Driving global growth

Message from the Chief Executive

"Our strategy and investment plans are 2008 Executive Committee Top Ten Objectives working to good effect and we are developing As a leadership population, we need to lead and engage our people at all levels in our Company to: a strong competitive advantage with a broad global portfolio of businesses, based on our 1. Meet 2008 f in ancia l targets and set chall enging and rea listic 6 . Grow our U.S . business, including execution of planned longer term plans investments six Home Markets:' 2. Deve lop our partnering approach to meet our customers' capability 7. Progress delive ry of the Sa udi Industrialization Plan and further requ irements develop busin ess in the Kingdom of Saudi Arabia 3 . Ensure cont inued quality application of our ma ndated business 8. Contin ue to implement the UK Defence Ind ustrial Strategy, policies and processes inclu ding execution of our transformation and investment plans 4. Further enhance program execution through schedule and cost 9. Progress export opportunit ies fro m each of our Home Markets performance 10. Co ntinue to drive performance in Safety, Eth ics, and Diversity 5. Progress development of our security capabilities in our Home Markets

Mike Turner Chief Executive

High lights of 2007 2007 has been anotiler busy yea r for BAE Systems. The marllet ancl our Delivering on our global strategy 45 ships and th e first Astute submarin e. The fi rst Type 45 destroye r, shareholders expect us to delive r yet another good year of financial resu lts Du ring 2007, our strategy Il as evolved to reflect the current position HMS Daring, successfu ll y co mpleted Iler stage one sea trials, bu ilt on improvi ng program performance and good execution of our Group and plans we Il ave in our Home Marllets in Au strali a, Saucli Arabia, performing beyond expectati ons. In Jul y, we receive d tile commitment - Ou r financial and program performance Strategy. Our overall performance once aga in reflects good progra m, cost Soutll Afri ca , Sweden, the UK, and the U.S . to tile UK 's Future Aircraft Ca rri er (CV F) program. Til is program and sclledule execution ac ro ss the Company, coupled Witll a focus on secures a major element of the UK 's nava l wo rllioad for yea rs to In til e U.S ., it has been a tremendous year for our Land & Arm aments - Saudi Arabian Typhoon order furtiler enllancing our long-term relationshi ps wi th our customers in eacll of business and we continu e to benefit from ve hi cle reset and refu rbisllment come and Il as enabled us to proceed towa rd tile con soli dation of th e our six Home Marllets. Tlli s peliormance Ilas provided a robu st base line to - Successful execution of ou r wheeled vehicle activities. Thi s is a co nsequence of the sustained high leve l of equi pm ent nava l sector as an important element of til e implementation of tile whi cll we can adcl stretcll an d th e delive ry of strategic opportunities. Our UK Defence Indu stri al Strategy (DIS). Our UK Land Systems bu siness strategy sllarellolders are pleased Witil tlleir investment and our strategy is use in U. S. military operations. The Armor Holdings acquisition Ilas accelerated de livery of our strategy to address the tactica l whee led ve hicle is investi ng in Systems Integration Facilities at Leicester. Tll is is a understood and widely supported. - Astute 'first of class' launch sector. major transform ation mil estone as we respond to th e chall enges set Our multi-Home Marllet strategy continues to generate opportunities out in the UK DIS, all owing faster, more cost-effective , and better for growtll, particularly in the Kingdom of Saudi Arabia, with worll on The relationsll ip between Sa udi Arabia and the UK has been ve ry importan t integrati on at lowe r ri sll. - Continued MRAP orders in the U .S. for a number of decades. Sustaining and growing our business in support the modernization of assets and tile Typhoon program under way, The UK Government's publi cation of the DIS version 2 (DI S 2) has -Successful Type 45 sea trials and the transition to a Home Market we ll advanced. of th at relati onship is a Iley objective. Therefore, th e signing in September 2007 by tile two governments of the contract to buy 72 Typll oon aircraft now been delayed into 2008 to talle account of th e diffi cult decisions Another notable success is the very strong growth in our land systems requ ired in tile UK MOD's cu rrent Planning Round 08 foll owing til e 2007 - Armor Holdings acquisition was of grea t signifi ca nce to BAE Systems, the UK, and Sa udi Arabia. Th e business where we are establi slling a clear globa l leadersllip position, implementati on of tile governm ent-to-government agreement lies at the Co mprehensive Spending Review. The fundamental objective for our whi cll was reinforced by tile acqui sition of Armor Hold ings . Ileart of tllis strategy and involve s moderni zation of ex isting assets in Co mpany and the rest of tile UK's defense industrial base is to ensure til at - UK Ca rrier decision the ori ginal pri nCiples art icu lated in til e UK DI S in December 2005 are In tile U.S., we co ntinue to see th e fruits of a we ll executed acqu isition addition to th e procurement of Typhoon. To ac hi eve bOtil the Kingdom's and main tained. To deli ve r value for money and meet current and future strategy witll good profitable growtll from wllat is now a ve ry our own goals, we are transitioni ng our Saud i bu siness to on e in whi ch eq ui pm ent needs of the armed forces , securing Tllrough-Li fe Capability substantial business. BAE Systems Ilas an even grea ter and growing in-Kingdom presence. Management and appropriate Long-Term Partnering Agreements (LTPAs ) will Our UK operations con tinue to acllieve good program sclledule and cost In th e UK, we have made good progress in further establishing our through­ be even more necessary under difficult budgetary condition s. performance, bui lding on tile sensible terms of business now being secured li fe bu sinesses with th e implementation of the multi-yea r Availabi li ty We also continue to malle good progress in developing our Au stralian, wi til tile UK Ministry of Defence (MOD). Transformation: Torn ado Airc raft Con tract (ATIAC) - a major achievement. In our nava l systems businesses, we have now launcll ed three Type South Afri ca n, and Swedish Home Marllets.

2 www. baesystems.com BAE Systems Company Strategy 2008 3 Driving global growth (continued)

"Looking forward into 2008, our three largest Home Markets - the U.S. , Saudi Arabia, and the UK - are clearly key to sustaining and growing the value of the Company:'

Th e MRAP program reflects both our industrial capacity and our ability to co llaborate acro ss sites and businesses globall y.

Ou r Company's reputation is of paramount importance to us all and we Delivering the strategy in 2008 expect tllat all of our employees accept ethica l behavior as an integral part Loolling fOlward into 2008, our tllree largest Home Marllets - tile U.S., of their worll . We Ilave establi shed an independent committee chaired by Sa udi Arab ia, and the UK - are clea rl y Iley to sustaini ng and growing the Lord Woolf, the former Lord Chief Justice of England and Wa les, to review va lu e of the Company. We must focus on delivering organic growth based and eva luate the Company's pol icies and processes - and their appli cation on bOtll cu rrent and planned IBP investments. We wil l also co ntinue to - relating to etllics and business conduct. Th e comm ittee's pursue acqu isitions in growth marllet segments. recommendations will be fully implemented . In the U. S. , organic growtll continues and opportunities exist fo r During 2007, we also thorougllly reviewed our po li cies and processes for further acquisitions. undertall ing export business. Exports will co ntinue to be important to the sustainment and growtll of our busin ess and we wi ll continue to 10011 for We are mov ing forward in Saudi Arab ia with asset modernization and and promote export opportunities from our six Home Marllets. th e Typhoon program. Our in-Kingdom plans and investments, in line wi tll our comm itments to the Sa udi Arab ian and UK governments, are we ll 2008 Group Strategy Framework adva nced. We have reviewed and refined our Group Strategic Objectives to ensure that Implementation of DIS in the UK is now under way but remains cllallenging. tlley rema in re levant. In particular, we I,ave clarified the intent of We are worlling witll tile UK MOD as a partner to demonstrate tllat we are the objective 'Develop our capabil ities in emerging growth marllets' by mailing a difference : more capability and lower cost for tile UK Armed separating it into two parts. Tile first part - 'Deve lop our capabilities in Forces and satisfactory profitability for our Company and sharellolders. Th e sa fety of our employees and those existing and new Home Marllets ' - now foc uses on developing our multi­ We will furtller develop our position in our Home Marllets of Australi a, working on our si tes is of paramount Home Marllet strategy. The second - 'Establi sh secu ri ty businesses in our importance. Driving improved performance Home Marllets' - higllligllts tile importance of tllis adjacent marllet South Africa and Sweden, bOtll organ ica lly and , where appropri ate, by Program execution is central to our business and is ultimately tile opportunity. In the future, we believe that tile empllasis will be on acqui sition. We wi ll continue to explore the possibi lity of establi shing new Home Marllets in co untries such as India, Japan and South Korea, and Iley determinant of customer satisfaction. Detailed risll assessment, broader 'security' encompassing tile cu rrent defense sector. Therefore, we In conclu sion , we are continuing to de live r strong fin ancial and program will also eva luate opportunities in adjacent marllets such as inte lligence adherence to program schedules, and strict attention to program costs and need to position ourselves to maximize our role in tllis sector. performance togetller with our strategy. Tile co ntinued execution of our margin are crucia l to program success and ultimately our profitabi li ty. Thi s and homeland security. Th e relationsll ip between the Group Strategy Frameworll and the Exec utive globa l strategy Ilas differenti ated us and will co ntinue to give us a is being demonstrated to our customers on projects SUC ll as Astute, Type Com mittee (EC) Top Ten Objectives is important to understand. The Group As we progress our globa l strategy, we will co ntinue to focus on exploring competitive advantage. We are del ive ring va lue for money and capability to 45, F-22, F-35 Lightning 11 , Nimrod, Typhoon , Torn ado ATIAC, Bradley, and Strategy defines our long-term strategic goa ls. Th is is de li ve red tllrough options for pan-company wo rll ing in order to malle the most of our our customers. We are we ll positioned for the future and we now have a Bu lldog. meeting our Group StrategiC Objectives and Busin ess Portfolio Actions, and co ll ective expertise, capabilities, best practice, and experience . During tile 'quality business' based on a strong, we ll balanced portfolio and the Partnering is also a major tlleme where our ambition is to wo rll close ly underpinned through tile In tegrated Business Pl anning (IBP) process. Th e 2007 IBP process, we eva lu ated several SUCll areas. As a result, se lec ted Ilighest standard of ethics that gives us con fid ence that we will co ntinue to witll our customers to encou rage transparency and promote a EC Top Ten Objectives focus on more specific sllort-term deliverables growtll options have been embedded in plans for delivery from and delive r sharellolder va lu e in line with our long-term pl ans. We must continue partnering approach for mutual benefit. requiring acti on in th e current yea r to progress de livery of the long-term inclu ding 2008. to bui ld further on this very strong busin ess base in 2008. Group Strategy. Underlying our performance are the principles of tile higllest levels Whi le understanding and recogn izing th at co nstraints to technology sharing of business ethics, good govern ance, va lu es , po licies , and processes remain , we co ntin ue to identify and address opportunities to worll together tllat gu ide our business and behavior, with a clear system of delegated to sllare tecllnology wllen authorized. In June, Presid ent Busll and Prim e authority witllin our 'One Company' approach. We are determin ed tllat the Minister Bla ir signed tile U.S.-UK Defence Trade Co-operation Trea ty. Once business processes mandated across our organ ization should draw on the Treaty Ilas been approved by tile UK Parli ament and the U. S. Senate, it will exped ite and simpli fy the ability of com pani es on both sid es of the global best practice . Atlantic to wo rll together more effectively. Tllis wi ll all ow us to better meet Mike Turner Chi ef Exec utive Part of continuing to deliver high performance in all aspects of our tile needs of our armed fo rces and leverage tile technologies and sll ill s business is our comm itment to tile progressive development of a corporate inherent in both nations. For BAE Systems, it will be a sign ificant step responsibility age nd a that reflects and supports a strong and we ll fOlward in harn essing tile combined strength of our U.S. and UK respected globa l company. The safety of our employees and those worll ing operations. on our sites is a top priority as is tile development of di versity plans, so that we ca n develop an environment th at va lues and respects the contribution, based on merit, of all members of th e communities, internal and extern al, in whicll we operate.

We have m ade a strong step toward establishing a partnered through-life ava ilability support solution for the RAF Typhoon.

4 www. baesystems.com BAE Systems Company Strategy 2008 5 Strategic overview

A strategy that delivers

Our Company strategy is 'To deliver sustainable growth in shareholder value by being Group Strategic Objectives the premier global defense and aerospace company: We deliver this through our Group Th e six Group Strategic Obj ectives are championed by the Executive Committee and apply across all of our businesses: Strategic Objectives, Business Portfolio Actions, and Integrated Business Plans. The six Group Strategic Objectives are championed by the Executive Committee and apply Continue to embed a high-performance culture across Develop a partnering approach to meet our customer the Company requirements across all of our businesses, while the Business Portfolio Actions are championed by Havi ng a hi gh-performance cu lture underpins our ability to achi eve Mutually benefi cial tru st-based partnering relationships Witll our the relevant Executive Committee member and are delivered by the businesses either our strategy and we all sllare the responsibility for delive ring high customers are incre asingly important to th e long-term future and performance. Thi s mea ns setting chall engin g targets and reviewing stability of our bu siness. Worldwid e, many of our customers are separately or jointly. Both are underpinned by our Integrated Business Plans. our performance, so tllat we deliver aga in st our commitments, as recognizing the long-term nature and strategic importance of many individuals and as teams. In meeting these commitments, we mu st, defense procurements, wh ich mea ns that long-term partnering at all times, apply the highest stan dards of business co nduct in line with approaches ca n, in certain circum stances, provide better outcomes our etllica l principles. th an practices based on competition. We are responding to thi s trend by building our partnering ca pab ilities in ways such as Further enhance our program execution capabilities working in integrated project teams and embedding our activities Group Strategy Exce llence in program execution remain s at the core of the successfu l alongside customers. de live ry of our strategy, both in terms of executing on our ex isting To deliver sustainable growth in shareholder value by being the co ntracts and winning new bu siness. Being recognize d by our customers Develop our capabilities in existing and new Home Markets premier global defense and aerospace company as their reli able partner of choice to de li ve r to th eir expectations on time We continue to eva luate ways in which we ca n deve lop our in-country and budget will ensure we co ntinue to deli ve r performance and the presence, both in our six ex isting Home Markets and in potential new growth of our business. We will continue to improve the effective ness of Home Marllets. In tile latter, we have concentrated on mari

Integratecl Business Plans

6 www.baesystems.com BAE Systems Company Strategy 2008 7 Business structure

Our global company

Our global business is based around our Home Markets in Australia, Saudi Arabia, Our operating structure South Africa, Sweden, the UK, and the U.S. These are markets identified as having a significant and sustained commitment to defense and where we already have a good BAE Systems position in their defense industrial base along with strong customer relationships. We Inc. UK/Rest of World intend to invest and grow in these markets.

Electronics Customer Solutions & Integrated Land & Armam ents Products Group Solutions

Our existing Home Markets Inc. UKj Rest of World

Customer Solutions (CS) CS&S International (CS&SI) CS&S International CS comprises three businesses and employs nearly 14,000 people. CS&SI has about 6,000 employees and is responsible for the BAE Systems IT is one of the largest IT providers to the U.S. development of new market opportunities and the sustainment Government. BAE Systems Technology Solutions & Services (TSS) of business in the Middle East region, including our long-term Military Air Solutions provides tailored, integrated technical and professional services presence in Saudi Arabia. solutions for the U.S. Department of Defense, Federal Government, and Sweden employees: 1,720 Submarine So lutions homeland security markets. BAE Systems Ship Repair is the leading Military Air Solutions (MAS) non-nuclear ship repair, modernization, and conversion company in the MAS, with its 15,000 employees, provides advanced through-life military U.S. air capability by successful delivery of our design, development, Surface Fleet Solutions manufacture, and support contracts Witll UK and overseas customers. Electronics & Integrated Solutions (E&IS) Working in partnership with customers and suppli ers, MAS ensures Businesses: Insyte/ Regional AlrcrafV E&IS is a major defense electronics business with more than 17,000 operational req uirements are met in the most cost-effective manner. U,S. employees: Shared Services 44,000 employees. It designs, develops, and produces electronic systems and subsystems for a wide range of mi litary and commercial applications. Submarine Solutions Land Systems (L&A) The business group has four primary capabilities: electronic warfare, With more than 3,500 employees, Submarine Solutions designs,

Cus tomer So lutions commercial and mi litary avionics, flight and engine controls, as we ll builds, and supports conventional and nuclear submarines for the UK, Platform So lutions as tactical and national network systems. demonstrating value for money over a wide range of contracts, system (E&IS) integration, design and build services. It is developing the Astute class, Electronics & Integrated So lutions Land & Armaments (L&A) designed for littoral, deep sea, or ocean deployment around t he globe. L&A, employing 20,000 people, is a globa l leader in the design, BAE Systems development, production, and through-life support and upgrade of l and & Armaments Aus tralia Surface Fleet Solutions (SFS) armored combat ve hicles and tactical wheeled vehicles, naval guns, SFS, employi ng about 3,800 people, is the lead ing provider of through­ Australia employees: 2,600 missile launchers, artill ery systems, and intelligent munitions. Its life, integrated surface warshi p capability to the UK MO D and selected Products Group objective is to provide the broadest ra nge of systems and components export customers. Its key programs include Type 45 Destroyer, La nding together with through-life capability support to its customers. Ship Dock Auxi liary, and the Carrier.

Products Group Businesses Land Systems (L&A) Products Group has 2,000 employees across four divisions and Businesses, with more than 8,000 employees, comprises BAE Systems manufactures many of the world's most recognized and established Australia , Integrated System Technologies (Insyte), Regional Aircraft, brands of security products exclusively for law enforcement, corrections, Shared Services, and BAE Systems' shareholding in MBDA and Saab. military, and licensed security professionals.

All employee numbers on a pro forma basis, assuming th at at th e end of 2006 BAE Systems had owned Armor Holdings, Inc,

8 www.baesystems.com BAE Systems Company Strategy 2008 9 Chief Operating Officer Priorities

"We have to offer our customers, whether they wear military, police or fire uniforms, a competitive advantage in the field to ensure Priorities for growth their mission success:'

In 2007, we exceeded our organic growth targets through a combination of E&IS' Defense Avion ics business based in the UK was awarded an order to solid program execution and i

Grow our business in the United States both organically and vi a acquisitions Th e U.S. marl

Our Customer Solutions Ship Repa ir business wi ll focus on delivering drydock and pierside repair and sustainment se rvices for the U. S. Navy, other defense agencies, and commercial customers. 10 www.baesystems.com BAE Systems Company Strategy 2008 11 Ch ief Operating Officer Pri orities (continued)

"During 2008, we will launch initiatives that wi ll enable us to take an integrated view of markets and capabilities, 'do th ings differently; and provide more potential than single lines of business operating Th e E&IS bu siness has co ntinued to grow independently:' in the U.S. by leveraging its m arket leadership positions and introducing new capabilities th at m eet customer nee ds.

In Sweden, BAE Systems AB has particularly strong positions in selected E&IS is active ly engaged in ex port marl(ets and provides aircraft electron ics BAE Systems has also made a co mmitment to be a 2008 national sponsor wea pon systems. We Ilave started delive ri es on sched ul e of CV9035 and avionics equ ipment, including co mmunica ti ons, navigation and for the FIRST (For Inspiration & Recognition of Science & Technology) armored fi ghting ve hicles to tile Neth erland s and Den marl( as we ll as identification friend or foe systems, defensive and weapons systems, program, which supports th e vital need to develop our fu ture worl(force . con tinu ed to mal(e sa les of the BvS10 arm ored all-terrain ve hicles . software enterpri se solutions, as we ll as aircraft test eq uipment. Til e In 2008, through our cllaritable initiatives , we will bring our employees operating group also provides fligllt control systems for fi xed wing and closer to our customers and our communities, and give bacl, to th e famil ies Grow our global support, solutions, and services businesses rotary wing aircraft built by a range of leading manufacturers worldwid e. of men and women who serve in til e armed forces. We will continue our All Inc. businesses are contributing to 'grow our globa l support, solution s, Export sa les represent a growing market opportun ity for hyb ri d electric drive affi liation with th e United Services Orga ni zations (USO) as a global spon sor. and services bu sinesses, Wllich is a common Bu sin ess Portfolio Acti on buses that are currently being tested in three intern ational We have also entered a strategic partnership with Ameri ca Supports You , with the UKj RoW bu sin esses. marl(e ts, including Canada, th e UK, and Japan. Wll icll serves as an umbrell a for a va ri ety of mi litary support orga nization s Our Customer Solution s Ship Repair business will focus on delive ring dry­ and unde r which we will conduct chari table activities and fundraising. dock and pi erside ship repair and sustainment services for th e U. S. Navy, Moving forward Finally, reflecting our priority on business ethics and ethi ca l bell avior, other defense agencies, and commercial customers. During 2007, Shi p During 2008 , BAE Systems, Inc. will launch a series of initiati ves that BAE Systems has agreed to be principa l spon sor of th e Leadership Repair was awa rded multi ple maintenance and ove rhaul co ntracts by will enable us to take an integrated view of markets an d ca pabilities, and Eth ics Programs at th e four U.S. mi litary service academies. Mi li tary Sea lift Command. Th ese include contracts for fi tting out availability 'do th ings diffe rently,' and provide more potential than single li nes of and post shal(edown ava ilability on two new U. S. Navy amph ibious business operating independ ently. Our chall enges for 2008 are not transport docl( Sll ips; preservati on wo rl, on nuc lea r submarines ; and altogeth er diffe rent from those of 2007 and many are continued. maintenance of all DDG Class destroye rs in San Di ego, Norfo ll" and To enhance our abi lity to grow, we will establi sh an Inc. Bu sin ess the U. S. Army's Fa mily of Mediu m Tactica l Vehicles (FMTV) and has Hawa ii. We will continue to look to ex pand our support, so lutions, and Development Council with a formal structure to facil itate 'tal,ing a been designed to provide parts commonali ty. Currently 1,848 Caimans se rvices bu siness. bigger view ' of the marl(etplace , Witll a remit to identify, quali fy, and ca pture Priorities for 2008 are under contract. Our Tec hnology Solution s & Services business has co ntinued to bui ld on its new busin ess. We have worl(e d ac ross our globa l businesses with remarl(a ble spee d long-s tanding record of providing engineering and tecllni ca l services and We will also maintain our priority on deve loping a Il igh- performance cultu re to design, produce, and delive r the ve ry best we have to offer to systems integration support to tile U. S. Navy, and also of providing logisti cs - Meet our business plan th ro ugh the development of our leaders and future lea ders. For 2008 and protect the warfighter. Our ro le on the MRAP program reflects not on ly su pport and services at military posts. beyond, program management ex perti se and ca pabilities will becom e our industri al ca pac ity but also the abili ty to coll aborate acro ss sites - Complete transition/integration of Armor Holdings We will compete for larger support contracts. BAE Systems IT was awa rd ed added facets to thi s leadership development program. All lea ders will be and bu sinesses globall y and the ab ili ty to integrate former Armor a major contract by the U. S. Department of Labor and was al so selected as able to conve rse in a common language rega rding program performance, Holdings' capabilities into tile effort. Co ll aborating globall y, the RG -33 -Enhance ou r ability to grow a prime contractor for the General Services Adm inistration 's Alliant mission success, and associated metrics . In 2007, 20 high-potential, early­ deve lopment leveraged capabilities at Company loca tion s in South Governm ent-Wid e Acqui sition Contract. ca reer employees completed th e demand ing LEAD Program. We are - Improve program performance Africa and the U.S. It builds on proven, fielded designs and bri ngs pl eased that th is va luable program will be ava ilable globally in 2008 . These together more th an 35 ye ars' ex perience in mine- protected wll ee led Vehicle reset and upgrade is also an important part of our support intern al deve lopment programs will continue to be on e of our top pri orities, - Advance performance centered leadership veh icle ex perti se , and decades developing higll ly survivable combat solutions portfolio for th e future. Our La nd & Armaments Ground Systems so that we bu ild critica l ca pabi lities required for our future success. platforms for the U.S. military. Capa city ha s bee n ramped up to bu siness has receive d mu ltiple contracts for th e remanufacture and - Drive for greater efficiency, effectiveness, max imi ze product ion ca pacity at th e MRAP manufacturing site in South upgrade of Bradley Combat Systems, whi ch total US$3.9 bill ion ove r th e Afri ca to produce 305 RG -3 1 ve hi cles. period 2005 to 2007. In add ition , we Il ave won reset contracts for M88A2 and compliance recovery ve hicles and Ml13A3 armored personnel ca rriers. Land & Arlllaments has Illany otll er ongo ing prograllls and activities. In - Shift our emphasis from an internal to an Augu st 2007, we bega n worl( on a new facility at Elgin, OI,lahoma to be E&IS has continued to focus on through-life products and logisti cs support external focus opened in 2009, whi ch will initially focus on producti on integration and for the U.S. military through its rea diness and sustainment effort, as assembly of the Non-Li ne-of-S ight (N LOS) Ca nn on for the U.S. Army's FC S re presen ted by its on-s ite presence at Warn er Rob ins Air Force Base and - Promote cross Ope rating Group cooperation program. Deve loplllent of the Advanced Gu n System (AGS ) for the U.S. Tobyhanna Army Depot. Navy's DDG-1000 destroyer continues. Th e AGS is a vital component to the lethali ty and effective ness that th e U.S. Navy needs fo r long-range Grow our export business from our Home Markets fire support. Operating in 54 locations, seven countries and four Hom e Marl(ets, the Land & Armaments bu sin ess is demon strating our abil ity to 'grow our In the UK, Land Systems has been magni ficent in respondi ng to urgent ex port bu siness from our Hom e Marl(ets.' Land & Armaments accounts for vehicle modification s for the FV430 and Wa rri or ve hicles to protect more tll an Il alf of BAE Systems, Inc.'s ex port revenue, and OMC in South Bri t ish troops. Th ese modifications inc lu de new armor, extern al fire Africa and BAE Systems AB in Sweden receive more than half of tlleir sa les suppression systems, and night vision systems. Th e Land Systems reve nue from export sa les. With products currentl y in service around tile busin ess is also invest ing in tra nsformation in response to the globe , Land & Armaments will benefit from an ongoing requirement for chall enges set out in the UK DI S. global product support, solu tions, and services.

We are establishing a clea r global leadership position in our land systems business , which was rein forced by the acq uisition of Arm or Holdings.

12 Ivww.baesystems.com BAE Systems Company Strategy 2008 13 Chief Operating Officer Priorities (continued)

"Bringing together our front-end and support businesses is now facilitating an improved focus on delivering cost-effective capability to Priorities for growth our customers:' K

a major milestone in this fo ur-year program. Our HERTI fully forces. Thi s Arra ngement sets the frameworl< for regul ar joint program autonomous unmanned air ve hicle system was deployed to reviews between DE&S and BAE Systems, underpinned by a set of Iley Afghanistan into an ope rati onal environm ent last year, a deployment performance practices . It stresses th e need to negotiate in good fa ith, with that was hail ed a success by bOtll tile RAF and BAE Systems. Thi s is tru st and openness, and talle all reasonable steps to address and meet a Iley mil estone in supporting our global UAS strategy and will each other's obj ectives . Th is Arrangement is already demonstrating positive co ntinue to be developed during 2008 . results in encouraging partnering behaviors and is the model we will continue to use going forward. - Tile Briti sll Army Future Rapi d Effects System (FRES) remain s a signifi ca nt growtll prospect and Iley to th e sustain abili ty of land systems ca pability in Impl ementation of th e UK DIS is under way again st a chall enging set the UK, consistent with th e UK DIS. Res ponses are now being sought by of mil estones . The UK/ RoW orga nization will continue to worl< with th e the UK customer on the initial contractual phases. customer to ensure we are transform ing our bu sin ess to meet ch anging requ irements, particularl y focusing on developing tile Long-Term Partnering - BAE Systems, through a pa rtnering agreement with the UK MOD, Agreements (LTPAs) across air, land , and sea . Th e LTPAs are about is looll in g to estab lisll the Munitions Acqu isition , the Supply So lu tion fundamentally changing the bu sin ess model, moving away from short-term, (MASS) . MASS aim s to ensure long-term security of supply fo r ge neral transactional approach es focused on front-e nd procurement of equipment, lan King Cllief Ope rating Officer munition s at reduced wllole life cost from a transform ed and and moving towa rd longer term , mutuall y ince ntivized partnering sustain able indu strial base. As part of tile partnering agree ment, we arrangements. Tllese will all ow for th e effecti ve deli ve ry of value for money, are committed to transforming our busin ess by investing over a fi ve­ through-life ca pabi li ty, and ava il ability support solutions. Thi s orga ni za tion has been successful ly embedded during 2007. yea r pe ri od to crea te modern , fl exible manufac turing fac ilities and Th e benefits crea ted by bringing togeth er our front-end and support engin eering capabilities th at are ali gned to future defense needs and In Milita ry Air Solu tions (MAS), our team s have worlled closely with th e businesses are now facilitating an improved focus on delive ring cost­ reflect the intent of tile DIS. MOD to establi sll th e bas is of LTPAs covering all current and future fixed In 2007, we implemented the new UK/RoW effective ca pabi li ty to our customers across our Home Markets in Australi a, wing aircraft. These agreements have establi shed new ways of worll ing , are - Foll owing a strategic review at tile beginning of 2007, our Integrated organization with four key objectives: Sa udi Arabi a, and th e UK. delive ring enh anced ca pability and valu e for money to our customers, and System Tecllnologies (Insyte) busin ess was rebaselined to align its are fund amentally looll ing to transform th e bu siness. Thi s will continue to strategy witll our air, land, and sea busin esses. Going fo rwa rd , Insyte - To better align our management structure against Establish in the UK sustainably profitable t hrough-life be progressed in 2008 . needs to co ntinue de li ve ring aga in st its existing programs and will the strategy of delivering and growing businesses in Air, La nd , and Sea Our UK air, land, and sea bu sinesses are now de live ring strong talle a lead ro le in developing our growth pl ans in tile Ilomeland In the maritime sector, three programs underpin th e long-term sustainability in our Home Markets performance and ca pability to th e front-line customers. Thi s is based on security/ security and resilience marllet. The Underwater Systems of th e nava l sector: Astute - the largest and most ca pable nuclear-powered til e solid foundations of good program execution, long-term worll load bu sin ess will also be integrated into Insyte beginning 1 January 2008. attacll submarine for tile Roya l Navy; the Type 45 Air Defence Destroye r; - To integrate our support and front-end focused and th e Roya l Navy 's Future Aircraft Carrier (CVF). 2008 will be a I

------HERTI was deployed to Afghanistan into an operation al environment last ye a r, a deployment that was hailed a sllccess by both the RAF and BAE Systems.

14 www.baesystems.com BAE Systems Company Strategy 2008 15 Chief Operating Officer Priorities (continued)

"In 2008, delivering on our programs provides customer confidence and gives us the platform to grow our business further:'

We co ntinue to provid e significant support to both th e Roya l Saudi Air Force and the Roya l Sa udi Naval Force Operations. In particul ar, we are t a l ~ i ng steps to maintain the capability of the Tornado aircraft while extending its operational life.

In addition, we are mal~ing good progress against our tra ining and Our aim is to extend tile UK ava il ability support contracting model, Moving fo rward Sa udiization plans, under which we are extending the employment as evidenced by the Tornado ATIAC and Harrier JU MP programs, by securing Moving into 2008, we need to build upon the strong progress achi eved in and invo lve ment of Saudi nationals wi thin our wo rllforce. We Ilave also partnering support arrangements across the domains of air, land, and sea 2007 by contin uing to deliver aga in st ou r program comm itments and made progress in securing other new business streams in the region. Thi s to cover tile support and upgrade of our in-service equipment. In the air executing aga in st our we ll defined strategic plans. Tllis will all ow us to includes a contract for a Command and Contro l system (C4 1) for sector, we Ilave recently tallen a strong step toward establislling a partnered invest in our future capabi lities, deve lop growth in the business, and delive r the Kingdom. througll-life ava il abili ty support solution for Typhoon witll the Signing of a exce ll ence with ou r customer. Our customers are demanding the ability to £10 mi llion ma intenance and upgrade contract. It will deliver a 50 pe rcent offer througll-li fe and ca pability solutions. The em phas is going fo rwa rd will Our strategy is to continue to develop Sa udi Arab ia as a Iley Home Marllet increase in on-ai rcraft ma intena nce and upgrade capability at RAF be on industry and tile governm ents in our Home Marllets to WO rll together tllrough securing new busin ess and co ntinued investment in loca l industrial Con ingsby. Thi s operation will be jointly managed and manned by to ma intain a robust and successful defense capability in the long term. capability. Thi s supports the customer's drive for the development of a self­ BAE Systems employees and the RAF. Througll it, we will start to see th e sufficient and wo rld class aerospace indu stry. We need to continue benefit of bringing RAF and BAE Systems maintenance expertise together to delivering on our program and industri ali za tion commitments and furtller offer an effective through-life support so lution for Typhoon. Otller examples build on this important re lationship. include the award of tile Hawll Integrated Operational Support (HIOS) contract for maintenance and tecllnica l support of the UK's Hawll T.l aircraft Priorities for 2008 Grow our export business from our Home Markets tllrougll to 2011 and the JAVE LI N (Joint Approach to VC-l0 Engineering & We have a strong product portfoli o and Ilave had success in demonstrating Logistics Integration) contract extension , covering support of the VC-l0 our ab ili ty to grow our export busi ness from our Home Marllets. In addition to tanller fleet to the ai rcraft's out-of-service date. - Continue to develop and respond to the UK DIS, the sa le of 72 Typhoon aircraft to tile Kingdom of Saud i Arabia, BAE Systems Implement the Home Market strategy and grow in the was se lected by the Australian Government for the medium and heavy trucll More recently, we we re awarded a contract amendment for ATIAC , including execution of our transformation and Kingdom of Saudi Arabia segment of Land 121 Project Overlande r. Thi s will replace about 3,000 of the Imown as ATIAC Phase 2, Wllich incorporates tile fi nal pllases of general investment plans and maturation of the LTPAs Our strategy to bui ld on our strong customer relationships in Saudi Arabia Australi an Defence Force 's tactica l truclls ove r a six-year period, starting in systems, avionics, and engineering support services into the avai lability across our air, land , and sea businesses is embedded in the Busin ess Portfolio Act ion 'Im plement our Home Marllet 2009. As we ll as supporting tile growtll of Australia as a Iley Home Marllet service already on contract. ATIAC Phase 2 is worth £324 mi ll ion and strategy and grow in the Kingdom of Saud i Arabia.' for BAE Systems, it positions the Company we ll to provide the customer with brings tile total va lu e of tile ATIAC service to £1.3 billion. The ove rall ATIAC - Deliver the milestones on Project Sa lam and the cost-effective through-life support. service provides improved ava il abi li ty of Tornado aircraft for the RAF, wh il e During 2007, the management board of CS&S Intern ational (CS&S I) saving the MOD £510 mil li on over tile initial 10 yea rs of the program. core Saudi programs relocated to Riyad h reflecting tile Sllift in the center of gravity of operations We need to co ntinually improve our ability to win profitab le export business from the UK to develop ing a Home Marl~et in the Kingdom of Saudi Arab ia. and must work hard to co ll aborate globally across our Home Marllets to We are currently at different levels of maturity of support solu tions across - Progress delivery of the Saudi industrialization Th e first of two new super-compounds for our employees is now be ing deliver inn ovative, va lu e for money solutions for our customer. our domain businesses. We wi ll need to put more empllasis on this in plan occupied in Ri ya dh and quarterly business reviews with CS&SI now take 2008 in order to bring the benefits of this model into the UK land and nava l pl ace in-country. Grow our global support, so lutions, and services businesses sectors. Loolling forward , we anticipate seeing more jO in t activities loca ted - Progress the four-nation contract for the third We continue to make progress on th e Business Portfolio Action 'Grow our at our customers' bases. Th e announcement in September 2007 of the agreement between the global support, solutions, and services busin esses' in th e UK, Australia, tranche of Typhoon In our Home Marllet of Australi a, we continue to bui ld on our position as Kingdom of Saudi Arabia and th e UK Government for the supply of 72 and Saudi Arabia . Typhoon aircraft was an important milestone. As we ll as paving the way for a tllrougll-life capabi lity partner to the Australian Defence Force. In the - Extend the support model across air, land, and sea the entry into service of Typhoon , tllis contract reflects the drive by the two first quarter of 2007, we received a contract to provide continuing in­ co untries to develop the capabi li ties of th e Kingdom's de fen se industri al service sup port to the Hawll Lead- In Fi ghter (Ll F) fleet for an additional - Develop security capabilities in our Home Markets base and the arm ed forces . It is co nsistent with th e po li cy of the Kingdom five years, tlluS providing a so lid basis for tile conti nued tllrougll-life and our strategy of develop ing Sa udi Arabia as a Home Marllet, Witll support of tllese aircraft. - Progress export opportunities from our Home substa ntial employme nt and investment in future in-Kingdom industrial In addition, tile BAE Systems Support Counc il Ilas broadened its rem it into Markets capability. The new defense cooperation program, Imown as 'Project a globa l counci l. Its focus in 2008 is to cllampion and develop our support Sa lam: bu il ds on a long and successful re lationship between tile contracting models in order to advance our tllrough-life support approach governm ents and tlleir arm ed forces. consistently across our Home Marllets. By sllaring best practice and Through our core program, we co ntinue to provid e significa nt support to providing effective tools, the Co uncil plans to equ ip our businesses for both th e Roya l Saudi Air Force (RSAF) and Roya l Sa udi Nava l Force successful growth in tile support, services , and so luti ons marllets globa ll y. Operations and th eir operationa l capability. In particular, we are taking steps witll th e RSAF to maintain the capabi lity of th e Torn ado aircraft while extending its operational li fe.

Th e 3 D visualization dome at the Systems Integration Facility at Leicester is allowing faster, more cost-effective and better integration at lower risk.

16 www.baesystems.com BAE Systems Company Strategy 2008 17 Contacts

BAE Systems plc Electronics & Integrated Solutions Shared Services Head Office 65 Spit Brool~ Road P.O. Box 87 6 Carlton Gardens Nashua Brennan Hou se London SWl Y 5AD New Hampshire 03061-0868 Farnborough Aerospace Centre UK U.S . Farnborough T: +44 (0)1252 373232 T: +1 603 885 4321 Hampshire GU14 6YU W: www.baesystems.com W: www.baesystems.com/ eis UK T: +44 (0)1252 373232 BAE Systems, Inc. Integrated System Technologies (Insyte) W: www.baesystems.com/ sharedservices Head Office Victory Point 1601 Research Boulevard Lyon Way Submarine Solutions Roc lwille Frim ley Ma in Sh ipyard Offices Maryland 20850 Camberley Barrow-in-Furn ess U.S. Surrey GU16 7EX Cumbria LA14 lAF T: +13018386000 UK UK W: www.baesystems.com T: +44 (0)1276 603000 T: +44 (0)1229 823366 W: www.baesystems.com/ insyte W: www.baesystems .com/ submarin esolutions BAE Systems Australia Taranal~i Road Land & Armaments Surface Fleet Solutions Edinburgh Parl~s 1525 Wil son Bou leva rd South Street Edinburgll SA 5111 Su ite 700 Scotstolln Australia Arlington Glasgow G14 OXN T: +61 8 8480 8888 Virgin ia 22209 UK W: www.baesystems.com/ australi a U.S. T: +44 (0)1419 591207 T: +1 703 312 6100 W: www.baesystems.com/ surfacefleetsolutions CS&S International W: www.baesystems .com/ landarm aments AI Shaheen P.O. Box 1732 Products Group Riyadh 11441 3120 E Mission Boulevard Kingdom of Saudi Arabia Ontario T: +966 1 445 9100 Ca lifornia 91761 W: www.baesystems.com/ cssinternational U.S. T: +1 909 923 7300 Warton Aerodrome W: www.baesystems.com/ businesses/ productsgroup Preston Lancashire PR4 lAX Military Air Solutions UK Warton Aerodrome T: +44 (0)1772 633333 Preston Cover image: Th e first of class Type 45 Lancashire PR4 lAX destroyer, HMS Daring, successfully Customer Solutions UK completed her stage one sea trials on 1300 North 17th Street T: +44 (0)1772 633333 schedule in August 2007. Conducted off Suite 1400 the coast of Scotland by BAE Systems W: www.baesystems.com/ mas Arlington engineers and Royal Navy personnel, the Virginia 22209 Regional Aircraft trials rigorously tested the habitability and key functional attributes of the warship's U.S. Prestw icl ~ International Airport T: +1 703 907 8200 Ayrs llire platform. Th e performance of the sl,ip exceeded all expectations. W: www.baesystems.com/ customersolutions Scotland KA9 2RW UK T: +44 (0)1292 675000 W: www.baesystems.com/ regionalaircraft

18 www.baesystems.com BAE Systems plc 6 Carlton Gardens London SW1 Y 5AD United Kingdom Telephone +44 (0)1252 373232

Registered in England and Wales No. 1470151

BAE Systems, Inc. 1601 Research Boulevard Rockville, Maryland 20850 United States of America Telephone +1 301 838 6000

Website details www.baesystems.com Customer Solutions

We are growing the Customer Solutions is comprised of tllree lines of bu siness in tile U.S. - business in the U.S. and BAE Systems Information Tecllnology (BAE·IT). Tecllnology Solu tion s & contributing to company­ Services (TSS), and BAE Systems Sllip Repair - tllat bring a wide range of mission-enabling solutions and services to U.S . mi li tary and federal wide growth in providing government customers. mission-enabling services BAE·IT capabil ities include enterpri se-wide managed IT operations, and solutions to our mi ssion·criti ca l application development and li fe-cyc le support, and information analysis and assured delive ry. TS S provides services and customers solutions including system and subsystem integration , operation s and maintenance, sustainment, large scale program management, and systems engineering over tile entire program life-cycl e. Sllip Repair is tile Business description leading non·nuclear sllip repair company in til e U. S. and provides conversion , moderni za tion and li fe-cycle sustainment services, principally in tile Ilome ports of tile U. S. Navy. The Customer Solutions Operating Group continues to grow as a leading provider of integrated technical and professional service solutions for Cu stomer Solutions worl

Number of employees 2007 Number of locations 14,000 60+

BAE Systems Ship Repair provides overhaul and maintenance services to U.S. Coa st Guard cutters that defend U.S. maritime borders.

BAE Systems Company Strategy 2008 1 Customer Solutions (continued)

Customer So lutions provides service and maintenance to the Cobra Dane, a national technical intelligence sensor located at Eareckson Air Fo rce Station on th e island of Shemya, Alaska.

adva nce ment or completion of a number of intern al in itiatives during tile year wi ll continue to assist the bu sine ss with increaS ing operational efficiencies and reducing costs to improve competitive ness in winning new bu siness that drives top line growtll. Cu stomer Solutions will continue to support the growtll ini tiatives outlined in the BAE Systems strategy by peliorming on its current contracts, by growing organically through a combination of internal initiatives and pursuits, and by delivering on collaborative efforts between Cu stomer Solu tions and other BAE Systems bu sin ess units. Tile operating group will continue to focus on peopl e and processes, integri ty and culture and on employee sa fety. BAE-IT will focus on growth as a provider of IT Solution s and Services for tile most demanding cu stomers. Pursuit of prime positions on select Add itional contracts we re secured by winning 100% of its recoll1petes and indefinite delive ry/ indefinite quantity (IDIQ) contracts such as All iant, by capturing new busin ess to provide I

Key Priorities for 2008 Tile U. S. services marl

BAE Systems IT m onitors our network operations across the U.S. from its Network Op erations Center in Herndon, Virgi nia.

2 www.baesystel1ls.col1l Electronics & Integrated Solutions

Agility, speed, and Performance in 2007 responsiveness make E&IS grew by more th an six percent in 2007 as a result of its ability to understand and deliver solutions to customer needs. Among other us both competitive in performance mil estones: a changing environ­ - Delivered tile first F-35 Lightning 11 flight representative EW ment and allow us to system. meet the ever-changing - Delivered the l,OOOtll Common Missile Warn ing System that needs of the customer. protects U.S. Army Il elicopters and aircraft from heat-seeking missile s. - Continued its rol e in th e U. S. Department of Homeland Security's Business description program to deve lop JETEYE " ... a commercia l infrared countermeasure system Wllich see l ~ s to defeat the tllreat of Slloulder-fired anti-a ircraft missiles. Electronics & Integrated Solutions (E&IS) designs, develops, and manufactures a wide range of electronic systems and subsystems for military and commercial - Se lected to produce 50 fire fi eld ing units of the Terminal Higll applications. It operates under the banner of "We Protect Those Who Protect Us," Altitude Area Defense mi ssil e, supporting the transition to which today reflects more than its trademark countermeasures programs, production of th is ba llistic missile defense system. expanding to the arenas of intelligence and data gathering, and military and commercial platform products. - Received an order to bu ild Illore th an 1.000 hellllet assemblies for tile Eurofighter Typlloon and debuted new Ilelmet-Illounted, hea d-up di splay technology. 2007 Highlights - Demonstrated tile first Ilybrid elec tric drive systelll for ground combat ve ll icles as part of the U.S. Army's Future Combat - Electronic Warfare continued to contribute to organizational success by Systems program. E& IS also developed and demonstra ted a delivering products such as Common Missile Warning Systems that saved comlllon module power system to meet tile increasing electric aircrew lives in Iraq and Afghanistan. In addition, the 100lh F-22 Raptor EW power demands onboard military vehicles. suite was delivered to Lockheed Martin and many other programs responded to customer platform protection needs. - Co ll aborated with diverse s tal~ellOI(ler s to secure Congressional - Platform Solutions continued to innovate with vehicle power management funding to continue the Advanced Prec ision Kil l Weapon System. and the ongoing success of hybrid drive technology. Innovative fly-by-wire APKWS fills a U. S. Marin e Corps need for a low cost, precision technology and head-up, helmet-mounted displays for aircraft pilots were guided weapon th at gives av iators increased stand-off range and among the year's other highlights. reduces coll ateral damage . - Network Systems continued as a market leader in advanced information technology, intelligence analysis and production, geospatial exp loitation software, and development of knowledge-based systems. Key strategic wins on intelligence programs positioned BAE Systems as a premier provider of innovative so lutions. - Sensor Systems' Thermal Weapon Sight 11 program delivered more than 18,000 sights to its U.S. Army customer and is currently exceeding a rate of 1,500 per month. E&IS thermal imaging technology used in the sights enables the warfighter to see deep into the battlefield in all-weather conditions, both day and night, increasing the warfighter's surveillance and target acquisition range. - Operation Noble Cause - an employee volunteer initiative to assist servicemen and women and their families through alliances with Military Support Organizations - gives back to "those who protect us."

Number of employees 2007 Number of locations 17,000 40+

BAE Systems unve iled its newest head-up display technology at the Assoc iation of the U.S. Army's (AUSA) Ann ua l Symposium in Wa shington, D.C., in October.

BAE Systems Company Strategy 2008 1 Electronics & Integrated Solutions (continued)

E&IS' Network Systems' all-weather cable and obstruction detection system uses radar to detect potentially deadly obstacles like power lines.

initiatives in LEAN operations, continuous qua lity illlprovelllent and organizational integrati on are all owing us to bui ld capabilities tllat identify, anticipate, and Illeet future customer nee ds. An employe r of choice environlllen t is created by challengin g employees to cO lllmit to innova tion and continuously strengtllen ing core business areas wllile smartly stepping-out into new Illarl ~e t areas. We're Iloning a culture th at matures our relationships with th e other BAE Systems entities , strategiC bu sin ess partners, suppliers, and the end-user to create ongoing customer va lue and capability. In av ioni cs, for example, we' re sllaping tile organiza tion to integrate our U. S. commercial avionics with ou r UK defense avionics capabili ties so tllat we ca n leverage best practices across bOtll portfolios. In engine and fligllt controls, we' re strength ening our strategic partnership witll General Electric and Boeing tlll'Ou gll performance, manufacturing exce ll ence, ancl jOint tecllnology pla nning.

Leveraging Technology To be successful mea ns leveraging tecllnology. We too l ~ our F-22 Key Priorities in 2008 EW suite and be st practi ces and leve raged bOtll into th e F-35. We Th e key to future E& IS success lies in the intimate understanding are now tal ~ i n g tllose capabi li ties and will leve rage tllem into spiral of the end-user and tlleir mission s, and then shapi ng and applying upgrades for an EW suite for legacy figllter aircraft. all company resources - Imowledge, sllills, ca pabilities, and the Our un coo led infrared core technology, so successfu l in th erm al latest tec hn ology - towa rd Illeeting tile needs of tile encl-user. weapons sights for night targetin g and firing, is be ing l oo l ~e d at for appli cations in goggles and otller ni gllt vision solutions for bOtll Customer Intim acy warfigllters and First Respond ers. Customer in tilllacy offers a forum to better understand current and future neecls. Our on -s ite pre sence gives us first-hand perspective Our lithium ion battery module on commercial buses has been to fo recast and deve lop upgrades. Th e end-user will be involve d in Ilarn essed for energy storage fo r combat ve hi cles and , s imi larl y, rea li zing tile solution because having resources sid e-by-s ide witll our mi litary modular power manage ment Ilas ap plications fo r the end-user bui lds trust ancl confidence, and sol idifies long-term commercial bus power control. re lationships. Til e way of tile future is to first understand the needs of tile Today, more tllan 500 field engin eers and se rvice re presentati ves customer - bOtll current and future - then innovate to quicl

Th e Common Modular Power System mee ts the increasing electric power demands onboard military vehicles.

2 www. baesystems.com Land Bc Armaments

We have a mandate to Performance in 2007 grow our global land Land & Armaments grew 43% over 2006, exc luding fin ancial performance from the form er Armor Holdings, Inc. Ae rospace and systems business, our Defense busin ess, now renamed Mobility & Protecti on Systems. export bu siness from Land & Armaments received contracts for MRAP vehicles va lued in our home markets, and excess of $2.2B. The contracts consisted of: 1,731 RG 33 ve ll icles our support business. va lu ed at $1,243M; 1,848 Ca iman ve hicles va lu ed at $976M; and 624 RG31 vehicles valued at $153M. Land Systems in South Afri ca teamed with Ground Systems in the U.S . to develop tile RG33 vehicle for the MRAP program, which was designed and developed in record time. These co ntracts soli difi ed the operating group' s Business description po sition in tile emerging mine-protected vellicle marllet. More vehicle award s are expected in th is marllet next yea r, with a competitive BAE Systems Land & Armaments Operating Group is a global leader in the opportunity for tile Joint Light Tacti ca l Vehicle (JLTV) program ea rl y in 2008 . design, development, production, and service support of armored combat Ground Systems was awa rded tile Medium Mine Protec ted Vellicle (MMPV) vehicles, major and minor caliber naval guns and missile launchers, canisters, program. Til e first delive ry order is for six standard ve hi cles and three artillery systems, and intelligent munitions, tactical wheeled vehicles, individual protection and vehicle protection systems. The group has 18,000 Explosive Ordnance Di sposa l va ri ants for first article test, spares, and test employees in more than 50 locations worldwide. support. The RG33 ve llicle is tile Army's se lected mine-protected vellicle platform for MRAP SOCOM Vehicles and MRAP Heavy Annored Ground Ambu lances.

2007 Highlights Bradley Combat Systems achievements: -Ground Sys tems reached a favorable negotiati on settlement with the - Strong organic growth on core products, new business in the mine­ Government for tile FY08 Reset program tota li ng $1,001M. protected vehicle market, and five months of operations from Mobility & - FY08 Remanufacturing and FY09 Reset Long Lead Item (LLI ) Protection Systems. proposa l negoti ations are in proce ss. - BAE Systems completed its acquisition of Armor Holdings, Inc. - Selected as a 2007 Top 5 Department of Defense Program Award winner -Successfu lly demonstrated tile Braell ey Technica l Demonstrator in for systems engineering for the company's work on the surface sh ip MK57 November eluring tile Air Assa ult Expeelitionary Force (AAEF) exercise Vertical Launching System. at Ft. Benning, Georgia. - Received the "Large Contractor of the Year 2007 Award" from PM - Mortars - Picatinny Arsenal. Arm ament Systems Il elel an inaugural ce remony in Elgin , Oll lahoma to initiate worll on BAE Systems - Elgin Operations, scheduleel to open in - Demonstrated the first hybrid electric drive system for ground combat vehicles as part of the U.S. Army's Future Combat Systems (FCS) program. early 2009. Tllis facili ty will be bui lt by tile city of Elgin in tile Ft. Sill The FCS Manned Ground Vehicles (MGV) family of eight vehicles is the first Indu strial Parll where worll will initially focus on proeluction in tegration ever planned operational Army suite of ground combat vehicles to use anci assembly of the NLOS·C for tile U. S. Army's FCS program. hybrid electric technology. - Land & Armaments won two of the six BAE Systems Chairman's Gold Awards and seven Silver Awards.

Number of employees 2007 Number of locations 18,000 50+

Th e Black Knight Un manned Combat Vehicle (left) is wirelessly tele-operated from with in the Bradley Tech nical Demonstrator (TO) and acts as a scout or wingman to th e Braciley TD.

BAE System s Company Strategy 2008 1 Land & Armaments (continued)

As part 01 the Future Cornbat System tearn, BAE Systems is leading the deve loprnent 01 th e Non-line-ol-Sight Cannon, th e U. S. Arrny·s next generation 155-mrn self-propelled howitzer, and the 120-mrn self-propell ed Non-line-of­ Sight Mortar.

"" BAE Systems AB bega n delivery of on e of the most modern Infantry Figllting Vehicles, the CV9035, to both the Netherland s and tile Dani sh armies. BAE Systems AB co ntinued tile seri al development of the Sp li tter s l ~ddad En ll ets Plattform (SEP) system, a modular medium we igllt annored tactica l vehicle system. Tile system includes traclled and wlleeled platforms with a Ilybrid electric drive system and mission modules for an Armored Personnel Carri er and logistics veh icle.

Key Priorities in 2008 - Continue to gf"OW tile global land system s business in ex isting Home Marllets

- Improve program performance in all lines of bu siness

- Complete the integration of Armor Holdings into Land & Armaments Tile Non- Lin e-of-S ight Mortar was deli vered to the U. S. Army in early - Acllieve greater effici ency. effectiveness, and compliance through 2007 and Ilas since fired more tllan 600 rounds at Camp Ripley in quality application of mandated bu sin ess policies ami practices Minnesota. Tile NLOS Mortar Firing Platform features an automated, single-tube, breech-loaded 120-mm smoothbore turreted mortar - Improve overa ll Il ea ltll and sustainabi li ty of the global organization mounted on a test stand. Th e acq ui sition of Armor Holdings in 2007 brought products, Armament Systems rece ived a co ntract modification from tile U.S. Navy technologies, marllets and capal)ilities to Lanci & Armaments tllat have for the procurement of MII 13 Mod 0 Can isters and MII 25 Mod 0 yet to be fu lly exploited. In 2008, tile operating group will complete the Ca ni sters. The ca ni sters provide sa fe storage , transport, and launcll integration and fu ll y access th e synergies tllat will enabl e it to rea li ze th e capabi lities for tile MII 41 Vertical Launclling System (V LS). Armament potential that tile acquisi tion Ilerald eel. Systems Ilas been supplying tile U. S. Navy with mi ssile launching canisters for battle-proven systems for more than two decades. Tile MII 13 Growing ex isting marllets anel establi slling a lanci presence in new Home and MII 25 contribute to systems that provide critica l defensive wea pon Marllets requ ire tllat Land & Armaments brings aelva nceci tecllnologies support to sa ilors, giving tllem an advantage at sea and keeping tllem and capabilities to its customers at an afforci able ownership price, sa fe. BAE Systems is th e U. S. Navy's exc lusive design agent and inclu ci ing support and sustainment. worldwide supplier of MII 41 VLS canisters. Til e Iley to Land & Arm aments' continuing contribution to Land Systems peliormeel we ll acro ss all of its business units witll BAE Systems' success in 2008 rests witll its performance on the impf"Oved profitabi li ty acro ss all parts of tile bu sin ess. It ha s program s uncier current contract anci harnessing anel integrating tile increased its order intalle by over 50% and has recorded a sa les global tecllnical anci managerial ca pabilities acro ss the operating turnove r in the yea r of £922M aga in st a budget of £760M. Tile U.S. group to capture opportunities tllrougllout tile wo rld in its prociuct Land Systems Wea pon s & Vehicles business ro ll ed out 151 M777 marllet segments. guns from its Hattiesburg, Mississippi facility, meeting important customer mi leston es on the program. BAE Systems AB Bofors was awa reled a contract from the Swedish Armed Forces in tile deve lopment of the next generation of tile artill ery ---••• system, Archer, a 155 mm self·propelled wlleeled Ilowitzer. The business elelive red two prototypes of tile Arc her in 2006 and the new contract, wortll nea rl y $50M , is for the last development prepa rations before the se ri al prociuction contract, expected in 2008. Mobility & Protection Systems was selected by the Australian Governm ent as tile preferred bicici er for one of the large st Australian Al"Ill Y projects for decades, tile ne xt ge neration of meciium anci heavy tactical trucks and modular payloads. Th e Land 121 Project will replace ove r 3,000 of tile Australian Defence Force' s tactical truclls over a six- year period , beginning in 2009.

With the acquisition of Armor Holdings, BAE Systems greatl y increases its program and product offerings, including the MRAP Ca irnan. In 2008, the company will continue to grow, leverage capabilities, and transforrn in order to m aintain its cornpetitive edge. 2 www.baesystems.com Products Group

In add ition to growing BAE Systems Products Group began as the law enforcement segment of recently acq uired Annor Holdings. Through in tern al product our law enforcement development and the acquisition of complementary businesses, the business organ ically and Products Group ge nerates over $300 million in annu al revenue. We via acqu isitions, we anticipate our future growth to be in the expanded homeland security and first responder marl~ets , driven througll a combination of organic anticipate growth in the marl ~et penetration, new acquisitions, and channel synergy with otiler homeland security and BAE Systems bu sin esses and products. first responder markets. The Products Group reaches around the wo rld , offering our products and services to law enforcement, military, security and corrections professionals, as we ll as sports and outdoor en tilusiasts. Each of our Business description brands sets the pa ce in qua li ty and lea ding-edge tecllnologies for th eir respective markets. Th e Products Group has approx imately 1,700 employees in 12 manufacturing faci lities througllout t ile United BAE Systems Products Group is a leading global provider of security products. States, tile Uni ted Kingdom, Switzerland an d Mexico. We manufacture many of the world's most recognized brands across the law enforcement, corrections, military and security markets. Our products include Tile primary users of our security products are U. S. federal, state, bullet-resistant vests (also referred as body armor), holsters, po lice duty gear, loca l and foreign law enforcemen t and Ilomeland security agencies; pepper sprays, less-lethal munitions, emergency lighting products, riot gear, public and private corrections fac ilities; and U. S. and allied militari es forensic kits, and many other security-related items. and tileir supporting contractors. We marl~et and deli ve r our products tilrougll an extensive n e t wo rl ~ of domestic and international distributors and agents, as we ll as through our in sid e sa les force of 2007 Highlights over 80 representatives and speciali sts. We also provide tra ining se rvices in connection Witil tile use of our products.

- Collaborative pre-close Integration team efforts culminated with successful 2008 Objectives Day One celebration. Our joint integration team continued their focus by Our core objectives in 2008 are designed to expand tile Products completing the 100 day plan on schedule. Products Group adopted an Group's focus beyond traditional law enforcement products in ord er to "Engage, Embrace and Drive" theme throughout the integration process, better address significant growth opportunities th roughout tile global supported with facility posters and individual themed cards for all marl ~ets where we do busin ess. Th ey inc lu de tile fo llowing: employees. - Completed organizational restructure to achieve our business objectives - Deve lop and execute on a comprehensive domestic Homeland using three guiding principles: get closer to our customers; align Security strategy focused on federal DH S agencies and state & management and processes to work closer with the rest of BAE Systems loca l first responders; and to operate effectively under the Operational Framework; and prepare our organization for significant expansion in 2008-09. - Overhauled our International sales channel and conducted extensive vetting for our new Foreign Advisors. - Held our 2007 Products Group EXPO in Atlanta, Georgia in November. 140 attendees representing 75 of our key distributors were present to meet on various topics designed to expand our business opportunities for 2008. This event was supported by a Trade Fair featuring Products Group brands, suppliers as well as commercial products offered by BAE Systems E&IS Operating Group.

Number of employees 2007 Number of locations 1,700 12

Officers use the Law Enforcement Vehicle Arlllor (L.E.V.A) system from PROTECH ® and Safariland® duty gear to protect aga inst today's more dangerous street confrontations.

BAE Systems Company Strategy 2008 1 Products Group (continued)

- Sa fari land '" may be the most recogni zed name in th e global law enforce ment industry. Safa ri land holsters and associated duty gear is a lead ing brand of clloice in law enforce ment. We also ca rr y tile Bianclli International'" duty gear brand. Bianclli's reputation has been acllieved on tlleir success Witll concea lable Ilolsters and leather product offerings within th e commercial cllannel. In 2008, we seel, to explore ways of combining these two lea ding bra nd s tllrough joint R&D, manufacturing and marl

- Our focus on retail products combines Hiatt'" restraints, Hatch'" gloves and protective gear, and Breal, Free"' , Speedfeed"' , and KleenBore"" clea ning and lubrica tion products for weapons and outdoor gea r. Consumer promotions are pl ann ecl tllrougllout tile year using most of these brands to create in-store demand and product pull through. SWAT team collaborates with loca l law enforcement in a high risk rescue. BAE Systems Products Group is proud to be part of tile BAE Systems Equipment, armor and accessories from Products Group support a successful fami ly_ We see many opportunities for substantial growth througll mission. co ll aborative efforts witll tile broader enterpri se . Through tllese efforts, we are confident in our ability to ac hi eve our strategic and financial objectives in 2008.

- Leverage transferabl e products and tec hn ologies from other BAE Systems businesses tllat are su itable for marl

- Acll ieve our financial pl an.

Add itiona lly, we 1001, to drive demand within ex isting customer segments by combining product categories to be marl,eted using a lead brand, as well as the BAE Systems brand wllere appropriate. For example: - Our body armor brands include America n Body Armor"', Safariland '" Armorwea r"' , PROTEC H'" Tacti ca l, SAVVY'" Armor for Women " ·', PROTECH ® Corrections, Bianclli Body Armor'" and Second Cllance"' . Together, we marl,et our body armor as tile Total Armor Solution. Based on specific design elements for each bra nd, we marl

Tactical Officer attempts to resolve a conflict utilizing th e Penn Arms Multi­ Launcher, a less lethal so lution from Defense Technology.

2 www.baesysterns.com