Applied Biosystems, GP Executive Summary Applied Biosystems Group, a unit of Applera, helps make leaps and bounds in life sciences. It supplies instruments, reagents, software, and related services to the life science industry and research community. Foreign business makes up approximately 46% of sales. Through its Applications and Products group, the company supplies life sciences firms and research institutes with a host of products and services for researching genes and proteins. They perform many services, which include studying how drugs interact with the body's systems and genetic make-up, testing food and the environment for contaminants and performing DNA-based identification. The firm oversees licensing of sister company and key client Celera Genomics Group's genome databases as that company tries to focus on drug development. While the company's customers are busy making the next generation of drugs, fertilizers, diagnostics and other "modern miracles," with the help of Applied Biosystem's equipment, it is busy developing the products that will help bring the next revolution in life sciences. As researchers are just beginning to understand the role of proteins in developing, curing, and even preventing disease, developers at the firm's Proteomics Research Center are creating tools to bring that understanding into sharper focus and using that information to yield the "next" next generation of life science products. In light of recent corporate outlooks, Applied Biosystems Group believes that operations are on track to meet its previous guidance for diluted earnings per share from continuing operations for fiscal 2003. The company said it expected 2003 earnings of 85 cents to 95 cents a share. In addition, recent developments regarding ABI’s genotyping technological advancements have stirred our interest in the company. We feel as though this breakthrough will have a great effect on the company’s earnings in the future. UConn Foundation Student Managed Fund Trade Form Presentation Date: 01/29/03 Covering Managers: Ellen Huebner, Lisa Lin Anticipated date for trade: 01/30/03 Stock Name: Applied Biosystems Ticker: ABI Decision: Buy Number of Shares: approximately 290 Approximate cash value: $5,000 Limits: Stop Loss: $12.04 or 30% of Current Price Appreciation Review price target: $20.65 Vote Results For: 11 Against: 0 Abstain 0 Trade Executed by: Professor Ghosh Trade Manager present: Javed Singha University of Connecticut Student Managed Fund Stock Analysis Report February 3, 2003 Applied Biosystems, GP MidCap: Industry: Sector: Valueline: $4.4 billion Technology Scientific and Technical Instruments Timeliness: 3 Safety: 3 Technical: 2 Business Summary: Applied Biosystems Group, a business of Applera Corporation, is engaged principally in the development, manufacture, sale and service of instrument-based systems, reagents and software, and the provision of contract services for life science and related applications. Its products are used in various applications, including synthesis, amplification, purification, isolation, analysis and sequencing of nucleic acids, proteins and other biological molecules. The markets for Applied Biosystems' products span the spectrum of the life sciences industry and research community, including basic human disease research; genetic analysis; pharmaceutical drug discovery, development and manufacturing; human identification; agriculture, and food and environmental testing. Universities, government agencies and other non-profit organizations engaged in research activities also use Applied Biosystems' products. Financial Data: On Thursday, January 23, Applied Biosystems reports second quarter fiscal 2003 earnings ended December 31, 2002. Operating income in the second quarter of fiscal 2003 was $33.9 million, including the special charges of $33.8 million, compared to $65.9 million, including the special charge of $2.2 million, in the prior year quarter. Net income in the second quarter of fiscal 2003 was $29.2 million compared to $49.0 million in the same quarter last year. The special charges reduced net income by $23.4 million in the second quarter of fiscal 2003 and by $2.2 million in the prior year quarter. Net revenues for the Group (Applera Corporation-Applied Biosystems Group Common Stock) for the second quarter of fiscal 2003 were $444.7 million, an 8 percent increase over the $411.1 million reported in the prior year quarter. Revenues from instrument sales in the second quarter of fiscal 2003 were $225.9 million, a 13 percent increase over the $199.7 million reported for the prior year quarter. This increase was driven primarily by the success of the Applied Biosystems 3730 DNA Analyzer product line, the QSTAR® XL LC/MS/MS System, the Q TRAP(TM) LC/MS/MS System, and the Applied Biosystems 4700 Proteomics Analyzer with TOF/TOF(TM) optics. On Friday, February 7, UBS Warburg upgraded Applied Biosystems from neutral to buy Ratio Comparison: For these ratios, we compared Applied Biosystems to the S&P 500, the overall Industry of Genomic Scientific Research, and Molecular Devices one of ABI’s main competitors. Valuation Ratios P/E Ratio (TTM) P/E High - Last 5 Yrs. P/E Low - Last 5 Yrs. Beta Price to Sales (TTM) Price to Book (MRQ) Price to Tangible Book (MRQ) Price to Cash Flow (TTM) Price to Free Cash Flow (TTM) % Owned Institutions Dividends Dividend Yield Dividend Yield - 5 Year Avg. Dividend 5 Year Growth Rate Payout Ratio (TTM) Growth Rates(%) Sales (MRQ) vs Qtr. 1 Yr. Ago Sales (TTM) vs TTM 1 Yr. Ago Sales - 5 Yr. Growth Rate EPS (MRQ) vs Qtr. 1 Yr. Ago EPS (TTM) vs TTM 1 Yr. Ago EPS - 5 Yr. Growth Rate Capital Spending - 5 Yr. Growth Rate Financial Strength Quick Ratio (MRQ) ABI Industry Sector S&P 24.79* 27.67 33.11 NA 52.93 65.88 NA 14.79 19.47 1.51 0.97 1.87 2.24* 2.78 4.15 3.21 4.14 4.3 3.21 14.58 5.13 18.51 5.12 26.2 500 MDCC 22.63 38.12* 49.17 NA 16.56 NA 1 1.67 2.82 2.55* 4.19 1.86 6.56 16.29 2.28 23.47 26.27 89.16 ABI 18.95 22.2 25.64 16.25 41.55 46.48 61.92 85.8 Industry Sector S&P 500 MDCC 0.97 1.03 0.76 2.26 NA NA 0.51 0.22 1.33 -18.15 -51.97 -2.74 NM 23.74 5.07 5.59 26.88 ABI Industry Sector S&P 500 MDCC 0 NM 0 8.15* 17.65 13.26 2.73* 15.89 7.65 12.56 3.42 17.26 4.52 10.76* 10.84 18.06 16 33.54 26.91 40.50* 14.71 9.81 31.54 9.87 21.87 NA* 9.49 NM -38.33* -17.39* 3.14 11.2 ABI 8.75 18.94* 0.99 -15.09 -7.89 36.31 Industry Sector S&P 500 MDCC 1.68 1.9 2.4 1.14 4.83 Current Ratio (MRQ) 2.16 2.64 2.86 1.66 6.2 LT Debt to Equity (MRQ) 0 0.68 0.27 0.74 0 Total Debt to Equity (MRQ) 0.01 0.75 0.33 0.99 0 Interest Coverage (TTM) 347.62 2.83 15.65 11.11 NM Profitability Ratios (%) ABI Industry Sector S&P 500 MDCC Gross Margin (TTM) 52.1 47.18 51.32 47.38 60.5 Gross Margin - 5 Yr. Avg. 53.5 47.83 52.84 47.71 62.13 EBITD Margin (TTM) 19.71 9.79 12.56 19.73 12.86 EBITD - 5 Yr. Avg. 17.76 11.98 20.16 21.86 5.38 Operating Margin (TTM) 14.37 6.79 9.62 17.92 7.7 Operating Margin - 5 Yr. Avg. 13.66 7.71 14.75 18.2 1.68 Pre-Tax Margin (TTM) 14.67 8.26 15.02 16 9.51 Pre-Tax Margin - 5 Yr. Avg. 15.1 6.61 18.41 17.33 5.56 Net Profit Margin (TTM) 9.04* 4.57 9.32 10.78 6.66* Net Profit Margin - 5 Yr. Avg. 10.69 3.53 11.29 11.38 1.36 Effective Tax Rate (TTM) 28.86 31.54 29.49 31.62 34.18 Effective Tax Rate - 5 Yr. Avg. 31.53 35.68 33.24 35.41 134.36 Management Effectiveness (%) ABI Industry Sector S&P 500 MDCC Return On Assets (TTM) 8.41* 3.87 3.89 6.2 4.50* Return On Assets - 5 Yr. Avg. 10.03 3.33 8.45 7.65 1.96 Return On Investment (TTM) 11.59* 5.35 6.37 10.05 4.96* Return On Investment - 5 Yr. Avg. 15.79 5.35 13.4 12.38 2.5 Return On Equity (TTM) 13.22* 10.9 8.78 18.4 4.96* Return On Equity - 5 Yr. Avg. 18.73 13.59 18.23 21.39 2.51 Efficiency ABI Industry Sector S&P 500 MDCC Revenue/Employee (TTM) 347,991* 212,069 370,332 485,950 276,097* Net Income/Employee (TTM) 31,456* 20,419 67,021 74,284 18,392* Receivable Turnover (TTM) 4.62* 5.42 7.09 9.48 4.43* Inventory Turnover (TTM) 5.45 4.92 14.61 10.84 2.22 Asset Turnover (TTM) 0.93* 0.82 0.75 0.95 0.68* CHART: Recent News: Applied Biosystems Announces Enhancements to the Celera Discovery System and New Academic Subscription Model Tuesday January 28, 7:03 am ET FOSTER CITY, Calif.--(BUSINESS WIRE)--Jan. 28, 2003--Applied Biosystems Group (NYSE:ABI - News) -Throughput Sequence Analysis Tools for Comparative Genomics, Integration of Additional Public and Proprietary Genomic Data, and an Individual Subscription Model for Academic Researchers Applied Biosystems Group (NYSE:ABI - News) an Applera Corporation business, today announced a new release of the Celera Discovery System(TM) (CDS) online platform that includes enhanced visualization and analysis tools for comparing the human and mouse genomes, additional data integration, and a new subscription model for academic researchers. "The latest enhancements to CDS should enable subscribers to more easily apply comparative genomics to their discovery process and to better understand the roles of genes in the context of evolutionary conservation," said Deborah Smeltzer, Vice President of the Knowledge Business for Applied Biosystems. "Applied Biosystems and Celera Genomics have made significant investments in data aggregation, validation, curation, classification, quality assurance, and have further integrated public reference data. We believe our subscribers will save time and costs through online access to an integrated set of high-quality data and analysis tools that eliminate the need for data infrastructure development and maintenance." New subscriptions to the Celera Discovery System online platform will now be available to researchers at academic and non-profit institutions through a single-user, one-year subscription agreement. These researchers can easily begin the subscription process online through the CDS website, available at http://www.celeradiscoverysystem.com. Applied Biosystems and Celera Genomics are collaborating to integrate Celera's genomic and biological information with Applied Biosystems' products and services. CDS subscribers can now order the Applied Biosystems Assays-on-Demand(TM) products, ready-to-use, functionally validated assays for genotyping and gene expression analysis, within the context of their analysis results using CDS. The new release of CDS includes an updated interactive Map Viewer, which provides enhanced and customizable graphical displays for comparing human and mouse genes within their genomic context. The Map Viewer also now enables subscribers to conduct BLAST searches in batch mode and to customize views of data from the entire chromosome to the single nucleotide level. These enhancements are intended to facilitate high-throughput analysis and should enable subscribers to analyze biological relationships within any region of the human or mouse genomes. Applied Biosystems Announces SNPlex Ultra High Throughput Genotyping System Wednesday January 8, 7:00 am ET Reagent and Software Product Designed for Use with Latest Generation Capillary Electrophoresis Sequencing Systems to Enable Cost Savings for Academic and Pharmaceutical Researchers FOSTER CITY, Calif.--(BUSINESS WIRE)--Jan. 8, 2003-- Applied Biosystems Group (NYSE:ABI - News), an Applera Corporation business, today announced the SNPlex(TM) system, a reagent and software product designed to allow researchers to conduct ultra high throughput genotyping using the Applied Biosystems 3730xl and 3730 DNA Analyzers. This genotyping product could enable production scale laboratories to analyze more than one million genotypes per instrument per day, at an expected cost as low as one cent or less per genotype. The SNPlex(TM) system uses multiplexing (multiple reactions in a single tube or well) to rapidly identify large numbers of target genetic sequences in a single biological sample. It is based on Applied Biosystems' proprietary oligonucleotide ligation reagent and electrophoretic detection technology. This technology is also employed in the Celera Diagnostics cystic fibrosis test, which has become one of the leading tests for detection of mutations associated with this disease. The SNPlex(TM) system will operate on the same instrument platform widely used for sequencing and linkage mapping, and can be used with both customer-identified SNPs (single nucleotide polymorphisms), and with those identified by Applied Biosystems as part of the Applera Genomics Initiative. The combination of instruments, reagents, and software is expected to offer one of the most powerful and cost effective genotyping systems available. Collaborative projects with customers are underway, with broader product release expected by mid-calendar 2003. Models: Risk Free Rate: S&P500 (10 year average return, rm): Beta: 1. DDM Model 3.975% 7.930% 1.45 k=rf +b(rm-rf): 9.71% Earnings 1993: .36 Earnings 2002: .79 ge: (0.79/0.36)^(1/9)-1= 9.125% Average ROE: 20.27% (4 year average) Average Retention: 1-[(.214+.171+.17+.12.6)/4] = 78.7% gr: ROE*retention ration (b)=..2027*.787= 15.95% Average g= (.2027+.1595)/2= 18.11% 2). Multistage Growth Model Is not necessary since this is a mature company growth will continue to be steady. 3). No Growth Po = Eo/k = .79/.0971 = $8.13 4) P/E Model Avg P/E ratio 22 Expected EPS (VLIS)= $0.90 5-Year Horizon: 1.75 P/E Ratio: 23.3 Projected high price for the next 5 years: $1.75 *23.3 = $40.77 Lowest price in the last 3 years: $13.00 Current Price: $17.21 5. Valuepro.net Intrinsic Value Growth Rate Risk Free Rate WACC 23.85 15% 3.975% 9.31 6. SSG Model Historical Sales Sales Growth Used Historical EPS EPS Recommendation: Buy Upside/Downside potential 7. Value line Model DOV: Long Term Debt + Shareholder Equity: 1125.2(million) Cash Flow Growth Estimate: 12.5% Common Shares Outstanding: 225 (million). Average Annual P/E Ratio: 22 Return on Total Capital: 15% The Future Price: 1125.2*1.125^10/225*22*.15= $53.90 (Discount the future price at 15% for n=10) = $13.32 Although we bought Applied Biosystems at a premium relative to this calculation, we feel as though the recent developments regarding ABI’s genotyping technological advancements will have a greater effect on the company’s earnings in the future. Recommendation: Buy 290 Shares at $17.21 = $4,990.90 Downside Review: $12.04 Stop Loss: $13.76(-20%) Upside Review: $20.65 (20%)