INCOME STATEMENT 1993 (A) 1994 (A) 1995 (A) ??? ??? Net Sales 8,115 10,178 11,753 Cost of Sales 4,463 5,699 6,699 Gross Profit 3,652 4,478 5,054 2,598 3,176 3,736 Selling G & O Expenses Depreciation Net Interest Expense 80 90 107 60 53 38 Pre-tax Income 915 1,159 1,174 Income Taxes 366 464 470 Net Income 549 695 704 Dividends 137 174 176 BALANCE SHEET 1993 (A) 1994 (A) 1995 (A) AEESTS Cash 801 631 485 Accounts Receivable 1,273 1,548 1,826 Inventories 815 919 1,095 Total Current Assets 2,889 3,098 3,406 3,232 3,795 4,163 Gross Plant & Equipment Accumulated Depreciation 1,335 1,425 1,532 Net Plant & Equipment 1,897 2,370 2,632 Total Assets 4,786 5,468 6,038 Although TCI's corporate tax rate is 35% but after adding miscellaneous local taxes the effective average tax rate for TCI had been historically higher and the same trend was expected to continue. TCI is expected to continue with the past dividend payout policy to make sure that the stock price of the company was unaffected during the construction phase. TCI had some preliminary discussion with AlAmana Bank about the modus operandi of how they can borrow money to finance the expansion project and the bank agreed that TCI can borrow money for the expansion project in two separate installments on an as- needed basis, one in 1996 and the other in 1997. The loan would be repayable in 6 equal annual installments. The first installment would become payable after the completion of the warehouse (i.e., starting in 1998). The interest rate offered is 11.5% per annum Requirement To prepare Mr. Abdullah for the final meeting with the bank you need to complete; 1. Pro Forma Income Statement for TCI for 1996 & 1997 10 Marks Past Relationship with AlAmana Bank In 1991 TCI borrowed funds from AlAmana Bank to build the Kharj warehouse. This loan was being repaid in equal annual installments of SAR125,000. At the end of 1995 the balance outstanding was SAR750,000. Another line of credit for working capital requirements of TCI was also established in 1991 but it had not been utilized to date Current Financing Requirement TCI has now decided to expand the warehouse in Kharaj to accommodate future growth of the company. For this TCL has planned to expand the warehouse at a cost of SAR2,400,000 of which SAR1,800,000 will be spent in 1996 and the remaining in 1997 (TC) has no other capital expenditure plans for these two years). It is projected that this expansion will fulfill the company's requirements for many years to come, they expect the useful life of the warehouse to be 12 years and the warehouse building will be depreciated using the straight-line method during this time. The construction of the warehouse is projected to be completed in early 1997. TCI would not charge any depreciation on the warehouse during the construction phase in 1996. (You can assume that the SAR value of depreciation of other assets will continue to be the same as 1995 in 1996 and 1997) Page 2
