Transformation Strategy

OPTION 2 Create sizable NCW / C4ISR footprint ,[object Object],[object Object],[object Object],Growth Strategy Development A Context For Evaluating Strategic Alternatives Market Trends ,[object Object],[object Object],[object Object],Industry Trends ,[object Object],[object Object],[object Object],[object Object],[object Object],Customer Trends OPTION 1 Grow platform electronics market position OPTION 3 Capitalize current value – exit at current multiples Acquisition strategy addresses Options 1 and 2 ,[object Object],[object Object],[object Object],[object Object],[object Object],SA

[object Object],[object Object],[object Object],Defense Market Themes and Implications Mission Requirements Shaping Spending Priorities Evolution toward contingency operations as major mission driver: increasing demand for network connectivity, situation awareness and precision strike ,[object Object],Stability Operations Peacekeeping Failed States Local Engagement Measured Response Counter-Insurgency Guerilla Suppression Non-State Adversaries Local Engagement Flexible Response U.S. Military Deployments: # of Response Days (All U.S. Military Services) ,[object Object],[object Object]

Defense Market Themes and Implications NCW Focuses On Three Principal Priorities NCW becoming well-established in U.S. military doctrine and force structure planning: issues are pace of deployment and opportunity to establish significant position in a market characterized by limited new program opportunities ,[object Object],GEO/HIO Backbone LEO/MEO Users Theater Grid Tactical Grids Surface Grids Fixed Grid JTRS JFN Tactical Internet Link 11, IFDL Link 16 Broadband LOS AEHF TSAT , MUOS APS WIN-T ,[object Object],[object Object],Fix Target Assess Find Engage Track Joint Domain Platform Element Tactical NCW Sensor-to-Shooter Chain

[object Object],[object Object],[object Object],Defense Market Themes and Implications NCW Market Includes C4ISR And Other Components Sources: President’s FY05 Budget, GEIA 2004, CSP analysis Potential Network Centric Warfare Market FY2005-2009 Total NCW Market (2005-2009) = $348B ,[object Object],NCW market will remain more attractive than other segments – but is not immune from budget headwind NCW vs. Other Defense Investment FY00-FY05E (FY00=100) NCW investment has grown 50% faster than other investment

Defense Market Themes and Implications Summary: Significant Changes In Store For Defense Contractors ,[object Object],[object Object],[object Object],Major Defense Sector Market Themes Mission Environment Budget Outlook Defense Investment Transformation Strategy NCW/C4ISR Market ,[object Object],[object Object],[object Object],Need for SA to offset potential vulnerability to new platform cancellations and reduced buys of some in-production programs – but executing NCW growth strategy into budget headwinds will prove challenging ,[object Object]

Growth Strategy Development NCW market offers opportunity for SA Product/Capability Expansion ,[object Object],[object Object],[object Object],[object Object],[object Object],NCW strategy based upon internal growth alone insufficient to achieve leadership position ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Platform Electronics (Flight Controls, Displays, Mission Computing ) Communications, Navigation And Identification (CNI) Battle Management / Command & Control Intelligence, Surveillance & Reconnaissance (ISR) SA Systems Engineering & Integration

NCW Growth Strategy Development Two Distinct Roadmaps ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Action ,[object Object],[object Object],[object Object],Action Pros Cons ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Organic growth through existing and new Products Build substantial position by Acquisition Pros Cons

[object Object],[object Object],[object Object],[object Object],[object Object],Platform Electronics (Flight Controls, Displays, Mission Computing) Intelligence, Surveillance And Reconnaissance (ISR) Battle Management / Command & Control (BM/C2) Communications, Navigation And Identification (CNI) EDO Ultra Electronics Company footprints proportional to 2003 revenues. DRS Technologies Growth Strategy Development Priority Candidates Map Well To SA DRS and EDO are most strategically significant NCW candidates for SA SA Sierra Nevada Cubic

Potential Acquisition Opportunities DRS Technologies (DRS) ,[object Object],[object Object],[object Object],[object Object],Value Chain Position Lead Systems Integrator Prime Integrating Contractor Subsystems / Networks Platform Prime Element Prime Products Engineering and Technical Services Structural / Mechanical Platform Systems Propulsion C2 / BM ISR / EW Communications Weapons Some Capability Competitive Capability Leadership Position No Role C4I Surveillance and Reconnaissance A well-positioned electronics product portfolio in a number of market niches ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Potential Acquisition Opportunities – DRS Technologies A Broad – But Niche-Oriented – Electronics Products Portfolio Most significant capability gap is relatively nascent systems integration skills ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Strong Competitive Weak

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Transformation Strategy