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UV0012

KOTA FIBRES, LTD.

Ms. Pundir, the managing director and principal owner of Kota Fibres, Ltd., discovered the problem when she arrived at the parking lot of the company’s plant one morning in early January 2001. Trucks filled with rolls of fiber yarns were being unloaded, but they had been loaded just the night before and had been ready to depart that morning. The fiber was intended for customers who had been badgering Pundir to fill their orders in a timely manner. The government tax inspector, who was stationed at the company’s warehouse, would not clear the trucks for departure because the excise tax had not been paid. The tax inspector required a cash payment, but in seeking to draw funds for the excise tax that morning, Mr. Mehta, the bookkeeper, discovered that the company had overdrawn its bank account again—the third time in as many weeks. The truck drivers were independent contractors who refused to wait while the company and government settled their accounts. They cursed loudly as they unloaded the trucks. This shipment would not leave for at least another two days, and angry customers would no doubt require an explanation. Before granting a loan with which to pay the excise tax, the branch manager of the All-India Bank & Trust Company had requested a meeting with Pundir for the next day to discuss Kota’s financial condition and its plans for restoring the firm’s liquidity. Pundir told Mehta, “This cash problem is most vexing. I don’t understand it. We’re a very profitable enterprise, yet we seem to have to depend increasingly on the bank. Why do we need more loans just as our heavy selling season begins? We can’t repeat this blunder.”

Company Background Kota Fibres, Ltd., was founded in 1962 to produce nylon fiber at its only plant in Kota, India, about 100 kilometers (km) south of New Delhi. By using new technology and domestic raw materials, the firm had developed a steady franchise among dozens of small, local textile weavers. It supplied synthetic fiber yarns used to weave colorful cloths for making saris, the traditional women’s dress of India. On average, each sari required eight yards of cloth. An Indian woman typically would buy three saris a year. With India’s female population at around 500 million, the demand for saris accounted for more than 12 billion yards of fabric. This demand was currently

This case was written by Thien T. Pham under the direction of Robert F. Bruner as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. The financial support of the Batten Institute is gratefully acknowledged. Copyright © 2001 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenpublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means— electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.

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being supplied entirely from domestic textile mills that, in turn, filled their yarn requirements from suppliers such as Kota Fibres.

Synthetic-Textile Market The demand for synthetic textiles was stable with year-to-year growth and predictable seasonal fluctuations. Unit demand increased with both population and national income. In addition, India’s population celebrated hundreds of festivals each year, in deference to a host of deities, at which saris were traditionally worn. The most important festival, the Diwali celebration in midautumn, caused a seasonal peak in the demand for new saris, which in turn caused a seasonal peak in demand for nylon textiles in late summer and early fall. Thus, the seasonal demand for nylon yarn would peak in mid-summer. Unit growth in the industry was expected to be 15% per year. Consumers purchased saris and textiles from cloth merchants located in the villages around the country. A cloth merchant was an important local figure usually well known to area residents; the merchant generally granted credit to support consumer purchases. Merchants maintained relatively low levels of inventory and built stocks of goods only shortly in advance of and during the peak selling season. Competition among suppliers (the many small textile-weaving mills) to those merchants was keen and was affected by price, service, and the credit that the mills could grant to the merchants. The mills essentially produced to order, building their inventories of woven cloth shortly in advance of the peak selling season and keeping only maintenance stocks at other times of the year. The yarn manufacturers competed for the business of the mills through responsive service and credit. The suppliers to the yarn manufacturers provided little or no trade credit. Being near the origin of the textile chain in India, the yarn manufacturers essentially banked the downstream activities of the industry.

Production and Distribution System Thin profit margins had prompted Pundir to adopt policies against overproduction and overstocking, which would require Kota to carry inventories through the slack selling season. She had adopted a plan of seasonal production, which meant that the yarn plant would operate at peak capacity for two months of the year and at modest levels the rest of the year. That policy imposed an annual ritual of hirings and layoffs. To help ensure prompt service, Kota Fibres maintained two distribution warehouses, but getting the finished yarn quickly from the factory in Kota to the customers was a challenge. The roads were narrow and mostly in poor repair. A truck could take 10 to 15 days to negotiate the trip between Calcutta and Kota, a distance of about 1,100 km, and except when they passed through

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cities, the highways had only one lane. When two cars or trucks met, they had to slow down and squeeze past each other or else stop and wait for the traffic to pass. Journeys were slow and dangerous, and accidents were frequent.

Company Performance Kota Fibres had been consistently profitable. Moreover, sales had grown at an annual rate of 18% in the year 2000. Gross sales were projected to reach (Indian rupees) INR90.9 million in the fiscal year that ended December 31, 2001 (see Exhibit 1).1 Net profits reached INR2.6 million in 2000. Exhibits 2 and 3 present recent financial statements for the firm.

Reassessment After the episode in the parking lot, Pundir and her bookkeeper went to her office to analyze the situation. She pushed aside the several items on her desk to which she had intended to devote her morning: a letter from a field sales manager requesting permission to grant favorable credit terms to a new customer (see Exhibit 4); a note from the transportation manager regarding a possible change in the inventory policy (Exhibit 5); a proposal from the purchasing agent regarding the delivery lead times of certain supplies (Exhibit 6); and a proposal from the operations manager for a scheme of level annual production (Exhibit 7). To prepare a forecast on a business-as-usual basis, Pundir and Mehta agreed on various parameters. Cost of goods sold would run at 73.7% of gross sales—a figure that was up from recent years because of increasing price competition. Operating expenses would be about 6% of sales— also up from recent years to include the addition of a quality-control department, two new sales agents, and three young nephews with whom she hoped to build an allegiance to the Pundir family business. The company’s income tax rate was 30% and, although accrued monthly, was actually paid quarterly in March, June, September, and December. The excise tax (at 15% of sales) was different from the income tax and was collected at the factory gate as trucks left to make deliveries to customers and the regional warehouses. Pundir proposed to pay dividends of INR500,000 per quarter to the 11 members of her extended family who held the entire equity of the firm. For years Kota had paid high dividends. The Pundir family believed that excess funds left in the firm were at greater risk than if the funds were returned to shareholders. Mehta observed that sales collections in any given month had been running steadily at the rate of 40% of the last month’s sales plus 60% of the sales from the month before last. The value of the raw materials purchased in any month represented on average 55% of the value of sales expected to be made two months later. Wages and other expenses in a given month were equivalent to about

1

At the time, the rupee was pegged to the U.S. dollar at the rate of 46.5 rupees per dollar.

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34% of purchases in the previous month. As a matter of policy, Pundir wanted to see a cash balance of no less than INR750,000. Kota Fibres had a line of credit at the All-India Bank & Trust Company, where it also maintained its cash balances. All-India’s short-term interest rate was currently 14.5%, but Mehta was worried that inflation and interest rates might rise in the coming year. The seasonal line of credit had to be cleaned up for at least 30 days each year. The usual cleanup month had been October,2 but Kota Fibres had failed to make a full repayment at that time. Only after strong assurances by Pundir that she would clean up the loan in November or December had the bank lending officer reluctantly agreed to waive the cleanup requirement in October. Unfortunately, the credit needs of Kota Fibres did not abate as rapidly as expected in November and December, and although his protests increased each month, the lending officer agreed to meet Kota’s cash requirements with loans. Now he was refusing to extend any more seasonal credit until Pundir presented a reasonable financial plan for the company that demonstrated its ability to clean up the loan by the end of 2001.

Financial Forecast Mehta hurriedly developed a monthly forecast of financial statements using the current operating assumptions (see Exhibit 8). As an alternative way of looking at the forecasted fund flows, Mehta also prepared a forecast of cash receipts and disbursements (Exhibit 9). The monthly T-accounts underlying the forecasts are given in Exhibit 10, and a summary of the forecast assumptions is in Exhibit 11. Mehta handed over the forecast to Pundir with a graph showing projected sales and monthend debt outstanding (Exhibit 12). After studying the forecasts for a few moments, Pundir expostulated: This is worse than I expected. The numbers show that we can’t repay All-India’s loan by the end of December. The loan officer will not accept this forecast as a basis for more credit. We need a new plan, and fast. We need those loans in order to scale up for the most important part of our business season. Let’s go over these assumptions in detail and look for any opportunities to improve our debt position. Then, casting her gaze toward the stack of memos she had pushed aside earlier, she muttered, “Perhaps some of these proposals will help.”

The selection of October as the loan-cleanup month was imposed by the bank on the grounds of tradition. Seasonal loans of any type made by the bank were to be cleaned up in October. Pundir had seen no reason previously to challenge the bank’s tradition.

2

-5Exhibit 1 KOTA FIBRES, LTD. Summary of Monthly Sales, Actual for 2000 and Forecast for 2001 (in rupees)

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2000 (historical)
January February March April May June July August September October November December Year 2,012,400 2,314,260 3,421,080 7,043,400 12,074,400 15,294,240 14,187,420 7,144,020 4,024,800 3,421,080 2,716,740 2,213,640 75,867,480

2001 (forecast)
2,616,120 2,892,825 4,447,404 8,804,250 13,885,560 17,588,376 16,315,533 8,572,824 5,031,000 4,447,404 3,531,762 2,767,050 90,900,108

-6Exhibit 2 KOTA FIBRES, LTD. Historical and Forecast Annual Income Statements (in rupees)

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1999
(Actual) Gross Sales Excise Tax Net Sales Cost of Goods Gross Profits Operating Expenses Depreciation Interest Expense Profit Before Tax Income Tax Net Profit 64,487,358 9,673,104 54,814,254 44,496,277 10,317,978 3,497,305 769,103 910,048 5,141,521 1,542,456 3,599,065

2000
(Actual) 75,867,480 11,380,122 64,487,358 53,865,911 10,621,447 4,828,721 908,608 1,240,066 3,644,052 1,093,216 2,550,837

2001
(Forecast) 90,900,108 13,635,016 77,265,092 66,993,380 10,271,712 5,454,006 1,073,731 1,835,620 1,908,355 572,506 1,335,848

-7Exhibit 3 KOTA FIBRES, LTD. Historical and Forecast Balance Sheets (in rupees)

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2000

2001

(Actual)
Cash Accounts Receivable Inventories Total Current Assets Gross PP&E Accumulated Depreciation Net PP&E Total Assets 762,323 2,672,729 1,249,185 4,684,237 10,095,646 1,484,278 8,611,368 13,295,604

(Forecast)
750,000 3,715,152 2,225,373 6,690,525 11,495,646 2,558,009 8,937,637 15,628,161

Accounts Payable Notes to Bank (Deposits at Bank) Accrued Taxes Total Current Liabilities Owners' Equity Total Liabilities and Equity

759,535 684,102 0 1,443,637 11,851,967 13,295,604

1,157,298 3,463,701 (180,654) 4,440,345 11,187,816 15,628,161

-8Exhibit 4 KOTA FIBRES, LTD. Memo from Field Sales Manager

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To: From:

G. Pundir A. Bajpai

January 7, 2001

As you know, Pondicherry Textiles is considering making us their prime yarn supplier for this year. Purchases would be in the neighborhood of INR6 million and are not reflected in our current sales forecast. Pondicherry would be one of our largest accounts. They have accepted our terms on price, but have asked for credit terms of 80 days, net. Unless we extend our credit terms, Pondicherry will not do business with us. We can expect that Pondicherry will purchase our yarn across the year in about the same pattern as our other customers. If you approve this exception to our standard terms (45 days), the Pondicherry district sales office will meet its quarterly sales quota immediately. Please indicate your approval below.

Approved:

-9Exhibit 5 KOTA FIBRES, LTD. Memo from Transportation Manager

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To: From:

G. Pundir R. Sikh

January 2, 2001

As you asked me to, I have been tracking our supply shipments in the last six months. The new road between Kota and New Delhi has improved reliability of the shipments significantly. Our supplier’s new manufacturing equipment is now running consistently, and they have been meeting their shipment dates consistently. As a result, I would propose that we reduce our raw-material inventory requirement from 60 days to 30 days. This would reduce the amount of inventory we are carrying by one month, and should free up a lot of space in the warehouse. I am not sure if that will affect any other department since we will be buying the same amount of material, but it would make inventory tracking a lot easier for me. Please let me know so we can implement this in January.

-10Exhibit 6 KOTA FIBRES, LTD. Memo from Purchasing Agent

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To: From:

G. Pundir R. Mohan

January 5, 2001

Hibachi Chemicals of Yokohama has approached us with a proposal to supply us with polyester pellets on a “just-in-time” basis from their plant in Majala (20 km away). Those pellets account for 35% of our raw-material purchases. I am looking into the feasibility of this scheme—in particular, whether Hibachi can actually perform on that basis—and will report back in two weeks. If the proposal is feasible, it would reduce our inventory of pellets from 60 days outstanding to only 2 or 3 days.

-11Exhibit 7 KOTA FIBRES, LTD. Memo from Operations Manager

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To: From:

G. Pundir L. Gupta

January 7, 2001

You asked me to estimate the production efficiencies arising from a scheme of level annual production. In essence, there are significant advantages to be gained: • Gross profit margin would rise by 2% or 3%, reflecting labor savings and production efficiencies gained from a stable work force and the absence of certain seasonal training and setup costs. Seasonal hirings and layoffs would no longer be necessary, permitting us to cultivate a stronger work force and, perhaps, to suppress labor unrest. You will recall that the unions have indicated that reducing seasonal layoffs will be one of their major negotiating objectives this year. Level production entails lower manufacturing risk. With the load spread throughout the year, we would suffer less from equipment breakdowns and could better match the routine maintenance with the demand on the plant and equipment.





-12Exhibit 8 KOTA FIBRES, LTD. Monthly Forecast of Income Statements and Balance Sheets for 2001 (in rupees)

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January 2,892,825 433,924 2,458,901 2,132,012 326,889 454,501 84,130 24,825 (236,566) (70,970) (165,596) 4,447,404 667,111 3,780,293 3,277,737 502,557 454,501 87,047 70,867 (109,858) (32,957) (76,900) 8,804,250 1,320,638 7,483,613 6,488,732 994,880 454,501 87,047 158,210 295,123 88,537 206,586 13,885,560 2,082,834 11,802,726 10,233,658 1,569,068 454,501 87,047 268,352 759,168 227,751 531,418 17,588,376 2,638,256 14,950,120 12,962,633 1,987,486 454,501 89,964 362,187 1,080,835 324,251 756,585 16,315,533 2,447,330 13,868,203 12,024,548 1,843,655 454,501 89,964 363,212 935,979 280,794 655,185 8,572,824 1,285,924 7,286,900 6,318,171 968,729 454,501 89,964 259,568 164,697 49,409 115,288

February

March

April

May

June

July

August

September 5,031,000 754,650 4,276,350 3,707,847 568,503 454,501 92,880 145,898 (124,776) (37,433) (87,343)

October 4,447,404 667,111 3,780,293 3,277,737 502,557 454,501 92,880 80,686 (125,510) (37,653) (87,857)

November 3,531,762 529,764 3,001,998 2,602,909 399,089 454,501 92,880 50,025 (198,317) (59,495) (138,822)

December 2,767,050 415,058 2,351,993 2,039,316 312,677 454,501 95,797 40,731 (278,352) (83,506) (194,847)

Gross Sales Excise Taxes Net Sales Cost of Goods Sold Gross Profit Operating Expenses Depreciation Interest Expense (Income) (1) Profit Before Taxes Income Taxes Net Profit

2,616,120 392,418 2,223,702 1,928,080 295,622 454,501 84,130 11,058 (254,068) (76,220) (177,847)

(1) Interest expense = Notes Payable * 14.5%/12 months.

-13Exhibit 8 (continued)

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January 750,000 3,291,542 5,850,125 9,891,667 8,443,107 18,334,774 750,000 5,012,144 11,855,841 17,617,985 8,706,060 26,324,045 750,000 10,301,737 17,637,315 28,689,052 8,619,013 37,308,065 750,000 17,997,155 19,666,227 38,413,382 8,531,966 46,945,348 750,000 24,748,757 14,469,652 39,968,409 8,792,002 48,760,411 750,000 25,697,603 6,815,272 33,262,875 8,702,038 41,964,914 750,000 17,191,189 3,883,970 21,825,159 8,612,075 30,437,233 750,000 9,003,739 2,950,257 12,703,996 8,869,194 21,573,190

February

March

April

May

June

July

August

September

October 750,000 6,295,049 1,854,837 8,899,886 8,776,314 17,676,200

November 750,000 5,029,249 1,639,892 7,419,142 8,683,434 16,102,575

December 750,000 3,715,152 2,225,373 6,690,525 8,937,637 15,628,161

Assets

Cash (1) Accounts Receivable (2) Inventories (3) Total Current Assets Net Prop. Plant & Equip. (4) Total Assets

750,000 2,773,349 2,308,135 5,831,484 8,527,237 14,358,721

Liabilities and Owners' Equity
4,010,818 2,962,622 (147,190) 6,826,250 11,508,524 18,334,774 6,805,539 8,767,030 (180,148) 15,392,421 10,931,623 26,324,045 8,842,088 17,419,379 (91,611) 26,169,856 11,138,209 37,308,065 8,142,024 26,997,556 136,140 35,275,720 11,669,627 46,945,348 3,883,534 32,950,665 0 36,834,199 11,926,212 48,760,411 1,935,531 27,167,192 280,794 29,383,517 12,581,397 41,964,914 1,614,553 15,795,793 330,203 17,740,548 12,696,685 30,437,233 1,110,950 8,352,899 0 9,463,849 12,109,341 21,573,190 690,358 5,002,010 (37,653) 5,654,715 12,021,484 17,676,200 1,039,007 3,278,054 (97,148) 4,219,913 11,882,662 16,102,575 1,157,298 3,463,701 (180,654) 4,440,345 11,187,816 15,628,161

Accounts Payable (5) Note Payable- Bank (6) Accrued Taxes (7) Total Current Liabilities Shareholders' Equity (8) Total Liabilities & Equity

1,614,553 1,146,268 (76,220) 2,684,601 11,674,120 14,358,721

(1) See Exhibit 9. (2) See panel 1, Exhibit 10. (3) See panel 2, Exhibit 10. (4) See panel 6, Exhibit 10. (5) See panel 3, Exhibit 10. (6) Plug figure. (7) See panel 5, Exhibit 10. (8) See panel 4, Exhibit 10.

-14Exhibit 9 KOTA FIBRES, LTD. Schedule of Cash Receipts and Disbursements for 2001 (in rupees)

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January 2,616,120 2,446,072 1,146,268 2,515,500 462,166 1,591,054 0 11,058 392,418 454,501 0 540,958 0 2,989,989 (12,323) 0 0 0 0 0 2,446,072 0 24,825 433,924 454,501 0 831,665 0 4,190,986 4,842,338 7,637,058 9,673,607 8,973,543 350,000 0 0 350,000 70,867 158,210 268,352 362,187 667,111 1,320,638 2,082,834 2,638,256 454,501 454,501 454,501 454,501 0 0 0 460,390 1,646,395 2,596,600 3,289,026 3,051,005 500,000 0 0 500,000 8,531,210 12,167,005 15,768,320 16,789,882 4,715,053 0 363,212 2,447,330 454,501 0 1,603,118 0 9,583,214 0 2,374,632 1,816,354 2,726,802 5,804,408 3,514,657 8,652,349 2,892,825 4,842,338 2,962,622 4,447,404 8,804,250 13,885,560 17,588,376 16,315,533 7,637,058 9,673,607 8,973,543 4,715,053 2,767,050 8,767,030 17,419,379 26,997,556 32,950,665 27,167,192 8,572,824 2,446,072 15,795,793

February

March

April

May

June

July

August

September 5,031,000 1,942,469 8,352,899

October 4,447,404 1,521,878 5,002,010

November December 3,531,762 1,870,526 3,278,054 2,767,050 1,988,817 3,463,701

Assume:

Sales Purchases (1) Debt Outstanding

Receipts:

Accts Rcvble Collected New Borrowings (Repayments)

6,190,142 10,836,774 15,366,686 17,079,239 13,218,449 7,156,094 4,797,562 4,081,147 9,578,178 5,953,108 (5,783,473) (11,371,400) (7,442,894) (3,350,889) (1,723,956) 185,647 2,767,050 0 259,568 1,285,924 454,501 0 940,797 0 5,707,839 0 2,446,072 350,000 145,898 754,650 454,501 292,770 831,665 500,000 5,775,555 0 1,942,469 0 80,686 667,111 454,501 0 660,439 0 3,805,206 0 1,521,878 0 50,025 529,764 454,501 0 517,438 0 3,073,606 0 1,870,526 350,000 40,731 415,058 454,501 0 635,979 500,000 4,266,794 0

Disburs.:

Accounts Paid (2) Capital Expenditures Interest Payments Excise Tax Paid Operating Expenses Accrued Income Tax Paid Wages Dividends Subtotal: Disbursements

Receipts - Disbursements

BOP Cash Balance EOP Cash Balance (1) Equal to 55 percent of sales in period (T+2). (2) Equal to purchases in period (T-1).

762,323 750,000

750,000 750,000

750,000 750,000

750,000 750,000

750,000 750,000

750,000 750,000

750,000 750,000

750,000 750,000

750,000 750,000

750,000 750,000

750,000 750,000

750,000 750,000

-15Exhibit 10 KOTA FIBRES, LTD. Forecast T-Accounts Supporting Financial Statements (in rupees)

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January 2,672,729 2,616,120 885,456 1,630,044 2,773,349 2,773,349 2,892,825 1,046,448 1,328,184 3,291,542 3,291,542 4,447,404 1,157,130 1,569,672 5,012,144 5,012,144 8,804,250 1,778,962 1,735,695 10,301,737 10,301,737 13,885,560 3,521,700 2,668,442 17,997,155 17,997,155 17,588,376 5,554,224 5,282,550 24,748,757 24,748,757 16,315,533 7,035,350 8,331,336 25,697,603 25,697,603 8,572,824 6,526,213 10,553,026 17,191,189

February

March

April

May

June

July

August

September 17,191,189 5,031,000 3,429,130 9,789,320 9,003,739

October 9,003,739 4,447,404 2,012,400 5,143,694 6,295,049

November December 6,295,049 3,531,762 1,778,962 3,018,600 5,029,249 5,029,249 2,767,050 1,412,705 2,668,442 3,715,152

1. Schedule of Accounts Receivable

Beginning of Period Plus Sales Less Collections, Last Month (1) Less Collections, Month before Last (2) End of Period (1) 40% of sales in period (T-1). (2) 60% of sales in period (T-2).

2. Schedule of I nventories
1,249,185 2,446,072 540,958 1,928,080 2,308,135 2,308,135 4,842,338 831,665 2,132,012 5,850,125 5,850,125 7,637,058 1,646,395 3,277,737 11,855,841 11,855,841 9,673,607 2,596,600 6,488,732 17,637,315 17,637,315 8,973,543 3,289,026 10,233,658 19,666,227 19,666,227 4,715,053 3,051,005 12,962,633 14,469,652 14,469,652 2,767,050 1,603,118 12,024,548 6,815,272 6,815,272 2,446,072 940,797 6,318,171 3,883,970 3,883,970 1,942,469 831,665 3,707,847 2,950,257 2,950,257 1,521,878 660,439 3,277,737 1,854,837

Beginning of Period Plus Purchases (1) Plus Labor Less Shipments (COGS) End of Period (1) Equal to 55 percent of sales in period (T+2).

1,854,837 1,870,526 517,438 2,602,909 1,639,892

1,639,892 1,988,817 635,979 2,039,316 2,225,373

3. Schedule of Accounts Payable
759,535 2,446,072 1,591,054 1,614,553 1,614,553 4,842,338 2,446,072 4,010,818 4,010,818 7,637,058 4,842,338 6,805,539 6,805,539 9,673,607 7,637,058 8,842,088 8,842,088 8,973,543 9,673,607 8,142,024 8,142,024 4,715,053 8,973,543 3,883,534 3,883,534 2,767,050 4,715,053 1,935,531 1,935,531 2,446,072 2,767,050 1,614,553 1,614,553 1,942,469 2,446,072 1,110,950 1,110,950 1,521,878 1,942,469 690,358

Beginning of Period + Purchases (1) - Payments (2) End of Period (1) Equal to 55 percent of sales in period (T+2). (2) Equal to purchases in period (T-1).

690,358 1,870,526 1,521,878 1,039,007

1,039,007 1,988,817 1,870,526 1,157,298

-16Exhibit 10 (continued)

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January 11,851,967 11,674,120 11,508,524 10,931,623 (177,847) (165,596) (76,900) 206,586 0 0 500,000 0 11,674,120 11,508,524 10,931,623 11,138,209 11,138,209 531,418 0 11,669,627 11,669,627 756,585 500,000 11,926,212 11,926,212 655,185 0 12,581,397 12,581,397 115,288 0 12,696,685

February

March

April

May

June

July

August

September

October

November

December 12,021,484 11,882,662 (138,822) (194,847) 0 500,000 11,882,662 11,187,816

4. Schedule of Shareholder's Equity
12,696,685 12,109,341 (87,343) (87,857) 500,000 0 12,109,341 12,021,484

Beginning of Period Plus Net Profit Less Dividends End of Period

5. Schedule of Accrued Taxes
0 (76,220) 0 (76,220) (76,220) (70,970) 0 (147,190) (147,190) (32,957) 0 (180,148) (180,148) 88,537 0 (91,611) (91,611) 227,751 0 136,140 136,140 324,251 460,390 0 0 280,794 0 280,794 280,794 49,409 0 330,203 330,203 (37,433) 292,770 0 0 (37,653) 0 (37,653)
(37,653) (59,495) 0 (97,148) (97,148) (83,506) 0 (180,654)

Beginning of Period Plus Monthly Tax Expense (@ 30%) Less Quarterly Tax Payments End of Period

6. Schedule of Property, Plant and Equipment
10,095,646 0 10,095,646 84,130 1,568,408 8,527,237 10,095,646 0 10,095,646 84,130 1,652,539 8,443,107 10,095,646 350,000 10,445,646 87,047 1,739,586 8,706,060 10,445,646 0 10,445,646 87,047 1,826,633 8,619,013 10,445,646 0 10,445,646 87,047 1,913,680 8,531,966 10,445,646 350,000 10,795,646 89,964 2,003,643 8,792,002 10,795,646 0 10,795,646 89,964 2,093,607 8,702,038 10,795,646 0 10,795,646 89,964 2,183,571 8,612,075 10,795,646 350,000 11,145,646 92,880 2,276,451 8,869,194 11,145,646 0 11,145,646 92,880 2,369,332 8,776,314
11,145,646 0 11,145,646 92,880 2,462,212 8,683,434 11,145,646 350,000 11,495,646 95,797 2,558,009 8,937,637

Beginning Gross PP&E Plus Capital Expenditures Ending Gross PP&E Monthly Depreciation Expense Less Cumulative Depr'n. Ending Net PP&E

-17Exhibit 11 KOTA FIBRES, LTD. Forecast Assumptions

UVA-F-1359

Ratio of: Income Tax/Profit Before Tax Excise Tax/Sales This Month Collections of Last Month's Sales This Month Collections of Month-before-Last Sales Purchases/ Sales two months later Wages/Purchases Annual Operating Expenses/Annual Sales Capital Expenditures (every third month) Interest Rate on Borrowings (and deposits) Minimum Cash Balance Depreciation/Gross PP&E (per year) (per month) Dividends Paid (every third month)

30% 15% 40% 60% 55% 34% 6.00% 350,000 14.5% 750,000 10% 0.83% 500,000

-18Exhibit 12 KOTA FIBRES, LTD. Trend of Certain Financial Accounts by Month (in millions of rupees)

UVA-F-1359

35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0

Sales A/R Inv A/P n/p

Se pt em be r

N ov em be r D ec em be r

Ju ne

Ja nu ar y

Fe br ua ry

Au gu st

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