- 6 -
Year Net Revenues Net Income
1987 $21,922,286 $1,615,877
1988 25,060,137 1,314,997
1989 27,256,611 1,361,810
1990 29,770,281 1,002,367
1991 30,536,365 511,072
1992 (Projected) 31,260,786 1,434,198
As the foregoing table shows, Demco’s net revenues increased
steadily from 1987 to 1991 and were projected to continue to
increase in 1992. Demco’s net income, however, decreased from
1987-90, then fell more sharply in 1991, but was projected to
recover in 1992.
The decrease in Demco’s net income was not caused by any
increase in Demco’s cost of goods sold; Demco’s gross margin
increased from 43.9 percent of net revenues in 1987 to 45.5
percent of net revenues in 1991. Rather, Demco’s declining
profitability was attributable to increases in its marketing and
administrative expenses. From 1987 to 1991, Demco’s marketing
expenses increased from 16.5 percent of net revenues to 19.3
percent; administrative expenses increased even more sharply over
the same period, from 9.7 percent of net revenues to 16.3
percent.
2(...continued)
expert Gary L. Schroeder (Mr. Schroeder) considered this
information to be reliable and used it to prepare his report.
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