The Week Ending Friday, August 2, 2013

Aerospace, Defense and Government Services Weekly Industry Update

Weekly Industry Snapshot

Industry News

The Week Ending Friday, August 2, 2013

EADS is rebranding itself under the Airbus moniker. The Company will be renamed Airbus Group as major changes in its corporate structure are announced. Raytheons Joint Land Attack Cruise Missile Defense Elevated Netted Sensor (JLENS) will be deployed about 10,000 feet above Washington, DC sometime in the next year to defend against cruise missiles and other unmanned and manned threats. The Federal Aviation Administration approved two small UAVs for commercial use. Defense Secretary Chuck Hagel said that the US would have to reduce the size of its armed forces or its investment in new technology if budget cuts were not lifted. The Senate confirmed James Comey as FBI Chief in a 93-1 vote. The DoD will purchase 71 more F-35 fighter jets from Lockheed Martin. The deal, worth more than $7.0 billion, is less costly than a similar deal that was signed last year: 36 of the aircraft will be purchased for 4% less than last year while the other 35 will be purchased for 8% less.

Notable M&A Activity

Michael Baker Corporation announced that it entered into a definitive merger agreement to be acquired by Integrated Mission Solutions, an affiliate of DC Capital Partners. Smartronix acquired the Telemetry and Data Systems Business Unit of Wyle. Accenture Federal Services agreed to acquire ASM Research.

Capital Markets
1 Week 2.7% 4.1% 3.6% (0.9%) 1.0% (0.5%) (0.0%) (0.3%) % Change 4 Weeks 12.4% 11.1% 13.7% 3.0% 7.6% 8.4% 7.1% 4.3% YTD 29.9% 29.6% 27.1% 32.7% 31.5% 34.5% 39.5% 18.2%

Defense Prime Index Government Services Index Defense Systems Index Middle Market D&G Services Index Large Cap Aerospace Index Mid Cap Aerospace Index Small Cap Aerospace Index S&P 500

Source: Public Filings; Capital IQ as of 08/01/13

Industry News
EADS is rebranding itself under the Airbus moniker. Its board of directors approved CEO Tom Enders proposal to change the Companys name to Airbus Group. Meanwhile, the Companys corporate structure is undergoing major changes as well. Defense and Space units Cassidian and Astrium will be merged and renamed Airbus Defense and Space, while Eurocopter will be renamed Airbus Helicopters. These changes reflect a dramatic strategic change as the Company no longer aims to balance its commercial and defense/space segments. Airbus Groups civil aircraft business will generate nearly twice as much revenue as all other Airbus Group segments combined.

The Week Ending Friday, August 2, 2013

Raytheons Joint Land Attack Cruise Missile Defense Elevated Netted Sensor (JLENS) will be deployed about 10,000 feet above Washington, DC sometime in the next year. The JLENS aerostat system, which cost more than $2 billion to develop, reportedly provides more warning time than conventional surveillance aircraft. JLENS will allow the Army to see for 320 miles in any direction from 10,000 feet above the ground. The aerostat is expected to be able to stay in the air for 30 days without refueling and is capable of detecting cruise missiles and other unmanned and manned threats using the Patriot and Standard Missile 6 defenses.

The Federal Aviation Administration (FAA) approved two small UAVs for commercial use. The UAVs first flights will take place off the coast of Alaska later this summer. Both UAVs, which are manufactured by AeroVironment and Boeing subsidiary Insitu, are designed for aerial surveillance. The FAA revealed that a major energy company will fly them in international waters, though it did not identify the company or specify the purpose for which the aircraft will be used. The Insitu UAV is expected to support emergency response crews for oil spill monitoring and wildlife surveillance.

Defense Secretary Chuck Hagel delivered a speech detailing how the US would have to reduce its global security measures if budget cuts were not lifted. He said that the US would have to cut the size of its armed forces or its research into new technology. If technology were prioritized, Hagel estimated that the active-duty Army would shrink between 21% and 33% from its peak, while the Marine Corps would downsize by about 10%. The option cited by Hagel would be to cancel or limit weapons programs, slow the development of cyber warfare tools, and reduce the number of Special Operations forces.

Source: Public Filings; Industry Newswires and Capital IQ as of 08/01/13

Quarterly Earnings Announcements

Company For the Quarter Ending
6/30/2013 6/28/2013 6/29/2013 6/30/2013 6/30/2013 6/30/2013 6/30/2013 6/30/2013 6/30/2013 6/29/2013

The Week Ending Friday, August 2, 2013

Consensus Estimates Revenue EPS

$1,410.7 $1,312.0 $657.2 $633.8 $603.5 $226.5 $80.1 $78.6 $72.2 $75.2 $0.37 $0.87 $0.82 $0.56 $0.67 $0.31 -$0.04 $0.09 $0.12 $0.44

Actual Revenue
$1,427.0 $1,359.6 $670.6 $605.1 $617.7 $230.2 $78.3 $83.0 $72.1 $70.8

EPS
$0.48 $0.51 $0.90 $0.58 $0.70 $0.28 -$0.06 $0.14 $0.11 $0.34

% Difference from Estimate Revenue EPS

1.2% 3.6% 2.0% -4.5% 2.4% 1.6% -2.3% 5.5% -0.2% -5.8% 29.7% -41.4% 9.8% 3.6% 4.5% -9.7% -50.0% 55.6% -8.3% -22.7%

Source: Public Filings; Capital IQ as of 08/01/13

Announced M&A Transactions

The Week Ending Friday, August 2, 2013

will acquire

has acquired

Telemetry and Data Systems

Announced July 29, 2013

Notes Integrated Mission Solutions (IMS), a portfolio company of DC Capital Partners, will acquire Michael Baker for $40.50 per share. Baker, which provides engineering, design, planning, and construction services to the defense industry, will expand IMSs offering of mission critical services. The per share offer price represents a 55% premium to Bakers 90-day average share price.

Closed July 29, 2013 Notes

Smartronix acquired Wyles Telemetry and Data Systems business unit, a provider of aerospace engineering and IT services to the government. The acquisition will help Smartronix break into the expanding aerospace industry, a major goal of the companys diversification strategy. Telemetry and Data Systems facilities will be integrated with the Smartronix Products Engineering business unit.

Source: Capital IQ and InfoBase as of 08/01/13

Announced M&A Transactions

The Week Ending Friday, August 2, 2013

has acquired

will acquire

Closed July 30, 2013

Notes National Response Corporation, a portfolio company of JF Lehman & Company, acquired OP-TECH Environmental Services, a provider of specialty environmental remediation and industrial services in the Northeast and Mid-Atlantic. The acquisition will complement NRCs existing West Coast customer base and expand its environmental emergency response services.

Announced July 31, 2013 Notes

Accenture will acquire ASM Research, a provider of advanced information solutions and services to US defense and federal health clients. The deal will improve Accentures access to opportunities with the Department of Defense and Department of Veterans Affairs, particularly in the military health industry. ASM also has extensive experience in data warehousing, data analytics, and software development.

Source: Capital IQ and InfoBase as of 08/01/13

Public Market Valuations: EV/2013E EBITDA Multiples

Defense and Government Services
Defense Prime Index
Average: 7.4x

The Week Ending Friday, August 2, 2013

Average: 7.9x Median: 7.8x

Government Services Index

Average: 6.6x

Defense Systems Index

Average: 8.9x

Middle Market Index

Average: 8.5x

8.1x
LLL

7.8x
RTN

7.5x
LMT

7.2x
GD

6.6x
NOC

7.9x
SAI

7.8x
BAH

6.9x
CACI

6.4x
MANT

4.0x
CSC

11.8x
FLIR

10.4x
TDY

9.1x
CUB

7.8x
HRS

5.5x
XLS

14.9x
KEYW

8.7x
KTOS

8.0x
ICFI

6.0x
DRCO

4.7x
NCIT

Aerospace
Large Cap Aerospace Index
Average: 10.6x

Average: 11.3x Median: 9.3x

Mid Cap Aerospace Index

Average: 8.0x

Small Cap Aerospace Index

Average: 15.4x

13.7x 12.7x 12.3x 10.8x

AVAV PCP BEAV UTX

9.6x
COL

9.1x
BA

8.4x
TXT

8.1x
BBD.B

11.4x
HXL

8.9x

8.3x

7.9x
TGI

7.8x
CW

7.0x
ORB

6.6x
AIR

6.4x
SPR

46.7x 14.3x 12.7x 12.3x 11.5x 10.1x

AVAV DGI HEI WAIR GY ATRO

8.6x
GILT

7.3x
LMIA

ESL MOG.A

Source: Public Filings; Capital IQ as of 08/01/13

Capital Markets: Overview

60.0%

(Defense and Gov. Services) Last 52 Weeks Custom Index Performance

The Week Ending Friday, August 2, 2013

52.8% 41.2%

50.0% 40.0% 30.0%

25.1%

38.7% 35.6%

20.0%
10.0% 0.0%

-10.0%
Aug 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013

Defense Prime Index Middle Market Defense & Government Services Index S&P 500 Index

Government Services Index Defense Systems Index

Index Constituents and Stock Price as a % of 52 Week High

Defense Prime Index Government Services Index Defense Systems Index Middle Market Index

100%

99%

100%

100%

100%

94%

100%

97%

97%

100%

97%

99%

100%

100%

100%

83%

99%

76%

98%

62%

90%
7

Source: Public Filings; Capital IQ as of 08/01/13

Capital Markets: Overview

60.0% 50.0%

(Aerospace)

The Week Ending Friday, August 2, 2013

Last 52 Weeks Custom Index Performance

60.6%

45.8%

40.0% 30.0%

40.6%

25.1%

20.0% 10.0%

0.0%
-10.0%
Aug 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013

Large Cap Aerospace Index

Mid Cap Aerospace Index

Small Cap Aerospace Index

S&P 500 Index

Index Constituents and Stock Price as a % of 52 Week High

Large Cap Aerospace Index Mid Cap Aerospace Index Small Cap Aerospace Index

100%

99%

97%

96%

83%

100%

91%

99%

94%

100%

99%

98%

98%

96%

96%

93%

92%

91%

97%

98%

85%

100%

80%

99%

Source: Public Filings; Capital IQ as of 08/01/13

Capital Markets: Stock Performance (Defense and Gov. Services)

Last 4 Weeks
FLIR Booz
Harris NCI

The Week Ending Friday, August 2, 2013

Last 52 Weeks
19.5%
18.6% 17.1%

CSC VSE
FLIR Exelis 61.0%

103.9%
102.4%

14.1% 14.0% 13.2%

12.5%

57.4% 44.2% 41.9%

41.8%

Lockheed Raytheon SAIC

Northrop

ManTech Northrop ICF

General Dynamics

12.3% 11.2% 10.8%

9.9% 9.5%

40.0% 38.1% 36.4%

36.1% 35.9%

ManTech General Dynamics CACI

Kratos L-3

Lockheed L-3 SAIC

Raytheon Harris

9.3% 8.7% 8.6%

8.0%

35.6% 32.4% 30.2%

25.0%

Exelis Dynamics Research CSC

Teledyne

Teledyne Kratos S&P 500

CACI

6.6% 5.9% 5.7%

3.9% (0.0%)

22.4% 21.4% 20.4%

8.1% 6.2%

Cubic S&P 500 ICF

VSE KEYW(6.1%)

KEYW Booz Dynamics Research

Cubic NCI

(14.7%) 20% 40% 60% 80% 100% 120%

(10%)

0%

10%

20%

30%

(40%) (20%) 0%

Defense Prime Index

Government Services Index

Defense Systems Index S&P 500 Index

Middle Market Defense & Government Services Index

Source: Public Filings; Capital IQ as of 08/01/13

Capital Markets: Stock Performance (Aerospace)

Last 4 Weeks
Spirit AeroSystems Curtis-Wright Rockwell Collins AeroVironment 18.8% 17.2% Gilat GenCorp B/E Aerospace AAR

The Week Ending Friday, August 2, 2013

Last 52 Weeks
123.4% 117.8%

15.2% 14.9% 13.4% 13.1% 13.1% 12.0% 11.5% 9.8% 8.9%

7.0% 5.9% 5.7% 5.6%

91.0% 86.6% 74.4% 66.2% 59.5% 57.8% 56.9% 54.4% 54.4%

49.5% 48.2% 47.7% 46.3%

B/E Aerospace UTC Esterline HEICO Textron Ametek AAR Wesco Aircraft Holdings DigitalGlobe S&P 500
Moog Bombardier Hexcel Orbital Sciences

DigitalGlobe HEICO Wesco Aircraft Holdings Hexcel Ametek Moog Esterline Curtis-Wright Boeing Rockwell Collins
Orbital Sciences Precision Castparts UTC Bombardier

5.3% 4.6% 4.0% 3.7% 2.8% 0.5% (0.5%) (2.4%) (3.6%) 0% 5% 10% 15% 20% 25%

45.7% 44.0% 41.4% 30.9% 27.1% 25.0% 13.5% 11.3% 4.8%

2.9%

Boeing GenCorp LMI Aerospace Triumph Precision Castparts Astronics

Triumph Astronics S&P 500 Textron Spirit AeroSystems LMI Aerospace AeroVironment

Gilat (5.4%) (10%) (5%)

0%

30%

60%

90%

120%

150%

Large Cap Aerospace

Mid Cap Aerospace

Small Cap Aerospace

Index

Source: Public Filings; Capital IQ as of 08/01/13

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Capital Markets: Market Movers

(Aerospace, Defense and Gov. Services)

The Week Ending Friday, August 2, 2013

Top 3 Overperformers
Company Market Close One Week Change Recent News
Booz Allen Hamilton announced quarterly earnings that exceeded analyst expectations for both revenue and EPS by 1.2% and 29.7%, respectively. NCI announced second quarter 2013 revenue exceeding the midpoint of management's guidance range issued last quarter and diluted earnings per share (EPS) exceeding the high end of guidance by $0.02. Dynamics Research announced Q2 earnings and updated its Q3 earnings guidance. The company provided EPS guidance of $0.12-0.14 for Q3, compared to the Thomson Reuters consensus EPS estimate of $0.12.

$20.85

10.4%

$4.93

10.2%

$6.04

9.2%

Top 3 Underperformers
Company Market Close One Week Change Recent News
KEYW announced quarterly earnings that fell short of analyst expectations for both revenue and EPS by 2.3% and 50.0%, respectively.
Astronics missed Wall Streets expectations on revenue and EPS by 5.8% and 22.7%, respectively.

$12.53 $39.16

-7.0% -6.7%

$79.15

-6.0%

Triumph Group declared mixed results for its fiscal Q1, as the Companys revenue dropped short of consensus outlooks.

Source: Public Filings; Capital IQ as of 08/01/13

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Short Interest
4.0% 3.5% 3.0% 2.5% 2.0% 1.5%

(Aerospace, Defense and Gov. Services)

The Week Ending Friday, August 2, 2013

Last 52 Week Median Short Interest

2.4%

2.0%

1.0%
Aug 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013

Defense and Government Services

Aerospace

Short Interest as of August 1, 2013

Defense and Government Services
1.3% 9.8% 2.4% 4.6% 9.6% 0.8% 2.3% 0.2% 3.4% 3.5% 2.6% 2.0% 1.4% 14.6% 1.2% 2.1% 7.4% 20.1% 0.1% 2.9% 1.6%

Aerospace
0.4% 2.6% 9.6% 2.8% 1.6% 1.8% 1.1% 1.4% 30.8% 0.0% 1.9% 4.6% 1.0% 2.1% 0.0% 4.9% 2.5% 3.8% 2.1% 1.3% 4.9% 0.9% 1.1% 2.1%

Source: Public Filings; Capital IQ as of 08/01/13

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Dry Powder Calculations (Defense and Gov. Services)

($ millions)

The Week Ending Friday, August 2, 2013

Defense Prime Index

3x LTM EBITDA Less LT Debt Plus Cash Dry Powder

$11,067.0 3,907.0 3,757.0 $10,917.0

$4,725.0 3,630.0 328.0 $1,423.0

$16,041.0 6,140.0 2,845.0 $12,746.0

$10,851.0 5,933.0 4,904.0 $9,822.0

$10,083.0 4,732.0 2,467.0 $7,818.0

Government Services Index

3x LTM EBITDA Less LT Debt Plus Cash Dry Powder

$1,644.0 1,704.0 385.4

$1,005.4 687.8 56.3

$5,998.5 2,732.0 2,054.0

$561.7 200.0 193.6

$2,616.0 1,298.0 563.0

$325.4

$373.9

$5,320.5

$555.3

$1,881.0

Defense Systems Index

3x LTM EBITDA Less LT Debt Plus Cash

$425.6 102.9 212.5 $535.2

$2,043.0 649.0 259.0 $1,653.0

$1,131.9 394.8 492.4 $1,229.6

$3,378.9 1,735.1 321.0 $1,964.8

$1,043.1 628.1 70.1 $485.1

Dry Powder

Middle Market Defense & Government Services Index

3x LTM EBITDA Less LT Debt Plus Cash

$83.7 88.9 0.7 ($4.5)

$267.2 75.0 5.5 $197.6

$76.0 90.1 2.8 ($11.3)

$313.2 647.2 51.6 ($282.4)

$54.8 10.0 1.0 $45.8

$212.3 145.2 0.3 $67.4

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Dry Powder

Source: Public Filings; Capital IQ as of 08/01/13

Dry Powder Calculations

(Aerospace)

The Week Ending Friday, August 2, 2013

($ millions)

Large Cap Aerospace Index

3x LTM EBITDA Less LT Debt Plus Cash Dry Powder

$2,609.0 1,323.7 177.3 $1,462.6

$2,074.2 1,959.8 572.4 $686.8

$23,949.0 9,578.0 8,694.0 $23,065.0

$3,309.0 7,257.0 0.0 ($3,948.0)

$7,570.9 3,807.2 0.0 $3,763.7

$3,201.0 1,165.0 354.0 $2,390.0

$3,825.0 3,615.0 459.0 $669.0

$31,899.0 21,656.0 4,909.0 $15,152.0

Mid Cap Aerospace Index

3x LTM EBITDA Less LT Debt Plus Cash Dry Powder

$559.5 708.6 75.3 ($73.8)

$925.3 948.0 143.0 $120.3

$1,038.6 779.4 169.2 $428.3

$903.6 314.0 56.7 $646.3

$1,057.8 784.8 161.7 $434.8

$477.9 147.0 210.7 $541.6

$466.2 1,176.7 313.1 ($397.4)

$2,040.4 1,413.8 18.5 $645.1

Small Cap Aerospace Index

3x LTM EBITDA Less LT Debt Plus Cash

$44.2 0.0 75.3

$119.5

$126.6 25.5 16.5

$117.7

$197.7 707.4 134.6

($375.1)

$655.2 1,146.4 273.7

($217.5)

$95.2 47.6 71.5

$119.1

$597.3 228.5 16.9

$385.7

$132.7 279.0 0.8

($145.5)

$579.9 580.0 61.0

$60.9

Dry Powder

Source: Public Filings; Capital IQ as of 08/01/13

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About The McLean Group

The Week Ending Friday, August 2, 2013

Founded in 1997, The McLean Group is a national, middle market investment bank with deep expertise in a variety of industry verticals. Headquartered in McLean, VA, The McLean Group is among the largest independent middle market investment banks in the region. Our core advisory services include:

Mergers & Acquisitions The McLean Group uses its considerable experience and expertise in the aerospace, defense and government services industry to guide its clients through each stage of the mergers & acquisitions (M&A) process and ultimately identify the most probable and suitable candidates to complete transactions under the most favorable terms.

Business Valuation & Litigation Support As a core competency and complement to its M&A business, The McLean Group provides business valuation services, including intangible asset and financial security valuations for a variety of transactions, financial reporting and tax purposes. In addition, The McLean Group has the experience and credentials necessary to support litigation proceedings, including quantifying economic damages and valuing a minority interest in a business. Strategic Consulting The McLean Group's Strategic Consulting business provides transaction, financial and interim management services to companies ranging from start-up entities to publicly-held corporations across an assortment of industries.

Capital Formation The McLean Group arranges private equity, venture capital, senior debt and subordinated debt to support clients expansions, M&A, refinancings, recapitalizations, leveraged buyouts and other shareholder liquidity objectives.

McLean Securities, a wholly-owned affiliate of The McLean Group, is a registered broker/dealer with the Financial Industry Regulatory Authority (FINRA) and a Member, Securities Investor Protection Corporation (SIPC).

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Recent ADG Advisory Experience

The Week Ending Friday, August 2, 2013

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Contact Information

The Week Ending Friday, August 2, 2013

The McLean Group 7900 Westpark Drive, Suite A320 McLean, VA 22102 Main: 703.827.0200 Fax: 703.827.0175

Aerospace, Defense and Government Services Team

Joe Golden Principal jgolden@mcleanllc.com Greg Boucher Managing Director gboucher@mcleanllc.com John Stack Managing Director jstack@mcleanllc.com Cameron Hamilton Principal chamilton@mcleanllc.com Kathleen Crow Managing Director kcrow@mcleanllc.com Harry Ward Director hward@mcleanllc.com Mitch Martin Principal mmartin@mcleanllc.com Brent Lorenz Vice President blorenz@mcleanllc.com Greg Woodford Senior Managing Director gwoodford@mcelanllc.com Gregory Nossaman Managing Director gnossaman@mcleanllc.com

Disclaimer: The McLean Group does not provide accounting, tax or legal advice. The contents of this document are believed to be reliable, however The McLean Group, LLC makes no representation as to the accuracy or completeness of this information.

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