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New Securities Presentation

October 2, 2006. New Securities Presentation. Student Managed Investment Portfolio – Franklin & Marshall College Matt Conley Gene Clark. Outline. Section Business Summary Risks; Industry Analysis Financial Performance Valuation Current Events Investment Thesis. Business Summary.

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New Securities Presentation

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  1. October 2, 2006 New Securities Presentation Student Managed Investment Portfolio – Franklin & Marshall College Matt Conley Gene Clark

  2. Outline Section • Business Summary • Risks; Industry Analysis • Financial Performance • Valuation • Current Events • Investment Thesis

  3. Business Summary • Garmin Ltd. is a designer, developer, manufacturer and marketer of a diverse family of hand-held, portable and fixed-mount Global Positioning System (GPS) enabled products and other navigation, communications and information devices for the general aviation and consumer markets • Founded in 1990 by current CEO Min Kao • Products are sold in over 100 countries, through a global network of about 3,000 independent dealers and distributors • Top ten customers generate between 25-30% of annual sales with no single customer making up more than 10% of sales • Bass Pro, Best Buy, Cabella’s, Wal-Mart, Target, Circuit City, Toyota, Cessna Aircraft, other specialty retailers, catalogs, and auto-marine-aircraft manufacturers • Believes key to growth is continuous innovation, development and introduction of new products

  4. Markets & Products • Company operates in two segments • Consumer Segment (78% of 2005 sales) • Marine • Recreational • Fitness • Personal Digital Assistance (PDA) • Automotive • Aviation Segment (22% of 2005 sales) • Panel Mount & Portable products for use in aircraft

  5. Specific Risks • Garmin’s GPS device uses signals from satellites operated and maintained by the DOD. Most of the satellites have projected life spans of 7.5 years but some are currently 13 years old. The DOD also provides these signals free of charge, so if they were to start charging it could affect Garmin’s profits. • Garmin also faces large liabilities in that if one of the company’s aviation products malfunctions the company could face large lawsuits from potential survivors or family members seeking punitive damages. • There are certain political risks involved with Garmin due to the fact that the main business entity is in Taiwan. If the Taiwanese were to try to declare themselves independent from China, China would use military force to stop them. • Incorporated in the Cayman Islands where certain laws are different or nonexistent. According to Garmin, they are unsure as to whether or not shareholders would be able to bring any type of civil action against the company for breaches in fiduciary duties. • Other factors include: shortage of key components such as LCD screens (which did take place in 2003), foreign exchange rate fluctuation, and general market risk associated with consumer electronics sales.

  6. Competition Highly competitive industry with main competition factors including: design, functionality, quality, reliability, customer service, brand, price, time-to-market, and availability. More importantly however, is the invention of new technologies.

  7. Financial Performance % Growth Over Prior Year

  8. Historical Ratio Analysis

  9. Comparative Ratio Analysis Valuation Ratios Company Industry Sector S&P 500 P/E Ratio 26.61 25.28 28.39 20.14 Beta 1.26 2.13 1.82 1.00 Price to Sales 8.04 4.56 4.78 2.83 % Owned Institutions 33.40 49.70 49.70 68.31 Growth Rates(%) Company Industry Sector S&P 500 Sales 52.05 23.93 18.72 17.47 EPS 69.25 28.50 22.73 22.74 Profitability Ratios (%) Company Industry Sector S&P 500 Gross Margin 50.62 46.62 53.21 44.87 EBITD Margin 35.01 18.23 21.72 22.92 Operating Margin 31.54 16.00 18.35 20.44 Net Profit Margin 30.21 13.56 14.73 13.68 Effective Tax Rate 15.02 31.19 27.99 30.41 Mgmt. Effectiveness Company Industry Sector S&P 500 Return On Assets 28.48 9.44 11.21 8.13 Return On Investment 34.01 12.40 15.31 12.08 Return On Equity 34.30 17.79 19.46 20.05 Efficiency Company Industry Sector S&P 500 Revenue/Employee 436,850 504,892 506,111 877,387 Net Income/Employee 131,980 114,567 92,579 112,100 Receivable Turnover 6.81 8.07 7.98 10.46 Inventory Turnover 3.40 8.08 12.42 12.47 Asset Turnover 0.94 0.77 0.86 0.984

  10. eVal Model Assumptions

  11. eVal Model Summary GRMN September 29, 2006 Closing Price: $48.70

  12. Recent Headlines on Garmin • S&P lists Garmin as a strong buy; Reuters expects it to outperform 9/28/06 • Analysts Ratings: 2 Sell; 9 Hold; 13 Buy • Garmin 10 Turns Bluetooth Enabled Laptops and PDAs into GPS navigators 9/12/06 • Garmin announces 1.5 million share repurchase program 8/4/06 • Conference call highlights great second quarter; discusses new ventures and opportunities 8/2/06 • Revenue up; increased guidance for end of year • Several new products; increased R&D expenditures • Retail Store in Detroit • Rental Cars • Price Competition

  13. Garmin Summary Garmin, the iPod of GPS units, is the established leader of the industry. The basis for investment requires us to ask the question of whether this company has peaked or only begun to rise. POSITIVES • Garmin has proved itself in the past as a high quality, high growth performer • Major opportunities for growth exist • 7% of US cars currently have GPS navigation • Cell phone GPS technology is in its infancy • No Debt; Lots of Cash • R&D expenditures are 7-8% of net sales NEGATIVES • Recent insider selling • Smaller margins with increased competition • Cayman Islands??? • Political instabilities at headquarters- Taiwan

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