Case: Pacific Systems Corporation
John Blevins
430 West Fifth Street
Perrysburg, OH 43551-1507
419.874.1289
John Blevins
Shauna Munroe
James Sunderhaus
John Blevins is currently a senior in Supply
Chain Management and Management
Information Systems at Bowling Green State
University, Bowling Green, OH.
Toledo Chapter
APICS ID# 1556491
Full Time Undergraduate
Page 2 of 20
Abstract- This paper is responding to a case given to the class about a company Pacific Systems
Corporation based in San Francisco, CA. PSC builds personal computers and needs a DVD
supplier. Described are the different supply options, the sourcing strategy, a supplier scorecard,
financial analysis, and total cost analysis.
A. Executive Summary
Pacific Systems Corporation is located in San Francisco, CA and is looking to contract
with a supplier for DVD drives, which will be in every computer that PSC builds. PSC has been
looking at four different suppliers that all have different attributes. Elecom is the price leader in
the DVD industry and has developed a good reputation with their customers. Since the company
is so large, PSC felt that we could become underappreciated, especially since Elecom is located
globally. SureTech is a small company that is located in an old plant, which could create
possible breakdowns in the equipment, and PSC is unsure if SureTech would be able to handle
the large contract size. Park Technologies has quality relationships throughout their company
with all employees and extensive procedures that each product has to go through. E-Drive has
encountered some quality issues with their products, which has caused late deliveries, but they
have engineers working to fix the problem and guarantee its correction.
In order to find the best supplier PSC uses a supplier scorecard, which has clear
descriptions of each area and the expectations entailed, that focuses on all the suppliers cost,
quality, delivery, capacity, and risk. Suppliers are awarded points for each category based on
how well suppliers meet PSC’s expectations. Weights are given to each category, which are
multiplied by the points awarded and totaled. These scores determine if the supplier is
unacceptable, acceptable or preferred, which exemplifies their performance.
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Through our calculations we found that E-Drive was the only company with a 1.0 or
higher quick ratio and the highest current ratio. E-Drive had the lowest TCO by $3.00, the best
delivery record and the second best PPM. The only problem that E-Drive has is their average
collection period, but this will be further investigated. Overall, E-Drive had the best financial
data and would be the best candidate to be a supplier for PSC.
B. Introduction & Objective Statement
Our consulting team here at Bowling Green State University, has taken on the challenge
of finding a quality supplier for Pacific Systems Corporation. PSC has recently entered the
personal computer market and plans to outsource many of the components, one being the DVD
drive, which will be standard on each computer they build. Pacific Systems is a medium-sized
company whose base is north of San Francisco. PSC has grown from annual sales of $2.5
million to $3 billion in ten years and doesn’t plan to stop growing any time soon. PSC has
chosen a made-to-order strategy where PC’s are shipped directly to their customers when orders
are received. The company is not going to build finished PC’s to meet market demand forecasts,
future sales, or even supplier capacity, but it will carry some PC’s in inventory to avoid missing
customer orders. Therefore, PSC needs to contract with an effective and efficient supplier.
From past knowledge and experience, there are always many benefits when forming an
alliance within a buyer-supplier relationship. When an alliance is made between two parties,
there is an institutional trust built, and a failure to develop and manage the trust is one of the
main reasons that so many alliances fail. With an alliance, total costs are often lower, because
there are reductions of direct and indirect costs associated with labor, materials and overhead.
Quality can be improved because PSC will not have to inspect for errors in the DVD systems as
they would if they build them. Instead, the supplier who is determined and efficient at making
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quality DVD drives is responsible. Also, improved technology flow from suppliers would be
present, as PSC should trust their partner. Therefore, strategic alliances often lead to many
successful new products.
DVD demand is growing at an accelerated pace, and PSC wants to find a supplier as
quickly as possible because other companies are going to use the same DVD drives in their
personal computers. They want to extend a contract to the supplier that suits them best and will
share their market with that company in hopes of building a strategic alliance. The four suppliers
that PSC is considering are: Elecom Technologies in Nagasaki, Japan, SureTech Company in
Colorado Springs, Colorado, E-Drive Systems in California, and last but not least Park
Technologies in Korea. All four of these suppliers quoted different prices with Elecom being the
cheapest at $127 per unit and SureTech being the highest at $144 per unit. The lead times range
from two weeks at E-Drive to ten weeks at Park Technologies. These factors and many others
must be considered before determining with which supplier to make a contract.
C. Sourcing Strategy
PSC should pursue a strategic sourcing strategy with their chosen supplier. Due to the
current market conditions they should single source their DVD drives in order to leverage their
sales and build a collaborative relationship with their supplier. They have identified DVDs as a
critical part of their product and should take efforts to minimize supplier risk. The three main
supply risks identified by PSC are lack of supply, quality issues, and delivery issues. By creating
a strategic alliance with their supplier and guaranteeing them our business with a long-term
contract they in turn would guarantee us supply in a competitive market. We plan to contract
with the supplier for two-years and to renew the contract based upon satisfactory service. There
are many advantages to collaborative relationships. Typically they have lower total costs, more
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open communication leading to less delivery or design issues, and less quality problems. All of
these are seen as vital to PSC. Lower total costs are due to target costing and the buyer
understanding and allowing for the supplier to earn a reasonable profit. This prevents suppliers
from using hidden costs as well as allowing for innovation and investment in dedicated
resources. Also supplier involvement in the design and suggestions as to processes and materials
to use typically lower the costs. Supplier knowledge is leveraged as an asset to the buying
company. Quality is also increased for these reasons. Suppliers are designing the product and
therefore should be able to adequately manufacture it without many defects. More investments
in technology also reduce quality issues. Fully developed specifications would be contradictory
to this and are often used for transactional-based relationships. We used delivery performance
and quality as part of our basis to determine our supplier scorecard as well as using total cost
analysis and financial risk analysis to determine our sole supplier. Lastly when determining
supply risk location was a deciding factor. There were two international suppliers and two
domestic suppliers. One of the domestic suppliers was within ten miles of PSC allowing for a
JIT delivery schedule to be set up if desired. With the international suppliers lead times could
have become an issue as PSC plans to build to order computers rather than stock and their safety
stock levels would be double that of domestic suppliers. Also there were some currency
concerns when dealing with foreign suppliers as well as possible political issues and lack of
experience and cultural and linguistic knowledge within PSC.
Company Overview
Elecom
Elecom is located in Japan and is the largest of the suppliers. They are the “low-cost”
leader in the industry and typically do not deal with buyers that are the size of PSC. This could
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lead to problems in trying to create a strategic relationship in that they would have no interest in
the investment of time and resources for such a small contract. PSC’s orders could be deferred
to give preference to other large customers as occurred during the plant visit.
SureTech
The SureTech Company of Colorado Springs, CO is a new competitor in the DVD drive
market. PSC’s contract would be the largest in the company’s history and there is some concern
as to their ability to handle such an order. They might not have the resources to invest in the
desired relationship and the ability to grow and invest in new technologies as the market evolves.
Their plant is old and very small compared to some other competitors, which creates the
possibility of down time on the production lines that could hinder their demand schedule.
SureTech has a reputation for innovation and reliability, which is why this company is a
potential supplier for PSC and they share the same ethics. The company employees from top
down seem energetic and motivated, which helps communication to be more open and active
throughout the potential strategic alliance.
E-Drive Systems
E-Drive Systems is located only ten miles away from PSC. Due to this they offer a justin-time delivery system, with a two-day delivery time. PSC was impressed with the open and
active communication between the workstations, which proved why this company had such a
solid reputation with their customers. E-Drive systems and PSC would be able to work closely
with one another, particularly due to the short distance between plants.
Recently there have been quality problems with shipments because of a significant
increase in the amount of returns from their large distributors. The amount of returns was
causing a delay in the production schedules and deliveries, which caused the quality manager to
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be extremely busy and “on the edge.” An abnormal clicking sound occurred when a disk was
inserted into the drive. PSC had the quality manager’s word that this problem would be resolved
by the time PSC would place an order with them.
Park Technologies
Park Technologies is located in Korea. PSC was impressed with the extensive testing
that all of the products underwent before approval. All of the employees in the facility knew
each other and the manager was proud of the fact that they knew all of the names of the his
customers. This showed definite potential for a collaborative relationship.
Park Technologies has not done business with many North American firms and have no
US facilities or support staff, which could be a potential problem. Also since they are located in
Korea the average delivery cycle could take up to 10 weeks per order, which creates the
possibility of stock outs or late deliveries. The problem that poses the largest risk to PSC is the
regional instabilities in this Korean area that could result in threats to the United States, which
would disrupt or completely terminate supply of DVD drives.
D. Developing the Audit Instrument
Pacific Systems Corporation uses standard criteria to rate all suppliers in order to
determine their overall performance. The purpose of PSC’s rating system is to identify, observe,
and classify suppliers. These objective ratings help in strategic sourcing decisions and determine
supplier performance. The supplier scorecard will be communicated to all suppliers, and this
feedback potentially leads to continuous improvement and a better relationship.
The process for the scorecard is standard to all suppliers. Suppliers are scored on 10
different performance metrics in the areas of costs, quality, delivery, capacity, and risk.
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Descriptions of each category are included on the scorecard (See appendix 1). Suppliers are
awarded 1, 3, or 5 points based on whether they fail expectations, meet expectations, or exceed
expectations in each category. Detailed expectations are listed on the scorecard under each area.
There are also weights given to each metric based on importance. Total points are added up for
an overall score for each supplier, which determines their rating level.
E. Applying the Audit Instrument
Supplier Evaluation
All potential and current suppliers are evaluated based on the performance metrics on the
supplier scorecard. Observations and data are taken from each supplier to determine whether
they fail expectations, meet expectations, or exceed expectations in each category. After the
points are given and multiplied by their corresponding weights, they are added up to determine a
total score. There are three different levels in which a supplier can place as follows:
“Preferred” Supplier Rating: 120-150Points
Supplier qualifies to be a strategic partner by giving a competitive advantage
Supplier exceeds expectations and supports our future goals
“Acceptable” Supplier Rating: 75-119Points
Supplier is committed to meeting basic needs
Supplier meets the minimum performance criteria.
“Unacceptable” Supplier Rating 0-74 Points
Supplier fails to meet basic requirements for performance
This supplier is considered risky that may prevent competitive advantage
After applying the scorecard to all four potential DVD suppliers for PSC, total scores determined
which level rating each supplier assumed. The following table summarizes each suppliers' total
score and the supplier rating they received.
Suppliers
Table 1
Summary of Supplier Scores
Score out of
150 points
total
Supplier
Rating
Page 9 of 20
Elecom Technologies
Sure Tech Company
E-Drive Systems
Park Technologies
77
71
127
99
Acceptable
Unacceptable
Preferred
Acceptable
Total Cost Analysis
Total cost analysis was performed for each of the four suppliers. The results were quite
different from the quoted price and basically eliminated the ‘low cost’ supplier, Elecom. Table 2
shows the quoted unit prices and estimated TCO for each of the suppliers. While Elecom quoted
$127 per unit their total cost was actually over $183 per unit. This was almost $10 per unit
higher than any of the other companies. The lowest TCO was E-Drive at just under $169 per
$174 per unit respectively. Year two costs were slightly
Company
Table 2
TCO
Quoted
Price
Estimated
TCO
Elecom
$
127.00
$
183.34
lower. Even though safety stock was the only change for year
SureTech
$
144.00
$
171.83
E-Drive
$
140.00
$
168.82
Park
$
132.00
$
173.78
unit. SureTech and Park were comparable at almost $172 and
two, it did not affect the outcome of the TCO. Had there been
more difference, an average of the two years would have been used. We could also reduce the
frequency of deliveries from E-Drive and likely negotiate an even lower unit price if we contract
with them again. E-Drive had the lowest delivery non-conformance costs by a significant
margin, but was tied for highest in quality non-conformance costs. Many other costs remained
similar.
Financial Analysis
Financially, there were only two main choices out of the four possible suppliers. Both of
them ended up being US companies. The choices were SureTech and E-Drive Systems. E-Drive
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Systems is the only company with a quick ratio
equal to or greater than 1. SureTech was the most
Ratio
Table 3
Selected Financial Ratios
SureTech
E-Drive
Average
Current Ratio
1.3
1.3
1.3
Quick Ratio
0.7
1.0
0.8
Debt Ratio
0.5
0.6
0.6
ROA. E-Drive was the only other company above
ROA
10.7%
7.4%
6.3%
ROE
21.7%
16.9%
13.8%
the average for these categories. Financially, the
GPM
25.9%
35.0%
26.6%
NPM
6.8%
4.5%
4.2%
profitable with the highest NI as well as ROE and
only problems with SureTech were their gross profit margin and quick ratio which was a .7.
Their gross profit margin could be increased with larger economies of scale, which is likely to
occur since they are a new and growing company, and also the smallest of the four suppliers. EDrive’s only issue was their Average Collection Period of 60 days, with the average being 45
days. When using same-size income statements, E-Drive had the lowest CGS and the highest
GPM. However, they also had the highest G&A expenses which lowered them to just over
average NPM. All of the companies were similarly leveraged which seems typical of the
electronics industries. Also, all of the companies are able to pay their current liabilities and the
lowest Current Ratio was Park with a 1.1. For detailed numbers and more comparisons see
Appendix 3, Financial Ratios, and Appendix 4, Income Statements.
F. Recommendations
Our recommendation is for PSC to contract solely with E-Drive Systems, eventually
creating a collaborative relationship or strategic alliance. E-Drive is the only supplier who
scored in the “preferred” range during our supplier scorecard analysis. Quoted price, PPM
defects, and capacity were all rated as average during the scorecard analysis and are slight
concerns. While we enjoy seeing lower quoted prices, they were lowest on TCO (Appendix 2)
which is significantly more important. PPM defects could become a problem, but they were still
well below two of the other suppliers, and the only supplier who had less PPM is financially
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unstable (see Appendix 3). Capacity was a concern with all suppliers being unable to produce
the order without adding capacity; however E-Drive seemed willing and able to take the order
knowing that we will increase our demand annually. Therefore, capacity should not become an
issue (see Appendix 5).
During financial ratio analysis, they were never worse than +/- 5% of the average of the
four suppliers with the exception of average collection period. There could be many reasons for
a high collection period such as longer payment terms with collaborating partners or lax
collections. Another reason could be poor credit analysis and too many sales to debt-ridden
customers, which might cause problems. We would want to look into the reasoning behind this
before contracting with them to minimize this risk. E-Drive was the only company that had a
quick ratio equal to or over 1, which tells us that they are a going concern. In addition, the
average collection period should be lower assuming that we pay our accounts on time.
Other faults found with E-Drive were the current “clicking” sound noted as a quality
problem, and the head quality engineer being ‘stressed’ with this issue. Current lead times are
being pushed due to this quality problem and could pose a risk to PSC. However, the issue was
guaranteed to be resolved before the first drive was shipped to PSC and, their ramp up time was
quoted as 3 months while knowing of this problem. Lead time is the quickest being the same as
our safety stock levels. They also deliver every other day which would allow for smaller orders
and less inventory costs.
Lastly, there are no political or inflationary risks with E-Drive as they are a U.S. based
company. They also are closely located so that we could inspect their facilities if there is the
slightest hint of any issues or concerns. Overall, they well surpassed all other competition, and
we have come to a clear decision to contract with E-Drive Systems as they have a good
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reputation with their customers for delivery and quality.
H. Conclusion
After an in-depth analysis of the four DVD suppliers Elecom, SureTech, E-Drive, and
Park Technologies, PSC has come to a decision to contract solely with E-Drive Systems. The
BGSU Consulting Team has taken into account many performance criteria that measure the
success of the company. They consistently exceeded expectations on the supplier scorecard, total
costs, and financial measures. Their close proximity will allow PSC to monitor any potential
problems and guarantees quick delivery. Since they exceed our expectations, E-Drive has the
potential to eventually create a strategic alliance with PSC. Therefore, we are confident that EDrive Systems is the best DVD drive supplier for PSC.
Page 13 of 20
Appendix 1a
Supplier Scorecards
Pacific Systems Corporation: Supplier Evaluation
Supplier: Elecom
System: DVD drive
Year: 2002
Category
Points
Level 1
Level 2
Level 3
Weight
Does not meet expectations
Meets expectations
Exceeds expectations
(1=low
(1 point)
(3 Points)
( 5 points)
5=high)
Score
Costs: Quoted
Price
5
Price per unit >140
Price per unit 130-140$
Price per unit <130
3
15
Cost: Total
Costs (Year 1) *
1
> $175 Dollars per unit
$170-175 Dollars per
unit
$165-$170 per unit
5
5
Delivery: Lead
time
1
>8 weeks
3-7 weeks
< 3 weeks
4
4
Delivery: On
time record
3
% on-time delivery time <95%
% on-time delivery 9599%
% on-time delivery >99%
3
9
Delivery:
Frequency of
Shipment
1
Monthly
Weekly
At least every other day
2
2
Quality: Parts
per million
defects
3
>10,000 DPPM
6,000-10,000 DPPM
< 6000 DPPM
5
15
>97% capacity
4
20
Capacity: %
for production
5
< 93% current capacity
93-97% current
capacity
Risk:
Denomination
of Contract
3
Other
Yen
US Dollars
1
3
Risk: Political
Risk
1
Extremely Risky
Somewhat Risky
Little or No Risk
2
2
Ramp-up time
1
> 4 months
3-4 months
< 3 months
2
2
Total Score
* Total costs include unit price, transportation, tooling, quality non conformance costs, duties/customs, safety stock carrying charges, delivery
non-conformance costs, ordering, inbound receiving, and inspection costs.
77
Page 14 of 20
Appendix 1b
Supplier Scorecards
Pacific Systems Corporation: Supplier Evaluation
Supplier: Sure Tech
System: DVD drive
Year: 2002
Category
Costs: Quoted
Price
Points
1
Level 1
Level 2
Level 3
Weight
Does not meet expectations
Meets expectations
Exceeds expectations
(1=low
Score
(1 point)
(3 Points)
( 5 points)
5=high)
Price per unit >140
Price per unit 130-140$
Price per unit <130
3
3
$165-$170 per unit
5
15
Cost: *Total
Costs (Year 1)
3
> $175 Dollars per unit
$170-175 Dollars per
unit
Delivery: Lead
time
3
>8 weeks
3-7 weeks
< 3 weeks
4
12
% on-time delivery >99%
3
9
Delivery: On
time record
3
% on-time delivery time <95%
% on-time delivery 9599%
Delivery:
Frequency of
Shipment
3
Monthly
Weekly
At least every other day
2
6
Quality: Parts
per million
defects
1
>10,000 DPPM
6,000-10,000 DPPM
< 6000 DPPM
5
5
>97% capacity
4
4
Capacity: % of
production
1
< 93% current capacity
93-97% current
capacity
Risk:
Denomination
of Contract
5
Other
Yen
US Dollars
1
5
Risk: Political
Risk
5
Extremely Risky
Somewhat Risky
Little or No Risk
2
10
Ramp-up time
1
> 4 months
3-4 months
< 3 months
2
Total Score
* Total costs include unit price, transportation, tooling, quality non conformance costs, duties/customs, safety stock carrying charges, delivery
non-conformance costs, ordering, inbound receiving, and inspection costs.
2
71
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Appendix 1c
Supplier Scorecards
Pacific Systems Corporation: Supplier Evaluation
Supplier: E-Drive Systems
System: DVD drive
Year: 2002
Category
Points
Level 1
Level 2
Level 3
Weight
Does not meet expectations
Meets expectations
Exceeds expectations
(1=low
(1 point)
(3 Points)
( 5 points)
5=high)
Score
Costs: Quoted
Price
3
Price per unit >140
Price per unit 130-140$
Price per unit <130
3
9
Cost: Total
Costs (Year 1) *
5
> $175 Dollars per unit
$170-175 Dollars per
unit
$165-$170 per unit
5
25
Delivery: Lead
time
5
>8 weeks
3-7 weeks
< 3 weeks
4
20
Delivery: On
time record
5
% on-time delivery time <95%
% on-time delivery 9599%
% on-time delivery >99%
3
15
Delivery:
Frequency of
Shipment
5
Monthly
Weekly
At least every other day
2
10
Quality: Parts
per million
defects
3
>10,000 DPPM
6,000-10,000 DPPM
< 6000 DPPM
5
15
>97% capacity
4
12
Capacity: % for
production
3
< 93% current capacity
93-97% current
capacity
Risk:
Denomination
of Contract
5
Other
Yen
US Dollars
1
5
Risk: Political
Risk
5
Extremely Risky
Somewhat Risky
Little or No Risk
2
10
Ramp-up time
3
> 4 months
3-4 months
< 3 months
2
6
Total Score
127
* Total costs include unit price, transportation, tooling, quality non conformance costs, duties/customs, safety stock carrying charges, delivery
non-conformance costs, ordering, inbound receiving, and inspection costs.
Page 16 of 20
Appendix 1d
Supplier Scorecards
Pacific Systems Corporation: Supplier Evaluation
Supplier: Park Technologies
System: DVD drive
Year: 2002
Category
Costs: Quoted
Price
Points
3
Level 1
Level 2
Level 3
Weight
Does not meet expectations
Meets expectations
Exceeds expectations
(1=low
Score
(1 point)
(3 Points)
( 5 points)
5=high)
Price per unit >140
Price per unit 130-140$
Price per unit <130
3
9
$165-$170 per unit
5
15
Cost: *Total
Costs (Year 1)
3
> $175 Dollars per unit
$170-175 Dollars per
unit
Delivery: Lead
time
1
>8 weeks
3-7 weeks
< 3 weeks
4
4
% on-time delivery >99%
3
15
Delivery: On
time record
5
% on-time delivery time <95%
% on-time delivery 9599%
Delivery:
Frequency of
Shipment
1
Monthly
Weekly
At least every other day
2
2
Quality: Parts
per million
defects
5
>10,000 DPPM
6,000-10,000 DPPM
< 6000 DPPM
5
25
>97% capacity
4
20
Capacity: % of
production
5
< 93% current capacity
93-97% current
capacity
Risk:
Denomination
of Contract
5
Other
Yen
US Dollars
1
5
Risk: Political
Risk
1
Extremely Risky
Somewhat Risky
Little or No Risk
2
2
Ramp-up time
1
> 4 months
3-4 months
< 3 months
2
Total Score
* Total costs include unit price, transportation, tooling, quality non conformance costs, duties/customs, safety stock carrying charges, delivery
non-conformance costs, ordering, inbound receiving, and inspection costs.
2
99
Page 17 of 20
Appendix 2
Total Cost of Analysis Worksheet
Total Cost Analysis Worksheet-Year One
Cost Category
Quoted Unit Price
Transportation
Tooling
Quality non-conformance costs
Duties/Customs
Insurance
Safety stock carrying charges
Delivery non-conformance costs
Ordering, inbound receiving, and
inspection costs
Estimated Per Unit Total Cost
Elecom
127.00
18.00
2.73
2.85
9.50
2.00
1.76
15.00
4.50
183.34
SureTech E-Drive
Park
144.00
140.00
132.00
6.00
14.00
18.00
3.18
2.95
2.50
3.15
3.15
1.20
0.00
0.00
9.50
1.50
3.00
3.50
1.00
0.97
1.83
9.00
1.50
3.00
4.00
3.25
2.25
171.83
168.82
173.78
Total Cost Analysis Worksheet-Year Two
Cost Category
Quoted Unit Price
Transportation
Tooling
Quality non-conformance costs
Duties/Customs
Insurance
Safety stock carrying charges
Delivery non-conformance costs
Ordering, inbound receiving, and
inspection costs
Estimated Per Unit Total Cost
Quality non-conformance costs
Unit requirements
Conversion Rate
Asian Safety Stock
Domestic Safety Stock
Average Weekly Demand, yr 1
Inventory Holding Costs
Elecom
127.00
18.00
2.73
2.85
9.50
2.00
0.00
15.00
4.50
SureTech E-Drive
Park
144.00
140.00
132.00
6.00
14.00
18.00
3.18
2.95
2.50
3.15
3.15
1.20
0.00
0.00
9.50
1.50
3.00
3.50
0.00
0.00
0.00
9.00
1.50
3.00
4.00
3.25
2.25
181.58
170.83
300
500000
600000
120
4
2
9616
18%
per unit
units in year one
units in year two
yen/dollar
weeks
weeks
units
167.85
171.95
Page 18 of 20
Appendix 3
Financial Ratios
For Period Ending December 31, 2002 (U.S. $ in millions where applicable)
Current Ratio
Quick Ratio
Average Collection Period
Inventory Turnover
Fixed Asset Turnover
Total Asset Turnover
Debt Ratio
Debt-to-equity Ratio
Long-term debt to equity
Times Interest Earned
Return on Asset
Return on Equity
Gross Profit Margin
Net Profit Margin
Elecom
1.2
0.6
SureTech
1.3
0.7
E-Drive
1.3
1.0
Park
1.1
0.7
Average
1.3
0.8
49.9
5.2
3.7
1.3
29.9
5.4
4.4
1.6
60.3
9.1
5.1
1.6
47.0
7.0
3.3
1.4
46.8
6.7
4.1
1.5
0.6
1.6
0.6
1.8
2.5%
6.5%
15.4%
1.9%
0.5
1.0
0.3
6.5
10.7%
21.7%
25.9%
6.8%
0.6
1.3
0.4
3.6
7.4%
16.9%
35.0%
4.5%
0.5
1.1
0.4
2.9
4.7%
9.9%
30.0%
3.4%
0.6
1.2
0.4
3.7
6.3%
13.8%
26.6%
4.2%
Page 19 of 20
Appendix 4
Same Size Income Statements
Year Ended December 31, 2002
Elecom
SureTech
84.6%
74.1%
15.4%
25.9%
7.3%
11.8%
8.1%
14.1%
4.6%
2.2%
3.5%
11.9%
1.5%
5.1%
1.9%
6.8%
COGS
Gross Profit
Gen & Adm. Exp.
EBIT
Interests
EBT
Taxes
Net Income
E-Drive
65.0%
35.0%
24.8%
10.2%
2.8%
7.4%
2.9%
4.5%
Park
70.0%
30.0%
18.5%
11.5%
4.1%
7.5%
4.1%
3.4%
Income Statements
Year Ended December 31, 2002 (U.S. $ in millions)
Net Sales
Cost of Goods Sold
Gen & Adm. Exp.
Interest Expense
Costs and expenses
Income before income taxes
Estimated taxes on income
NET INCOME
Elecom
SureTech E-Drive
Park
$
6,500 $
550 $
2,300 $
1,355
$
5,500 $
408 $
1,495 $
949
$
475 $
65 $
570 $
250
$
300 $
12 $
65 $
55
$
6,275 $
485 $
2,130 $
1,254
$
225 $
66 $
170 $
102
$
100 $
28 $
67 $
55
$
125 $
38 $
104 $
47
Average
73.4%
26.6%
15.6%
11.0%
3.4%
7.6%
3.4%
4.2%
Page 20 of 20
Appendix 5
Capacity Issues
Company
Elecom
SureTech
E-Drive
Park
Used
Capacity
98%
92%
96%
92%
Market
Share Capacity* Available
30%
1500000
30000
4%
200000
16000
20%
1000000
40000
12%
600000
48000
*Capacity based upon stated market share
Market determined to be
5000000 units
based upon Appendix 1, sales of 5m players
The company with the highest available capacity
only can produce 48000 units, therefore with all
companies able to accept our contract for
500000 units, we do not consider capacity an issue