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					Thermo Electron
  Corporation
Cash Distribution Analysis
    Thermo Electron Corporation


        Team Members:
           Craig Billings
            Tony Curry
            David Rice
           Zach Strobel

              Assisted by
          Ashok Vishnubhakta
             Doug Wilson

2
               Our Recommendation
    Initiate regular dividend combined with
      open market repurchase
    • Annual dividend of $50MM
      – $0.30 per share (based on 162MM sh OS)
    • $500MM 3 year open market repurchase
      – At or below $25.50 per share (3Q 2003 valuation)
      – Represents 3 years of projected FCF net of
        the recommended annual dividend


3
                     Agenda
    I.   Framework for deciding on the best
         method of cash distribution

    II. Cash distribution recommendation

    III. Additional considerations



4
     I. Framework for Deciding on the Best Method of
                       Cash Distribution


    a)   Recent trends in cash distribution
    b)   Financial policy framework
    c)   Company characteristics
    d)   Types of cash distribution methods
    e)   Tax implications for investors



5
           Recent Trends in Cash Distribution
    17 S&P 500 companies have initiated
     dividends in 2003
    • vs. 4 in 2002
    • 16 are growth stocks
            According to Morningstar metrics

    Average Results
    • Average market cap prior to initiation: $15B
    • Annual dividend size: $147MM - $0.38 per share
    • Announcement effect on share price: 0.6%
    • Company S&P adjusted return to date: 21.3%

    Source: S&P
6
    Addl. Info in appendix slides 44-50
           Recent Trends in Cash Distribution
    13 S&P 500 companies have initiated or
      resumed share repurchases in 2003 to
      date
    • All open market repurchases
    • 10 are growth stocks
            According to Morningstar metrics

    Average Results
    • Average market cap prior to initiation: $12.6B
    • Announced size $500MM
    • Completed size to date: $71MM
    • Announcement effect on share price: (0.2%)
    • Company S&P adjusted return to date: 11.1%

     Source: Compustat
7
     Addl. Info in appendix slides 44-51
           Recent Trends in Cash Distribution
    5 S&P 500 companies have initiated
      dividends combined with a share
      repurchase in 2003
    • 4 are growth stocks
        According to Morningstar metrics

    Average Results
    • Annual dividend size $99MM - $0.40 per share
    • Announced repurchase size $600MM
    • Announcement effect on share price: (1.3%)
    • Company S&P adjusted return to date: 26.3%
     Source: S&P, Compustat
8
     Addl. Info in appendix slides 44-51
     I. Framework for Deciding on the Best Method of
                       Cash Distribution


    a)   Recent trends in cash distribution
    b)   Financial policy framework
    c)   Company characteristics
    d)   Types of cash distribution methods
    e)   Tax implications for investors



9
        Financial Policy Framework
     Cash Generation                  WACC

               - Organic Investment

                 = Free Cash Flow

                  M&A Investment

              Debt Financing ( + / - )

              Equity Financing ( + / - )

                 Dividend Decision

10
                              Cash Generation
     Cash flow from operations expected to be positive
      for the foreseeable future
                              Projected Cash Flows from Operations
                                        (FCF less CapEx)

                       $320
                       $300

                       $280
                 $MM




                       $260

                       $240

                       $220

                       $200
                               2004      2005     2006      2007     2008



11    Source: ACFIN model
                Cost of Capital Considerations
                                      Thermo Electron WACC Curve
                12.00%

                                    Current WACC
                11.90%

                                    Credit Rating: BBB
                11.80%


                11.70%



                11.60%
         WACC




                11.50%


                11.40%



                11.30%                                      Increase leverage-
                                                            •Move towards minimal WACC
                11.20%                                      •BBB credit rating

                11.10%


                11.00%
                      0.00   0.10     0.20    0.30        0.40    0.50   0.60    0.70    0.80   0.90   1.00

                                                         Debt to Equity Ratio



12   Source: ACFIN model based on 3Q 2003
                               Organic Investment
                                                     Thermo Electron M/B Ratio Trend

                                             2.40

                                             2.20
     Limited internal                        2.00

     reinvestment                            1.80

                                             1.60
     opportunities                           1.40

                                             1.20

                                             1.00
                                                    2000       2001       2002         2003


     • Difficult to evaluate incremental investment opportunities
       externally
     • Company is struggling to earn cost of capital – ROIC less than
       WACC
     • Projected single-digit revenue growth
     • Trend in M/B ratio declining


13    Source: analyst reports, ACFIN model
                                     Free Cash Flow
     • Free cash flow expected to be positive for the
       foreseeable future
                                        Projected Free Cash Flows

                              $290
                              $280
                              $270
                              $260
                        $MM




                              $250
                              $240
                              $230
                              $220
                              $210
                              $200
                                     2004    2005      2006     2007   2008




       Free cash flow is either used for M&A, debt reduction, share
       repurchase, dividends OR accumulates on the balance sheet


14    Source: ACFIN model
                 M&A Investment

     Uncertain Economic Benefit
     • Unknown availability of future targets at
       attractive prices
     • In general, most M&A transactions do not
       add value to the acquirer
     • Thermo Electron’s M&A track record has
       been mixed


15
                                     M&A Investment
     Analysis of Thermo Electron’s M&A activity 1998-2003

                               -1 to +1 Day Return*
                           Raw Return Abnormal Return
                  Average:        0.5%              0.3%
                  Median:         0.7%              0.5%

                              -20 to +120 Day Return*
                           Raw Return Abnormal Return
                  Average:       (4.4%)               3.4%
                  Median:       (18.1%)             (3.7%)
          * Pre and Post Announcement Date

     Addl. info in appendix slides 52-53
16
                                                      Debt Financing (+/-)
                                Thermo Electron WACC Curve
            12.00%
                                                                                                 Reduction of debt (- cash)
            11.90%



            11.80%
                                                                                                 Not desirable
                                                                                                 •Moves company farther away from
            11.70%



            11.60%


                                                                                                 minimal WACC
     WACC




            11.50%


            11.40%
                                                                                                 •Leasing strategy makes it difficult to
                                                                                                 reduce debt beyond a certain level
            11.30%


            11.20%



            11.10%


            11.00%
                  0.00   0.10   0.20   0.30    0.40   0.50    0.60   0.70   0.80   0.90   1.00

                                              Debt to Equity Ratio


       Increase debt (+ cash)
       Preferable to debt reduction, but raises other issues
       • Some room to increase leverage ($485MM) and maintain investment-grade
          credit rating
       • Moves towards minimum WACC
       • Contributes additional cash for distribution to shareholders



17               Source: ACFIN model
                                  Equity Financing (-)
                                                      Thermo Electron WACC Curve
                                  12.00%


                                  11.90%



                                  11.80%


                                  11.70%



                                  11.60%




                           WACC
                                  11.50%


                                  11.40%



                                  11.30%


                                  11.20%



                                  11.10%


                                  11.00%
                                        0.00   0.10   0.20   0.30    0.40   0.50    0.60   0.70   0.80   0.90   1.00

                                                                    Debt to Equity Ratio




                Share repurchase (- cash)
                Desirable effects
                • Cash distributions discipline investment decisions
                • Reduces WACC by increasing leverage



18   Source: ACFIN model
      I. Framework for Deciding on the Best Method of
                        Cash Distribution


     a)   Recent actions in cash distribution
     b)   Financial policy framework
     c)   Company characteristics
     d)   Types of cash distribution methods
     e)   Tax implications for investors



19
                         Distribution Policy & Company Characteristics

     3 Objectives of distribution policy:                                                                        Distribution Policy: Cyclical Company


     • Distribute cash generated by the
                                                                                              250

                                                                                              200
     company                                                                                  150
                                                                                                         Free Cash Flow




                                                                                        $MM
                                                                                                                                            Share
                                                                                              100                                         Repurchase

     • Maintain financial stability & access to                                                50
                                                                                                                                    Dividends
     capital markets                                                                            0
                                                                                                    Y1           Y2            Y3               Y4        Y5               Y6


     • Maintain flexibility & insure against
     downturns
                               Distribution Policy: Stable Company                                               Distribution Policy: Growth Company

              160                                                                             100
              140                                                       Share                  80
              120         Free Cash Flow
                                                                      Repurchase               60                                                          Share
              100                                                                              40                                                        Repurchase
       $ MM




                                                                                        $MM
               80                                                                              20
               60                          Dividends                                                                                                           Dividends
                                                                                                0
               40
                                                                                              -20 Y1             Y2           Y3                Y4        Y5           Y6
               20
                                                                                              -40
                0                                                                                          Free Cash Flow
                                                                                              -60
                    Y1         Y2             Y3         Y4          Y5            Y6




20
      I. Framework for Deciding on the Best Method of
                        Cash Distribution


     a)   Recent actions in cash distribution
     b)   Financial policy framework
     c)   Company characteristics
     d)   Types of cash distribution methods
     e)   Tax implications for investors



21
                Equity Financing - Repurchase
                                           Pros                                        Cons
                          •The most flexibility in timing, number of   •Weakest signal as to undervaluation of
                          shares purchased, and price paid             stock
                          •Can be used for a variety of purposes       •Can take a long time
                          •Can be of a smaller size that Fixed or
          Open Market     Dutch Auction repurchases
                          •Relatively low cost: no premium
                          required, may be done by company or
                          via broker

                          •Stronger signal for undervaluation of       •No flexibility on price
                          stock                                        •Less flexibility as to number of shares
                          •Facilitates the purchase of a large         purchased
          Fixed Price     number of shares in a short amount of        •Large size: Usually 10-15% of
                          time                                         outstanding shares
                          •Facilitates rapid and substantial changes   •Higher cost: Requires minimum to
                          in capital structure                         ensure success

                          •Solicits the most information about         •Reveals less about management’s own
                          shareholder reservation prices               view about the price
                          •Eliminates shareholders who value the       •Weaker signal
          Dutch Auction   company the least                            •Large size: Usually 10-15% of
                          •Facilitates the purchase of a large         outstanding shares
                          number of shares in a short amount of        •Higher cost: Requires minimum to
                          time                                         ensure success
                          •Facilitates rapid and substantial changes
                          in capital structure




22   Source: JP Morgan
                         Dividend Decision

                                           Pros                               Cons
                               •A large special dividend can      •Share price and market cap.
                               achieve rapid distribution of a    fall materially with the cash paid
                               large amount of cash at low        out of the company
                               cost and execution risk            •Can signal absence of
            Special Dividend   •One-time payment with no          investment opportunities
                               commitment/expectations of         •Non-selective, some investors
                               further payments in the future     may not want to receive cash



                               •Signal to investors of expected   •Quasi-fixed payment, so
                               growth in cash flow                company has to meet obligation
                               •Acts as a financial discipline    even if it has other preferred
                               for management                     uses for the cash
            Regular Dividend   •Attracts additional investor      •In extreme cases, dividend
                               clienteles; particularly           can be cut but it will inevitably
                               institutional                      lead to a fall in share price
                                                                  •Dividends reduce cash flows
                                                                  out of the company and market
                                                                  cap and share price tend to fall
                                                                  •Pressure to maintain or grow
                                                                  dividend can constrain
                                                                  investment




23   Source: JP Morgan
      I. Framework for Deciding on the Best Method of
                        Cash Distribution


     a)   Recent actions in cash distribution
     b)   Financial policy framework
     c)   Company characteristics
     d)   Types of distribution
     e)   Tax implications for investors


24
                 Tax Implications for Investors
       For Institutions: Tax exempt; indifferent between methods
       For Corporations: Strong dividend preference
       Dividend:                             Stock Repurchase:
       • Due to the dividend received        • Capital gains for corporations are
       deduction, corporations generally     taxed at marginal rates ~35%.
       only pay tax on 30% of the dividend   • Capital loss treatment available
       received.                             • Flexibility in timing of cash receipt
       • Effective tax rate of ~10.5%

       For Individuals: Slight preference for repurchase
       Dividend:                             Stock Repurchase:
       • Taxed at max 15%                    • Taxed at max 15%
       • Forced cash receipt                 • Capital loss treatment available
                                             • Flexibility in timing of cash receipt


     Effects of 2003 dividend tax cuts already priced into the market

25
                       Agenda
     I.  Framework for deciding on the best
         method of cash distribution
     II. Cash distribution recommendation
          a) Dividend
          b) Share repurchase
     III. Additional considerations



26
             Value in Dividend Policy
     • In light of the cut in taxation and the
       greater visibility & security of the dividend,
       companies should distribute as much
       sustainable FCF as a dividend as possible
     • Growth in dividends should track growth in
       FCF (permanent & sustainable)
     • Share repurchase linked to potentially
       non-sustainable cash flows
     • Policy on future dividend prospects adds
       value to current dividends

27
                   Dividend Recommendation
                                                                            Dividends
                                                    Dividend                 ÷ Free
                                                    Payout      Dividend      Cash
      Industry                                       Ratio       Yield        Flow
      3823 Industrial Instruments for Measurement        9.4%        0.5%        7.6%
      3826 Laboratory Analytical Instruments           12.6%         1.8%       45.0%
      3845 Electromedical/Theraputic/Lasers            24.6%         0.9%       24.9%
      Thermo predicted, based on weighted average
      revenues                                        12.8%         1.3%       31.7%
      Thermo Electron calculated dividends in $MM
      based on 2003 projections                        23.44       47.39       53.68

 Free cash flow is the main driver of dividends

 Recommended annual dividend size: $50MM
 • $0.30 per share, based on 162MM shares outstanding
 • Based on 2003 projections, payout ratio 27.3%, yield 1.4%, percent of FCF 30%

     Source: ACFIN Model
28
     Addl. Info in appendix slides 54-55
                                                       Dividend Rationale
                            Thermo Electron Free Cash Flow                                 $50MM annual dividend is below 10
           300                                                                             year historic low in free cash flows
           250
           200                                                                             • Reduces risk of having to lower
     $MM




           150
           100
                                                                                           dividends in the future
               50
               0                                                                           • Leaves FCF for share repurchase
                                                                                           or M&A activity in most years



                                                                                     *
              93

                       94

                               95

                                        96

                                                97

                                                        98

                                                        99

                                                                   00

                                                                           01

                                                                                    02

                                                                                   03
           19

                    19

                            19

                                     19

                                             19

                                                     19

                                                     19

                                                                20

                                                                        20

                                                                                 20

                                                                                20
               S&P 500: June 2003 Distribution of Dividend Yields

      140
                                                                                           Projected 1.4% dividend yield in-
                                                                                           line with median S&P 500
                      99
                                    85         82                                          dividend yield
                                                        50

                                                                  23
                                                                                13    8
                                                                                           Annual dividend size of $0.30 in
                                                                                           line with 2003 initiations (average
           0         0-1            1-2        2-3     3-4        4-5           5-6   >6
                                             Dividend Yield %                              $0.38)


29   Source: Historic F/S, ACFIN model, S&P
         Share Repurchase Recommendation
     Given annual dividend commitment of $50MM,
       residual FCF should be used for $500MM open
       market share repurchase up to $25.50 per share

     •   Represents 3 years of projected FCF
     •   Distributes cash in a flexible way
     •   May be EPS accretive
     •   Lowers cost of capital
     •   Neutralizes dilution from exercise of management stock
         options

     Result: At $25.50, a purchase of 20MM shares, 12% of
       market float
30
                  Share Repurchase – Target Price
     Thermo Electron - Enterprise value calculation

     General Assumptions                                                                                                                   Calculated
         4.97% Risk-free rate                  $22.50    Share price
         7.20% Equity risk premium
           1.00 Equity Beta
                                            3,646,080
                                                  27%
                                                         Market value of equity $MM
                                                         Tax rate
                                                                                                                                           Enterprise Value
        12.17% Cost of equity                        8   Advantage horizon (years)
                                                 6.8%    Terminal growth rate in FCF

     Model 1 based on unadjusted projected free cash flows
                                                                                                                                           $26.60 Basic
     Target capital structure
     (in $MM, except per share amounts)
                                                                                                                                           $25.50 Diluted
     Debt           224,875
     WACC            11.67%

                                2004         2005           2006         2007          2008      2009      2010      2011        TV
     FCF                       231,375        211,347       229,115      249,976       272,712   296,414   316,002   356,415   7,801,692
     NPV of firm 4,530,350
     less: debt    (224,875)
     Equity value 4,305,475
                                                                                                                                           Repurchasing
     per share       $26.57 basic
                     $25.45 diluted                                                                                                        shares at greater
     Model 2 based on adjusted projected free cash flows
     Using S&P operating lease capitalization method
                                                                                                                                           than calculated
     Changing leverage
     (in $MM, except per share amounts)                                                                                                    price is value-
      Debt (including leases)
                                 2004
                                 441,822
                                             2005
                                              453,754
                                                            2006
                                                            463,831
                                                                         2007
                                                                         394,434
                                                                                       2008
                                                                                       258,049
                                                                                                 2009
                                                                                                 261,013
                                                                                                           2010
                                                                                                           261,013
                                                                                                                     2011
                                                                                                                     275,068
                                                                                                                                           destroying to non-
                  WACC            11.31%       11.29%        11.27%       11.39%        11.65%    11.65%    11.65%    11.62%

     Unadjusted FCF              231,375     211,347        229,115      249,976       272,712   296,414   316,002   356,415
                                                                                                                                           tendering
     Adjust for leases
     adjusted FCF
                                    8,932
                                 240,307
                                               9,423
                                             220,770
                                                              9,838
                                                            238,953
                                                                          10,167
                                                                         260,143
                                                                                        10,398
                                                                                       283,110
                                                                                                  10,520
                                                                                                 306,934
                                                                                                            10,520
                                                                                                           326,522
                                                                                                                      11,099
                                                                                                                     367,514
                                                                                                                                 TV
                                                                                                                               8,131,660   shareholders
     NPV of firm 4,736,455
     less: debt     (428,600)
     Equity value 4,307,855
     per share         $26.58 basic
                       $25.47 diluted



             Source: ACFIN Model
31
             Addl. Info in appendix slides 56-57
                              Repurchase – EPS Effects
     In a debt-financed repurchase, EPS is accretive to the extent that the
     earnings yield at the repurchase price exceeds the after-tax interest yield

                                  Share Repurchase: EPS Impact of P/E and %
                                           repurchased with debt

                        12%
                        10%
                         8%
         EPS change %




                         6%
                         4%                                                          22.8
                         2%                                                          P/E
                         0%
                        -2%   1   3   5   7   9   11   13   15   17   19   21   23   25     27   29   31
                        -4%
                        -6%
                                                             P/E



32      Source: ACFIN Model
                                         Repurchase - EPS Effects
     In a cash-financed repurchase, EPS is accretive to the extent that the
     earnings yield at the repurchase price exceeds the investment yield
                                  Share Repurchase: EPS Impact of P/E and                                                      Share Repurchase: EPS Impact of P/E and
                                   % repurchased with cash invested at 2%                                                       % repurchased with cash invested at 4%

                     12%                                                                                        15%
                     10%
                                                                                                                                                        25
                                                                                                                10%
                                                                                                                                                        P/E
      EPS change %




                                                                                       EPS change %
                     8%
                                                                              50                                5%
                     6%
                                                                              P/E                               0%
                     4%
                                                                                                                       1   4       7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55
                                                                                                                -5%
                     2%
                     0%                                                                                  -10%

                     -2% 1    4    7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55                     -15%
                                                        P/E                                                                                             P/E



                                  Share Repurchase: EPS Impact of P/E and                                                          Share Repurchase: EPS Impact of P/E and
                                   % repurchased with cash invested at 6%                                                           % repurchased with cash invested at 8%

                      15%                       16.7                                                             20%                         12.5
                      10%                                                                                        10%
                       5%
                                                P/E                                                                                          P/E
      EPS change %




                                                                                                 EPS change %
                                                                                                                  0%
                       0%
                      -5% 1   4    7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55                            -10% 1         4    7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55
                     -10%                                                                                       -20%
                     -15%
                                                                                                                -30%
                     -20%
                     -25%                                                                                       -40%
                     -30%                                                                                       -50%
                                                        P/E                                                                                              P/E




33                   Source: ACFIN Model
                      Agenda
     I.   Framework for deciding on the best
          method of cash distribution

     II. Cash distribution recommendation

     III. Additional considerations



34
           Additional Considerations

     a) Is Thermo Electron a “growth” company?
     b) What are the implications to Thermo
        Electron’s investor clientele?
     c) What is the effect on management’s
        stock options?




35
                        Value vs. Growth Stocks
     Benchmark definitions
     • Value Stock
         – A company that is considered under-priced
           relative to the industry. Common
           characteristics include a low market-to-book
           ratio and a high dividend yield.
     • Growth Stock
         – A company whose earnings are expected to
           grow at an above average rate relative to the
           market. Generally have high market-to-book
           ratios.
36    Source: Investopedia
              Investor Clientele Implications
     Is Thermo Electron a growth company?
     •   Low M/B ratio of 1.7
          – Median M/B ratio for mid-cap, growth firms is 4.29
          (Source: Morningstar Mid-Growth Index)
     •   Low P/E ratio of 22-23
          – Median P/E ratio for mid cap, growth firms is 52.7
          (Source: Morningstar Mid-Growth Index)
     •   Low sales growth                                                    Growth vs. Value:
          – last 4 years - negative                                        Fund Ownership of TMO
                                                                                  Annual Sales Growth
         (Source: 10-K filings)
          – future growth projections – single digits         500.0                                              1998
          (Source: compilation of analyst reports 10/2003)                                                       1999
                                                                                                         VALUE
     •   Institutional ownership is                              0.0
                                                                OTHER
                                                                                                          36%    2000




                                                                      98


                                                                             99


                                                                                    00


                                                                                           01


                                                                                                  02


                                                                                                          E
                                                                                                                 2001
         primarily non-growth oriented funds                     43%




                                                                                                         03
                                                              (500.0)




                                                                    19


                                                                           19


                                                                                  20


                                                                                         20


                                                                                                20
                                                                                                                 VALUE




                                                                                                       20
                                                                                                                 2002
          (Source: Reuters Investor, top 20 investors)                                                           GROWTH
                                                             (1000.0)                                            2003E
                                                                                                                  OTHER



                                                                                            GROWTH
                                                                                              21%




37
              Investor Clientele Implications
     Effect on Thermo Electron being perceived as
       a growth or value company
     • Dividend is usually an indicator of a mature company and has
       both positive and negative attributes:
        – Implies reduced corporate risk
        – Suggests reduced investment opportunities
        – However, because of tax-law changes, most companies initiating
          dividends in 2003 were growth companies
     • A share repurchase could have varying effects on investors’
       perceptions:
        – A “dividend-like” recurring share repurchase plan will have a
          similar effect as a dividend
        – A large tender offer may indicate that management believes the
          stock is undervalued; however, tender offers come at a premium.



38
             Effect on Management’s Stock Options
     Dividend
     • Signaling effect generally boosts stock price & stock option value
     • Signaling issues aside, a dividend lowers stock price / option
        value upon issuance of dividend
     • Most options not dividend protected
     Share Repurchase
     • Initial market reaction to announcements of open market
        programs is generally only about 4% (compared to about 15% for
        fixed-price offers)*
     • Relative to dividend, share repurchase will have a more positive
        effect on share price because it decreases the number of shares
     • Increase in leverage affects firm volatility; increasing the value of
        options
     • Signaling effect boosts stock price by amount depending on type
        of stock repurchase
     • Repurchased shares can be put in treasury and reissued upon
        exercise of management’s options


39     Source: Journal of Applied Corporate Finance
       Spring 2000
               Effect on Management’s Stock Options
     •        Stock repurchases have no direct effect on the
              value of stock options and appreciation rights
     •        Dividend payments reduce the value of stock
              options
     •        This variation raises the issue that stock option
              grants are an important consideration for
              management in choosing between dividends and
              stock repurchases
     •        Consequentially, managers who own stock
              options are more likely to distribute cash through
              open-market repurchase rather than an increase
              in cash dividends

40       Source: Journal of Applied Corporate Finance
         Spring 1998
                            Summary
     Effects of a $50MM annual dividend and a $500MM
     3 year open market share repurchase funded with
     projected free cash flows
                                Dividend                Repurchase
     Cost of capital      Decrease                    Decrease
     Credit rating        Maintained                  Maintained
     EPS accretion        Depends                     Depends
     Growth vs. value     Minimal effect              Minimal effect
     perception
     Investor clientele   Attracts larger clientele   Minimal change
     Management options   Minimal or negative         Likely positive




41
     Thermo Electron Corporation




42
     Appendix




43
                          Recent Trends in Cash Distribution

                          Total earnings, cash dividends & completed share repurchase volume for
                                               S&P 500 companies, 1995-2002

                  500


                  450


                  400


                  350


                  300
                                                                                                   Reported Earnings
     $ Billions




                                                                                                   Total Distribution
                  250
                                                                                                   Cash Dividends
                                                                                                   Share Repurchase
                  200


                  150


                  100


                  50


                   0
                   1995        1996         1997       1998   1999     2000      2001      2002




44                 Source: JP Morgan, S&P, Compustat
                     Recent Trends in Cash Distribution
           S&P 500: June 2003 Distribution of Dividend Yields             S&P 500: June 2003 Distribution of Yields Grossed-
                                                                                      up for Share Repurchase
     140
                                                                              117
               99
                       85      82                                                              84       82
                                                                     74
                                        50                                                                                         55
                                                                                                                47
                                                23                                                                       25
                                                      13                              16
                                                                8


      0        0-1     1-2     2-3     3-4      4-5   5-6       >6   0        0-1     1-2      2-3     3-4      4-5      5-6       >6
                             Dividend Yield %                             Distribution Yield % - Grossed-up for Share Repurchase



     • 180 Companies have increased dividend in 2003
     • Dividend yield skewed to low end; most under 3%
     • Distribution yield not as skewed; lower-yield companies tend to augment
     distributions with share repurchase




45        Source: JP Morgan, S&P, Compustat
                     Recent Trends in Cash Distribution
          S&P 500: June 2003 Distribution of Dividend Payout                         S&P 500: June 2003 Distribution of Payout Ratios
                               Ratios                                                      Grossed-up for Share Repurchase
          139                                                                                                                                        89
                                                                                     74

                     67                                                         45                          46
                                 53                                                            32                 33    36    36    35
                           42          45                                                             28
     32         29                           32                           24              19                                              18
                                                   18    13                                                                                     9
                                                               2     4

     <0    0    0-10 10-   20-   30-   40-   50-   60-   70-   80-   90- >100   <0   0    0-10 10-    20-   30-   40-   50-   60-   70-   80-   90- >100
                     20    30    40    50    60    70    80    90    100                       20     30    40    50    60    70    80    90    100
                           Dividend Payout Ratio %                                                   Distribution Payout Ratio %




     • Wide range of dividend payout ratios; median 10%-20%
     • Distribution flattens with share repurchase; approx 30-40 companies in
     each band from 10% to 80%
     • 89 Companies distribute over 100% of earnings
            • Reflects depressed earnings
            • Use of share repurchase to recapitalize the balance sheet

46        Source: JP Morgan, S&P, Compustat
                           Recent Trends in Cash Distribution
                           S&P 500: Share Repurchases 1995-2002
                                                                                                            Completed repurchases
                 160
                 140
                                                       135.7          138      141.4
                                                                            128.6      129.1
                                                                                          123.2
                                                                                                            increased dramatically to 2000
                                                          119.6
                                 114.6      113.1
                 120
                                                                  101.1                           99.3
                 100
                                                97.2
                                                                                                            Dropped sharply as earnings
     $Billions




                  80
                  60
                       54.8 58
                                     60.5                                                            62.5
                                                                                                            and stock prices fell
                  40
                  20                                                                                        Trend reversed in 2003
                   0
                       1995      1996       1997       1998       1999      2000       2001       2002

                                                    Announced      Completed



        In 2002, 10 largest repurchasers accounted for 50% of total completed
        volume
        5 of top 10 were technology companies, repurchasing to offset warrant
        dilution
        2003 to date: $85.3B repurchases completed


47                Source: JP Morgan, Compustat
                 Morningstar Growth Ratings
     • Criteria for Growth Grade
         – Raw Growth: historical sales growth over past 5 years
         – Consistency: steady YOY sales growth over past 5 years
         – Trend: reward accelerated sales growth
     • Ranking is relative to peers within sector
     • Distribution of grades: equal numbers of As, Bs, Cs, and
       Ds with bottom 10% getting Fs
                                                       A   B   C   D    F

                                              8
                                              7
                                              6
                                              5
                                              4
                                              3
                                              2
                                              1
                                              0
                                                       Sectors Grades
48    Source: Morningstar
                     Open Market Repurchase: SEC Rule 10b-18
     Rule 10b-18 applies to share repurchases on the open market under normal market conditions (i.e. not
         during mergers, tender offers, or distributions). Specifically, the Rule states the following with
         respect to the conditions that must be satisfied:

     •     Manner of purchase condition: shares must be repurchased by a single broker/dealer in a day so
           as to not mislead the market by creating the illusion of wide-spread buying[1]

     •     Timing of purchase condition: shares cannot be repurchased at the beginning of trading nor at the
           end, because trading those periods are considered to be an indication of the direction of trading,
           strength of demand, and market value of the security

     •     Price condition: the shares may not be repurchased for a price higher than the last independent
           published bid or transaction price, so as not to mislead the market
     •     Volume condition: an issuer can purchase daily up to 25 percent of the average daily trading
           volume (ADTV) of its shares, but this does not include block purchases

                 –   Block purchases[2] have either a purchase price of $200,000 or more; at least 5,000 shares
                     of the stock of at least $50,000; at least twenty round lots totaling 150 percent or more of
                     trading volume; or twenty round lots totaling at least .1 percent of the outstanding shares of
                     the security, exclusive of those owned by affiliates

     •     Rule 10b-18 provides issuers with safe harbor from liability for manipulation under Section 9(a)(2)
           and 10(b), and 10b-5 under the Exchange Act. Rule 10b-18 is designed to minimize the market
           impact of share purchases, allowing the stock price to be “based on independent market forces
           without undue influence by the issuer.”
     •
           [1]         The broker/dealer can arrangements with other broker/dealers, so long as the issuer has engaged only one broker dealer
     •     [2]         Block purchases are not included in ADTV




49       Source: SEC
                          2003 Dividend Initiation
                                                                       S&P
                                                 Annual              Adjusted
                                                Dividend 1 Day     return - 2003    Morningstar
             Company                            Declared Return       to date          Style          Stock Type
             Clear Channel Commun               $ 0.40    2.8%           -10.9%    Large Growth   Aggressive Growth
             Quest Diagnostics                  $ 0.60    1.5%              3.2%   Mid Growth     Aggressive Growth
             Best Buy                           $ 0.40    0.4%           105.2%    Large Growth   Classic Growth
             Guidant Corp                       $ 0.32    2.1%            44.9%    Large Growth   Classic Growth
             Microsoft Corp (adj for 2-for-1)   $ 0.08 -3.5%             -13.0%    Large Growth   Classic Growth
             Harrah's Entertainment             $ 1.20    4.6%             -6.6%   Mid Core       Classic Growth
             Manor Care                         $ 0.50 -0.5%              58.0%    Mid Growth     Classic Growth
             Intl Game Technology               $ 0.30    1.4%            48.1%    Large Growth   Cyclical
             Jones Apparel Group                $ 0.32 -11.7%            -25.8%    Mid Core       Cyclical
             Freep't McMoRan Copper&Go          $ 0.36 -5.3%             106.5%    Mid Growth     Hard Assets
             Reebok Intl                        $ 0.30    1.2%              9.9%   Mid Core       Slow Growth
             QUALCOMM Inc                       $ 0.20    2.7%              5.1%   Large Growth   Slow Growth
             Amer Power Conversion              $ 0.32    1.2%             -3.8%   Mid Core       Slow Growth
             SABRE Holdings'A'                  $ 0.28    7.9%              0.5%   Mid Core       Slow Growth
             Tektronix Inc                      $ 0.16    1.7%            19.4%    Mid Core       Slow Growth
             Federated Dept Stores              $ 0.50    0.7%            43.8%    Mid Value      Slow Growth
             Viacom Inc'B'                      $ 0.24    3.5%           -22.5%    Large Growth   Speculative Growth

             Average - all                      $   0.38    0.6%         21.3%     Highlighted companies also
             Average - Aggressive Growth        $   0.50    2.2%         -3.9%     initiated concurrent repurchase
             Average - Classic Growth           $   0.50    0.6%         37.7%
             Average - Slow Growth              $   0.29    2.6%         12.5%
             Average - Other                    $   0.31   -3.0%         26.6%



50   Source: S&P, Morningstar
                   2003 Repurchase Initiation
                                                      S&P
                             2003                   Adjusted
                           Completed                 return -
                            to date       1 Day     2003 to      Morningstar   Morningstar Stock
     Company                 $MM          Return       date         Style             Type
     Abbott Laboratories   $ 88.25           3.9%      -10.3%   Large Growth   Classic Growth
     AmerisourceBergen     $    0.58                   -14.7%   Mid Core       Aggressive Growth
     Boston Scientific     $ 189.00                     39.9%   Large Growth   Slow Growth
     Burlington Resources $ 72.00           -0.9%       -4.4%   Large Value    Hard Assets
     Capital One Financial $    3.71                    85.6%   Large Core     Aggressive Growth
     Circuit City Stores   $ 13.94                      10.0%   Mid Core       Slow Growth
     Family Dollar Stores  $ 163.18         -1.6%       21.3%   Mid Growth     Classic Growth
     Janus Capital Group   $    6.40                   -11.0%   Mid Value      Slow Growth
     Limited Brands Inc    $ 27.23                       9.6%   Mid Value      Slow Growth
     Maytag Corp           $    2.04                   -28.2%   Mid Value      High Yield
     Quest Diagnostics     $ 141.00         -0.2%       -0.5%   Mid Growth     Aggressive Growth
     Reebok Intl           $ 32.28                      13.7%   Mid Core       Slow Growth
     Rockwell Automation $ 189.00           -2.3%       33.8%   Mid Core       High Yield

     Total                     $ 928.61                     Highlighted companies
     Average                   $ 71.43      -0.2%     11.1% formally announced repurchase

51   Source: Compustat, Morningstar
              Thermo Electron 1998-2003 M&A
                       Announce/
                        Declared    20 Days                                                              S&P 20     S&P Ex                 S&P Ex
         Target           Date       Prior       Ex Ante          Day of        Ex Post   120 Post     Days Prior    Ante     S&P Day of    Post
       Thermoretec      8/12/1998   $   19.731   $   18.222   $    19.516   $    18.545   $   13.370    1139.75     1068.98    1084.22     1074.91
      Grason-Stadler    9/16/1998   $   15.149   $   14.718   $    14.394   $    14.286   $   14.825    1042.59     1037.68    1045.48     1018.87
      Thermo Pow er     5/ 5/1999   $   10.944   $   14.017   $    14.448   $    14.286   $   13.747    1322.85      1332      1347.31     1332.05
      Randers Killam   10/20/1999 $     11.699   $   11.267   $    11.429   $    11.429   $   14.232    1282.81     1261.32    1289.43     1283.61
     Thermo Terratech 10/20/1999 $      11.700   $   11.267   $    11.429   $    11.429   $   14.232    1282.81     1261.32    1289.43     1283.61
       Thermolase      12/15/1999 $     12.615   $   13.316   $    12.938   $    12.938   $   15.904    1417.08     1403.17    1413.33     1418.78
       Thermotrex      12/17/1999 $     12.669   $   12.938   $    12.938   $    12.453   $   15.904    1416.62     1418.78    1421.05     1418.09
       Thermedics       1/31/2000   $   12.723   $   14.017   $    14.933   $    15.257   $   16.011    1438.56     1360.16    1394.46     1409.28
     Thermo Inst Sys    1/31/2000   $   12.723   $   14.017   $    14.933   $    15.257   $   16.011    1438.56     1360.16    1394.46     1409.28
      Thermo Ecotek     1/31/2000   $   12.723   $   14.017   $    14.933   $    15.257   $   16.011    1438.56     1360.16    1394.46     1409.28
        Keystone        7/12/2000   $   16.389   $   19.947   $    19.462   $    20.270   $   24.152    1452.18     1480.88    1492.92     1495.84
       Trex Medical    10/17/2000 $     23.235   $   23.074   $    22.642   $    21.834   $   25.541    1426.57     1374.62    1349.97     1342.13
 Galactic Industries    2/26/2001   $   26.006   $   23.289   $    24.738   $    24.644   $   18.890    1352.26     1245.86    1267.65     1257.94
     Spectra-Physics    8/21/2001   $   19.598   $   18.427   $    18.185   $    18.203   $   23.010    1215.93     1171.41    1157.26     1165.31
      CRS Robotics      3/11/2002   $   19.300   $   20.950   $    20.650   $    20.160   $   15.800    1083.34     1164.31    1168.26     1165.58
      Rad-mon prods     6/ 5/2002   $   19.460   $   17.710   $    17.700   $    17.610   $   15.190    1091.07     1040.69     1049.9     1029.15
        Jouan SA        9/17/2003   $   22.500   $   22.920   $    22.910   $    23.070   $   23.070    1002.84     1029.32    1025.97     1039.58
         Siemens       10/ 2/2003   $   22.560   $   21.970   $    22.430   $    22.510   $   23.070    1018.63     1018.22    1020.24     1029.85




52
                    Thermo Subsidiary Acquisitions 1998-Present
                             Announce/Declared
             Target                Date        20 Days Prior   Ex Ante     Day of    Ex Post    120 Post S&P 20 Days Prior S&P Ex Ante S&P Day of S&P Ex Post
      Optronics by Thermo
              Pow er              04/02/98         11.625      $ 11.250   $ 11.250   $ 11.000   $ 7.625       1069.92        1108.15    1120.01      1122.7
        Electro-Magnetic
       Processes Inc by
           Thermotrex             06/01/98         19.063      $ 19.975   $ 19.250   $ 18.750   $ 12.500      1106.64        1090.82    1090.98     1093.22
     LNR Communications by
           Thermotrex             12/01/98         11.188      $ 10.500   $ 10.250   $ 10.313   $ 5.750       1120.97        1163.63    1175.28     1171.25

 Halcon Corp by Themotrex         12/23/98           10        $ 8.250    $ 8.125    $ 8.250    $ 8.500       1150.14        1203.57    1228.54     1226.27
      Thermo Voltex by
         Thermedics               03/31/98          16.5       $ 16.125   $ 17.813   $ 17.375   $ 12.250      1068.47        1093.55    1101.75     1108.15
       Erich Jaeger by
         Thermedics               04/20/99          7.125      $ 7.250    $ 7.125    $ 7.250    $ 8.125       1286.37        1289.48    1306.17     1336.12
     Thermo Sentron by
         Thermedics               01/31/00          5.375      $ 6.125    $ 6.875    $ 6.875    $ 8.438       1438.56        1360.16    1394.46     1409.28
  Thermedics Detection by
         Thermedics               01/31/00          5.375      $ 6.125    $ 6.875    $ 6.875    $ 8.438       1438.56        1360.16    1394.46     1409.28
 Env Group of Graseby by
     Thermo Instrument            03/16/98         33.813      $ 34.188   $ 34.000   $ 33.313   $ 24.875      1030.56        1068.61    1079.27     1080.45
    Spectra-Physics by
     Thermo Instrument            01/07/99         14.188      $ 14.313   $ 14.313   $ 15.250   $ 13.750      1188.03        1272.34    1269.73     1275.09
 Thermospectra by Thermo
          Instrument              05/21/99           13        $ 15.500   $ 15.438   $ 14.938   $ 11.813      1335.18        1338.83    1330.29     1306.65
 Thermo Vision by Thermo
          Instrument              05/24/99          13.25      $ 15.500   $ 15.438   $ 14.938   $ 11.688       1332          1330.29    1306.65      1284.4
  Onix Systems by Thermo
          Instrument              01/31/00           11        $ 16.000   $ 16.063   $ 15.813   $ 16.375      1438.56        1360.16    1394.46     1409.28
   Thermo Bioanalysis by
     Thermo Instrument            01/31/00           11        $ 16.000   $ 16.063   $ 15.813   $ 16.375      1438.56        1360.16    1394.46     1409.28
    Metrika Systems by
     Thermo Instrument            01/31/00           11        $ 16.000   $ 16.063   $ 15.813   $ 16.375      1438.56        1360.16    1394.46     1409.28
  Thermoquest by Thermo
          Instrument              01/31/00           11        $ 16.000   $ 16.063   $ 15.813   $ 16.375      1438.56        1360.16    1394.46     1409.28
  Thermo Optek by Thermo
          Instrument              01/31/00           11        $ 16.000   $ 16.063   $ 15.813   $ 16.375      1438.56        1360.16    1394.46     1409.28




53
                              Comparables - Dividends
                                                                             NI before   Dividends -               Invested                               Dividend          P/E P/E Ratio
                                                                           extraordinary  common     Dividends      Capital      Free Cash     Closing     Payout Dividend Ratio  Fully   Dividends /
          year    ticker                 company                    SIC     items $M M      $M M     per share $     $M M          Flow        price $     Ratio    Yield  Basic Diluted      FCF

          2000 TM O        THERM O ELECTRON CORP                    3826         62.05                             4,087.20        125.88        $29.75                      80.4     82.6
          2001 TM O        THERM O ELECTRON CORP                    3826         49.59                             2,642.55        103.60       $23.86                       88.4     88.4
          2002 TM O        THERM O ELECTRON CORP                    3826        195.33                             2,484.66          51.68       $20.12                       17.3    18.0

          2000   DHR       DANAHER CORP                             3823        324.21        10.02       $0.07    2,655.89         423.75      $68.38        3.1%    0.1%   30.0     30.7        2.4%
          2001   DHR       DANAHER CORP                             3823        297.67         11.68      $0.08    3,347.92         527.88       $60.31       3.9%    0.1%   29.1     30.0        2.2%
          2002   DHR       DANAHER CORP                             3823        434.14         13.53      $0.09    4,207.02        644.92        $65.70       3.1%    0.1%   22.7     23.5        2.1%
          2000   ROP       ROPER INDUSTRIES INC/DE                  3823          49.28         8.54      $0.28        504.79         52.49     $35.00       17.3%    0.8%   21.6     22.2      16.3%
          2001   ROP       ROPER INDUSTRIES INC/DE                  3823           55.84        9.23      $0.30       647.34         94.98      $42.40       16.5%    0.7%   23.3     24.0        9.7%
          2002   ROP       ROPER INDUSTRIES INC/DE                  3823          66.02       10.32       $0.33       687.60           79.19    $38.60       15.6%    0.9%   18.2     18.6      13.0%
          2000   ABI       APPLERA CORP APPLIED BIOSYS              3826         186.25       35.22        $0.17      970.48           56.31    $65.88      18.9%     0.3%   73.2     76.6      62.5%
          2001   ABI       APPLERA CORP APPLIED BIOSYS              3826        212.39        35.79        $0.17     1,041.21        (13.38)     $26.75     16.8%     0.6%   26.5     27.9    -267.5%
          2002   ABI       APPLERA CORP APPLIED BIOSYS              3826        168.48        35.97        $0.17     1,125.23       209.51       $19.49     21.4%     0.9%   24.4     25.0       17.2%
          2000   BEC       BECKM AN COULTER INC                     3826         125.50       19.30       $0.33     1,206.70          67.80      $41.94      15.4%    0.8%    19.7    20.7      28.5%
          2001   BEC       BECKM AN COULTER INC                     3826          141.50      20.70       $0.34     1,278.50         101.60     $44.30      14.6%     0.8%   18.9     20.0      20.4%
          2002   BEC       BECKM AN COULTER INC                     3826         135.50       22.10       $0.35      1,218.70        170.50     $29.52      16.3%     1.2%    13.5    14.2      13.0%
          2000   M IL      M ILLIPORE CORP                          3826          119.19      20.32       $0.44        605.50         46.65     $63.00       17.0%    0.7%   24.2     24.9      43.6%
          2001   M IL      M ILLIPORE CORP                          3826          63.49       20.86       $0.44        713.96          15.49    $60.70      32.9%     0.7%   45.0     46.0     134.6%
          2000   PKI       PERKINELM ER INC                         3826          86.07       27.53       $0.56       1,311.73        74.95    $105.00      32.0%     0.5%   60.0     62.5      36.7%
          2001   PKI       PERKINELM ER INC                         3826           (0.62)     28.29       $0.28     1,961.68         34.60      $35.02        0.0%    0.8%     0.0     0.0      81.8%
          2002   PKI       PERKINELM ER INC                         3826            (4.14)    35.28       $0.28    1,866.40          33.68        $8.25       0.0%    3.4%     0.0     0.0     104.7%
          2000   DSCP      DATASCOPE CORP                           3845          33.08          1.81      $0.12       227.79        20.09      $36.00        5.5%    0.3%    16.5     17.5       9.0%
          2001   DSCP      DATASCOPE CORP                           3845          34.24          2.81      $0.19      243.48            2.27    $46.09        8.2%    0.4%   20.0     21.0     123.6%
          2002   DSCP      DATASCOPE CORP                           3845           13.90        2.96      $0.20       250.98          12.92     $27.64      21.3%     0.7%   29.4     30.0      22.9%
          2000   INM RY    INSTRUM ENTARIUM CP -ADR                 3845          43.73         15.16     $0.32       582.02           16.07     $10.25     34.7%     3.1%    11.4     11.4     94.3%
          2001   INM RY    INSTRUM ENTARIUM CP -ADR                 3845           64.21      21.34       $0.45       580.93         90.26      $20.98      33.2%     2.1%    15.7     15.7     23.6%
          2002   INM RY    INSTRUM ENTARIUM CP -ADR                 3845          90.73       30.30       $0.52         717.21       89.22      $39.20      33.4%     1.3%   20.7      21.5     34.0%
          2000   M DT      M EDTRONIC INC                           3845      1,046.00       240.70       $0.20    5,522.80       1,391.80      $44.60      23.0%     0.4%    51.3    52.5       17.3%
          2001   M DT      M EDTRONIC INC                           3845        984.00       278.80       $0.23    6,440.60      1,203.80       $44.69      28.3%     0.5%   55.2     55.9      23.2%
          2002   M DT      M EDTRONIC INC                           3845      1,599.80       304.20       $0.25    9,886.70      1,697.80        $47.74     19.0%     0.5%   36.4     36.7       17.9%

                           2000 average - SIC 3823                               186.75         9.28       $0.18   1,580.34       238.12                    10.2%     0.5%   25.8     26.4       9.3%
                           2001 average - SIC 3823                                176.75       10.45       $0.19   1,997.63        311.43                   10.2%     0.4%   26.2     27.0       6.0%
                           2002 average - SIC 3823                              250.08          11.92      $0.21   2,447.31       362.06                     9.4%     0.5%   20.5      21.1       7.6%
                           2000 average - SIC 3826                               129.25        25.59      $0.37    1,023.60         61.43                   20.8%     0.6%   44.3     46.2      42.8%
                           2001 average - SIC 3826                               104.19        26.41       $0.31   1,248.84         34.58                    16.1%    0.7%   22.6     23.5       -7.7%
                           2002 average - SIC 3826                                99.95         31.12     $0.27    1,403.44        137.90                   12.6%     1.8%   12.6      13.1     45.0%
                           2000 average - SIC 3845                              374.27         85.89       $0.21    2,110.87      475.99                    21.0%     1.3%   26.4      27.1     40.2%
                           2001 average - SIC 3845                              360.82       100.98       $0.29    2,421.67        432.11                   23.3%     1.0%   30.3     30.8      56.8%
                           2002 average - SIC 3845                               568.14       112.49      $0.32    3,618.30       599.98                    24.6%     0.9%   28.9     29.4      24.9%

          Obtained selected data on all companies with SIC 3823,3826, 3845 with 2002 invested capital >$250M M and that paid dividends in 2000, 2001, or 2003
          Calculated averages based on dividend payout ratio, dividend yield, and dividend payment as a percentage of free cash flows




54   Source: Compustat
                            Thermo Electron Dividend Calculation
                         weighted NI before                                                                        Dividends Dividends                                  Dividends                     Dividends  Dividends
              weighted    average  extra-     Free                                                     Dividends   per basic per diluted                     Dividends per diluted        Dividends   per basic  per diluted
               average      fully ordinary    Cash                Dividend                             based on share based share based            Dividends per basic    share           based on % share based    share
                basic     diluted   items     Flow     Closing     Payout Dividend Dividends /        payout ratio on payout on payout             based on share based based on            of FCF   on %of FCF based on %
     year      shares     shares   $M M       $M M     price $     Ratio    Yield      FCF               $M M       ratio $    ratio $            yield $M M on yield $  yield $             $M M         $       of FCF $



 2002 act.     168.572    186.611 195.330      51.68   $20.12
 2003 proj.    162.531    169.155 183.121     169.14   $22.00

 2002 - TM O predicted - SIC 3823                                     9.4%       0.5%         7.6%          18.30          $0.11        $0.10         16.82         $0.00       $0.00           3.91      $0.02      $0.02
 2002 - TM O predicted - SIC 3826                                    12.6%       1.8%        45.0%          24.52          $0.15        $0.13         61.64         $0.00       $0.00          23.24      $0.14      $0.12
 2002 - TM O predicted - SIC 3845                                    24.6%       0.9%        24.9%          47.97         $0.28         $0.26         29.22         $0.00       $0.00          12.88      $0.08      $0.07

 2003 - TM O predicted - SIC 3823                                     9.4%       0.5%         7.6%           17.16         $0.11        $0.10          17.73        $0.00       $0.00           12.79     $0.08      $0.08
 2003 - TM O predicted - SIC 3826                                    12.6%       1.8%        45.0%          22.99         $0.14         $0.14         64.98         $0.00       $0.00          76.04      $0.47      $0.45
 2003 - TM O predicted - SIC 3845                                    24.6%       0.9%        24.9%          44.97         $0.28         $0.27         30.80         $0.00       $0.00           42.15     $0.26      $0.25

 2003 - TM O predicted based on weighted average revenues             12.8%       1.3%        31.7%         23.44         $0.14         $0.14         47.39         $0.29       $0.28          53.68      $0.33      $0.32

      3823:       30% Industrial Instruments for M easurement
      3826:       60% Laboratory Analytical Instruments
      3845:       10% Electromedical/Therapeutic Apparatus

 M ethodology:
 Calculated industry averages for companies in SIC 3823, 3826, & 3845 with 2002 invested capital >$250M M that paid dividends
 Based on industry average dividend payout ratio, dividend yield, and dividends as a percentage of free cash flow, calculated theoretical dividends paid by Thermo Electron in 2002 & 2003
 Based on Thermo Electron's estimated source of revenues, calculated a weighted average dividend based on dividend payout ratio, dividend yield, and dividend based on percentage of free cash flow




55          Source: ACFIN model based on
            industry data from Compustat
                Share Repurchase – Target Price – Model 1

 Thermo Electron - Enterprise value calculation

 General Assumptions
     4.97% Risk-free rate                        $22.50    Share price
     7.20% Equity risk premium                3,646,080    Market value of equity $MM
       1.00 Equity Beta                             27%    Tax rate
    12.17% Cost of equity                              8   Advantage hoizon (years)
                                                   6.8%    Terminal growth rate in FCF

 Model 1 based on unadjusted projected free cash flows
 Target capital structure
 (in $MM, except per share amounts)

 Debt          224,875
 WACC           11.67%

                                  2004         2005            2006        2007           2008      2009      2010      2011        TV
 FCF                                231,375    211,347        229,115     249,976        272,712   296,414   316,002   356,415   7,801,692
 NPV of firm 4,530,350
 less: debt    (224,875)
 Equity value 4,305,475
 per share       $26.57 basic
                 $25.45 diluted




56      Source: ACFIN Model
                   Share Repurchase – Target Price – Model 2

 Thermo Electron - Enterprise value calculation

 General Assumptions
     4.97% Risk-free rate                   $22.50    Share price
     7.20% Equity risk premium           3,646,080    Market value of equity $MM
       1.00 Equity Beta                        27%    Tax rate
    12.17% Cost of equity                         8   Advantage hoizon (years)
                                              6.8%    Terminal growth rate in FCF

 Model 2 based on adjusted projected free cash flows
 Using S&P operating lease capitalization method
 Changing leverage
 (in $MM, except per share amounts)

                                2004      2005           2006         2007           2008      2009      2010      2011
     Debt (including leases)   441,822    453,754       463,831      394,434        258,049   261,013   261,013   275,068
                 WACC           11.31%     11.29%        11.27%       11.39%         11.65%    11.65%    11.65%    11.62%

 Unadjusted FCF             231,375       211,347       229,115      249,976        272,712   296,414   316,002   356,415
 Adjust for leases             8,932        9,423         9,838       10,167         10,398    10,520    10,520    11,099      TV
 adjusted FCF               240,307       220,770       238,953      260,143        283,110   306,934   326,522   367,514   8,131,660
 NPV of firm 4,736,455
 less: debt     (428,600)
 Equity value 4,307,855
 per share         $26.58 basic
                   $25.47 diluted




57        Source: ACFIN Model
           Competitors’ Investor Clienteles
     Most competitors perceived as growth companies
              Competitor Investment Style Classifications

                                      Value
                                       7%




                                                Core
                                                29%

                   Growth
                    64%




58    Source: Morningstar
          Effect on Management’s Stock Options

     Cautionary Statements
     • In an efficient market, repurchases to fund
       employee options do not provide the positive
       signal that repurchases for undervaluation do
     • Return for repurchasing firms is significantly
       lower for firms with large amounts of employee
       stock options
     • Price increases could result in more exercisable
       options, the firm repurchases more



59
     Thermo Electron Corporation




         www.bus.wisc.edu/acfin



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