Evaluation and Control • Which measures to use to assess performance depends on: • the company you are looking at and • the objectives to be achieved.
Evaluation and Control • In consideration of the company • how big is the company? • how diversified is the company? • how competitive is the company’s industry? • what is the strategic approach of the company?
Evaluation and Control • In consideration of objectives: • focused on cost efficiency in processing, inbound and outbound logistics, etc. • focused on maintaining strong brand identity • attempting to increase market penetration • trying to fill one or two small market niches • focused on rapidly introducing new product generations
Evaluation and Control Balanced Scorecard - Some Thoughts Should the company include non-financial measures to determine overall performance? • Market-based: market share, brand identity, etc. • Society-based: environmental policies and reporting, human resource policies • How important are these factors to the company’s long term viability?
Evaluation and Control • Triple Bottom Line Performance - Adding Social and Environmental Issues • “Measures” of Social Performance: • Employee Safety – Injuries • Health Care program • Hours of Employee Training • Day Care • Maternity and Paternity Leave • Community Engagement activities
Evaluation and Control • Triple Bottom Line Performance - Adding Social and Environmental Issues • “Measures” of Social Performance: • HP and Global Citizenship Awards
Evaluation and Control • Triple Bottom Line Performance - Adding Social and Environmental Issues • “Measures” of Environmental Performance: • Number of Toxic/Hazardous waste spills and incidents • Amount of and changes in pollutants to air, water and land • Environmental product design awards • Number of manufacturing operations certified according to ISO 14001
Evaluation and Control • Triple Bottom Line Performance - Adding Social and Environmental Issues • “Measures” of Environmental Performance: • Dell and Emissions
Evaluation and Control Financial Performance - Profitability Ratios Margin Ratios Gross margin = gross profit/sales x 100% Operating margin = operating income/sales x 100% Profit margin = net income/sales x 100% • changes can be early warning of serious problems (down 1 or 2% can be the difference between healthy profits or a loss in many industries)
Evaluation and Control Financial Performance - Profitability Ratios Return on Investment Ratios Return on Assets = Net Income/Total Assets • good for evaluating divisional managers (how well did they utilize the assets entrusted to them) but not so good for evaluating overall firm performance Return on Equity = Net Income/Stockholders’ Equity • good for evaluating overall firm performance (how well did the firm’s top management use the resources provided by owners) but not for evaluating divisional managers
Evaluation and Control Financial Performance - Efficiency Ratios Inventory turnover ratio = cost of goods sold/average inventory balance Days to sell inventory= 365/inventory turnover • large inventory incurs excessive interest, warehousing, property tax and spoilage costs • small inventory risks lost sales or production line stoppage due to stock outs of finished goods or raw materials, respectively
Evaluation and Control Financial Performance - Liquidity Ratios To little liquidity raises possibility of default & bankruptcy; to much implies long term investments w/ greater profitability have been missed. Current ratio = current assets/current liabilities • varies by industry - airline industry (receivables & inventory are low), manufacturing industry (receivables & inventory fairly high), distillery (inventories quite high) Quick ratio = (don’t worry about this one)
Evaluation and Control • How do you find out what financial data you should include in your report. • Look at annual reports. What performance measurements do the chairman, president, or other top management often make reference to? • Look at industry analyst reports: What performance measurements do industry analysts often make reference to when discussing companies in this industry?
Evaluation and Control Looking at a Company: InFocus Looking at a Company: Dell Computers Use Research Insight (Compustat) to find financial information on your company and its competitors. Available on business computing lab PCs.
Evaluation and Control • Responsibility Centers • Standard Cost Centers: primarily manufacturing; efficiency – costs per unit produced; compare expected and actual production costs • Revenue Centers: generally sales; effectiveness – sales generated; compare previous year’s/projected to actual sales. • Expense Centers: generally administration, service & research; indirect contribution to revenues.
Evaluation and Control • Responsibility Centers • Profit Centers: SBU or division controls expenses and revenues, perhaps based on product line. • Investment Centers: generally facility-based; return on investment; revenue generated compared to value of facility
John V. Harker Chairman of the Board, President and Chief Executive Officer Brian K. Unruh Vice President, Corporate Controller
Q3-2001 Q2-2001 $180.2 46.0 25.5% 36.6 20.3% $9.4 5.2% 9.8 5.4% $7.1 3.9% $0.18 39.7 Total revenue $ 185.3 Gross margin 48.2 26.0% Operating Expenses 38.1 20.6% Operating income $ 10.1 5.4% Income before tax 13.6 7.3% Net Income $ 9.4 5.1% EPS (Fully Diluted) $ 0.24* Fully Diluted Shares (M) Income Statement – Q3 2001 $ = Millions
Canada/Latin America 5% Asia/Pacific 11% United States 61% OEM / Private Label 9% Europe 23% Distribution 50% Value Added Dealers 41% Revenue Breakout – Q3 2001 By Geography By Channels
Strong Balance Sheet---- with Opportunities to Improve • Strong historical working capital management • Solid Cash and Marketable Securities Position • $80M Balance at end of Q3 • Majority of balance invested in tax-exemptsecurities • No Debt
Worldwide Branded Market Share---- Q1 2001 Update Source: IDC, June 2001
SXGA->720p 720p->XGA SVGA XGA Application-based Large Room 120” Diag 50 People Medium Room 80-120 “ Diag 20 - 50 People Networking & Remote Collaboration Small Room < 80” Diag <10 People Digital Appliances Mobile Value Second Half of 2001----- New Product Flow is Strong!
Comprehensive Array of Critical Engineering Skills/tools • Optical systems and lens design • Multiple display device technology • Electrical design and custom ASICs • Thermal analysis and system design • Embedded control and software interfaces • Industrial design • Design for reliability, safety and manufacturability • Audio systems Patents - 100 issued and over 20 pending
Strategic Partners Image Devices / Illumination / Networking
Image Engines Primary “Projection” component Customized rear projection applications, etc. Expand the Market: OEM Business---- 9 Percent of Revenues in Q3 2001 Thin Label Products Minor cosmetic changes Color, splash screen, labeling, packaging Customized Products Major feature/function changes Industrial Design, Optical, Electronics, Software, Hardware Business maintains greater than 10% operating margins
InFocus Projection Enabled Film Subtitling Expand the Market: Film Subtitling • Changes the model for producing, distributing, storing, and recording multiple dialects of the same film • Accommodates several language texts on a single CD-ROM • Cost savings to film distributors of approximately $500K per film InFocus and DTS have taken large screen cinema technology to the next step with the DTS-CSS Cinema SubtitlingSystem ….. projecting “overlaid” subtitles directly onto the screen instead of etching them onto the film itself Note: DTS (Digital Theatre Systems) is a leading provider of Theatre Audio Technology
Expand the Market: Video conferencing • Video capabilities of projectors are improving dramatically • All projectors are Digital to start, many are HDTV ready • Brightness and resolution actually exceed television • Technology has dramatically improved with DLP • Lower cost • Value added dealers are beginning to report significant increase in demand post Sept. 11 disaster
And…we are entering an exciting new, incremental business opportunity late in 2001… … Home Entertainment
InFocus Strategic Competitive Advantages---- Home Entertainment • Best video image quality • Leverage excellence in DLP technology • Digital and HDTV is available in projectors today!! • Integration and “ease of use” is key to success • Elegant, furniture-like solution • Small form factor • Use projection link / ”one cable” connectivity schemes • Best price performance • First to offer truly complete, affordable solution • Image size from 5’ diagonal, up to 12’ • Ability to leverage partnerships
CEDIA Retail Home Entertainment Segmentation • 3 segments • High End • Prosumer • Retail / Consumer • Pro • CRT, 3 chip DLP • > $20K • True 1080i HD • Image is key • Prosumer • $1.5K – 20K • Specification is key • Consumer • Resolution-less • <$1.5K • Price is key
2001 – 2005 Unit Forecast Disruptive low cost product can drive increased volume Americas – HTRG, PMA EMEA – DTC AsiaPac – Fuji-Kimera, Toshiba data
Home Entertainment-- Go To Market with OEM & InFocus Brand • OEM relationships established with three partners: • Toshiba, the #1 television brand in the world, with world-wide distribution channels • Runco, the market leader in state-of-the-art home theater projection systems • Gradiente, one of the largest manufacturers of electronic consumer goods in the Brazilian market • Additional OEM’s will follow • InFocus Branded Products • Primary Channels - AV Independent Retailers and Home Theatre Installers
Expand the Market – - - All end-user markets have significant growth opportunities for InFocus: - Corporate(3% attach rate to notebooks) - Education(Price points are now attractive, professors/teachers more comfortable with computers) - Government(Larger, high resolution, distance communication required) - Consumer(Price points, all video sources accepted)
Financial Goals at InFocus---- Longer Term Target * • Revenue growth rate of 15% • Operating income at 8-10% of sales • World class working capital management: • Positive cash flow • Inventory turnover at greater than 8 times • DSO less than 75 days * Achievable once global economy recovers
Summary - Why Invest in INFS? • We are the clear, undisputed market leader • There is unquestionable market growth opportunity • Smaller and brighter projectors will continue • Continued lower product pricing/costs with improved performance • Trend toward wireless connectivity technology • Home entertainment with digital video and HDTV • Increasing networking of projectors • Untapped growth in education market as prices fall • We have a strong patent protected technology base • We are aggressively moving toward contract manufacturing • We have solid, conservative financial disciplines • We have a strong, tested management team