1. Sam Pearlstein Managing Director SpeedNews Aerospace & Defense Industry Suppliers Conference 2003 July 29, 2003 Defense Consolidation

2. 7/29/20031 Agenda Investment Summary Historical Consolidation Transformation And Defense Industrial Base Issues Current Consolidation And M&A –Public And Private Market Values –Recent Capital Raising & Transactions –Mid-Tier Consolidation –Return On Capital Other Trends Conclusion

3. 7/29/20032 Investment Summary Defense Spending Increasing Defense spending growth began in FY98 after six years of decline Historical valuation range of defense companies is 5-10x EBITDA Outlay growth 8% in FY03-05 and 6% through FY03-08 $80B FY03 supplemental has $53B for war and $4.1B for procurement, R&D Homeland security is a $36 billion additional opportunity Iraq lessons and transformation could change types of weapons purchased Outsourcing opportunities for small and mid-tier contractors International contracts take time

4. 7/29/20033 Defense Outlays Increasing Source: US Treasury Department

5. 7/29/20034 Industry Consolidation This chart is just a sampling of defense M&A activity. Source: DoD, company data

6. 7/29/20035 European Consolidation This chart is just a sampling of defense M&A activity. Source: SIPRI

7. 7/29/20036 Current Defense Themes Source: Jefferies & Company, Inc., Department of Defense Transformation Network-centric warfare Threat-based to capabilities-based Precision-strike Joint operations Sensor to shooter Preventing friendly fire- “blue on blue”

8. 7/29/20037 Industrial Base Transformation Shifting to operational effects and away from platforms DoD’s primary operational effects include Combat Support, Power Projection, Precision Engagement, Integrated Battlespace, Homeland Protection Will this change DoD view toward industry consolidation? Platforms still the significant driver of dollars in defense budgets for contractors Little short term impact from efforts to involve commercial companies by DoD, but possibly more competition over long term

9. 7/29/20038 CONSOLIDATION & M&A

10. 7/29/20039 Public Defense Stock Multiples Source: Factset, Baseline, Department of Defense

11. 7/29/200310 Public Vs. Private Market Value 2001-2002 was a unique time period with public market multiples above 10x EBITDA exceeding private multiples Public market multiples have fallen while strong spending is finally emerging Largecap defense stocks trade at 8.6x 2004E EBITDAP, smallcap defense stocks average 7.4x. Key comparison of private multiples, public multiples and cost of capital. Key drivers now for M&A are programs/backlog/growth.

12. 7/29/200311 M&A Factors Continued focus on cash flow and EBITDA multiples Market multiples understate acquisition multiples, e.g. Veridian acquisition at 25-30% higher than market price reflects control premium Higher growth (such as IT, electronics) may command multiples at high end of historic 5-10x EBITDA range (Veridian was 12x) Lower multiples often for smaller and 3rd tier companies Recent 6-12x EBITDA range in multiples shows private multiples differentiate among companies and public multiples often do not.

13. 7/29/200312 M&A Factors Continued Number of commercial aerospace M&A follows delivery cycle While low multiples during downturn, few sellers at these prices

14. 7/29/200313 Plenty Of Capital Available Source: Jefferies & Company, Inc. estimates, company data

15. 7/29/200314 Recent Large Transactions Source: company data, Jefferies & Company, Inc. estimates

16. 7/29/200315 Recent Mid-Size Transactions Source: company data, Jefferies & Company, Inc. estimates

17. 7/29/200316 Many Mid-Tier Consolidators ATK, DRS, EDO, L-3, Integrated Defense, United Defense, Esterline, Herley, Crane, others EPS accretion easier with low interest rates and no goodwill amortization Still many defense companies available for consolidation Primes continue to divest small units and factories to focus on core competencies Second and third tier trying to restore customer/supplier balance as perception that consolidation left them with fewer customers and more competition.

18. 7/29/200317 Low Interest Rates Help Source: Jefferies & Company, Inc.

19. 7/29/200318 Questions For Consolidators What will selling price/multiple of Integrated Defense Technologies be (and who will be the buyer)? Or will it come off the market? Will investors pay premium for acquisition-driven growth? Recent trends suggest no. How many $50-100 million defense properties are out there to consolidate? What is the exit strategy and will there be consolidation within the mid-tier group? What will be the strategy for Homeland Security? Buy, joint-venture, license, etc.?

20. 7/29/200319 How To Generate Return Objective is for ROC to be higher than cost of funds Typical focus is accretive acquisitions But to create value, need to be disciplined on price and integrate the business Good examples are General Dynamics, Alliant Techsystems, United Technologies

21. 7/29/200320 Return On Capital Varies Source: Jefferies & Company, Inc., Baseline, Factset, company data

22. 7/29/200321 Other Trends Buy American legislation pending but unlikely to pass as it would be disruptive and costly to defense contractors Weak dollar potentially makes US purchases easier for foreign entities? Pension expense & reimbursement impact on valuation

23. 7/29/200322 Conclusion Consolidation will continue Low interest rates affects pricing Accretion is not sufficient to create value Investors paying less for acquired growth

24. 7/29/200323 Disclaimer Additional information available upon request. This material has been prepared by Jefferies & Company, Inc. ("Jefferies") a U.S.-registered broker-dealer, employing appropriate expertise, and in the belief that it is fair and not misleading. It is approved for distribution in the United Kingdom by Jefferies International Limited ("JIL") regulated by the Financial Services Authority ("FSA"). The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore except for any obligations under the rules of the FSA, we do not guarantee its accuracy. Additional and supporting information is available upon request. This is not an offer or solicitation of an offer to buy or sell any security or investment. Any opinion or estimates constitute our best judgment as of this date, and are subject to change without notice. Jefferies and JIL and their affiliates and their respective directors, officers and employees may buy or sell securities mentioned herein as agent or principal for their own account. This material is intended for use only by professional or institutional investors falling within articles 19 or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001and not the general investing public. None of the investments or investment services mentioned or described herein are available to other persons in the U.K. and in particular are not available to "private customers" as defined by the rules of the FSA or to anyone in Canada who is not a "Designated Institution" as defined by the Securities Act (Ontario)."