized capital or paid-up capital, management and the status of the
Company, and pledge of the Company’s assets. Further, the Company shall also maintain current ratio at a
minimum of 120% and debt to equity ratio at a maximum of 233%.
The loan in US Dollar originated from the factoring of receivables with recourse amounting to Rp2,406, which
was due on April 29, 2008. As of December 31, 2008, the Company has fully paid the loan.

The Subsidiary - PT MJIS

PT Bank Rakyat Indonesia (Persero) Tbk (BRI)
Based on credit agreements dated July 6, 2009, PT MJIS obtained investment credit facility in Rupiah with a
maximum amount of Rp501,347. This loan was granted to finance the construction of Ironmaking plant in
Batulicin, South Kalimantan. The amount of loan drawn as of June 30, 2010 and December 31, 2009 amounted
to Rp213,587 and Rp79,943, with an interest rate of 12.0% and 13.0% per annum for the six months ended
June 30, 2010 and the year ended December 31, 2009. This loan will mature on July 6, 2016 and is payable in
16 quarterly installments starting from the third quarter of 2012.
The loan is secured by inventories, lands, buildings and machinery with a committed value of Rp718,482
(Notes 10 and 13).
The credit agreements include restrictions and covenants whereby PT MJIS, without prior written consent
from BRI, is not permitted to, among others, acting as guarantor and/or pledge its assets as guarantee to other
parties, lease the collateral assets, obtain loans from other banks or financial institutions, conduct merger,
acquisition and investment in shares, sell the collateral assets, change the articles of association, the authorized
capital and the boards of directors and commissioners, distribute dividends, and make repayment to
shareholders.

The Subsidiary - PT KHIP

PT Bank Rakyat Indonesia (Persero) Tbk (BRI)
a. Investment Credit Facility
PT KHIP obtained an investment credit facility (KI) with a maximum amount of Rp30,908. This facility
was used to finance investment in Electric Resistance Welding (ERW) steel pipe machine which will be
paid in five installments starting 2006 to 2010. This facility bears interest at 11.5% for the six months
ended June 30, 2010 and 11.5% to 13.0% per annum and ranging from 11.2% to 13.0% per annum and
ranging from 13.0% to 14.0% per annum for the years ended December 31, 2009, 2008 and 2007,
respectively.
On March 22, 2007, PT KHIP obtained additional facilities in terms of the first investment credit facility
(KI-1) of US$2,800,000 for the purchase of Coating machine and the second investment credit facility
(KI-2) of US$1,625,000 for reconditioning SPM1200 machine to SPM1800 machine. These facilities will
be paid in five installments during 60 months with a grace period of 12 months. This loan bears annual
interest at 7.8% for the six months ended June 30, 2010 and the year ended December 31, 2009, ranging

F-77
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

22. LONG-TERM LOANS AND LIABILITIES (continued)

The Subsidiary - PT KHIP (continued)
PT Bank Rakyat Indonesia (Persero) Tbk (BRI) (continued)
from 7.8% to 8.0% and 8.0% for the years ended 2008 and 2007. PT KHIP has accelerated the installment
payments of credit facility of KI-2. On March 19, 2010, PT KHIP fully paid the credit facility of KI-2.
b. Import Working Capital Loan
The import working capital loan facility with a maximum amount of Rp30,750, which was used to
finance guarantee deposits for issuing L/C. Based on the Notarial Deed No. 71 of Imas Fatimah, S.H.,
dated June 21, 2010, this facility is extended to December 31, 2010. This facility bears annual interest at
12.0% for the six months ended June 30, 2010, and 12.5% to 13.0%, 11.5% to 13.0% and 13.0% to 14.0%
for the years ended December 31, 2009, 2008 and 2007, respectively.
c. Working Capital Loan
The working capital credit facility with a maximum amount of Rp25,000 was used for additional working
capital. Based on the Notarial Deed No. 72 of Imas Fatimah, S.H. dated June 21, 2010, this facility is
extended to December 31, 2010. This facility bears annual interest at 12.0% for the six months ended
June 30, 2010, and 12.5% to 13.0%, 11.5% to 13.0% and 13.0% to 14.0% for the years ended
December 31, 2009, 2008 and 2007, respectively.
These facilities are secured by trade receivables, finished goods and raw material inventories, land, buildings,
machineries and equipment and the collateral pledged with guarantee value of Rp657,548 which related to
other credit facilities obtained from BRI (Notes 6, 10 and 13).
The credit facility agreements include restrictions, among others, without prior written consent from BRI, PT
KHIP is not permitted to conduct merger and acquisition, lease the collateral assets, declare bankruptcy,
provide borrowings to shareholders except to the Company, sell the collateral assets, make an investment in
fixed assets with cumulative amount above Rp5,000 per year, obtain loans from other banks or financial
institutions, make investment in shares except for the existing ones, acting as guarantor and/or pledge its assets
as guarantee to other parties, and use credit facilites other than those determined by the bank, and maintain
current ratio 115% until the credit is fully repaid.
As of June 30, 2010, PT KHIP was unable to meet the requirement of maintaining the current ratio stated
above. However, based on Letter from BRI No. 768-BMN/BMT/08/2010 dated on August 2, 2010, PT KHIP
obtained release of such requirement for period 2010.

The Subsidiary - PT KWT

PT Bank Negara Indonesia (Persero) Tbk (BNI)
a. Investment Loan
PT KWT obtained investment loan from BNI with a maximum amount of Rp74,225 which was used to
finance the expansion of reinforcing bar steel factory with capacity of 150,000 metric tons per year. Based
on the amended loan agreement dated December 30, 2003, the term of the credit facility was changed to
become December 30, 2003 up to December 29, 2010, including two years grace period. The loan is
repayable in 21 (twenty one) quarterly installments, starting from the fourth quarter of 2005. The credit
facility bears annual interest at 13.8%, 13.5% and 14.5% for the years ended December 31, 2009, 2008
and 2007, respectively. The outstanding investment loan facility to finance the expansion of reinforcing
bar steel factory was settled as of December 30, 2009. The outstanding payable as of June 30, 2010 is nil.

F-78
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

22. LONG-TERM LOANS AND LIABILITIES (continued)

The Subsidiary - PT KWT (continued)
PT Bank Negara Indonesia (Persero) Tbk (BNI) (continued)
On 2009, PT KWT obtained new investment loan from BNI with maximum amount of Rp33,460 which
was used to finance the installation building of natural gas in conversion refined fuel oil to natural gas and
Steel Bar Quenching. Based on the loan agreement dated December 29, 2009, the term of the credit
facility is 36 months since the signing of loan agreement including the term of withdrawal loan for
12 months. Based on the amended loan agreement dated June 29, 2010, this loan is repayable in 8 (eight)
quarterly installments starting from the second quarter after the term of withdrawal loan and bears interest
at 11.0% per year. The outstanding balance as of June 30, 2010 is Rp12,460.
b. Deferred Interest Expense
Deferred interest expense loan consists of:
1. Interest Balloon Payment loan of Rp16,651 which represents the accumulated deferred interest since
1998 up to December 30, 2003 on the principal of working capital and investment loans obtained
from BNI. Based on the amended loan agreement dated December 30, 2003, BNI agreed to extend
the credit term from December 30, 2003 up to December 29, 2010, including two years grace period.
The loan is repayable in 20 quarterly installments and bears annual interest at 0%.
2. KMK Lock Off loan of Rp22,833 which represents accumulated deferred interest expense up to
December 30, 2003 on working capital, investment, L/C and document loan facilities. Based on the
loan agreement dated December 30, 2003, BNI agreed to accumulate the unpaid interest payable in
the form of aflopend credit facility with a maximum amount of Rp22,832. The loan will be repayable
in 20 quarterly installments starting from the fourth quarter of 2005 up to December 29, 2010 and
bears annual interest at 1.0% per annum. Balance as of June 30, 2010 is Rp2,033.
The loan agreements include restrictions, among others, that without prior written agreement from BNI, PT
KWT is not permitted to enter into merger, change the legal form or status, change its articles of association,
make repayment to shareholder, provide borrowings to other parties including shareholder except in the
ordinary course of business, make investment, distribute dividends, obtain loans from other parties except
trade payables in the ordinary course of business, open a new business, acting as guarantor or pledge assets as
guarantee to other parties. PT KWT also shall maintain current ratio at a minimum of 1 time and debt to equity
ratio at a maximum of 2.5 times.
As of June 30, 2010, PT KWT was unable to meet the requirements to maintain the financial ratios stated
above. However, based on Letter from BNI No. KPS/2.2/989/R dated on July 19, 2010, PT KWT obtained
release of such requirements for period 2010.
All credit facilities and long-term loans of PT KWT are secured by trade receivables, inventories and fixed
assets of PT KWT and land owned by the Company which has been authorized to PT KWT to be pledged as
collateral as stipulated in the Deed of Right to Transfer Guarantee (Notes 6, 10 and 13).

The Subsidiary - PT KITech

PT Bank Rakyat Indonesia (Persero) Tbk (BRI)
PT KITech obtained loan facilities from BRI in US Dollar and Rupiah. The loan in US Dollar, which bears
interest at 8.5% per annum and valid from September 2006 up to August 2010, was used to finance LAN
human resources project of the Company. The loan in Rupiah, which bears interest at 16.0% per annum and

F-79
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

22. LONG-TERM LOANS AND LIABILITIES (continued)

The Subsidiary - PT KITech (continued)
PT Bank Rakyat Indonesia (Persero) Tbk (BRI) (continued)
valid from July 2006 up to June 2009, was used to finance the acquisition of computers sold to Yayasan
Pendidikan Warga Krakatau Steel. In 2009, PT KITech has fully paid the loan in Rupiah.
The loan facilities in US Dollar and Rupiah are secured by receivables, on a fiduciary basis, with guarantee
value of Rp1,607 (Note 6).
PT Bank Bukopin Tbk (Bukopin)
PT KITech obtained loan facilities in US Dollar from Bukopin which was used to finance the procurement of
printer thermal project of the Company with interest at 8.50% per annum, and valid from December 2005 up to
December 2009. This loan is secured with the leased printer thermal assets and receivables of PT KITech. In
2009, PT KITech has fully paid the loan.

The Subsidiary - PT KM
PT Bank CIMB Niaga Tbk (Bank Niaga)
PT KM obtained an investment credit facility from Bank Niaga for Rp28,000 to finance the development of
capacity, quality and facilities of the hospital. The loan facility is valid from the date of the agreement up to
June 22, 2013 with an interest at 10.25% per annum. The loan is repaid in 84 (eighty four) monthly installments
starting from June 2004. The loan was fully repaid on July 29, 2008.

The Subsidiary - PT Latinusa

PT Bank Mandiri (Persero) Tbk (Bank Mandiri)
PT Latinusa obtained aflopend working capital credit with a maximum credit of Rp119,082. Based on the
amendment of credit facility agreement dated December 29, 1999, Bank Mandiri agreed to extend the term of
the facility to become December 29, 1999 up to December 31, 2008, including two years grace period. The
credit facility bears annual interest at rate of 14.0% in 2008 and 2007, respectively. The covenants as well as
the collateral of the credit facility are the same with those pledged for short-term loan facilities (Note 15). In
2008, PT Latinusa has fully paid the loan.

Construction Loans
The Company obtained a loan facility denominated in Austrian Schilling from Bank Austria
Aktiengesellschaft with a maximum amount of ATS562,810,000 or equivalent to EUR40,900,998. This
loan was granted to finance the environmental protection project (dedusting system) at the slab and billet steel
plant.
This loan is payable in 36 (thirty six) semi-annual installments starting from April 30, 2003 to October 30,
2020. This loan facility bears annual interest at 4.0% as of June 30, 2010 and 2009 and December 31, 2009,
2008 and 2007.

Two-step Loans
Two-step loan facilities obtained by the Government of the Republic of Indonesia from Kreditanstait Fur
Wiederaufbau (KfW) in Euro with maximum amount of EUR7,859,450 and EUR3,917,911, respectively.
These loans were used to finance the modernization of Hot Strip Mill (“HSM”) plant. Each loan bears interest
at 8.06% and 8.46% per annum, respectively. These loans are repayable in 10 (ten) equal semi-annual

F-80
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

22. LONG-TERM LOANS AND LIABILITIES (continued)

Two-step Loans (continued)
installments starting from six months after readiness for operation of the project or May 30, 2001 and
November 30, 2001, whichever is earlier.
In 2008, the Company has fully paid the two-step loans.

Long-term liabilities
Long-term liabilities include PT KITech’s long-term payables, PT KIEC’s estimated liabilities for
development of infrastructure and public facilities, deposits received by PT KDL from customers for
electricity and deposits received by PT KTI from customers for water. PT KITech’s payables arose from
procurement contracts of computer hardware which payment is through installment. The outstanding payables
as of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007 amounted to Rp9,217, Rp2,646,
Rp2,550, Rp7,433 and Rp13,121, respectively.
Estimated liabilities for development of infrastructure and public facilities of PT KIEC represent estimated
cost of infrastuctures and public facilities to be developed, which amounted to Rp19,890, Rp13,912,
Rp14,886, Rp16,488 and Rp6,029 as of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007,
respectively.
The outstanding balance of deposits for electricity and water amounted to Rp10,857, Rp9,619, Rp3,800,
Rp7,648 and Rp7,098 as of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007, respectively.

23. PENSION PLANS AND EMPLOYEE BENEFITS

This account consists of:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

The Company
Long-term benefits in accordance with
the Collective Labor Agreement
Termination benefit 131,566 117,258 126,409 118,243 100,342
Long leave benefits 21,276 17,107 16,437 16,172 14,211
Service award 19,458 15,418 15,860 12,310 10,928
Post-retirement healthcare benefits - 368,978 - 335,132 264,512
172,300 518,761 158,706 481,857 389,993
The Subsidiaries 69,069 98,648 64,929 92,305 78,732
Total 241,369 617,409 223,635 574,162 468,725

Defined Benefit Pension Plan

The Company’s defined benefit pension plan is managed by Dana Pensiun Krakatau Steel, a related party,
which was established based on the Ministry of Finance Decision Letter No. KEP-121/KM.17/1998 dated
March 16, 1998. The fund is contributed by both employees and the Company. Employee’s contribution to the
plan is 5% of basic pension income salary and the remaining contribution is paid by the Company and
Subsidiaries for the Company’s employees who are seconded to the Subsidiaries. The calculations of pension
expense for the six months ended June 30, 2010 and 2009 and the years ended December 31, 2009, 2008 and
2007 were performed by PT Binaputera Jaga Hikmah (“Binaputera”), an independent actuary, based on its

F-81
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

23. PENSION PLANS AND EMPLOYEE BENEFITS (continued)

Defined Benefit Pension Plan (continued)
reports dated July 30, 2010, March 22, 2010, February 25, 2009 and May 23, 2008, respectively, using the
“Projected Unit Credit” method which utilized the following assumptions:
Actuarial discount rate : 2010: 8.4%, 2009: 10%, 2008: 12% dan 2007: 11% per annum
Mortality rate : Tabel Mortalita Indonesia II-1999/TMI II-99
Investment rate of return : 11% per annum
Salary increase rate : 2010: 8%, 2009: 8%, 2008: 8% dan 2007: 10% per annum
Retirement age : 56 years
Turnover rate : 1% for every age
Disability rate : 10% from mortality rate
The difference between the present value of defined benefits obligation and the fair value of pension plan
assets on June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007 are as follows:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Present value of defined obligation (1,873,307) (1,243,013) (1,284,738) (1,179,723) (1,155,983)

Fair value of plan assets 1,211,509 1,149,112 1,363,330 934,894 1,293,445
Unrecognized actuarial losses (gain) 711,167 144,831 (46,911) 315,200 (59,361)
Difference 49,369 50,930 31,681 70,371 78,101

Valuation of the present value of available refund or a reduction to the future contribution is based on the
Decree of the Ministry of Finance No. 510/KMK/2002 regarding Funding and Solvability of Pension Plan
from the Employer. Based on the decree, any surplus resulting from the change in the actuarial method should
not be accounted for as an employer’s normal contribution.
Since the surplus will not result in economic benefits available in the form of refunds from the plan or
reduction in future contributions to the plan, therefore recognition of such surplus will result in a gain being
recognized solely as a result of an unrecognized actuarial loss in the current year. Therefore, the surplus is not
recognized as an asset of the Company.

Defined Contribution Pension Plan

The Company established a defined contribution pension plan for all of its eligible permanent employees
which is managed by Dana Pensiun Lembaga Keuangan PT Bank Negara Indonesia (Persero) Tbk, the
establishment of which was approved by the Ministry of Finance in its Decision Letter
No. KEP.1100/KM.17/1998 dated November 23, 1998. The fund is contributed by both employees and
the Company with contribution of 5.0% and 15.0%, respectively, of the basic pension income. Pension
expense charged to operations amounted to Rp7,471, Rp5,449, Rp14,895, Rp15,056 and Rp6,018 for the six
months ended June 30, 2010 and 2009 and the years ended December 31, 2009, 2008 and 2007, respectively.
The Subsidiaries established defined contribution pension plans covering all their eligible permanent
employees. The fund is contributed by employees of 5.0% and Subsidiaries’ contribution ranging
between 10.0% to 20.0% of the basic pension income. Pension expense charged to operations amounted
to Rp3,453, Rp4,520, Rp9,711, Rp9,669 and Rp7,058 for the six months ended June 30, 2010 and 2009 and
the years ended December 31, 2009, 2008 and 2007, respectively.
The Subsidiaries’ pension plan assets are managed by Dana Pensiun Mitra Krakatau, the establishment of
which was approved by the Ministry of Finance in its Decision Letter No. Kep.054/KM.17/1995 and
published in the State Gazette of the Republic of Indonesia No. 29 dated April 11, 1995.

F-82
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

23. PENSION PLANS AND EMPLOYEE BENEFITS (continued)

Long-term Benefits In Accordance with the Collective Labor Agreement
The management of the Company and Subsidiaries obtained actuarial calculations as of June 30, 2010, 2009,
December 31, 2009, 2008 and 2007 of the accrual of employees’ long-term benefits expenses based on the
Collective Labor Agreement. The actuarial calculations were prepared by Binaputera, based on its reports
dated July 30, 2010, March 22, 2010, February 25, 2009 and May 23, 2008, using the “Projected Unit Credit”
method which utilized the following assumptions:
Mortality rate : Tabel Mortalitas Indonesia II-1999/TMI II-99
Actuarial discount rate : 2010: 8.4% - 9.7%, 2009: 10%, 2008: 12% dan 2007: 11% per annum
Salary increase rate : 2010: 11% - 12%, 2009: 8%, 2008: 8% dan 2007: 10% per annum
Disability rate : 10% from mortality rate
Retirement age : 56 years

a. Estimated liabilities for employee benefits

June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007

Present value of actuarial liability 499,130 348,924 313,154 289,429 299,359

Unrecognized actuarial loss (170,611) (64,952) (67,618) (35,665) (60,003)
Unrecognized past service cost - unvested (87,150) (35,541) (21,901) (14,734) (35,143)
Recognized liability 241,369 248,431 223,635 239,030 204,213

b. Employee benefits expense

2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)

Current service cost 14,632 12,232 22,297 25,707 31,544

Interest cost 13,211 14,483 25,624 36,325 30,461
Amortization of actuarial correction 10,179 5,513 8,384 (1,897) 12,006
Amortization of unrecognized past
service cost - unvested 4,128 2,625 12,646 3,922 4,279
Total 42,150 34,853 68,951 64,057 78,290

c. Movements in the estimated liabilities for employee benefits are as follows:

2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)

Beginning balance 223,635 239,030 239,030 204,213 156,138

Employee benefits expense 42,150 34,853 68,951 64,057 78,290
Payments during the period (24,416) (25,452) (52,646) (29,240) (30,215)
Effect on disposal of subsidiary - - (31,700) - -
Ending balance 241,369 248,431 223,635 239,030 204,213

The management is of the opinion that the existing retirement plan and the post-employment benefits
provided by the Company and Subsidiaries are adequate to cover the benefits required under Labor Law
No. 13 year 2003 (“LL No. 13”).

F-83
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

23. PENSION PLANS AND EMPLOYEE BENEFITS (continued)

Long-term Benefits In Accordance with the Collective Labor Agreement (continued)
The Company and Subsidiaries, except for PT KHIP, decided to amend the Collective Labor Agreement to
remove the benefit for Pension Preparation Period (MPP) and change the post-retirement benefit. The
changes became effective since January 1, 2007.

Post-retirement Healthcare Benefits

The Company’s management obtained actuarial calculations as of June 30 2009 and December 31, 2009,
2008 and 2007 of the provision for post-retirement health care benefits. The actuarial calculations were
prepared by Binaputera, based on its reports dated March 22, 2010, February 25, 2009 and May 23, 2008,
using the “Projected Unit Credit” method which utilized the following assumptions:
Mortality rate : Tabel Mortalitas Indonesia II-1999
Actuarial discount rate : 2009: 10%, 2008: 12% and 2007: 11% per annum
Medical inflation rate : Year 1: 12%
Year 2: 10.53%
Year 3: 9%
Disability rate : age 20-44 years: 0.1%
: age 44-55 years: 0.4%
Voluntary resignation rate : 1% per annum
Retirement age : 56 years

a. Post-retirement healthcare benefits liability

June 30,
2009 December 31,
(Unaudited) 2009 2008 2007

Present value of actuarial liability 711,673 723,815 464,769 421,044

Unrecognized past service cost - unvested (269,967) (66,666) (78,790) (90,820)
Unrecognized actuarial correction (72,728) (253,254) (50,847) (65,712)
Gain on curtailment and settlement - (403,895) - -
Post-retirement healthcare benefits liability 368,978 - 335,132 264,512

b. Post-retirement healthcare benefits expense

2009
(Six Months) 2009 2008 2007
(Unaudited) (One Year) (One Year) (One Year)

Current service cost 9,991 20,214 15,926 11,682

Interest cost 22,915 45,978 50,080 34,662
Amortization of unrecognized past service
cost - unvested 213 12,125 12,125 12,125
Amortization of actuaria correction 6,063 430 - -
Post-retirement healthcare benefits expense 39,182 78,747 78,131 58,469

F-84
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

23. PENSION PLANS AND EMPLOYEE BENEFITS (continued)

Post-retirement Healthcare Benefits (continued)
c. Movements in the post-retirement healthcare benefits liability are as follows:
2009
(Six Months) 2009 2008 2007
(Unaudited) (One Year) (One Year) (One Year)

Beginning balance 335,132 335,132 264,512 211,787

Post-retirement healthcare benefits expense 39,182 78,747 78,131 58,469
Payments during the period (5,336) (9,984) (7,511) (5,744)
Gain on curtailment and settlement - (403,895) - -
Ending balance 368,978 - 335,132 264,512

In 2009, the Company decided to amend the Collective Labor Agreement as to change the Post-retirement
Healthcare Benefits plan from a defined benefit plan to a defined contribution plan. The change was approved
by the Ministry of State-Owned Companies on March 9, 2010 and became effective since December 31,
2009. Based on an agreement dated March 29, 2010 between the Company and Yayasan Badan Pengelola
Kesejahteraan Krakatau Steel (“Bapelkes KS”), the Company’s Post-retirement Healthcare Benefits plan will
be managed by Yayasan Bapelkes KS, which was established based on Notarial Deed No. 17 dated March 15,
2010 of Amrul Partomuan Pohan, S.H., LLM. Source of funding health care benefits program comes from
contributions of the Company amounted to Rp341 for each employee for each month. Health care expenses
are charged to operations which were amounted to Rp20,193 for the six months ended June 30, 2010.
As a settlement of post-retirement healthcare benefits liability on December 31, 2009, the Company shall pay
to Yayasan Bapelkes KS an initial contribution of Rp243,197 (net of tax of Rp33,400), which is recorded
under the account “Other Payables” in the consolidated balance sheet as of December 31, 2009. The
difference of Rp127,298 was recognized as gain from settlement of post-retirement healthcare benefits
liability and presented as part of “Other Income (Charges)” in the 2009 consolidated statement of income.

Termination Benefits
In relation to the termination benefits liability under LL No. 13 and application of PSAK No. 24 (Revised
2004), the Company and Subsidiaries have no intention to terminate an employee or group of employees prior
to their normal pension dates, or provide severance payment for an employee who accepted the offer of
voluntary termination benefit program. As result, no termination benefits liability and expense have been
recognized in the consolidated financial statements.

24. MINORITY INTEREST IN NET ASSETS AND NET INCOME (LOSS) OF SUBSIDIARIES
Juni 30, 2010
Minority Interest Shares in Net Other Equity Minority Interest
Januari 1, 2010 Income (Loss) Movement Juni 30, 2010

PT KHI Pipe Industries 1,075 17 217 1,309

PT Meratus Jaya Iron & Steel 38,580 (957) 30,909 68,532
PT Krakatau Medika 1,297 50 179 1,526
Total 40,952 (890) 31,305 71,367

F-85
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

24. MINORITY INTEREST IN NET ASSETS AND NET INCOME (LOSS) OF SUBSIDIARIES
(continued)

Juni 30, 2009 (Unaudited)

Minority Interest Shares in Net Other Equity Minority Interest
Januari 1, 2009 Income (Loss) Movement Juni 30, 2009

PT KHI Pipe Industries 805 57 - 862

PT Meratus Jaya Iron & Steel 20,618 (351) - 20,267
PT Pelat Timah Nusantara Tbk 15,920 583 (1,959) 14,544
Total 37,343 289 (1,959) 35,673

December 31, 2009

Minority Interest
Minority Interest Shares in Net Other Equity December 31,
Januari 1, 2009 Income (Loss) Movement 2009

PT KHI Pipe Industries 805 270 - 1,075

PT Meratus Jaya Iron & Steel 20,618 (1,028) 18,990 38,580
PT Krakatau Medika - 97 1,200 1,297
PT Pelat Timah Nusantara Tbk
(Note 12) 15,920 2,193 (18,113) -
Total 37,343 1,532 2,077 40,952

December 31, 2008

Minority Interest
Minority Interest Shares in Net Other Equity December 31,
Januari 1, 2008 Income (Loss) Movement 2008

PT KHI Pipe Industries 597 212 (4) 805

PT Meratus Jaya Iron & Steel - (632) 21,250 20,618
PT Pelat Timah Nusantara Tbk 14,054 4,458 (2,592) 15,920
Total 14,651 4,038 18,654 37,343

December 31, 2007

Minority Interest
Minority Interest Shares in Net Other Equity December 31,
Januari 1, 2007 Income (Loss) Movement 2007

PT KHI Pipe Industries 786 (189) - 597

PT Pelat Timah Nusantara Tbk 12,658 3,268 (1,872) 14,054
PT Citra Indokarbon Perkasa 2,086 - (2,086) -
Total 15,530 3,079 (3,958) 14,651

Other equity movements as of June 30, 2010 and December 31, 2009 and 2008 amounting to Rp30,909,
Rp18,990, and Rp21,250, respectively, represent capital contributions of PT Antam to PT MJIS for 34% of
the increase in paid up capital of PT MJIS.

25. SHARE CAPITAL

As of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007, the Company is wholly-owned by the
Government of the Republic of Indonesia.
Other paid in capital represents the Government Capital Contribution which has not been determined as the
Company’s share capital.

F-86
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

26. DIFFERENCE ARISING FROM TRANSACTIONS RESULTING IN CHANGES IN THE

EQUITY OF SUBSIDIARIES
Differences arising from changes in equity of Subsidiaries as of June 30, 2010 and December 31, 2009
represents the difference between the Company’s share before and after the issuance of new shares of PT
Latinusa (Note 12). PT Latinusa issued new shares through an initial public offering in 2009. The Company
did not take part of such issuance of new shares and therefore its percentage of ownership was diluted to
75.10%.
Differences arising from changes in equity of Subsidiaries as of December 31, 2007 amounted to Rp381
arising from the revaluation of fixed assets of Subsidiaries.

27. APPROPRIATIONS OF RETAINED EARNINGS AND DISTRIBUTIONS OF INCOME

Based on the Minutes of the Annual General Meeting of the Company’s Shareholder held on June 18, 2010,
the shareholder ratified the following decisions related to the year 2009, among others:
a. Distribution of cash dividends amounting to Rp148,402.
b. The allocation of funds for Partnership Program amounting to Rp9,893.
c. The allocation of funds for Community Development Program amounting to Rp9,893.
d. Appropriation of retained earnings for general reserve amounting to Rp 326,484.
Based on the Minutes of the Annual General Meeting of the Company’s Shareholder held on June 11, 2009,
the shareholder ratified the following decisions related to the year 2008, among others:
a. Distribution of cash dividends amounting to Rp137,872.
b. Allocation of funds for Partnership Program amounting to Rp2,298.
c. Allocation of funds for Community Development Program amounting to Rp6,893.
d. Appropriation of retained earnings for general reserve amounting to Rp312,509.
e. Distribution of tantiem for Directors and Commissioners amounting to Rp6,383.
Based on the Minutes of the Annual General Meeting of the Company’s Shareholder held on June 17, 2008
the shareholder ratified the following decisions related to the year 2007, among others:
a. Appropriation of retained earnings for specific purposes to support the Company’s expansion, tantiem for
Directors and Commissioners and Partnership and Community Development Program amounting to
Rp219,664.
b. Distribution of cash dividends amounting to Rp94,142.
The shareholder also ratified that Partnership and Community Development Programs were aligned to
become Corporate Social and Environmental Responsibility (“CSR”), starting from August 16, 2007 until
December 31, 2007 was charged to expense by the Company based on Law No. 40 year 2007 regarding
Limited Corporation. As a follow up to the above shareholder’s decision, the Company charged CSR program
expense for the period from August 16, 2007 to December 31, 2007 amounting to Rp365 and presented it in
the 2007 consolidated statement of income.
In 2009 and 2008, the Company charged expenses for CSR program to current year operations which is
presented as “Corporate Social Responsibility and Community Development” account in the consolidated
statements of income (Note 30).

F-87
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

27. APPROPRIATIONS OF RETAINED EARNINGS AND DISTRIBUTIONS OF INCOME

(continued)
Based on the Minutes of the Annual General Meeting of the Company’s Shareholder held on July 3, 2007, the
shareholder has not ratified for the year 2006, any appropriation of retained earnings for general reserve,
distribution of cash dividends, allocation of Fund for Community Development and tantiem for Directors and
Commissioners.
The Subsidiaries allocated retained earnings for community development and tantiem totaling nil, nil and
Rp3,445 in 2009, 2008 and 2007, respectively.

28. NET REVENUES

This account consists of revenues from:
2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)

Sale of steel products

Local 8,078,422 6,980,874 15,323,971 18,100,817 12,772,355
Export 224,304 283,081 378,491 1,433,827 1,334,125
Real estate dan hotel 92,009 77,953 121,751 133,548 117,912
Other services
Engineering and construction 350,865 304,882 669,687 592,237 273,860
Information technology 3,607 2,162 15,844 4,317 6,216
Others 251,003 178,961 403,791 366,685 331,551
Total 9,000,210 7,827,913 16,913,535 20,631,431 14,836,019

The net revenues from related parties amounted to Rp309,197 or 3.44% and Rp312,555 or 3.99%,
respectively, from the total consolidated revenues for the six months ended June 30, 2010 and 2009,
Rp655,921 or 3.88%, Rp828,465 or 4.02% and Rp683,423 or 4.61%, respectively, from the total consolidated
revenues for the years ended December 31, 2009, 2008 and 2007 (Note 9).
There were no sales made to any single customer with a cumulative amount exceeding 10% of the
consolidated net revenues for the six months ended June 30, 2010 and 2009 and the years ended
December 31, 2009, 2008 and 2007.

F-88
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

29. COST OF REVENUES

This account consists of:
2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)

Steel products
Raw materials used 4,087,344 4,398,967 8,813,356 11,838,223 7,432,299
Manufacturing cost 2,232,074 2,032,355 4,005,337 5,574,920 4,554,839
Direct labor 449,043 278,482 589,303 620,546 516,363
Provision for (realization of)
decline in value of inventory (1,776) (316,277) (374,859) 374,932 -
Total production cost 6,766,685 6,393,527 13,033,137 18,408,621 12,503,501
Finished goods, beginning of period 2,113,858 4,080,056 4,080,056 1,987,619 1,719,468
Purchases 230,764 183,057 237,015 406,923 333,370
Provision for (realization of)
decline in value of inventory (8,966) (369,009) (340,307) 363,489 -
Finished goods, end of period (2,489,035) (2,284,991) (2,113,858) (4,080,056) (1,987,619)
Effect on disposal of a subsidiary - - (79,959) - -
Sub-total 6,613,306 8,002,640 14,816,084 17,086,596 12,568,720

Non-manufacturing expenses
Engineering and construction 315,858 282,481 618,574 529,859 239,710
Land and industrial estate services 38,767 30,111 58,991 81,961 51,662
Information technology 633 968 12,528 5,471 3,437
Other services 137,065 93,386 221,969 211,480 199,888
Sub-total 492,323 406,946 912,062 828,771 494,697
Total 7,105,629 8,409,586 15,728,146 17,915,367 13,063,417

Purchases from related parties amounted to Rp77,697 or 1.09% and Rp56,720 or 0.67%, respectively, from
the total consolidated cost of revenues for the six months ended June 30, 2010 and 2009, Rp31,987 or 0.20%,
Rp208,041 or 1.16% and Rp27,659 or 0.21%, respectively, from the total consolidated cost of revenues for
the years ended December 31, 2009, 2008 and 2007 (Note 9).
There were no purchases made to any single customer with a cumulative amount exceeding 10% of the
consolidated revenues for the six months ended June 30, 2010 and 2009 and the years ended December 31,
2009, 2008 and 2007.

F-89
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

30. OPERATING EXPENSES

This account consists of:
2009
2010 (Six Months) 2009 2008 2007
(Six Months) (Unaudited) (One Year) (One Year) (One Year)

Selling
Delivery expense 112,878 100,260 207,762 235,305 170,484
Salaries, wages and employees
benefits 28,532 20,320 41,714 47,817 34,144
Office expenses 2,773 3,340 4,319 4,648 2,763
Transportation and communication 2,207 2,390 4,691 4,649 4,535
Customer claims 1,545 4,429 5,083 41,877 9,391
Others (each below Rp2,000) 768 1,486 3,839 6,635 20,269
Sub-total 148,703 132,225 267,408 340,931 241,586

General and administrative

Salaries, wages and employees
benefits 294,090 278,172 597,444 650,571 458,969
Insurance and rental 83,706 52,384 120,914 165,277 113,894
Provision for doubtful accounts 46,888 19,319 9,953 35,655 23,759
Repairs and maintenance 36,177 31,309 60,709 46,387 30,499
Office expenses 21,735 14,172 32,203 32,689 37,999
Transportation and communication 9,712 7,341 15,392 23,019 24,713
Depreciation and amortization 9,318 10,050 20,081 21,063 24,974
Education and training 7,817 2,093 7,619 7,060 5,680
Professional fees 5,181 10,322 19,012 26,063 14,948
Corporate Social Responsibility and
Community Development 877 2,493 3,527 3,783 376
Others (each below Rp2,000) 14,533 1,179 5,187 3,178 2,472
Sub-total 530,034 428,834 892,041 1,014,745 738,283
Total 678,737 561,059 1,159,449 1,355,676 979,869

31. FINANCIAL INSTRUMENTS

Financial instruments presented in the consolidated balance sheets are carried at fair value, otherwise, they
are presented at carrying amounts as either these are reasonable approximation of fair values or their fair
values cannot be reliably measured. Further explanations are provided in the following paragraphs.

Financial instruments carried at fair value or amortized cost

Retention receivables and long-term receivables from employees are carried at amortized cost using the
effective interest rate method (“EIR”), and the discount rates used are the current market incremental lending
rates for similar types of lending.
Derivative instruments are measured at fair value by using valuation techniques internally because there are
no quoted market prices for those instruments. The main techniques used to assess these instruments is the use
of discounted cash flows. Input data including benefit curve foreign currency exchange rates and the spot
price of the instrument is used as underlying instruments.

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These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

31. FINANCIAL INSTRUMENTS (continued)

Financial instruments with carrying amounts that approximate their fair values
Management has determined that the carrying amounts (based on notional amount) of cash and cash
equivalents, short-term investments, restricted time deposits, trade receivables and other current receivables,
current trade and other payables and accrued expenses and short-term bank loans reasonably approximate
their fair values because they are mostly short-term in nature.
The carrying amounts of long-term loans with floating interest rates approximate their fair values as they are
re-priced frequently.

Financial instruments carried at amounts other than fair values

Investments in unquoted ordinary shares representing equity ownership interest of below 20%, are carried at
cost as their fair values cannot be reliably measured.

F-91
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

31. FINANCIAL INSTRUMENTS (continued)

The following table sets forth the financial assets and financial liabilities of the Company and Subsidiaries as
of June 30, 2010:
June 30, 2010

Financial Assets
Loans and receivables
Current assets
Cash and cash equivalents 1,518,889
Short-term investment 1,950
Restricted time deposits 260,000
Trade receivables 1,725,557
Other receivables 74,339
Non-current assets
Long-term receivables 628
Restricted time deposits 20,535
Other assets - employee receivables 11,270
Total 3,613,168
Financial assets available for sale
Non-current asset
Investments in shares of stock 1,157
Total Financial Assets 3,614,325

Financial Liabilities
Liabilities at amortized cost
Current liabilities
Short-term bank loans 3,439,438
Trade payables 1,157,328
Other payables 233,486
Accrued expenses 336,144
Current portion of long-term loans 202,254
Current portion of long-term liabilities 3,331
Non-current liabilities
Long-term loans, net of current portion 584,548
Long-term liabilities, net of current portion 38,006
Total 5,994,535
Liabilities at fair value through profit and loss
Other payables - derivative payable 5,984
Total Financial Liabilities 6,000,519

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These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

31. FINANCIAL INSTRUMENTS (continued)

The following table sets forth the carrying amounts and estimated fair values of the financial instruments of
the Company and Subsidiaries that are carried in the consolidated balance sheet as of June 30, 2010:
Carrying Amount Fair Value

Financial Assets
Current assets
Cash and cash equivalents 1,518,889 1,518,889
Short-term investments 1,950 1,950
Restricted time deposits 260,000 260,000
Trade receivables 1,725,920 1,725,557
Other receivables 80,598 74,339
Non-current assets
Investments in shares of stock 1,157 1,157
Long-term receivables 628 628
Restricted time deposits 20,535 20,535
Other assets - employee receivables 13,297 11,270
Total 3,622,974 3,614,325
Financial Liabilities
Current liabilities
Short-term bank loans 3,439,438 3,439,438
Trade payables 1,157,328 1,157,328
Other payables 239,906 239,470
Accrued expenses 336,144 336,144
Current portion of long-term loans 202,254 202,254
Current portion of long-term liabilities 3,331 3,331
Non-current liabilities
Long-term loans, net of current portion 584,548 584,548
Long-term liabilities, net of current portion 38,006 38,006
Total 6,000,955 6,000,519

32. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

RISK MANAGEMENT
The principal financial liabilities of the Company and Subsidiaries consist of short-term and long-term loans,
trade and other payables and accrued expenses. The main purpose of these financial liabilities is to raise funds
for the operations of the Company and Subsidiaries. The Company and Subsidiaries also have various
financial assets such as trade receivables and cash and cash equivalents, which arise directly from their
operations.
The Company and Subsidiaries have foreign exchange swap contracts with several banks, the purpose of
which are primarily to hedge risks of losses arising from fluctuations in foreign exchange rates emanating
from payables in foreign currencies.
The Company’s and Subsidiaries’ policy is not to hedge their financial instruments.
The main risks arising from the Company’s and Subsidiaries’ financial instruments are foreign exchange rate
risk, interest rate risk, credit risk, liquidity risk and price risk. The importance of managing these risks has
significantly increased in light of the considerable change and volatility in both Indonesian and international
financial markets. The Company’s Directors review and approve the policies for managing these risks which
are summarized below.

F-93
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

32. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

RISK MANAGEMENT (continued)
a. Fair value and cash flow interest rate risk
Fair value and cash flow interest rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market interest rates. The Company and Subsidiaries
are exposed to the risk of changes in market interest rates relates primarily to their short-term bank
loans and long-term loans. Interest rate fluctuations influence the cost of new loans and the interest on
the outstanding variable rate loans of the Company and Subsidiaries.
As of June 30, 2010, 37.0% of the Company’s and Subsidiaries’s debts are fixed-rated.
The Company’s policies relating to interest rate risk are to manage interest cost through a mix of fixed
and variable rate debts. The Company evaluates the fixed to floating ratio of its short-term bank loans
and long-term loans in line with movements of relevant interest rates in the financial markets. Based on
management’s assessment, new financing will be priced either on a fixed or floating rate basis.

b. Foreign exchange rate risk

Foreign exchange rate risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in foreign exchange rates. The Company’s and Subsidiaries’
exposure to exchange rate fluctuations results primarily from short-term loans, long-term loans,
trade receivables from sales in foreign currencies and trade payables from purchases in foreign
currencies.
To manage foreign exchange rate risks, the Company entered into several foreign exchange swap
contracts. These contracts are accounted for as transactions not designated as hedges, wherein the
changes in the fair value are charged or credited directly to consolidated statement of income for the
period.
To the extent the Indonesian Rupiah depreciated further from exchange rates in effect at June 30, 2010,
short-term bank loans, long-term loans and trade payables denominated in foreign currencies would
increase in Indonesian Rupiah terms. However, the increases in these obligations would be offset by
increases in the values of foreign currency-denominated cash and cash equivalents and trade
receivables. As of June 30, 2010, 38.0% of the Company’s and Subsidiaries’ U.S. dollar-
denominated debts were hedged from exchange rate risk by entering into several foreign exchange
swap contracts.
Monetary assets and liabilities of the Company and Subsidiaries denominated in foreign currencies as
of June 30, 2010 are presented in Note 35.

c. Credit risk
Credit risk is the risk that one party of financial instruments will fail to discharge its obligation and will
incur a financial loss to other party. The Company and Subsidiaries are exposed to credit risk arising
from the credit granted to their customers. The Company and Subsidiaries trade only with recognized
and creditworthy third parties. It is the Company’s and Subsidiaries’ policy that all customers who wish
to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are
monitored on an ongoing basis to reduce the exposure to bad debts. The maximum exposure to the
credit risk is represented by the carrying amount as shown in Notes 6 and 14. There is no concentration
of credit risk.

F-94
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

32. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

RISK MANAGEMENT (continued)
c. Credit risk (continued)
With respect to credit risk arising from the other financial assets, which comprise cash and cash
equivalents, short-term investment in terms of time deposits and certain derivative instruments, the
Company’s and Subsidiaries’ exposure to credit risk arises from default of the counterparty. The
Company and Subsidiaries has a policy not to place investments in instruments that have a high credit
risk and only put the investments in banks with a high credit ratings. The maximum exposure equal to
the carrying amount as disclosed in Notes 3, 4 and 18.

d. Liquidity risk
The liquidity risk is defined as a risk when the cash flow position of the Company and Subsidiaries
indicates that the short-term revenue is not enough to cover the short-term expenditure.
The Company’s and Subsidiaries’ liquidity requirements have historically arisen from the need to
finance investments and capital expenditures related to the expansion of steel business. The Company’s
and Subsidiaries’ steel business requires substantial capital to construct and expand production
facilities and to fund operations. Although the Company and Subsidiaries have substantial existing
production facilities, the Company and Subsidiaries expect to incur additional capital expenditures
primarily focusing on revitalization and production facilities expansion to increase production
capacity, reduce production costs, increase profit margin and create a balance between upstream
and downstream production facilities.
In the management of liquidity risk, the Company and Subsidiaries monitor and maintain a level of
cash and cash equivalents deemed adequate to finance the Company’s and Subsidiaries’ operations and
to mitigate the effects of fluctuation in cash flows. The Company and Subsidiaries also regularly
evaluate the projected and actual cash flows, including their long-term loan maturity profiles, and
continuously assess conditions in the financial markets to maintain flexibility in funding by keeping
committed credit facilities available. These activities may include bank loans and equity market issues.
The table below summarizes the maturity profile of the Company’s and Subsidiaries’ financial
liabilities based on contractual undiscounted payments.
Below Over Fair Value
1 Year 1-2 Years 3-5 Years 5 Years Total June 30, 2010

Current liabilities
Short-term bank loans 3,439,438 - - - 3,439,438 3,439,438
Trade payables 1,157,328 - - - 1,157,328 1,157,328
Other payables 239,906 - - - 239,906 239,470
Accrued expenses 336,144 - - - 336,144 336,144
Non-current liabilities
Long-term loans 202,254 302,420 168,764 113,364 786,802 786,802
Long-term liabilities 3,331 24,820 2,327 10,859 41,337 41,337
5,378,401 327,240 171,091 124,223 6,000,955 6,000,519

e. Price risk
The Company and Subsidiaries are exposed to price risk due to purchase of main imported raw
materials of steel. The price of raw materials are affected by several factors such as level of supply,
global production capacity and foreign exchange rates. Such exposure mainly arises from purchases of

F-95
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

32. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

RISK MANAGEMENT (continued)
e. Price risk (continued)
iron ore and import slab where the profit margin on sale of finished steel products may be affected if the
prices of iron ore and import slab (which are the main raw materials used to produce steel products)
increase and the Company is unable to pass such cost increases to its customers. In addition, the
Company is also exposed to fluctuations in the selling price of its finished steel products.
The Company’s policy is to minimize the risks arising from the fluctuations in the steel prices by,
among others, entering into sale contracts with 12 months term or less, negotiating prices that give
better margin with its customers, passing on the price increases to its customers and entering into
forward contracts.

33. SIGNIFICANT AGREEMENTS AND COMMITMENTS

As of June 30, 2010 and 2009 and December 31, 2009, 2008 and 2007, the Company and Subsidiaries have
the following significant agreements and commitments:
a. Opened but not yet used Letters of Credit (L/C) facilities:
June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
The Company
PT Bank Mandiri (Persero) Tbk
US$ 78,233,864 54,097,513 58,252,237 169,567,895 68,940,338
JP¥ 2,564,000 15,003,264 7,468,362 - -
EUR 27,111,764 36,257,189 34,988,321 - -
GPB - - 99,000 - -
SG$ 28,314 - 21,236 - -
Rupiah 38,669 48,762 - - -
AUD$ - 61,252 - - -
PT Bank Negara Indonesia (Persero) Tbk
US$ 48,850,300 32,356,325 41,527,553 9,097,961 -
EUR 28,854,400 - 3,234,875 - -
Rupiah 52,800 - 3,718 - -
PT Bank CIMB Niaga Tbk
US$ 1,506,649 - 20,317,500 - -
Rupiah - - 11,212 - -
Standard Chartered Bank - US$ - - 20,317,500 - 16,670,103
PT Bank Danamon Indonesia Tbk
US$ 6,434,510 9,208,671 18,069,688 21,726,686 16,413,242
Rupiah 30,000 - - - -
The Hongkong and Shanghai Banking
Corporation Ltd.
US$ 1,077,088 15,383,547 2,777,616 35,897,160 31,696,300
EUR - 3,420 - - -
Deutsche Bank AG
US$ - 601,487 - - -
EUR 1,130,675 274,042 2,561,394 3,087,782 4,216,942
Rupiah - - - - -
PT Bank Permata Tbk - US$ 2,764,399 - 5,502,800 - -

F-96
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

33. SIGNIFICANT AGREEMENTS AND COMMITMENTS (continued)

June 30,
June 30, 2009 December 31,
2010 (Unaudited) 2009 2008 2007
The Subsidiaries
PT Krakatau Wajatama
PT Bank Negara Indonesia (Persero)
Tbk - US$ 6,226,046 7,183,500 8,957,703 - -
PT Bank Danamon Indonesia Tbk - US$ 5,739,956 6,080,250 5,302,000 - -
PT Bank Permata Tbk - US$ 335,626 3,712,500 2,325,000 - -
PT Krakatau Engineering
PT Bank Negara Indonesia (Persero)
Tbk
EUR 1,789,241 621,600 2,193,192 - -
US$ 2,376,462 540,000 1,367,900 - -
Rupiah - - 3,275 - -
PT Pelat Timah Nusantara Tbk
PT Bank Mandiri (Persero) Tbk
US$ - 8,977,086 - 1,212,742 14,193,218
Rupiah - 128,553 - - -
PT Meratus Jaya Iron & Steel
PT Bank Rakyat Indonesia (Persero)
Tbk
US$ 3,990,217 8,060,000 6,406,400 - -
EUR 331,782 - 331,783 - -
Rupiah 1,094 - - - -

b. On September 16, 2008, the Company obtained L/C and bank guarantee facilities from Bank Permata
with a maximum amount of US$15,000,000. This facility will expire on September 16, 2010.
c. The Company entered into an agreement with PT Perusahaan Listrik Negara (Persero) (PLN). Based on
the agreement No. 36A/C/DU-KS/KONTR/94 dated April 22, 1994, PLN agreed to supply the electricity
power at the maximum of 160,000 Kilo Volt Ampere to the Company. This agreement is effective from
August 1, 1991 without expiration date, unless one party intends to terminate the agreement.
d. On November 12, 2004, the Company entered into Gas Purchase Agreement No. 48/C/DU-KS/KONTR/
2004 with PT Pertamina (Persero). Based on the amended agreement dated June 14, 2007, which will
expire on December 31, 2013, the Company has the following commitments:
1. To purchase gas at a minimum of 217.18 BSCF (Billion Standard Cubic Feet) per annum where the
Company is obliged to pay, whether the gas is transmitted or not, after deducting, if any, with total
gas which is not transmitted by the Company due to conditions stated in the contract.
2. To pay a surcharge with conditions as follows:
i. If the total amount in related month divided by total actual days in the same month is less than or
equals the total daily minimum amount, then the gas price is US$3.70/MMBTU with 2%
excalation per annum.
ii. If the total amount in related month divided by total actual days in the same month is more than
the total daily minimum amount, then the gas price for the excess amount is US$5.00/MMBTU.
e. Based on R/3 Software End-User Value License Agreement dated August 11, 2004 and its amendment
dated September 28, 2007, the Company obtained a license to use the SAP R/3 software from SAP AG,
Germany. This project involves creating a network, procurement of hardware, online software support
and SAP Early Watch Service. On July 13, 2007, the Company signed an agreement with the consortium
of PT Soltius Indonesia and IDS Scheer Singapore Pte. Ltd. for ERP implementation using software

F-97
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

33. SIGNIFICANT AGREEMENTS AND COMMITMENTS (continued)

package of SAP R/3. Since the contract agreement had been terminated, the Company then appointed PT
KITech as the implementation consultant based on agreement dated April 16, 2009 with a contract value
amounting to US$3,304,230 and Rp19,535. The implementation of first phase was completed in 2009.
The implementation of second phase is expected to be completed in December 2010.
f. The Company is conducting a revitalization of HSM plant in order to increase its performance and
production capacity from 2.0 million metric tons (unaudited) of HRC per year to 2.45 million metric tons
(unaudited) per year. Based on the Contract Agreement dated March 31, 2008 and its amendment dated
May 29, 2008, the Company has appointed SMS Demag AG, Siemens AG, PT Siemens Indonesia, PT
Lykamandiri and Tenova-LOI S.p.A. (Consortium) to carry out the project. The agreed contract value
amounted to EUR46,050,000 with the estimated construction period for two years. As of June 30, 2010
and 2009 and December 31, 2009 dan 2008, the Company already paid EUR27,040,605 (equivalent to
Rp351,970), EUR8,296,094 (equivalent to Rp122,203), EUR12,734,916 (equivalent to Rp184,902) and
EUR7,194,250 (equivalent to Rp103,673), respectively, to the Consortium which were recorded in the
“Construction in Progress” account.
g. On April 24, 2009, the Company signed a work contract for energy conversion in CRM plant with the
consortium of LOI Thermprocess GMBH, PT Grand Kartech and Key Technologies Industriebau
GMBH with a contract value amounting to EUR2,583,000 and Rp7,200. The project include changing
the combustion system at Batch Annealing Furnace (BAF), including the control system, from fuel to
natural gas. This project is expected to be completed in December 2010.
h. On December 2, 2009, the Company and Pohang Iron and Steel Corporation Korea (“POSCO”) entered
into Memorandum of Agreement (MoA) for the establishment of a joint venture company to construct
and operate an integrated steel mill (“the Project”) in Cilegon, Banten. The percentage of ownership in
the joint venture at the first stage shall be 30% for the Company and 70% for POSCO. The Company has
the right to increase its ownership interest in the joint venture up to 45%. The Project will be constructed
in two phases with production capacity of 6 million metric tons (unaudited) steel slab per year and total
investment of US$6,000,000,000. The first phase with production capacity of 3 million metric tons
(unaudited) of steel per year is expected to be completed in 2013 and production to commence in 2014.
As a follow up to the MoA, on August 4, 2010, the Company and POSCO agreed to establish a joint
venture company under the name of PT KRAKATAU-POSCO or PT POSCO-KRAKATAU. Based on
the Deed of Establishment No. 74 dated August 26, 2010 which was notarized by Notary Mala Mukti,
S.H., the name of the joint venture company is PT Krakatau Posco.
i. On April 20, 2010, the Company signed a work contract for SSP 1 revitalization with Siemens VAI Metal
Technologies GmbH and PT Siemens Indonesia with a contract value amounting to EUR40,000,000 and
Rp250,000. The work project includes changing the Electric Arc Furnace, Continuous Casting Machine,
Dedusting and Water Treatment & Utility to increase the production capacity from 1.0 million metric tons
(unaudited) slab to 1.3 million metric tons (unaudited) slab per year. As part of the revitalization project,
the Company also signed the Refurbishment contract with Siemens AG and PT Siemens Indonesia with a
contract value amounting to EUR6,139,000. This revitalization project is planned to be completed in
December 2012. As of June 30, 2010, the Company has paid to the contractor amounting to Rp108,869,
which was recorded in the “Construction in Progress” account.
j. On June 9, 2004, the Company signed license and technical assistance agreements with HYLSA, S.A de
C.V to use Zero Reformer technology in the Company’s DR HYL III plant. Based on the agreement,
HYLSA agreed to grant a non-exclusive, non-transferable and irrevocable royalty-free license to the
Company during the period of 12 years from the signing date of the agreement. The first phase of the
project include the modification of HYL III technology to Zero Reformer and the second phase is aimed

F-98
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

33. SIGNIFICANT AGREEMENTS AND COMMITMENTS (continued)

to increase the production capacity from 1.5 million tons (unaudited) of sponge steel per year to
1.74 million tons (unaudited) per year.
As a part of DR plant revitalization project, on April 22, 2010, the Company signed a Migration
Automation System of HYL III contract with PT Honeywell Indonesia with a contract value amounting to
US$1,252,000 and Rp5,100. This revitalization project is planned to be completed in January 2012.

The Subsidiary - PT KWT

k. PT KWT entered into the amendment of cooperation agreement for sale and purchase of raw materials
and finished goods of deformed steel with PT Delcoprima Pasific which was signed on July 1, 2010 and
will expire on September 30, 2010. This amended agreement is to replace the old cooperation agreement
which already expired on June 30, 2010. The terms and conditions concerning the types and
specifications of the products as well as the selling and purchase prices are included in the
cooperation agreement.

The Subsidiary - PT KE
l. PT KE obtained bank guarantee and L/C facilities from BNI with a maximum amount of Rp250,000. The
credit facility will expire on May 2, 2011. As of June 30, 2010, the total bank guarantees issued
amounting to US$7,742,215, EUR9,056 and Rp56,633.

The Subsidiary - PT MJIS

m. On October 21, 2008, PT MJIS entered into a coal purchase agreement with PT Kideco Jaya Agung. The
contract period is for 10 years, from May 2010 until April 2020, starting from the first delivery that is
planned in May 2010. The terms and conditions concerning the rights and obligations for both parties are
stated in the contract agreement.
n. On October 31, 2008, PT MJIS entered into an agreement for purchase and sale of coal with PT Arutmin
Indonesia. This agreement is effective from October 31, 2008 and will be terminated on December 31,
2014 or until the obligations of both parties have been completed as mutually agreed. The terms and
conditions concerning the rights and obligations for both parties are stated in the contract agreement.
o. On November 10, 2008, PT MJIS entered into an iron ore supply agreement with PT Sebuku Iron
Lateritic Ores. The agreement period is 15 years starting from the first delivery and is extendable upon
the mutual agreement between the parties. The terms and conditions concerning the rights and
obligations for both parties are stated in the contract agreement.
p. Based on an Investment Agreement dated March 18, 2009 which was amended on March 18, 2010, PT
MJIS entered into an agreement with the Government of the Province of South Kalimantan (Pemprov
Kalsel) concerning capital contribution in the form of land. Based on the agreement, it has been decided
that Pemprov Kalsel will make its capital contribution in PT MJIS in the form of land of 2,000,000 square
meters located in Jalan Transmigrasi, Sarigadung Village, Kecamatan Simpang Empat, South
Kalimantan, which will be used as the location for construction of ironmaking plant. Up to
September 23, 2010, the execution of such investment is still in process.
q. In 2009, PT MJIS obtained a new investment credit from BRI with a maximum amount of Rp88,551 to
finance the construction of ironmaking plant in Batulicin, South Kalimantan. The credit period is 7 years
starting from the date of the agreement. As of June 30, 2010, the facility has not yet been used.

F-99
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

33. SIGNIFICANT AGREEMENTS AND COMMITMENTS (continued)

The Subsidiary - PT MJIS (continued)
r. In 2009, PT MJIS obtained a loan facility of Import Collateral Postponement 2 (PJI 2) in relation with
Investment Loan 2 from BRI for a maximum amount of Rp78,000 with an interest at 3 months LIBOR
plus 2% per year. This loan facility is granted to open L/C for purchase of imported goods. This loan
facility will expire on October 6, 2010. As of June 30, 2010, the facility has not yet been used.

The Subsidiary - PT KHIP

s. On June 29, 2010, PT KHIP entered into an agreement of spiral pipe supply with PT Nirmala Matranusa
for the expansion project of Coal Export Jetty Facility in Lubuk Tutung, East Kalimantan, with a contract
value amounting to Rp36,812.
t. PT KHIP obtained a bank guarantee (non-cash loan) facility from BRI with maximum amounts of
Rp4,000 and US$20,000,000 which was used for offering and advance guarantees and performance
bonds. This facility will expire on December 31, 2010. As of June 30, 2010, the balance of bank
guarantees issued amounting to US$1,221,367 and Rp579.

The Subsidiary - PT KDL

u. On June, 15, 2006, PT KDL entered into an agreement for purchase and sales of gas with PT Perusahaan
Gas Negara (Persero) Tbk (PGN). On January 16, 2008, both parties agreed to amend the agreement in
relation to the allocation of PT KDL’s gas for Krakatau Steel Group.
The amendment stated that if PT KDL is unable to fully utilize the gas supply from PGN, then PT KDL
can only transfer the gas to the Company, PT KWT, PT Latinusa and PT KHIP without receiving any
compensation of the gas sales and purchase and PT KDL is responsible for all of the risk occurred from
that gas distribution. This agreement will expire in 10 years since January 1, 2007.

The Subsidiary - PT KTI

v. Because the main activity of PT KTI is distributing water from Cidanau River, PT KTI has specific
agreements with the following parties:
1. Perusahaan Daerah Air Minum Cilegon and the District Government of Cilegon for the monthly
royalty charged to PT KTI, which is calculated based on sales times 3.50% and 1.50%, respectively.
This agreement is effective upon signing date and has no expiry date unless terminated by both
parties.
2. Regency of Serang for the monthly royalty charged to PT KTI, which is calculated based on volume
of water consumption. This agreement will expire in 25 years after the signing date of the agreement
on December 29, 2006.
3. DAS Cidanau Communication Forum in relation to environment services that must be paid by PT
KTI annually. This agreement will expire on June 1, 2014 and can be extended as mutually agreed by
both parties.

The Subsidiary - PT KBS

w. On July 13, 2007, PT KBS and PT Cigading International Bulk Terminal (PT CIBT) made and signed a
cooperation agreement concerning the construction, management and operation of the coal terminal at
Cigading Port. Under the agreement, PT KBS is obliged to provide cooperation for land utilization. The
land with total area of 50,000 square meters (5 Ha) will be used by PT CIBT over a utilization period of

F-100
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

33. SIGNIFICANT AGREEMENTS AND COMMITMENTS (continued)

The Subsidiary - PT KBS (continued)
32 years. The price of land utilization during the cooperation period is fixed of US$5 per square meter
per year. Based on the agreement, PT KBS has an obligation to build a pier with a length of 300 meters
and a depth of 7 meters Mean Sea Level (MSL).
Currently, the construction percentage of completion a whole has reached 92.2% (unaudited) and is
expected to be completed by end of 2010.

34. CONTINGENCIES
a. Based on the Decision Letter of the State Ministry of Land Affairs/Head of National Land Board
(“BPN”) No. 24-VIII-1999 dated July 21, 1999, the Company’s HGB certificate No. 2/Kubangsari for
66.5 Ha out of 252 Ha was revoked from the Company. In the civil court and the State Administrative
Court level which have permanent legal basis, it was declared that the land belong to the State. The
Company then requested a Decree to the District Court of Serang and on April 20, 2009, the District
Court of Serang issued a Decree stating that the Company has the priority to obtain the right on the land.
Upon this decision, PT Duta Sari Prambanan (“PT DSP”) filed a suit against the Company for the
compensation to the District Court of South Jakarta which was registered under
Case No. 1343/Pdt.G/2009/PN.Jkt.Sel dated July 17, 2009.
Based on the settlement agreement which was ratified on Notarial Deed No. 208 dated July 27, 2010 of
Soetjipto, S.H., M.Kn, the Company and PT DSP agreed to settle the dispute. The Company will give
indemnification to PT DSP amounting to Rp34,000 provided that the decree on the recovery of right and
HGB certificate in the name of the Company have been issued by Central BPN and have been received by
the Company. As of September 23, 2010, the issuance of the decree and of certificate are still in process.
b. The Company’s land in Kubangsari with area of 4.7 Ha out of 252 Ha, was claimed by Djamaluddin
Malik based on Right of Ownership certificate No. 7/1972. The District Court of Serang decided to
recognize both parties certificates, whereas the High Court of Bandung decided not to accept
Djamaluddin Malik’s lawsuit. At the cassation level, the Supreme Court enforced the decision of the
District Court of Serang. On November 19, 2008, the Company filed for a Judicial Review to the
Supreme Court. On September 16, 2009, the Supreme Court Judge made a verdict that rejected the
Company’s Judicial Review. Up to September 23, 2010, the Company is still considering another legal
avenues.
c. The Company is a party to the claim filed by PT Soltius Indonesia and IDS Scheer Singapore, Pte. Ltd.
(Claimants) before the Indonesian National Board of Arbitration (BANI), which was registered under
Case No. 325/IX/ARB-BANI/2009 dated September 16, 2009. The Claimants filed claim against the
Company for alleged breach of contract agreement concerning Implementation of Enterprise Resource
Planning (SAP R/3) PT Krakatau Steel (Persero) dated July 13, 2007 (“ERP Contract”). The Claimants
claimed that the Company allegedly conducted an unlawful termination of the ERP Contract and claimed
for payment settlement from the Company amounting to Rp15,651. Against such claim, the Company,
aside from submitting legal defense, also submitted counter claim to demand Claimants to indemnify the
Company in the amount equals to the contract value of Rp33,909.
On August 12, 2010, BANI approved the Claimants’ claim and demanded the Company to pay
compensation amounting to Rp8,577 which has been recorded by the Company as part of
“Construction in Progress” and “Accrued Expenses” accounts in the consolidated balance sheet as of
June 30, 2010.

F-101
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

34. CONTINGENCIES (continued)

d. The Company submitted a claim in relation to its investment in South Australian Steel and Energy
(SASE) to the Supreme Court of South Australia whereby on June 9, 2010, the Supreme Court of South
Australia declined the Company’s claim. The Company has made full provision on its investment in
SASE and recorded the expense related to the case amounting to Rp6,957 as part of “Other Income
(Charges) - others” in the consolidated statement of income for the six months ended June 30, 2010.
e. PT KHIP is in the process of submitting a claim to PT Perusahaan Gas Negara (Persero) Tbk, who
retained the payment of its receivables amounting to Rp38,000. The retained receivables are claimed by
such customer as compensation for losses due to the delay of pipe supply from PT KHIP. Up to
September 23, 2010, the related claim is in the process of filing to BANI for settlement. Based on the
opinion of its legal counsel, PT KHIP has strong factual and legal arguments in support of its claim that
the related receivables can be collected. As of June 30, 2010, a full provision on receivable from the
customer has already been made.
f. The Company is a party to the claim filed by H. Utok Hariyanto, as the Director of PT Nusantara Buana
Cemerlang (“PT NBC”), before the District Court of Serang, which was registered under
Case No. 35/PDT.G/2010/PN.SRG dated August 23, 2010. The Claimant claimed that the Company
allegedly conducted an unlawful termination of the contract work with PT NBC and claimed for payment
settlement from the Company amounting to Rp59,105. Against such claim, the Company has appointed
the District Attorney of Banten as the State Attorney to represent the Company on this case.
The Company’s management and its legal counsel believe that the above mentioned cases individually or in
the aggregate will not have any material adverse effects on the Company’s financial condition or results of
operations. The management believes that the Company can win these cases.

F-102
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

35. ASSETS AND LIABILITIES IN FOREIGN CURRENCIES

As of June 30, 2010, monetary assets and liabilities denominated in foreign currencies are as follows:
Foreign Equivalent in
Currency Rupiah

ASSETS
In US Dollar
Cash and cash equivalents 78,456,882 712,624
Trade receivables, net 20,623,689 187,325
Other receivables 183,092 1,663
Advances and prepaid expenses 807,554 7,335
Restricted time deposits 1,505,451 13,674
Other assets 1,190 11
101,577,858 922,632
In EURO
Cash and cash equivalents 46,517 516
Advances and prepaid expenses 22,977 255
69,494 771
In Singapore Dollar
Cash and cash equivalents 31 -
In Japanese Yen
Cash and cash equivalents 51 -
Total Assets 923,403

LIABILITIES
In US Dollar
Short-term bank loans 231,749,787 2,104,983
Trade payables 56,308,281 511,448
Other payables 12,445 113
Accrued expenses 420,462 3,819
Sales and other advances 1,559,894 14,169
Long-term loans 1,141,853 10,371
Long-term liabilities 1,091,736 9,916
292,284,458 2,654,819
In EURO
Short-term bank loans 13,990 155
Trade payables 2,010,482 22,290
Other payables 857,601 9,508
Sales and other advances 23,858,915 264,518
26,740,988 296,471
In Singapore Dollar
Trade payables 447,255 2,899
In Japanese Yen
Trade payables 52,935,328 5,452
Total Liabilities 2,959,641
Liabilities, net 2,036,238

As of September 23, 2010, the rates of exchange (in full amount) published by Bank Indonesia were Rp8,953
to US$1, Rp12,001 to EUR1, Rp6,749 to SG$1 and Rp106 to JP¥1. If such exchange rates had been used as of
June 30, 2010, the net consolidated liabilities will increase by Rp1,747.

F-103
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

36. SEGMENT INFORMATION

Primary Segments
The Company and Subsidiaries classify their business into three business segments, namely Steel Products,
Real Estate and Hotels, and Construction, Information Technology and Other Services. The information
concerning the Company and Subsidiaries’ business segments is as follows:

Juni 30, 2010

Construction,
Information
Real Estate Technology and
Steel Products and Hotels Other Services Elimination Total

Net revenues 8,317,298 101,608 1,452,869 (871,565) 9,000,210

Cost of revenues 6,613,307 43,620 453,555 (4,853) 7,105,629
Gross profit 1,703,991 57,988 999,314 (866,712) 1,894,581
Operating expenses 608,363 25,755 80,912 (36,293) 678,737
Income from operations 1,095,628 32,233 918,402 (830,419) 1,215,844
Other income (charges)
Interest expense (112,191)
Gain on foreign exchange,
net 118,855
Interest income 22,816
Sales of waste products 26,460
Miscellaneous, net 71,369
Other income, net 127,309
Income before tax
expense 1,343,153
Tax expense
Current tax 80,897
Deferred tax, net 265,393
Total tax expense 346,290
Income before minority
interest in net loss of
subsidiaries 996,863
Minority interest in net
loss of subsidiaries 890
Net income 997,753

Segment assets 13,404,381 392,984 1,889,125 (2,342,789) 13,343,701

Segment liabilities 6,271,717 71,820 827,050 (534,224) 6,636,363
Capital expenditures 654,313 2,834 75,396 - 732,543
Depreciation 118,508 2,236 46,457 - 167,201

F-104
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

36. SEGMENT INFORMATION (continued)

Primary Segments (continued)

Juni 30, 2009 (Unaudited)

Construction,
Information
Real Estate Technology and
Steel Products and Hotels Other Services Elimination Total

Net revenues 7,321,140 85,687 1,020,222 (599,136) 7,827,913

Cost of revenues 8,002,640 33,592 376,834 (3,480) 8,409,586
Gross profit (loss) (681,500) 52,095 643,388 (595,656) (581,673)
Operating expenses 502,149 19,782 39,824 (696) 561,059
Income (loss) from
operations (1,183,649) 32,313 603,564 (594,960) (1,142,732)
Other income (charges)
Interest expense (328,351)
Loss on foreign exchange,
net (119,000)
Interest income 21,747
Sales of waste products 16,800
Miscellaneous, net 127,063
Other charges, net (281,741)
Loss before tax expense
(benefit) (1,424,473)
Tax expense (benefit)
Current tax 47,242
Deferred tax, net (370,925)
Tax benefit, net (323,683)
Loss before minority
interest in net income
of subsidiaries (1,100,790)
Minority interest in net
income of subsidiaries (289)
Net loss (1,101,079)

Segment assets 11,740,807 327,269 1,545,981 (2,075,858) 11,538,199

Segment liabilities 7,209,294 43,161 699,292 (640,840) 7,310,907
Capital expenditures 138,948 1,045 36,142 - 176,135
Depreciation 136,074 2,152 45,378 - 183,604

F-105
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

36. SEGMENT INFORMATION (continued)

Primary Segments (continued)

December 31, 2009

Construction,
Information
Real Estate Technology and
Steel Products and Hotels Other Services Elimination Total

Net revenues 15,702,462 139,169 1,952,903 (880,999) 16,913,535

Cost of revenues 14,816,084 68,562 853,071 (9,571) 15,728,146
Gross profit 886,378 70,607 1,099,832 (871,428) 1,185,389
Operating expenses 1,020,947 42,638 97,064 (1,200) 1,159,449
Income (loss) from
operations (134,569) 27,969 1,002,768 (870,228) 25,940

Other income (charges)

Interest expense (458,339)
Gain on sale of investment 374,648
Gain from settlement of
post-retirement
healthcare benefits
liability 127,298
Gain on foreign exchange,
net 71,568
Interest income 41,348
Sales of waste products 26,268
Miscellaneous, net 259,928
Other income, net 442,719
Income before tax
expense (benefit) 468,659
Tax expense (benefit)
Current tax 88,688
Deferred tax, net (116,233)
Tax benefit, net (27,545)
Income before minority
interest in net income
of subsidiaries 496,204
Minority interest in net
income of subsidiaries (1,532)
Net income 494,672

Segment assets 12,668,148 333,646 1,718,529 (1,924,520) 12,795,803

Segment liabilities 6,515,878 53,950 752,073 (372,888) 6,949,013
Capital expenditures 519,826 9,353 97,849 - 627,028
Depreciation 262,310 4,339 89,434 - 356,083

F-106
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

36. SEGMENT INFORMATION (continued)

Primary Segments (continued)
December 31, 2008
Construction,
Information
Real Estate Technology and
Steel Products and Hotels Other Services Elimination Total

Net revenues 19,599,868 147,705 2,160,356 (1,276,498) 20,631,431

Cost of revenues 17,144,817 83,294 1,893,254 (1,205,998) 17,915,367
Gross profit 2,455,051 64,411 267,102 (70,500) 2,716,064
Operating expenses 1,230,174 41,311 146,280 (62,089) 1,355,676
Income from operations 1,224,877 23,100 120,822 (8,411) 1,360,388
Other income (charges)
Loss on foreign exchange, net (474,778)
Interest expense (366,989)
Interest income 45,987
Sales of waste products 6,782
Miscellaneous, net 169,433
Other charges, net (619,565)
Income before tax expense
(benefit) 740,823
Tax expense (benefit)
Current tax 552,663
Deferred tax, net (275,449)
Tax expense, net 277,214
Income before minority interest
in net income of subsidiaries 463,609
Minority interest in net income
of subsidiaries (4,038)
Net income 459,571

Segment assets 15,488,262 315,009 1,472,603 (1,901,447) 15,374,427

Segment liabilities 9,533,635 51,075 665,440 (352,827) 9,897,323
Capital expenditures 278,137 8,064 71,382 - 357,583
Depreciation 279,713 4,378 73,363 - 357,454

F-107
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

36. SEGMENT INFORMATION (continued)

Primary Segments (continued)
December 31, 2007
Construction,
Information
Real Estate Technology and
Steel Products and Hotels Other Services Elimination Total

Net revenues 14,134,367 117,912 1,884,026 (1,300,286) 14,836,019

Cost of revenues 12,608,065 52,438 1,651,255 (1,248,341) 13,063,417
Gross profit 1,526,302 65,474 232,771 (51,945) 1,772,602
Operating expenses 867,610 34,919 141,041 (63,701) 979,869
Income from operations 658,692 30,555 91,730 11,756 792,733

Other income (charges)

Interest expense (285,720)
Loss on foreign exchange, net (120,578)
Interest income 26,772
Sales of waste products 5,571
Miscellaneous, net 78,585
Other charges, net (295,370)
Income before tax expense 497,363
Tax expense
Current tax 132,275
Deferred tax, net 48,568
Total tax expense 180,843
Income before minority
interest in net income of
subsidiaries 316,520
Minority interest in net
income of subsidiaries (3,079)
Net income 313,441

Segment assets 11,268,235 290,733 1,277,061 (1,719,005) 11,117,024

Segment liabilities 5,779,035 42,546 598,484 (392,024) 6,028,041
Capital expenditures 154,589 3,045 221,593 - 379,227
Depreciation 273,722 2,886 77,310 - 353,918

Secondary Segments
The secondary segment information of the Company and Subsidiaries is presented based on one principal
location, namely in Cilegon.
All of the operational activities of the Company and Subsidiaries’ business segments are carried out in
Cilegon.

37. SUBSEQUENT EVENTS

a. On July 8, 2010, PT KHIP entered into a sale and purchase agreement with Performance Pipe SDN. BHD
with a contract value amounting to US$6,118,525.

F-108
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

37. SUBSEQUENT EVENTS (continued)

b. On July 14, 2010, PT KWT received Tax Assessment Letters of Overpayment for its 2008 Corporate
Income Tax amounting to Rp16,149 and Tax Assessments Letter for Underpayment of income tax
article 21 and VAT for year 2008 amounting to Rp699.
c. On July 14, 2010, dividends payable amounting to Rp148,402 have been paid to the shareholder by the
Company.
d. The Company’s plan to dissolve and liquidate PT Maleo Emtiga has been approved by the Ministry of
State Owned Enterprises based on Letter No. S-444/MBU/2010 dated August 2, 2010.
e. Based on the Minutes of the Extraordinary General Meeting of Shareholder (“EGMS”) which was held
on August 16, 2010, as notarized in the Notarial Deed No. 135 of Sutjipto, S.H.,M.Kn dated August 21,
2010, the shareholder ratified the following decisions:
1. The changes of the Company’s Articles of Association in order to become a public company to
comply with Bapepam-LK Rule No. IX.J.1, which are:
i. The change of the Company’s status from a Private Company to a Public Company (Tbk).
ii. The approval for issuing Series A Dwiwarna share by 1 (one) share and Series B shares.
The approval shall be effective after the issuance of the Government Regulation about the Changes
in Share Ownership Structure of the Republic of Indonesia through the Issuance and Sale of New
Shares of PT Krakatau Steel (Persero).
2. The increase in the Company’s authorized capital from Rp8,000,000 to Rp20,000,000.
3. The increase in the Company’s issued and fully paid-in capital from Rp2,000,000 to Rp5,000,000
through the following:
i. Capitalization of retained earnings as of June 30, 2010 amounting to Rp2,043,507.
ii. Capitalization of net income for the six months ended June 30, 2010 amounting to Rp956,493.
Capitalization of other paid-in capital which as of June 30, 2010 amounting to Rp1,303,465 will be
conducted later during the EGMS of the Company after determination by the Ministry of Finance as
a follow-up to the Government Regulation No. 52 year 2002.
4. The change in nominal value of share from Rp1,000,000 (full amount) per share to Rp500 (full
amount) per share.
5. The issuance of new shares at maximum of 30% from the total issued and fully paid-in share capital
of the Company after the Initial Public Offering (“IPO”) with a nominal value of Rp500 (full amount)
per share to be offered to public through an IPO, which already included Management and Employee
Stock Allocation/MESA at maximum of 5% from the total issuance of new shares and Management
and Employee Stock Option/MESOP at maximum of 2% from the total issued and fully paid-in share
capital of the Company after the execution of the IPO, so that the share ownership of the Government
of the Republic of Indonesia after the execution of the IPO become at least 70% from the total issued
and fully paid-in share capital.
The approval shall be effective after the issuance of the Government Regulation about the Changes in
Share Ownership Structure of the Republic of Indonesia through the Issuance and Sale of New Shares
of PT Krakatau Steel (Persero). The determination of total new shares to be sold in the IPO will be
decided during the EGMS of the Company which will be held later before the execution of the IPO.

F-109
These consolidated financial statements are originally issued in the Indonesian language.

PT KRAKATAU STEEL (PERSERO) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2010 and 2009 (Unaudited)
and Years Ended December 31, 2009, 2008 and 2007
(Expressed in millions of Rupiah, unless otherwise stated)

37. SUBSEQUENT EVENTS (continued)

6. The ownership programs on the Company’s stock by management and employees through MESA at
maximum of 5% from the total issuance of new shares and MESOP at maximum of 2% from the total
issued and fully paid-in share capital after the execution of the IPO. The allocation of shares for
MESA Program is divided into (i) the Bonus Shares, which shall not be traded during the 12 months
period from the date of listing on the Indonesia Stock Exchange (“BEI”), (ii) the Shares’ Discount,
with a discount price of 20% from the IPO price, which shall not be traded during the six months
period from the date of listing on BEI and (iii) the Fixed Allotment of Shares, which can be directly
traded at the time of listed on BEI.
7. The appointment of Mochammad Imron Zubaidy and Alexander Rusli as members of the Board of
Independent Commissioners of the Company.
The amendment deed was approved by the Ministry of Laws and Human Rights of the Republic of Indonesia
in its Decision Letter No. AHU-43147.AH.01.02 Year 2010 dated September 1, 2010. Up to September 23,
2010, the publication in the State Gazette is still in process.
f. On August 19, 2010, the Company obtained a foreign exchange facility from PT Danareksa (Persero)
with a maximum amount of US$20,000,000. This facility will expire on August 18, 2011.

38. COMPLETION OF THE CONSOLIDATED FINANCIAL STATEMENTS

The Company is responsible for the preparation of the consolidated financial statements for the six months
ended June 30, 2010 and 2009 and the years ended December 31, 2009, 2008 and 2007 which were reissued
on September 23, 2010 to include amendments and additional disclosures and to comply with Bapepam-LK
requirements in connection with the Company’s plan for the Initial Public Offering (IPO) of its shares.
The Company has previously issued the consolidated financial statements for the six months ended June 30,
2010 and 2009 and the years ended December 31, 2009, 2008 and 2007 which were completed on August 18,
2010, except for Notes 2r and 36 as to which the date is August 21, 2010, and were included as part of the
Initial Registration Statement dated September 6, 2010 in relation with the IPO.

F-110
 REGISTERED OFFICE OF THE COMPANY
PT Krakatau Steel (Persero) Tbk.
Jalan Industri No. 5
Cilegon, Banten 42435
Indonesia

LEGAL ADVISORS TO THE COMPANY

As to U.S. and New York law As to Indonesian law

Sidley Austin LLP Makes & Partners
39th Floor, Two International Finance Centre Menara Batavia, 7th Floor
8 Finance Street Jl. KH. Mas Mansyur Kav. 126
Central, Hong Kong Jakarta 10220
Indonesia

LEGAL ADVISORS TO THE JOINT LEAD INTERNATIONAL SELLING AGENTS AND THE
JOINT LEAD UNDERWRITERS
As to U.S. and New York law As to Indonesian law
Milbank, Tweed, Hadley & McCloy LLP Soemarjono, Herman & Rekan
30 Raffles Place Jl. Sultan Agung No. 62
#14-00 Chevron House Jakarta 12970
Singapore 048622 Indonesia

INDEPENDENT PUBLIC ACCOUNTANTS

Purwantono, Suherman & Surja
(formerly Purwantono, Sarwoko & Sandjaja)
(the Indonesian member firm of Ernst & Young Global Limited)
Indonesia Stock Exchange Building
Tower 2, 7th Floor
Jl. Jend. Sudirman Kav. 52-53
Jakarta 12190
Indonesia