Goldman Stanley, Inc.

Project Aardvark
Presentation to the Board of Directors January 29, 2010

Goldman Stanley

Confidential Draft

Table Of Contents
Executive Summary 3

Aardvark Valuation
Potential Acquisitions Process Recommendations Appendix

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Goldman Stanley

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Executive Summary Goldman Stanley 3 .

it has also generated over $35B in cash & cash-equivalents As Aardvark’s cash balance grows. laptop. it is likely to face shareholder pressure to reinvest the cash in its business and to make significant acquisitions Given Aardvark’s strong currency and cash balance. and significantly improve its software offerings Given Aardvark’s cash position. and desktop markets. Aardvark’s share price and valuation are at all-time highs. it could easily make several “tuck-in” acquisitions – or larger-scale acquisitions to acquire customers Such a strategy would allow Aardvark to capture more of the smartphone. 2010. having more than doubled since early 2009 As Aardvark’s stock price has soared in value. such acquisitions could be made with 100% cash – or in the case of a larger deal.Executive Summary • • • • • • As of January 29. stock could also be used Goldman Stanley 4 .

Aardvark Valuation Goldman Stanley 5 .

implying that share price is justified All valuation analysis is based on “base-case” financial projections in line with Wall Street analyst expectations Given Aardvark’s cash balance and high valuation multiples vs. few competitors are well-positioned to make substantial acquisitions • • Goldman Stanley 6 .Valuation Summary • • • Aardvark’s current share price of $192. similar public companies.61 far exceeds the value implied by comparable public companies Recent comparable transactions show higher implied valuation ranges due to flurry of consolidation and hardware M&A activity over 2009 Discounted Cash Flow Analysis under base-case assumptions shows implied valuation on-par with Aardvark’s current share price.

Aardvark Valuation Summary ($ in Millions Except Per Share Data) Public Company Comparables(1)(2) 2009 EV / Revenue: 2010E EV / Revenue: 2009 EV / EBITDA: 2010E EV / EBITDA: 2009 P / E: 2010E P / E: Precedent Transactions(1) Min to 25th 25th to Median Median to 75th 75th to Max Trailing EV / Revenue: Forward EV / Revenue: Trailing EV / EBITDA: Forward EV / EBITDA: Discounted Cash Flow Analysis 11-15% Discount Rate.00 Goldman Stanley (1) EBITDA excludes stock-based compensation and non-recurring charges.00 $200.00 $400.00 $300. 5-9x Terminal Multiple: $0. 7 .00 $500.00 $600.00 $700.00 $100. (2) Financial data as of January 29. 2010.

4 x 3. 2010.0 x 2.0% 5.0% 35. (2) Financial data as of January 29.0% 10.0 x 7.0 x 8.0%) 39% 29% 22% 18% 14% 8% 8% 7% (6%) 4% 31% 25% 2010E Revenue Growth 2009A EBITDA Margin Comparable Public Companies – Valuation Multiples(1)(2) 14.6 x 2009 EBITDA Multiple 2010E EBITDA Multiple Goldman Stanley (1) EBITDA excludes stock-based compensation and non-recurring charges.5 x 10.4 x 7.0 x 12.8 x 4.0%) (10.6 x 8.0% 40.1 x 5.3 x 5.0% 25.0 x 10.0 x 6. 8 .0 x 4.0% 30.0% 0.0% (5.Aardvark Comparable Public Companies US-Based Hardware & Networking Companies with Over $20 Billion Revenue ($ in Millions Except Per Share Data) Comparable Public Companies – Operating Metrics(1) 45.7 x 11.5 x 10.6 x 6.0% 20.7 x 8.0% 15.0 x 0.

632 1.0 x 2.3 x 13.2 x 16. EMC Corporation Oracle Corporation Brocade Communication Systems.075 Foundry Networks 7/21/2008 2.5 x 8.392 $ 13.462 $ 2.5 x 15. Inc. 2008 ($ in Millions Except Per Share Data) Aardvark .5 x 8.4 x 7. 9 .063 621 633 Revenue Revenue EBITDA(1) EBITDA(1) 2.5 x 21.9 x 2.1 x 2.3 x 14.7 x 1.7 x 2.3 x 3.714 $ 1.147 611 542 2.085 301 375 5.466 1.386 288 320 1.777 Avocent 10/6/2009 1.6 x 8.235 $ 616 $ 587 $ 2.362 Sun Microsystems 4/20/2009 7.114 Data Domain 7/8/2009 2.075 $ 3.7 x 32.8 x 24.114 5.223 2.1 x 13. Inc.9 x 5.4 x 0.068 378 417 1.6 x 7.392 13.7 x 17.4 x 8. Target Name Date Value 3Com 11/11/2009 $ 3.4 x 39.7 x 9.Comparable M&A Transactions Equity Acquirer Name Hewlett-Packard Company Cisco Systems.110 2.104 1.256 12.5 x 5.7 x 32.9 x 12.075 2. Emerson Electric Co.4 x 11.4 x 9.6 x 39.899 Maximum 75th Percentile Median 25th Percentile Minimum $ $ Enterprise Trailing Operating Metrics Forward Trailing EBITDA(1) $ 152 154 105 53 623 156 Forward EBITDA(1) $ 110 110 93 64 559 125 559 121 110 97 64 EV / Trailing Valuation Multiples EV / EV / Forward Trailing EV / Forward Value Revenue Revenue $ 2.3 x 6.838 $ 2.1 x 10.3 x 7.0 x 2.147 288 320 623 $ 155 153 $ 117 53 Goldman Stanley (1) Excludes stock-based compensation and non-recurring charges.462 2.6 x 3.265 $ 1.1 x 0.9 x 0.256 $ 12.180 Starent Networks 10/13/2009 2.6 x 1.8 x 23.Aardvark Precedent Transactions Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since January 1.8 x 0.9 x 19.2 x 17.3 x 6.

39 $ 165.36 9.234 $16.99 $ 161.391) $918 $40 $888 $2.064 $ 11.374 ($1.36 $ 216.299 $13 $1.651 $ 75.83 $ 154.37 $ 190.971 $ 11.133 $ 19.857) ($6.19 7.11 6.33 $ 217.70 $ 210.90 $ 214.81 16.749 $ 69.42 $ 224.329 $ 24.282 $ 21.59 $ 211.332 $ 10.024) ($6.635 $ 17.58 $ 246.136 ($1.709) $1.74 $ 230.390 $10 $1.166) Terminal EBITDA Multiple: Model Uses “Base Case” Financial Projections Mid-Year Convention Used For PV Of Cash Flows $12.0 x Revenue: EBITDA: Operating Income: Less: Taxes Plus: Depreciation Plus: Amortization Plus: Stock-Based Compensation Less: Increase in Working Capital: Less: Capital Expenditures Unlevered Free Cash Flow Present Value of Free Cash Flow $53.Net Present Value Sensitivity .218 ($4.0% $ 150.06 $ 198.344 $1.40 $ 163.815 ($1.77 $ 185.0% 12.0% 14.0% $ 146.Aardvark Discounted Cash Flow Analysis ($ in Millions Except Per Share Data) Aardvark .324 $ 17.030 $ 20.54 $ 168.37 $ 223.673) ($5.0% 4.09 $ 177.189 $12.75 $ 231.248 ($2.256 $1.86 $ 172.0% 13.98 $ 196.631 $ 62.Cash Flow Projections FY 2010E FY 2011E FY 2012E FY 2013E FY 2014E DCF Assumptions: Discount Rate: 12.153 $1.18 $ 192.95 $ 159.Terminal EBITDA Multiples Discount Rate $ 204.59 $ 187.68 $ 198.27 $ 207.192 $28 $1.23 $ 182.0 x $ 220.038 $1.0 x $ 237.03 5.85 $ 204.44 15.0 x $ 204.211 $ 16.403 $ 23.430) ($5.665) $1.88 $ 177.26 $ 182.50 Terminal EBITDA Multiple Goldman Stanley 10 .46 $ 238.5% 7.0 x $ 254.0 x $ 187.140) $1.96 10.228) $1.81 $ 157.20 $ 172.97 $ 201.480 $ 19.119 Aardvark .761 $ 22.811 $ 10.919 $ 81.073 $37 $1.28 8.0% 11.795 $ 14.284 $ 15.962 $14.058 ($2.0 x $ 170.

Potential Acquisitions Goldman Stanley 11 .

for its chipset technology and integration with Aardvark’s existing products. it could make a wide variety of acquisitions – ranging from small “tuck-in” deals to acquire technology and IP to larger deals driven by customer or market share acquisition • Tier 1 Potential Acquisitions  “Tier 1” acquisition candidates are worth over $1 billion and would significantly boost Aardvark’s market share or result in substantial revenue or cost synergies  Leading candidates include ARM.Potential Acquisitions • Given Aardvark’s large cash balance. and Research in Motion – to capture additional share in the corporate smartphone market • Tier 2 Potential Acquisitions  “Tier 2” acquisition candidates are worth less than $1 billion and would enhance Aardvark’s core technology and fill in gaps in existing products  Potential acquisitions include specialized chipset and semiconductor companies as well as Web 2. social media.0. and mobile software companies Goldman Stanley 12 .

Potential Acquisition Candidates Tier 1 Acquisition Candidates Tier 2 Acquisition Candidates Goldman Stanley 13 .

00 Volume (MM) Goldman Stanley 14 . embedded memory. and interface IP. and reduced system cost. • System IP – Serves as the connection between processors. power efficiency. • Multimedia – ARM provides graphics processors that enable embedded graphics. and Toshiba.00 $0. Nokia. It also provides tools to optimize system-on-chip designs.00 $50. • Physical IP – Provides SoC integrated circuits and logic.00 Products: • Processors – ARM provides 32-bit embedded microprocessors based on a common architecture that delivers high-performance. LSI Logic.0 12.0 14.5B $204M $490M $7.0 6.0 0.0 2. • Tools – ARM subsidiaries provide compilers. National Semiconductor.97 20. audio.Company Profile: ARM ARM Holdings is a supplier of semiconductor intellectual property and components of digital electronic products.85 $531M $10.0 16. NVIDIA. (1) Financial data as of January 29.0 10. memory. and it licenses its IP to a wide network of hardware. and peripherals to ensure optimum performance. mobile.00 $100. Real Networks.0 $200.0 4. Samsung.00 Share Price $150. debuggers. simulators. UK 1700 1990 Financial Information(1): Market Cap: Cash: 2009 Revenue: 2009 EPS: 2010E Revenue: 2010E EPS: $250. Marketing EVP. and video applications. Sales ARM Holdings Headquarters: Employees: Founded: Cambridge. Key Partners: Electronic Arts.0 18. Management Team: Warren East Tudor Brown Graham Budd Mike Muller Tim Score John Cornish Ian Drew Antonio Viana CEO President COO CTO CFO EVP. and networking companies. $2. Rambus. Systems EVP. and other optimization tools for a wide variety of chip and processor families. Microsoft. 2010. It designs and licenses intellectual property rather than manufacturing and selling semiconductor chips.0 8.

• BlackBerry Curve 8500 – Includes Trackpad and dedicated media keys. worldwide compatibility. Tata Indicom. easy media sharing. ON 12. Brightstar. • BlackBerry Curve 8900 – Features thin. and 3G network support.00 $20. TMobile.2 MP camera.0 MP camera. Wi-Fi. 15 .0 70. Digital China.00 $10. and Vodafone.00 Products: • BlackBerry Pearl 3G – Provides Trackpad and dedicated media keys as well as SureType technology and 3G network support. Skype. Virgin. Sprint. Management Team: Jim Balsillie Mike Lazaridis Don Morrison Robin Bienfait Brian Bidulka David Yach Key Partners: AT&T.00 $0.0 30.0 0.0 90.00 $30.0 40. • BlackBerry Storm – Features Wi-Fi. IBM.5B $13B $3. In addition to its line of BlackBerry devices. and 3G network support. lightweight design as well as GPS and Wi-Fi support and 3.70 $17B $5. including a variety of software for the BlackBerry device. 2010. and 3.Company Profile: Research In Motion Research In Motion designs the BlackBerry smartphone and creates solutions for the worldwide mobile communications market. Verizon. • BlackBerry Bold – Provides extended battery life as well as GPS. $36B $2.2 MP camera.0 80.0 10.000 1984 Financial Information(1): Market Cap: Cash: 2009 Revenue: 2009 EPS: 2010E Revenue: 2010E EPS: $100.0 60.03 100.0 20.00 $50. GPXS. SurePress technology. Hewlett-Packard.0 50. Co-CEO Co-CEO COO CIO CFO CTO Research In Motion Headquarters: Employees: Founded: Waterloo.00 $70. • BlackBerry Tour 9630 – Provides GPS. and 2.00 $60. the company also provides enterprise server software to support businesses using the device.00 $40.0 Volume (MM) Share Price Goldman Stanley (1) Financial data as of January 29.00 $80.00 $90.

Process Recommendations Goldman Stanley 16 .

so we recommend conducting both processes simultaneously Depending on responses from Tier 1 and Tier 2 candidates. Goldman Stanley will reach out to Tier 2 candidates and introduce Aardvark as a potential acquirer M&A process with Tier 1 candidates will take significantly longer due to the scale of the companies. Goldman Stanley and Aardvark may do additional research to determine other potential acquisitions and then approach them Targeted Buy-Side M&A < 5 parties 6 months to 1 year Close-ended Higher success probability Broad Buy-Side M&A 10 – 100 companies Time required is highly variable Iterative process Lower success probability 17 Goldman Stanley .Key Recommendations • • • • We recommend engaging in targeted discussions with the Tier 1 acquisition candidates and assessing their receptiveness to M&A discussions At the same time.

Process Recommendation Targeted Discussions + Broader Search Specialized Negotiations With One Party Highly Targeted Process Broad M&A Process Broad Marketing RECOMMENDED • Combination of targeted discussions plus broader search conducted in background maximizes success probability and minimizes disruption to Aardvark • Additional parties contacted depend on responsiveness of Tier 1 and Tier 2 companies • Interested parties would sign NDAs and then proceed into due diligence and valuation discussions with Aardvark Goldman Stanley 18 .

Appendix Goldman Stanley 19 .

08 907.115 $6.049 $13.066 $15.286 $1.327 $11.017 $23.651 $41.111 $28.491 $24.005 $18.005 $20.469 $6.327 $13.382 $118.56 $10.014 $17.752 $8.94 $14.005 $23.511 $3.324 $1.572 $6.98 $15.976 $4.109 $1.905 $25.581 $830 $3.Aardvark Projected Income Statement ($ in Millions Except Per Share Data) Income Statement FY 2007 Revenue: Cost of Goods Sold: Gross Profit: Operating Expenses: Research & Development: Selling.76 Goldman Stanley (1) Excludes stock-based compensation and non-recurring charges.283 $6.655 $21.403 $16.811 $31.56 907.158 $78.33 907.133 $19.005 $22.578 $16.005 $15.495 $3.749 $37.296 $596 $2.735 $8.442 $759 $3.137 $1.17 $12.311 $34.649 $4.59 907.299 $13 $1.282 $8.351 $2.505 $24.496 $918 $40 $888 $62.831 $4.153 $75.320 $327 $0 $242 $4.268 $15.119 $6.458 $5.17 $8.59 907.390 $10 $1.507 $97.78 902.005 $12.223 $0 $0 ($45) ($90) ($90) ($90) ($90) ($33) ($81) $0 $0 $0 $0 $0 $8.976 $1.919 $44.006 $1.311 $7.329 $17.947 $12.93 889.740 $14.635 $17.073 $37 $1.235 $9.746 $19.038 $4.344 $24.566 $4.103 $496 $0 $516 FY 2009 FY 2010E FY 2011E FY 2012E FY 2013E FY 2014E $42.73 907.948 $33.480 $13.383 $22.715 $17.618 $61.510 $11. 20 .397 $734 $0 $710 $53.218 $653 $407 $424 $568 $1.139 $8.339 $8.780 $3.610 $20.789 $7. General & Administrative: Total Operating Expenses: Depreciation & Amortization of PP&E: Amortization of Intangibles: Stock-Based Compensation: Operating Income: Interest Income: Interest Expense: Other Income & Expense: Pre-Tax Income: Income Tax Provision: Net Income: Earnings Per Share (EPS): Diluted Shares Outstanding: EBIT(1): EBITDA : Levered Free Cash Flow: Book Value Per Share (BV): (1) FY 2008 $37.724 $3.037 $25.962 $19.348 $5.450 $25.562 $24.843 $9.70 $17.443 $1.234 $47.061 $47.184 $10.407 $647 $0 ($48) $5.324 $17.712 $1.192 $28 $1.345 $4.256 $81.450 $13.183 $21.523 $16.171 $19.030 $20.828 $3.214 $5.292 $4.430 $1.631 $31.605 $6.761 $22.780 $1.504 $5.038 $69.282 $14.735 $7.540 $1.216 $6.

9% 38.18 7.1 x 15.129 6.0% Valuation Statistics Share Company Name Hewlett-Packard Company Dell Inc.671 51.080 22.426 4.5 x 5.239 10.779 $ 124.401 $42.1 x 47.97 1.14 $ 3.056 926 1.41 1.18 1.41 (1.7% 22.163 10. Inc.380 12.7% 45.90 25.8% 28.631 $13.38 1.080 51.6 x 4.40 107.241 15.90 25.40 $ 107.665 $ 47.786 32.15 14.080 6.3% 6.5% 31.2 x 10.179 $ 16.06 $ 176.08 $ 3.9% 31. Intel Corporation Motorola.5 x 0.4 x 5.07 $ 114.4% 7.779 106.224 $ 92.927 (1.9 x 16.552 $ 124.5 x 3.Aardvark Comparable Public Companies US-Based Hardware & Networking Companies with Over $20 Billion Revenue ($ in Millions Except Per Share Data) Operating Statistics Share Company Name Hewlett-Packard Company Dell Inc.6 x 7.14 $ 0.796 $ 141.807 41.671 19.3 x 0.739 106.665 $ 192.59 21.784 39.080 32.15 14.076 $ 12.8% 6.6 x Enterprise Value / EBITDA(2) 2009 7.7 x 8.6 x 2.401 Enterprise Value / Revenue 2009 1.6 x P / E Multiple 2009 15.786 $ 34.6 x 2. Inc.3 x 16.87 8.786 6.2 x 10.8 x 3.807 $ 41.184 $16. Maximum 75th Percentile Median 25th Percentile Minimum Aardvark (1) Capitalization Equity Enterprise Price Value Value $ 47.056 926 1.239 10.941 12.7% 28.6 x 44.433 $ 18.5 x 8.1 x 0.179 $ 16.380 3.8 x 1. Intel Corporation Motorola.905 $ 53.224 92.332 0.430 55.0 x 0.3 x 3.796 $ 141.239 10.0% 14.7 x 2010E 6.0 x 16.433 $ 18.3 x 12.163 $ 10.3% 19.5 x 11.90 25.941 3.708 18.7 x 16.430 12.97 0.9% 38. Cisco Systems. 21 .927 $ 192. Maximum 75th Percentile Median 25th Percentile Minimum Aardvark (1) Capitalization Equity Enterprise Revenue EBITDA (2) Projected EPS Revenue (3) EBITDA Margin(2) 2009 14.6% 7.6 x Goldman Stanley (1) Share prices as of January 29.6 x 44.17 0.70) $9.7% 2010E 14.4 x 10.40 $ 107.708 18.3 x 2.07 $ 131.07 $ 114.332 $ 22.9 x 16.1 x 19.1 x 3. (2) Excludes stock-based compensation and non-recurring charges.6 x 7.739 106.3% 6.6 x 7.47 131.8% 3.47 131.430 55.8 x 5.3% 8.3 x 1.5 x 2.7% (6.076 12.70) 0.8% 18. Inc.224 92.2 x NM 47.1 x 5.3 x 3.552 $ 124.774 $ 12.9% 14.7% 3.129 0.671 34.2 x 29.457 22. Inc.2 x 2010E 12.15 14.90 25.3 x 2.79 1.0% 45.9% 8.779 $ 124. Cisco Systems.7% 7.665 23.784 39.224 $ 92.1 x 0.480 3.0 x 0.6% 8.1 x 2.3 x 11.774 0.6 x 16.17 21.4 x 23.430 22.1 x 2.4 x 10.07 $ 131.665 23.0 x 21.239 10.06 $ 176.457 22.241 15.15 14.739 $ 124.14 11.5 x 10. (3) Revenue growth from Apple’s FY2009 through FY2010E.3 x 4.40 107.186 $ 19.6 x 16.7 x 8.87 1.7% Price Value Value 2009 2010E 2009 2010E 2009 2010E Growth $ 47.3 x 2010E 1.5% 30.671 $ 19.0%) $ 47.4% 12.9% 30.47 114.4 x 6.8 x 0.5 x 0.186 $ 3.241 15.426 4.430 $ 114.14 (6.241 15.38 18.779 106.0%) 25.430 $ 114. 2010.739 $ 124.47 114.786 12.79 $ 0.

0% 1.00% 9.239 34. 22 .241 27.38% 7.87 3.Aardvark DCF Analysis – WACC Calculation ($ in Millions Except Per Share Data) Discount Rate Calculation .830 $ 114. Median Aardvark Beta Debt Value Tax Rate 1.94 1.739 22. Inc.0% 1.Assumptions Risk-Free Rate: Equity Risk Premium: Interest Rate on Debt: 4.0% 1.15 1.16 Aardvark .57 (1) (1) (1) Unlevered Beta 0. 2010.04 $ 15.779 20.Levered Beta & WACC Calculation Unlevered Beta Aardvark 1. Intel Corporation Motorola.23 1.16 12.17 2. Inc.31 3.796 Cost of Equity Based on Comparables: Cost of Equity Based on Historical Beta: WACC Goldman Stanley (1) Financial data as of January 29.00% Comparable Companies .224 33.37% 12.793 25.50% $0 $ 176.16 1.16 Debt (1) Equity Value (1) Levered Tax Rate 30% Beta 1.18 1. Cisco Systems.Unlevered Beta Calculation Levered Equity Name Hewlett-Packard Company Dell Inc.273 131.224 107.58 1.23 10.50% 15.0% 1.0% 1.925 14.