Estimate damages for lost operating profit for years 3 through 5 from lost sales do two infringement as of June 30, year 6, which is the estimated date of the completion of the patent infringement trial.
NOTE: any damages awarded at trial for lost profits are subject to taxation. When calculating damages, you need to do so on a before-tax basis. Salsa cost of equity since year 2 has been 16%, and cost of long-term debt since year 2 has been 12%. Salsa's tax rate is 35%. Salsa capital structure is 60% equity and 40% debt.
This is question 1 from Case Study 19: Texahoma Highway Construction from Case Studies in Forensic Accounting and Fraud Auditing.
Pretax Profit $1,589 Salsa Income Statements All figures in $'000, except per square foot and percentages. Cost of Gross Gross Profit SG&A* Year Revenues Sales Profit % of Sales Expenses $21,193 $18,387 $2,806 13.2% $1,217 $15,878 $14,586 $1,292 8.1% $1,096 $14,471 $12,880 $1,591 11.0% $1,200 $12,056 $10,928 $1,128 9.4% $1,081 $9,706 $8,593 $1,113 11.5% $1,251 $14,386 $13,137 $1,249 8.7% $1,166 $16,220 $13,857 $2,363 14.6% $1,022 $9,091 $8,424 $667 7.3% $1,061 $3,248 $ 2,792 $456 14.0% $1,018 $7,761 $6,894 $867 11.2% $1,123 Total $124,010 $110,478 $13,532 10.9% $11,235 * SG&A = Selling, General and Administrative $196 $391 $47 -$138 $83 $1,341 -$394 -$562 -$256 $2,297 Salsa Income Statements All figures in $'000, except per square foot and (continued)percentages. Noise wall Noise wall Noise wall Noise wall Noise wall Gross Profit Noise wall Revenue per Revenue** Direct Cost Gross Profit % Square Feet Square Foot $987 $648 34.3% $339 $100 59 37 $493 $393 20.3% $16.73 $13.32 $13.07 $732 $587 $145 19.8% Total $2,212 152 ** The Salsa year 3 noise wall revenue is from a Texahoma highway contract awarded on February 12, year 3. Contracts With Infringing noise walls All figures in '000, except percentages. Total Contract Award Date Total Contract Revenue DOH Contract Total Contract Direct Cost Total Gross Profit Gross Noise wall Revenue Profit % 6/29/03 20204 $38,371 $33,965 $4,406 11.5% $3,931 12/30/03 20788 $107,063 $97,702 8.7% $10,373 $9,361 $3,397 20877 $33,398 $30,001 10.2% $3,489 21215 $38,576 $34,867 $3,709 9.6% $3,977 1/02/04 6/02/04 1/03/05 Total 21321 $678,690 $600,560 $78,130 11.5% $70,982 $896,098 $797,095 $99,003 11.0% $92,752 Contract Award Date DOH Contract Noise wall Direct Cost Noise wall Gross Profit Noise wall Gross Profit % Noise wall Square Feet Noise wall Revenue per Square Foot 6/29/03 20204 $3,293 $638 16.2% 301 $13.06 $12.95 12/30/03 20788 $8,183 21.1% 801 $2,190 $758 1/02/04 20877 $2,731 21.7% $13.32 $13.17 6/02/04 21215 $3,281 $696 262 302 5,214 17.5% 1/03/05 21321 $56,421 $14,561 20.5% $13.61 Total $73,909 $18,843 20.3% 6,880 $13.48 Pretax Profit $1,589 Salsa Income Statements All figures in $'000, except per square foot and percentages. Cost of Gross Gross Profit SG&A* Year Revenues Sales Profit % of Sales Expenses $21,193 $18,387 $2,806 13.2% $1,217 $15,878 $14,586 $1,292 8.1% $1,096 $14,471 $12,880 $1,591 11.0% $1,200 $12,056 $10,928 $1,128 9.4% $1,081 $9,706 $8,593 $1,113 11.5% $1,251 $14,386 $13,137 $1,249 8.7% $1,166 $16,220 $13,857 $2,363 14.6% $1,022 $9,091 $8,424 $667 7.3% $1,061 $3,248 $ 2,792 $456 14.0% $1,018 $7,761 $6,894 $867 11.2% $1,123 Total $124,010 $110,478 $13,532 10.9% $11,235 * SG&A = Selling, General and Administrative $196 $391 $47 -$138 $83 $1,341 -$394 -$562 -$256 $2,297 Salsa Income Statements All figures in $'000, except per square foot and (continued)percentages. Noise wall Noise wall Noise wall Noise wall Noise wall Gross Profit Noise wall Revenue per Revenue** Direct Cost Gross Profit % Square Feet Square Foot $987 $648 34.3% $339 $100 59 37 $493 $393 20.3% $16.73 $13.32 $13.07 $732 $587 $145 19.8% Total $2,212 152 ** The Salsa year 3 noise wall revenue is from a Texahoma highway contract awarded on February 12, year 3. Contracts With Infringing noise walls All figures in '000, except percentages. Total Contract Award Date Total Contract Revenue DOH Contract Total Contract Direct Cost Total Gross Profit Gross Noise wall Revenue Profit % 6/29/03 20204 $38,371 $33,965 $4,406 11.5% $3,931 12/30/03 20788 $107,063 $97,702 8.7% $10,373 $9,361 $3,397 20877 $33,398 $30,001 10.2% $3,489 21215 $38,576 $34,867 $3,709 9.6% $3,977 1/02/04 6/02/04 1/03/05 Total 21321 $678,690 $600,560 $78,130 11.5% $70,982 $896,098 $797,095 $99,003 11.0% $92,752 Contract Award Date DOH Contract Noise wall Direct Cost Noise wall Gross Profit Noise wall Gross Profit % Noise wall Square Feet Noise wall Revenue per Square Foot 6/29/03 20204 $3,293 $638 16.2% 301 $13.06 $12.95 12/30/03 20788 $8,183 21.1% 801 $2,190 $758 1/02/04 20877 $2,731 21.7% $13.32 $13.17 6/02/04 21215 $3,281 $696 262 302 5,214 17.5% 1/03/05 21321 $56,421 $14,561 20.5% $13.61 Total $73,909 $18,843 20.3% 6,880 $13.48
