December 2004

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Acquisition of REMEC Defense and Space

• December 2004

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Highlights

• REMEC Defense
• is a leading company in the field of microwave
  assemblies (IMAs) and sub systems for radar and
  communications.
• delivers a leading position in active, as well as
  extending Cheltons passive, microwave sub
  systems and components capability.
• participates on a host of top US defence
  programmes and platforms including F-16, F/A-18,
  F/A-22, F-35 (Joint Strike Fighter), the Joint
  Common Missile, AMRAAM, AARGM, Tomahawk, and Sea
  Sparrow.
• doubles the revenues of Cheltons microwave
  business in the US.
• has had a compound annual revenue growth over the
  last two years of 15 which is expected to
  continue.
• On completion, the transaction is anticipated to
  be immediately earnings enhancing.

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Acquisition Criteria and Process

• Existing and/or adjacent market
• Product or technology extension
• Minimum 9 post-tax ROIC
• Avoid turnaround situations
• Growth businesses
• Synergies are upside not used to justify price
• Rapidly leverage towards average ROIC

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REMEC Defense and Space Division

• Wholly owned subsidiary of REMEC Inc
• HQ in San Diego
• Manufacturing in San Diego and Tijuana
• 1100 employees
• Excellent management and technical expertise
• Leading technology in integrated microwave
  assembly (IMA) and subsystem participation
  supports revenue growth
• Capitalise on outsourcing from primes
• Captures higher value content per platform
• Technology discriminator
• Strong financial performance
• Revenue CAGR 15 over past two years
• Strong order book coupled with excellent sole
  source programme positions

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Major Programmes

• F-16 Tactical Fighter for the US Air Force and
  International Markets
• F-18 Tactical Fighter for the US Navy
• F/A-22 Tactical Fighter for the US Air Force
• F-35 Joint Strike Fighter for the US Air Force,
  Navy and Marines
• Integrated Defensive Electronic Countermeasure
  System (IDECM) for the US Navy
• Advanced Medium Range Air-to-Air Missile (AMRAAM)
  program for the U.S. Air Force
• Longbow Missile and RADAR programs for the US
  Army
• Standard Missile for the US Navy and
  International Markets
• Tomahawk Cruise Missile for the US Navy
• Tube Launched, Optically Tracked, Wire Guided
  (TOW) Missile for the US Army
• New Evolved Sea Sparrow (ESSM) Missile for the US
  Navy and International Markets
• Advanced Anti-Radiation Guided Missile (AARGM)
  for the US Navy 

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Major Customers

• ATK
• BAE Systems
• Boeing
• ITT Industries
• Lockheed Martin
• Northrop Grumman
• Raytheon

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Financials

• Consideration 260m in cash.
• Effective price 225m.
• NPV of tax benefit from goodwill amortisation.
• Growth rates to continue trend at 15 per annum.
• Prospective multiple of circa 11.7 x 2005
  expected ebita.
• Anticipated to be immediately earnings enhancing
  upon completion.
• Expected to deliver returns above cost of capital
  by 2007.

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Summary

• Greatly enhances Chelton Microwaves already
  strong business and technology.
• Delivers leading position in active microwave sub
  systems.
• Critical part of architecture in Network centric
  warfare.
• Rapid growth, far above Aerospace and Defence
  average.
• Excellent position on US DoD programmes for 25
  years.
• Strong financial returns.

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