Income Statements Effects of Amortizing Intangibles
The following income statements for SOS Staffing Services, Inc. were extracted from the SEC’s EDGAR database
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SOS Staffing Services, Inc. Consolidated Statements of Income Fiscal Years Ended December 28, 1997, December 29, 1996 and December 31, 1995 Fiscal Year (52 Weeks) Ended |
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1997 |
1996 |
1995 |
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SERVICE REVENUES |
$ 209,250,847 |
$ 136,163,973 |
$ 87,532,903 |
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DIRECT COST OF SERVICES |
162,539,859 |
108,589,322 |
69,353,212 |
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Gross profit |
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OPERATING EXPENSES: |
46,710,988 |
27,574,651 |
18,179,691 |
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Selling, general and administrative |
32,867,550 |
20,397,240 |
13,826,034 |
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Intangibles and amortization |
1,492,637 |
470,119 |
32,566 |
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Total operating expenses |
34,360,187 |
20,867,359 |
13,858,600 |
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INCOME FROM OPERATIONS |
12,350,801 |
6,707,292 |
4,321,091 |
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OTHER INCOME (EXPENSE): |
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Interest expense |
(368,145) |
(301,207) |
(145,646) |
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Interest income |
497,661 |
90,793 |
109,684 |
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Other, net |
145,386 |
13,695 |
120,604 |
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Total, net |
274,902 |
(196,719) |
84,642 |
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INCOME BEFORE PROVISION |
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FOR INCOME TAXES |
12,625,703 |
6,510,573 |
4,405,733 |
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PROVISION FOR INCOME TAXES |
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(including pro forma for 1995) |
(5,099,476) |
(2,481,413) |
(1,728,653) |
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NET INCOME |
$ 7,526,277 |
$ 4,029,160 |
$ 2,677,080 |
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NET INCOME PER COMMON SHARE: |
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Basic |
$ 0.78 |
$ 0.59 |
$ 0.54 |
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Diluted |
$ 0.77 |
$ 0.59 |
$ 0.43 |
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WEIGHTED AVERAGE COMMON SHARES: |
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Basic |
9,654,204 |
6,780,400 |
4,984,616 |
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Diluted |
9,780,505 |
6,838,479 |
6,229,021 |
Required
a. Conduct a horizontal and vertical analysis of SOS’s income statements for all three years.
b. Identify any unusual terms, along with any unusual trends in SOS’s income statements.
c. Identify the most likely reasons for such trends.
d. What business events resulted in SOS’s huge increase in “Intangibles and amortization”?
e. Write a short memo to a prospective investor, evaluating SOS’s future prospects.