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Evaluation and Control

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  1. Evaluation and Control • Which measures to use to assess performance depends on: • the company you are looking at and • the objectives to be achieved.

  2. 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?

  3. 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

  4. 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?

  5. 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

  6. Evaluation and Control • Triple Bottom Line Performance - Adding Social and Environmental Issues • “Measures” of Social Performance: • HP and Global Citizenship Awards

  7. 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

  8. Evaluation and Control • Triple Bottom Line Performance - Adding Social and Environmental Issues • “Measures” of Environmental Performance: • Dell and Emissions

  9. 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)

  10. 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

  11. 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

  12. 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)

  13. 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?

  14. 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.

  15. 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.

  16. 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

  17. John V. Harker Chairman of the Board, President and Chief Executive Officer Brian K. Unruh Vice President, Corporate Controller

  18. 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

  19. 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

  20. 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

  21. Worldwide Branded Market Share---- Q1 2001 Update Source: IDC, June 2001

  22. 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!

  23. 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

  24. Strategic Partners Image Devices / Illumination / Networking

  25. 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

  26. 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

  27. 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

  28. And…we are entering an exciting new, incremental business opportunity late in 2001… … Home Entertainment

  29. 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

  30. 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

  31. 2001 – 2005 Unit Forecast Disruptive low cost product can drive increased volume Americas – HTRG, PMA EMEA – DTC AsiaPac – Fuji-Kimera, Toshiba data

  32. 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

  33. 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)

  34. 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

  35. 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