UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended September 30, 2007            
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission file number 1-8533

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LOGO

DRS Technologies, Inc.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)             |  | 13-2632319(IRS Employer
Identification No.)
|---------------------------------------------------------------------------------- |  | -------------------------------------------
|5 Sylvan Way, Parsippany, New Jersey 07054(Address of principal executive offices)
|(973) 898-1500(Registrant's telephone number, including area code)                

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes ý No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large
Accelerated filer ý                Accelerated Filer o                Non-accelerated
filer o

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes o No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class

Outstanding at November 5, 2007Common Stock$0.01 par value

41,207,282




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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES  Index to Quarterly Report on Form 10-Q  for the Quarter Ended September 30, 2007

|                             |                                                                                            |    | Page
|---------------------------- | ------------------------------------------------------------------------------------------ | -- | ----
|PART IFINANCIAL INFORMATION
|Item 1.                      | Financial Statements (Unaudited)                                                           |    |     
|                             | Consolidated Balance SheetsSeptember 30, 2007 and March 31, 2007                          |    | 1   
|                             | Consolidated Statements of EarningsThree and Six Months Ended September 30, 2007 and 2006 |    | 2   
|                             | Consolidated Statements of Cash FlowsSix Months Ended September 30, 2007 and 2006         |    | 3   
|                             | Notes to the Consolidated Financial Statements                                             |    | 4   
|Item 2.                      | Management's Discussion and Analysis of Financial Condition and Results of Operations      |    | 33  
|Item 3.                      | Quantitative and Qualitative Disclosure about Market Risk                                  |    | 47  
|Item 4.                      | Controls and Procedures                                                                    |    | 47  
|PART IIOTHER INFORMATION   
|Item 1.                      | Legal Proceedings                                                                          |    | 48  
|Item 1A.                     | Risk Factors                                                                               |    | 50  
|Item 4.                      | Submission of Matters to a Vote of Security Holders                                        |    | 51  
|Item 6.                      | Exhibits                                                                                   |    | 51  
|Signatures                   |                                                                                            | 52

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PART IFINANCIAL INFORMATION

Item 1.    Financial Statements

DRS TECHNOLOGIES, INC. AND SUBSIDIARIES        Consolidated Balance Sheets  (in thousands, except share and per-share data)        (Unaudited)

|                                                                                                                                             |                                                                                                                                                                       | September 30,
2007                                                                                                                         |                           | March 31,
2007
|-------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------- | --------------
|Assets                                                                                                                                      
|Current assets                                                                                                                               |                                                                                                                                                                       |                                                                                                                                            |                           |               
|                                                                                                                                             |                                                                                                                                                                       | Cash and cash equivalents                                                                                                                  |                           | $             
|                                                                                                                                             |                                                                                                                                                                       | Accounts receivable, net of allowance for doubtful accounts of $2,294 and $1,703 as of September 30, 2007 and March 31, 2007, respectively |                           |               
|                                                                                                                                             |                                                                                                                                                                       | Inventories, net                                                                                                                           |                           |               
|                                                                                                                                             |                                                                                                                                                                       | Prepaid expenses, deferred income taxes and other current assets                                                                           |                           |               
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            |                           |               
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            | Total current assets      |               
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            |                           |               
|Property, plant and equipment, less accumulated depreciation of $200,164 and $178,241 at September 30, 2007 and March 31, 2007, respectively |                                                                                                                                                                       |                                                                                                                                            | 237,769                   |               
|Acquired intangible assets, net                                                                                                              |                                                                                                                                                                       |                                                                                                                                            | 182,435                   |               
|Goodwill                                                                                                                                     |                                                                                                                                                                       |                                                                                                                                            | 2,620,402                 |               
|Deferred income taxes and other noncurrent assets                                                                                            |                                                                                                                                                                       |                                                                                                                                            | 40,084                    |               
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            |                           |               
|                                                                                                                                             |                                                                                                                                                                       | Total assets                                                                                                                               |                           | $             
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            |                           |               
|Liabilities and Stockholders' Equity                                                                                                        
|Current liabilities                                                                                                                          |                                                                                                                                                                       |                                                                                                                                            |                           |               
|                                                                                                                                             |                                                                                                                                                                       | Current installments of long-term debt                                                                                                     |                           | $             
|                                                                                                                                             |                                                                                                                                                                       | Accounts payable                                                                                                                           |                           |               
|                                                                                                                                             |                                                                                                                                                                       | Accrued expenses and other current liabilities                                                                                             |                           |               
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            |                           |               
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            | Total current liabilities |               
|Long-term debt, excluding current installments                                                                                               |                                                                                                                                                                       |                                                                                                                                            | 1,705,943                 |               
|Other liabilities                                                                                                                            |                                                                                                                                                                       |                                                                                                                                            | 144,246                   |               
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            |                           |               
|                                                                                                                                             |                                                                                                                                                                       | Total liabilities                                                                                                                          |                           |               
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            |                           |               
|Commitments and contingencies                                                                                                                |                                                                                                                                                                       |                                                                                                                                            |                           |               
|Stockholders' equity                                                                                                                         |                                                                                                                                                                       |                                                                                                                                            |                           |               
|                                                                                                                                             | Preferred stock, $10 par value per share. Authorized 2,000,000 shares; none issued at September 30, 2007 and March 31, 2007                                           |                                                                                                                                            |                           |              
|                                                                                                                                             | Common stock, $.01 par value per share. Authorized 100,000,000 shares; 41,189,301 and 40,673,944 shares issued at September 30, 2007 and March 31, 2007, respectively |                                                                                                                                            |                           | 412           
|                                                                                                                                             | Additional paid-in capital                                                                                                                                            |                                                                                                                                            |                           | 1,125,530     
|                                                                                                                                             | Retained earnings                                                                                                                                                     |                                                                                                                                            |                           | 431,630       
|                                                                                                                                             | Accumulated other comprehensive earnings                                                                                                                              |                                                                                                                                            |                           | 10,325        
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            |                           |               
|                                                                                                                                             |                                                                                                                                                                       | Total stockholders' equity                                                                                                                 |                           |               
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            |                           |               
|                                                                                                                                             |                                                                                                                                                                       | Total liabilities and stockholders' equity                                                                                                 |                           | $             
|                                                                                                                                             |                                                                                                                                                                       |                                                                                                                                            |                           |               

See accompanying Notes to Consolidated Financial Statements.

1

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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES        Consolidated Statements of Earnings  (in thousands, except per-share data)        (Unaudited)

|                                        |                                                            | Three Months Ended
September 30, |         | Six Months Ended
September 30,
|--------------------------------------- | ---------------------------------------------------------- | -------------------------------- | ------- | ------------------------------
|
|Revenues:                               |                                                            |                                  |         |                               
|                                        | Products                                                   |                                  | $       | 581,566                       
|                                        | Services                                                   |                                  |         | 202,203                       
|                                        |                                                            |                                  |         |                               
|Total revenues                          |                                                            |                                  | 783,769 |                               
|Costs and expenses                      |                                                            |                                  | 691,640 |                               
|                                        |                                                            |                                  |         |                               
|                                        | Operating income                                           |                                  |         | 92,129                        
|Interest income                         |                                                            |                                  | 380     |                               
|Interest and related expenses           |                                                            |                                  | 28,106  |                               
|Other expense, net                      |                                                            |                                  | 217     |                               
|                                        |                                                            |                                  |         |                               
|                                        | Earnings before non-controlling interests and income taxes |                                  |         | 64,186                        
|Non-controlling interests               |                                                            |                                  | 586     |                               
|                                        |                                                            |                                  |         |                               
|                                        | Earnings before income taxes                               |                                  |         | 63,600                        
|Income taxes                            |                                                            |                                  | 20,566  |                               
|                                        |                                                            |                                  |         |                               
|                                        | Net earnings                                               |                                  | $       | 43,034                        
|                                        |                                                            |                                  |         |                               
|Net earnings per share of common stock: |                                                            |                                  |         |                               
|                                        | Basic earnings per share:                                  |                                  | $       | 1.06                          
|                                        | Diluted earnings per share:                                |                                  | $       | 1.04                          
|Dividends per common share              |                                                            | $                                | 0.03    |                               

See
accompanying Notes to Consolidated Financial Statements.

2

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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES        Consolidated Statements of Cash Flows  (in thousands)        (Unaudited)

|                                                                               |                                                                               | Six Months Ended September 30,                                        |        
|------------------------------------------------------------------------------ | ----------------------------------------------------------------------------- | --------------------------------------------------------------------- | -------
|
|Cash Flows from Operating Activities                                           |                                                                               |                                                                       |        
|Net earnings                                                                   |                                                                               | $                                                                     | 44,684 
|Adjustments to reconcile net earnings to cash flows from operating activities: |                                                                               |                                                                       |        
|                                                                               | Depreciation and amortization                                                 |                                                                       |        
|                                                                               | Share-based compensation                                                      |                                                                       |        
|                                                                               | Deferred income taxes                                                         |                                                                       |        
|                                                                               | Thermal Weapon Sight II charge (Note 5.)                                      |                                                                       |        
|                                                                               | Inventory reserve and provision for doubtful accounts                         |                                                                       |        
|                                                                               | Amortization and write-off of deferred financing fees                         |                                                                       |        
|                                                                               | Curtailment gain (Note 11.)                                                   |                                                                       |        
|                                                                               | Other, net                                                                    |                                                                       |        
|                                                                               | Changes in assets and liabilities, net of effects from business combinations: |                                                                       |        
|                                                                               |                                                                               | Decrease (increase) in accounts receivable                            |        
|                                                                               |                                                                               | Increase in inventories                                               |        
|                                                                               |                                                                               | Decrease in prepaid expenses and other current assets                 |        
|                                                                               |                                                                               | Decrease in accounts payable                                          |        
|                                                                               |                                                                               | Decrease in accrued expenses and other current liabilities            |        
|                                                                               |                                                                               | Increase in customer advances                                         |        
|                                                                               |                                                                               | (Decrease) increase in pension and postretirement benefit liabilities |        
|                                                                               |                                                                               | Other, net                                                            |        
|                                                                               |                                                                               |                                                                       |        
|                                                                               | Net cash provided by operating activities                                     |                                                                       |        
|Cash Flows from Investing Activities                                           |                                                                               |                                                                       |        
|                                                                               | Capital expenditures                                                          |                                                                       |        
|                                                                               | Payments pursuant to business combinations, net of cash acquired              |                                                                       |        
|                                                                               | Disposition of property, plant and equipment                                  |                                                                       |        
|                                                                               | Other, net                                                                    |                                                                       |        
|                                                                               |                                                                               |                                                                       |        
|                                                                               | Net cash used in investing activities                                         |                                                                       |        
|Cash Flows from Financing Activities                                           |                                                                               |                                                                       |        
|                                                                               | Borrowings on revolving line of credit                                        |                                                                       |        
|                                                                               | Repayments of revolving line of credit                                        |                                                                       |        
|                                                                               | Borrowings of long-term debt                                                  |                                                                       |        
|                                                                               | Repayments of long-term debt                                                  |                                                                       |        
|                                                                               | Excess tax benefit realized from share-based payment arrangements             |                                                                       |        
|                                                                               | Proceeds from stock option exercises                                          |                                                                       |        
|                                                                               | Dividends paid                                                                |                                                                       |        
|                                                                               | Other                                                                         |                                                                       |        
|                                                                               |                                                                               |                                                                       |        
|                                                                               | Net cash (used in) provided by financing activities                           |                                                                       |        
|Effect of exchange rates on cash and cash equivalents                          |                                                                               |                                                                       | 478    
|                                                                               |                                                                               |                                                                       |        
|Net (decrease) increase in cash and cash equivalents                           |                                                                               |                                                                       | (43,562
|Cash and cash equivalents, beginning of period                                 |                                                                               |                                                                       | 95,833 
|                                                                               |                                                                               |                                                                       |        
|                                                                               | Cash and cash equivalents, end of period                                      |                                                                       | $      
|                                                                               |                                                                               |                                                                       |        

See accompanying Notes to Consolidated Financial Statements.

3

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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES        Notes to the Consolidated Financial Statements        (Unaudited)

1. Description of Business

DRS Technologies, Inc., its wholly-owned subsidiaries and its controlling interests (hereinafter, DRS or the Company) is a supplier of defense electronic
products, systems and military support services. The Company provides high-technology products and services to all branches of the U.S. military, major aerospace and defense prime
contractors, government intelligence agencies, international military forces and industrial markets. The Company focuses on several key areas of importance for the U.S. Department of Defense (DoD),
such as intelligence, surveillance, reconnaissance, power management, advanced communications and network systems. DRS is a provider of thermal imaging devices, combat display workstations, electronic
sensor systems, power systems, battlefield digitization systems, air combat training systems, mission recorders, deployable flight incident recorders, environmental and telecommunication systems,
aircraft loaders, military trailers and shelters. The Company also provides support services, including security and asset protection system services, telecommunication and information technology
services, training and logistics support services for all branches of the U.S. armed forces, and certain foreign militaries, homeland security forces and selected government and intelligence agencies.

On
October 2, 2006, the Company implemented a new organizational operating structure that realigned its operations into four operating segments. The four operating segments are
the Command, Control, Communications, Computers and Intelligence (C4I) Segment, the Reconnaissance, Surveillance and Target Acquisition (RSTA) Segment, the Sustainment Systems Segment and the
Technical Services Segment. All other operations, primarily the Company's Corporate Headquarters, are grouped in Other. See Note 12 for a description of each segment. All prior-year
amounts presented by segment have been reclassified to reflect the new operating structure.

2. Basis of Presentation

The accompanying unaudited consolidated financial statements include all wholly-owned and majority-owned subsidiaries and controlling interests of DRS. The
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. In the opinion of the Company, the interim consolidated financial information provided herein reflects all adjustments (consisting of normal and
recurring adjustments) necessary for a fair presentation of the Company's consolidated financial position as of September 30, 2007, the results of its operations for the three- and
six-month periods ended September 30, 2007 and 2006, and its cash flows for the six-month periods ended September 30, 2007 and 2006. The results of operations and
cash flows for the interim period ended September 30, 2007 are not necessarily indicative of the results to be expected for the full year. These interim consolidated financial statements should
be read in conjunction with the consolidated financial statements of the Company for the fiscal year ended March 31, 2007, which are included in the Company's filing on
Form 10-K for the year ended March 31, 2007.

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and costs and
expenses during the reporting period. The most significant of these estimates and assumptions relate to contract revenue, costs to complete performance on a contract, profit and loss recognition, fair
values of assets

4

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acquired
and liabilities assumed in business combinations, market values for inventories reported at lower of cost or market, pension and postretirement benefit obligations, share-based employee
compensation costs, recoverability, useful lives and valuation of recorded amounts of long-lived assets, identifiable intangible assets and goodwill, income taxes, including the valuation
of deferred tax assets, litigation reserves and environmental obligations. Changes in estimates are reflected in the periods during which they become known. Actual amounts will differ from these
estimates and could differ materially. For a more complete discussion of these estimates and assumptions, see the Annual Report of DRS Technologies, Inc. on Form 10-K for the
fiscal year ended March 31, 2007.

The
fiscal year-end consolidated balance sheet data was derived from the Company's audited financial statements, but does not include all disclosures required by accounting
principles generally accepted in the United States of America. Certain fiscal 2007 amounts have been reclassified to conform to the fiscal 2008 presentation.

3. Income Taxes

The provision for income taxes for the three- and six-month periods ended September 30, 2007, reflected an effective income tax
rate of approximately 32.3% and 32.5%, respectively, as compared with 38.5% and 38.7%, respectively, in the same period last year. The Company's effective tax rate declined primarily due to the
scheduled increase in the Domestic Manufacturing Deduction, reinstatement of the Research & Development Credit, and the Company's April 1, 2007 election to report interest expense
associated with income tax contingencies as interest expense rather than a component of the income tax provision, partially off-set by a reduction in the Extraterritorial Income Exclusion.
Additionally during the second quarter the effective tax rate was reduced by the impact of $3.1 million of non-recurring items, primarily related to the reversal of a portion of a valuation allowance
that had been established against certain state deferred tax assets.

In
July 2006, the Financial Accounting Standard's Board (FASB) issued FASB Interpretation No. 48 (FIN 48). FIN 48 prescribes a comprehensive
model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48
states that a tax benefit from an uncertain tax position may be recognized only if it is "more likely than not" that the position is sustainable, based on its technical merits. The tax benefit of a
qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority having full knowledge of all relevant information. A
tax benefit from an uncertain tax position was previously recognized if it was "probable" of being sustained. Under FIN 48, the liability for unrecognized tax benefits is classified as
noncurrent unless the liability is expected to be settled in cash within 12 months of the reporting

5

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date.
The Company adopted the provisions of FIN 48 on April 1, 2007. The impact of adopting FIN 48 on the Company's consolidated financial statements is summarized below.

Balance at
March 31,
2007

FIN 48
Reclassification

Balance at
March 31,
2007(in thousands)Accrued interest

$
25,608

$
5,801

$
31,409Income taxes payable

$
51,470

$
(8,243
)
$
43,227Deferred tax assets

$
26,451

$
4,932

$
31,383Other liabilities

$
158,682

$
7,374

$
166,056Retained earnings

$
399,793

$


$
399,793


The
Company operates in multiple taxing jurisdictions, both within the United States and outside of the United States, and faces audits from various tax authorities regarding transfer
pricing, equity related payroll deductions, the deductibility of certain expenses and intercompany transactions, as well as other matters. At April 1, 2007, the total amount of liability for
unrecognized tax benefits related to federal, state and foreign taxes was approximately $38.0 million (of which approximately $5.3 million would impact the Company's effective tax rate
if recognized) plus accrued interest of $5.8 million. As of September 30, 2007, the corresponding balance for unrecognized tax benefits was approximately $21.2 million (of which
approximately $5.6 million would impact the Company's effective tax rate if recognized) for the items described above plus approximately $6.1 million of accrued interest. As a result of
settlements agreed to with taxing authorities during the second quarter, our unrecognized tax benefit was reduced by approximately $16.0 million, primarily related to the Engineered Support
Systems, Inc. (ESSI) tax settlement (See Note 15) of which $11.7 million was paid to or applied to refunds due from taxing authorities and $4.1 million was reversed through
goodwill with the remaining amount reducing income tax expense in the consolidated statement of earnings.

The
Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitations expires for the respective tax jurisdiction.
Within specific countries, the Company may be subject to audit by various tax authorities, or subsidiaries operating within the country may be subject to different statute of limitations expiration
dates. As of April 1, 2007, a summary of the tax years that remain subject to examination in the Company's major tax jurisdictions are:

United StatesFederal

March 31, 2002 and forwardUnited StatesStates

March 31, 2002 and forwardGermany

December 31, 2002 and forwardUnited Kingdom

December 31, 2003 and forwardCanada

December 31, 2001 and forwardCanadaProvinces

December 31, 2001 and forward


Based
upon the expiration of statutes of limitations and/or the anticipated conclusion of tax examinations in several jurisdictions, the Company believes it reasonably possible that the
total amount of previously unrecognized tax benefits for the items discussed above may decrease by up to $6.8 million within 12 months of September 30, 2007.

6

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The
Company's policy is to classify penalties related to unrecognized tax benefits as income tax expense. The Company's policy is to classify interest related to unrecognized tax
benefits as interest expense. In fiscal 2007 and prior, these amounts were classified as income tax expense.

4. Share-Based Compensation

The Company recorded total share-based costs related to stock options and non-vested stock of $3.9 million and $6.6 million for the
three- and six-month periods ended September 30, 2007, respectively, and $3.4 million and $6.1 million for the three- and six-month periods ended September 30, 2006,
respectively. Such amounts were recognized in the consolidated financial statements as follows:

|                                                                                 |  | Three Months
Ended
September 30, |        | Six Months
Ended
September 30, |  
|-------------------------------------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------ | -
|
|
|Total cost of share-based payment plans                                          |  | $                                | 3,866  |                                | $
|Amounts capitalized in inventory                                                 |  |                                  | (2,340 | )                              |  
|Amounts charged against earnings for amounts previously capitalized in inventory |  |                                  | 1,375  |                                |  
|                                                                                 |  |                                  |        |                                |  
|Amounts charged against earnings before income tax benefit                       |  | $                                | 2,901  |                                | $
|                                                                                 |  |                                  |        |                                |  

Stock OptionsThe following table summarizes information regarding the Company's stock option
activity and amounts as of and for the six months ended September 30, 2007.

|                                                     |                     | Number of
Options |          | Weighted
Average
Exercise
Price |       | Weighted
Average
Remaining
Contractual
Term (years) |      | Aggregate
Intrinsic
Value
|---------------------------------------------------- | ------------------- | ----------------- | -------- | ------------------------------- | ----- | --------------------------------------------------- | ---- | -------------------------
|
|Outstanding at March 31, 2007                        |                     | 2,394,314         |          | $                               | 32.04 |                                                     |      |                          
|                                                     | Granted             |                   | 249,469  |                                 | $     | 53.67                                               |      |                          
|                                                     | Exercised           |                   | (266,625 | )                               | $     | 19.64                                               |      |                          
|                                                     | Cancelled/forfeited |                   | (21,711  | )                               | $     | 33.82                                               |      |                          
|                                                     |                     |                   |          |                                 |       |                                                     |      |                          
|Outstanding at September 30, 2007                    |                     | 2,355,447         |          | $                               | 35.72 |                                                     | 6.36 |                          
|                                                     |                     |                   |          |                                 |       |                                                     |      |                          
|Vested and expected to vest at September 30, 2007(1) |                     | 2,336,926         |          | $                               | 35.62 |                                                     | 6.35 |                          
|                                                     |                     |                   |          |                                 |       |                                                     |      |                          
|Exercisable at September 30, 2007                    |                     | 1,598,327         |          | $                               | 32.15 |                                                     | 5.54 |                          
|                                                     |                     |                   |          |                                 |       |                                                     |      |                          

---

The
aggregate intrinsic values, disclosed in the table above, represent the difference between DRS's closing stock price on the last trading day of the second quarter
(September 28, 2007) and the exercise price, multiplied by the number of in-the-money stock options for each category.

7

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The
total intrinsic values of stock options exercised, based on the difference between DRS's stock price at the time of exercise and the related exercise price, during the six month
periods ended September 30, 2007 and 2006, was $8.9 million and $0.8 million, respectively. Total compensation cost related to stock options was $1.6 million and
$2.9 million, for the three- and six-month periods ended September 30, 2007, respectively, and $2.0 million and $3.8 million, for the three- and
six-month periods ended September 30, 2006, respectively. At September 30, 2007, unrecognized compensation costs related to stock options was $10.0 million
($6.3 million after income taxes), which is expected to be recognized over a weighted average remaining period of 2.7 years.

The
estimated weighted average grant date fair value of each stock option awarded was $20.91 and $20.99 for the three- and six-month periods ended September 30, 2007,
respectively, and $22.22 and $21.56 for the three- and six-month periods ended September 30, 2006, respectively.

Stock Option Fair Value Estimation AssumptionsFor purposes of estimating the fair value provisions of Statement of Financial
Accounting Standard (SFAS) 123R, the Company estimates the fair value of its stock options at the date of grant using the Black-Scholes option-pricing valuation model. The Company's valuation model is
impacted by DRS's stock price, as well as weighted average assumptions for a number of subjective variables described below.



8

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Changes
in assumptions can materially impact the estimated fair value of stock options. The weighted average assumptions used in the Company's valuation model are presented in the table
below.

Six Months
Ended
September 30,
2007Expected holding period (in years)


5.5Expected volatility


33.61
%Expected dividend yield


0.23
%Risk-free interest rate


4.93
%Weighted-average fair value of options granted

$
20.99


Non-Vested Stock and Non-Vested Stock UnitsNon-vested stock is granted to certain
employees, as permitted under the 2006 Omnibus Plan in the name of the employee, who has all the rights of a stockholder, subject to certain restrictions. Non-vested stock units is granted
in the name of the employee; however, the participant has no rights as a stockholder. These non-vested stock units are redeemed for DRS common stock once a three-year cliff vesting period
has been satisfied. The cost of the grants, as determined by the market prices of the common stock at the grant dates, net of expected forfeitures, is recognized over the vesting periods.

Compensation
cost for non-vested stock awards for the three months ended September 30, 2007 and 2006 was $2.3 million and $1.4 million, respectively, and
$3.7 million and $2.3 million for the six months ended September 30, 2007 and 2006, respectively. As of September 30, 2007, total unrecognized compensation costs related to
non-vested stock awards was $22.1 million ($13.9 million after income taxes), and that amount is expected to be recognized over a weighted average remaining period of
2.3 years.

The
following table details the activity in non-vested stock awards for the six months ended September 30, 2007.

Six Months Ended September 30, 2007Number of
Shares

Weighted
Average Grant
Date Fair Value
per ShareNonvestedBalance at March 31, 2007

362,396

$
49.86Granted

283,514

$
54.24Vested

(2,000
)
$
27.79Forfeited / cancelled

(25,126
)
$
50.80NonvestedBalance at September 30, 2007

618,784

$
51.91


9

---



5. Inventories

Inventories are summarized as follows:

September 30,
2007

March 31,
2007(in thousands)Work-in-process

$
496,237

$
466,221General and administrative costs


70,817


64,229Raw material and finished goods


54,633


53,158621,687


583,608Less:
Progress payments and certain customer advances


230,713


206,746Inventory reserve


10,111


9,250Total

$
380,863

$
367,612


Inventoried
contract costs for the Company's businesses that are primarily government contractors include certain general and administrative (G&A) costs, including internal research and
development costs (IRAD) and bid and proposal costs (B&P). G&A, IRAD and B&P costs are allowable, indirect contract costs under U.S. government regulations. The Company allocates these costs to
government contracts and accounts for them as product costs, not as period expenses, at the majority of the Company's operating units.

The
table below presents a summary of G&A, IRAD and B&P costs included in inventoried contract costs and changes to them, including amounts used in the determination of costs and
expenses. The cost data in the table below does not include the G&A, IRAD and B&P costs for the Company's lines of businesses that are not primarily contracted with the U.S. government, which
are expensed as incurred.

|                                            |                                              | Three Months Ended September 30, |        | Six Months Ended September 30, |  
|------------------------------------------- | -------------------------------------------- | -------------------------------- | ------ | ------------------------------ | -
|
|
|Balance in inventory at beginning of period |                                              | $                                | 69,076 |                                | $
|                                            | Add: Incurred costs                          |                                  |        | 110,108                        |  
|                                            | Less: Amounts included in costs and expenses |                                  |        | (108,367                       | )
|                                            |                                              |                                  |        |                                |  
|Balance in inventory at end of period       |                                              | $                                | 70,817 |                                | $
|                                            |                                              |                                  |        |                                |  

Total
expenditures for IRAD amounted to approximately $14.1 million and $14.3 million for the three-month periods ended September 30, 2007 and 2006, respectively,
and $25.5 million and $25.3 million, respectively, for the six-month periods then ended.

During
the first quarter of fiscal 2008, the Company recorded a $36.8 million charge to operations for an anticipated loss on the Thermal Weapon Sight II (TWS II) program.
The charge reflected the cost of procuring new material following recent design modifications, as well as the write-off of certain obsolete inventory. As a result of the design changes,
the Company also transferred $30.0 million of saleable inventory from the TWS II program (transferred inventory) to inventory during the first quarter of fiscal 2008, which is valued at the
lower of cost or market as of September 30, 2007. The

10

---



Company
believes that the transferred inventory will be sold primarily through international distribution channels. The sale of certain products outside of the United States is highly regulated and
any inability to obtain the requisite licenses, or comply with applicable government export regulations may affect the Company's ability to export the transferred inventory. If the Company is
precluded from selling the transferred inventory to certain international customers and, or is unable to generate sufficient domestic revenues, the value of the transferred inventory may be required
to be written-down or written-off in a future period. Such a write-down or write-off could be material to the results of operations in any one period.

6. Goodwill and Intangible Assets

The table below reconciles the change in the carrying amount of goodwill by operating segment for the period from March 31, 2007 to September 30,
2007.

|                                 |                                         | C4I |         | RSTA  |   | Sustainment
Systems |   | Technical
Services |           | Total  |  
|-------------------------------- | --------------------------------------- | --- | ------- | ----- | - | ------------------- | - | ------------------ | --------- | ------ | -
|
|Balance as of March 31, 2007     |                                         | $   | 654,446 |       | $ | 176,376             |   | $                  | 1,040,605 |        | $
|                                 | ESSI tax settlements                    |     |         |      |   |                     |  |                    |           | (2,209 | )
|                                 | Codem acquisition earn-out              |     |         | 2,638 |   |                     |  |                    |           |       |  
|                                 | Other                                   |     |         | (227  | ) |                     |  |                    |           |       |  
|                                 | Foreign currency translation adjustment |     |         | 3,811 |   |                     |  |                    |           | 1,099  |  
|                                 |                                         |     |         |       |   |                     |   |                    |           |        |  
|Balance as of September 30, 2007 |                                         | $   | 660,668 |       | $ | 176,376             |   | $                  | 1,039,495 |        | $
|                                 |                                         |     |         |       |   |                     |   |                    |           |        |  

The
following disclosure presents certain information regarding the Company's acquired intangible assets as of September 30, 2007 and March 31, 2007. All acquired
intangible assets are being amortized over their estimated useful lives, as indicated below, with no estimated residual values.

|Acquired Intangible Assets |                                                   | Weighted
Average
Amortization
Period |          | Gross Carrying
Amount |         | Accumulated
Amortization |   | Net Balance
|-------------------------- | ------------------------------------------------- | ------------------------------------ | -------- | --------------------- | ------- | ------------------------ | - | -----------
|
|As of September 30, 2007   |                                                   |                                      |          |                       |         |                          |   |            
|                           | Technology-based intangibles                      |                                      | 18 years |                       | $       | 47,859                   |   | $          
|                           | Customer and program/contract-related intangibles |                                      | 11 years |                       |         | 214,599                  |   |            
|                           |                                                   |                                      |          |                       |         |                          |   |            
|Total                      |                                                   |                                      |          | $                     | 262,458 |                          | $ | (80,023    
|                           |                                                   |                                      |          |                       |         |                          |   |            
|As of March 31, 2007       |                                                   |                                      |          |                       |         |                          |   |            
|                           | Technology-based intangibles                      |                                      | 18 years |                       | $       | 47,859                   |   | $          
|                           | Customer and program/contract-related intangibles |                                      | 11 years |                       |         | 214,439                  |   |            
|                           |                                                   |                                      |          |                       |         |                          |   |            
|Total                      |                                                   |                                      |          | $                     | 262,298 |                          | $ | (65,314    
|                           |                                                   |                                      |          |                       |         |                          |   |            

11

---



The
aggregate acquired intangible asset amortization expense for the three-month periods ended September 30, 2007 and 2006 was $7.3 million and $7.7 million,
respectively, and for the six-month periods ended September 30, 2007 and 2006 was $14.6 million and $15.5 million, respectively. The estimated acquired intangible
asset annual amortization expense is expected to be approximately $29.2 million for fiscal year 2008, $29.2 million for fiscal year 2009, $28.3 million for fiscal year 2010,
$27.5 million for fiscal year 2011 and $14.0 million for fiscal year 2012.

The
Company's goodwill and intangible assets are more fully described in Note 3 to the Company's consolidated financial statements for the year ended March 31, 2007.

7. Product Warranties

Product warranty costs generally are accrued when the covered products are delivered to the customer. Product warranty costs are recognized based on the terms of
the product warranty and the related estimated costs, considering historical claims expense. Accrued warranty costs are reduced as these costs are incurred and as the warranty period expires, and
otherwise may be modified as specific product performance issues are identified and resolved. The table below presents the changes in the Company's accrual for product warranties for the six months
ended September 30, 2007 and 2006, which are included in accrued expenses and other current liabilities.

Six Months Ended
September 30,2007

2006(in thousands)Balance at beginning of period

$
31,180

$
29,869Acquisitions during the period





932Accruals for product warranties issued during the period


12,584


9,217Settlements made during the period


(8,987
)

(8,219
)Other


320


126Balance at end of the period

$
35,097

$
31,925


12

---



8. Debt

September 30,
2007

March 31, 2007(in thousands)Credit Facility:Revolving line of credit

$


$
Term loan


195,875


272,250Canadian Term Loan


8,657


8,47965/8% Senior Notes due 2016


350,000


350,00075/8% Senior Subordinated Notes due 2018


250,000


250,00067/8% Senior Subordinated Notes due 2013


550,000


550,0002.0% Convertible Senior Notes due 2026


345,000


345,000Unamortized Bond Premium on 67/8%Senior Subordinated Notes


6,887


7,453Other obligations


5,092


5,0251,711,511


1,788,207Less:Current installments of long-term debt


5,568


5,161Total long-term debt

$
1,705,943

$
1,783,046


The
weighted average interest rate on the Company's term loan borrowings under its Credit Facility was 6.9% as of September 30, 2007 (6.9% as of March 31, 2007). At
September 30, 2007 and March 31, 2007, there were no outstanding revolving line of credit borrowings against the Credit Facility.

From
time to time, the Company enters into standby letters-of-credit and bank guarantee agreements with financial institutions and customers, primarily relating
to the guarantee of its future performance on certain contracts to provide products and services and to secure advance payments it has received from its customers. As of September 30, 2007,
$46.3 million was contingently payable under letters of credit and bank guarantees. Of this amount, approximately $0.9 million and $0.3 million in letters of credit and bank
guarantees, respectively, as of September 30, 2007, were issued under a previous credit agreement and by a bank agreement for the Company's U.K. subsidiary, respectively, and are not considered
when determining the availability under the Company's revolving line of credit. At September 30, 2007, the Company had $354.9 million of availability under its revolving line of credit.

During
the six months ended September 30, 2007, the Company prepaid at its discretion $75.0 million of the outstanding term loan with proceeds from the Company's revolving
line of credit and recognized a $0.2 million charge to interest and related expenses.

On
March 29, 2006, DRS Technologies Canada Company (DRS Canada) established a five-year senior secured term loan for approximately $9.9 million
(C$11.5 million), maturing on April 1, 2011. The weighted average interest rate on the term loan was 6.3% as of September 30, 2007 (6.0% as of March 31, 2007).

Accrued
interest expense at September 30, 2007 and March 31, 2007 was $25.4 million and $25.6 million, respectively.

13

---





Certain of the Company's debt arrangements contain customary representations, warranties and default provisions, as well as restrictions that, among other things,
limit the amount of debt that the Company may have outstanding. As of September 30, 2007, the Company was in compliance with all covenants.

In
January 2006, in connection with the offering of the Company's 2% Convertible Notes due 2026 (Convertible Notes), the Company entered into a registration rights agreement
relating to the Company's Common Stock issuable upon conversion of the Convertible Notes. Pursuant to the registration rights agreement, if the Company does not file a prospectus supplement or
shelf registration statement relating to the resale of the Common Stock within certain specified time periods or maintain the effectiveness of a registration statement related to the resale of the
Common Stock, subject to certain exceptions, the Company could be subject to additional interest. The Company believes the likelihood of occurrence of such event is remote and, therefore, the Company
has not recorded a liability at September 30, 2007. In the event that it becomes probable that the Company would have to pay additional interest under the registration rights agreement, the
Company estimates the maximum potential amount as of September 30, 2007 to be approximately $3.5 million per year.

The
Company's indebtedness is more fully described in Note 8 to the Company's Consolidated Financial Statements for the year ended March 31, 2007.

9. Earnings per Share

Basic earnings per share (EPS) is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during each period. The
computation of diluted earnings per share includes the effect of shares from the assumed exercise of dilutive stock options, convertible debt (if dilutive), non-vested stock and
non-vested stock units using the treasury stock method. The following table presents the components of basic and diluted earnings per share:

|                                  |                                            | Three Months Ended
September 30,           |        | Six Months Ended
September 30,
|--------------------------------- | ------------------------------------------ | ------------------------------------------ | ------ | ------------------------------
|
|
|Basic EPS computation             |                                            |                                            |        |                               
|                                  | Net earnings                               |                                            | $      | 43,034                        
|                                  |                                            |                                            |        |                               
|                                  | Weighted average common shares outstanding |                                            |        | 40,525                        
|                                  |                                            |                                            |        |                               
|                                  | Basic earnings per share                   |                                            | $      | 1.06                          
|Diluted EPS computation           |                                            |                                            |        |                               
|                                  | Net earnings                               |                                            | $      | 43,034                        
|                                  |                                            |                                            |        |                               
|                                  | Diluted common shares outstanding          |                                            |        |                               
|                                  |                                            | Weighted average common shares outstanding |        |                               
|                                  |                                            | Stock options and non-vested awards        |        |                               
|                                  |                                            |                                            |        |                               
|Diluted common shares outstanding |                                            |                                            | 41,360 |                               
|                                  |                                            |                                            |        |                               
|Diluted earnings per share        |                                            | $                                          | 1.04   |                               

14

---



At
September 30, 2007 and 2006, there were 246,969 and 454,108 options to acquire DRS common stock outstanding, respectively, with weighted average exercise prices greater than
$52.77 and $43.78 per option, respectively, that are excluded from the above calculation because their inclusion would have had an antidilutive effect on EPS in their respective fiscal years.

For
the three- and six-month periods ended September 30, 2007 and 2006, DRS's 2% Convertible Senior Notes due 2026 had no impact on diluted EPS because the
average stock price during such periods was below $59.70 per share.

10. Comprehensive Earnings

The components of comprehensive earnings for the three- and six-month periods ended September 30, 2007 and 2006 consisted of the following:

|                              |                                                                                          | Three Months Ended
September 30, |        | Six Months Ended
September 30, |  
|----------------------------- | ---------------------------------------------------------------------------------------- | -------------------------------- | ------ | ------------------------------ | -
|
|
|Net earnings                  |                                                                                          | $                                | 43,034 |                                | $
|Other comprehensive earnings: |                                                                                          |                                  |        |                                |  
|                              | Foreign currency translation adjustments                                                 |                                  |        | 3,278                          |  
|                              | Minimum pension liability, net of income taxes                                           |                                  |        | 1,418                          |  
|                              | Unrealized net gains on hedging instruments arising during the period, net of income tax |                                  |        |                               |  
|                              |                                                                                          |                                  |        |                                |  
|Comprehensive earnings        |                                                                                          | $                                | 47,730 |                                | $
|                              |                                                                                          |                                  |        |                                |  

11. Pensions and Other Employee Benefits

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plansan amendment of FASB Statements No. 87, 88, 106 and 132(R)" (SFAS 158). The Company adopted the recognition provisions of SFAS 158 in its Consolidated
Financial Statements at March 31, 2007. See Note 12 to the Company's audited Consolidated Financial Statements for the year ended March 31, 2007, included in the Company's Annual
Report on Form 10-K for a discussion of the recognition provisions of SFAS 158. In addition, SFAS 158 requires companies to measure pension and postretirement benefit
plan assets and benefit obligations as of the date of the employer's fiscal year end balance sheet. The Company will be required to change the measurement date from December 31 to
March 31 for its pension and postretirement plans in the fiscal year beginning April 1, 2008. The Company currently is evaluating the impact of the change in the measurement date on the
Company's results of operations.

On
June 29, 2007, the Company approved and adopted an amendment to one of its defined benefit pension plans to cease the accrual of future benefits effective September 30,
2007. All retirement benefits earned by employees enrolled in the plan as of September 30, 2007 are fully preserved. Such employees' ongoing service with the Company will continue to be
credited for vesting

15

---



purposes.
The amendment of the defined benefit pension plan was accounted for as a plan curtailment, and, as a result, the Company recorded a gain of $11.7 million during the second quarter of
fiscal 2008.

The
following table summarizes the components of net periodic benefit cost for the Company's pension and postretirement benefit plans for the three- and six-month periods
ended September 30, 2007 and 2006. These plans are more fully described in Note 12 to the Company's Consolidated Financial Statements for the year ended March 31, 2007.

|                                                |  | Funded
Pension Plans |         | Postretirement
Benefit Plans |   | Unfunded
Supplemental
Retirement Plans
|----------------------------------------------- |  | -------------------- | ------- | ---------------------------- | - | --------------------------------------
|
|
|
|Service cost                                    |  | $                    | 1,728   |                              | $ | 1,834                                 
|Interest cost                                   |  |                      | 3,653   |                              |   | 3,243                                 
|Expected return on plan assets                  |  |                      | (4,065  | )                            |   | (3,490                                
|Amortization of unrecognized loss (gain)        |  |                      | 102     |                              |   | 117                                   
|Amortization of transition obligation           |  |                      |        |                              |   |                                      
|Amortization of unrecognized prior-service cost |  |                      | 3       |                              |   | 39                                    
|Curtailment gain                                |  |                      | (11,719 | )                            |   |                                      
|                                                |  |                      |         |                              |   |                                       
|Net periodic benefit cost (income)              |  | $                    | (10,298 | )                            | $ | 1,743                                 
|                                                |  |                      |         |                              |   |                                       

|                                                |  | Funded
Pension Plans |         | Postretirement
Benefit Plans |   | Unfunded
Supplemental
Retirement Plans
|----------------------------------------------- |  | -------------------- | ------- | ---------------------------- | - | --------------------------------------
|
|
|
|Service cost                                    |  | $                    | 3,456   |                              | $ | 3,668                                 
|Interest cost                                   |  |                      | 7,306   |                              |   | 6,486                                 
|Expected return on plan assets                  |  |                      | (8,130  | )                            |   | (6,980                                
|Amortization of unrecognized loss (gain)        |  |                      | 204     |                              |   | 234                                   
|Amortization of transition obligation           |  |                      |        |                              |   |                                      
|Amortization of unrecognized prior-service cost |  |                      | 6       |                              |   | 78                                    
|Curtailment gain                                |  |                      | (11,719 | )                            |   |                                      
|                                                |  |                      |         |                              |   |                                       
|Net periodic benefit cost (income)              |  | $                    | (8,877  | )                            | $ | 3,486                                 
|                                                |  |                      |         |                              |   |                                       

The
Company expects to contribute $15.9 million and $1.6 million to its pension and postretirement plans, respectively, during the fiscal year ended March 31, 2008,
of which $7.4 million and $0.6 million, respectively, were contributed during the six-month period ended September 30, 2007.

16

---



12. Operating Segments

As discussed in Note 1, on October 2, 2006, the Company implemented a new organizational operating structure which realigned its three operating
groups into four operating segments. The four operating segments are the Command, Control, Communications, Computers and Intelligence (C4I) Segment, the Reconnaissance, Surveillance and Target
Acquisition (RSTA) Segment, the Sustainment Systems Segment and the Technical Services Segment. All other operations, primarily our Corporate Headquarters, are grouped in Other. Prior-year
balances and results of operations for the C4I Group, SR Group and S3 Group have been reclassified to reflect this management reporting change.

The
C4I Segment is comprised of the following business areas: Command, Control & Communications, which includes naval display systems, ship communications systems, radar
systems, technical support, electronic manufacturing and system integration services, secure voice and data communications, air combat training and electronic warfare and ship network systems; Power
Systems, which includes naval and industrial power generation, conversion, propulsion, distribution and control systems; Intelligence Technologies, which includes signals intelligence, communications
intelligence, data collection, processing and dissemination equipment, high-speed digital data and imaging systems, unmanned vehicles, and mission and flight recorders; Tactical Systems,
which includes battle management tactical computer systems, peripherals, electronic test, diagnostics and vehicle electronics; and Homeland Security, which includes integration of traditional security
infrastructures into a single, comprehensive border security suite for the Department of Homeland Security.

The
RSTA Segment develops and produces electro-optical sighting, targeting and weapon sensor systems, and image intensification (I2) night vision, combat
identification and laser aimers/illuminator products, and provides electronic manufacturing services.

The
Sustainment Systems Segment designs, engineers and manufactures integrated military electronics and other military support equipment, primarily for the U.S. Department of
Defense (DoD), as well as related heat transfer and air handling equipment, and power generation and distribution equipment for domestic commercial and industrial users. The segment provides
these systems for military, humanitarian, disaster recovery and emergency responder applications.

The
Technical Services Segment provides engineering services, logistics and training services, advanced technology services, security and asset protection systems and services,
telecommunication systems, integration and information technology services, power generation and vehicle armor kits. The segment provides these services for military, intelligence, humanitarian,
disaster recovery and emergency responder applications.

Other
includes the activities of DRS Corporate Headquarters and certain non-operating subsidiaries of the Company.

Transactions
between segments generally are negotiated and accounted for under terms and conditions that are similar to other government and commercial contracts; however, these
intercompany transactions are eliminated in consolidation. The Company evaluates segment-level performance based on revenues and operating income, as presented in the Consolidated Statements of
Earnings. Operating income, as shown, includes amounts allocated from DRS Corporate operations using an allocation methodology prescribed by U.S. government regulations for government
contractors.

17

---



|                                      |                               | C4I                   |   | RSTA      |        | Sustainment
Systems |         | Technical
Services |   | Other     |         | Total |        
|------------------------------------- | ----------------------------- | --------------------- | - | --------- | ------ | ------------------- | ------- | ------------------ | - | --------- | ------- | ----- | -------
|
|Three Months Ended September 30, 2007 |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | Total revenues                |                       | $ | 313,545   |        | $                   | 190,898 |                    | $ | 113,819   |         | $     | 177,029
|                                      |                               | Intersegment revenues |   |           | (4,120 | )                   |         | (2,128             | ) |           | (5,379  | )     |        
|                                      |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | External revenues             |                       | $ | 309,425   |        | $                   | 188,770 |                    | $ | 108,440   |         | $     | 177,134
|                                      |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | Operating income (loss)       |                       | $ | 34,083    |        | $                   | 18,416  |                    | $ | 24,843    |         | $     | 15,036 
|                                      | Total assets                  |                       | $ | 1,257,623 |        | $                   | 445,173 |                    | $ | 1,297,851 |         | $     | 980,093
|                                      | Depreciation and amortization |                       | $ | 6,102     |        | $                   | 3,430   |                    | $ | 4,359     |         | $     | 3,561  
|                                      | Capital expenditures          |                       | $ | 6,112     |        | $                   | 3,416   |                    | $ | 1,995     |         | $     | 6,079  
|Three Months Ended September 30, 2006 |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | Total revenues                |                       | $ | 274,615   |        | $                   | 148,230 |                    | $ | 111,199   |         | $     | 194,878
|                                      |                               | Intersegment revenues |   |           | (1,240 | )                   |         | (1,500             | ) |           | (13,414 | )     |        
|                                      |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | External revenues             |                       | $ | 273,375   |        | $                   | 146,730 |                    | $ | 97,785    |         | $     | 193,648
|                                      |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | Operating income              |                       | $ | 32,699    |        | $                   | 12,843  |                    | $ | 13,212    |         | $     | 11,868 
|                                      | Total assets                  |                       | $ | 1,226,132 |        | $                   | 429,168 |                    | $ | 1,273,477 |         | $     | 979,922
|                                      | Depreciation and amortization |                       | $ | 6,428     |        | $                   | 3,682   |                    | $ | 4,156     |         | $     | 3,729  
|                                      | Capital expenditures          |                       | $ | 7,583     |        | $                   | 3,503   |                    | $ | 1,438     |         | $     | 1,100  
|Six Months Ended September 30, 2007   |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | Total revenues                |                       | $ | 616,766   |        | $                   | 345,689 |                    | $ | 229,255   |         | $     | 353,885
|                                      |                               | Intersegment revenues |   |           | (8,949 | )                   |         | (3,335             | ) |           | (12,837 | )     |        
|                                      |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | External revenues             |                       | $ | 607,817   |        | $                   | 342,354 |                    | $ | 216,418   |         | $     | 352,810
|                                      |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | Operating income (loss)       |                       | $ | 65,988    |        | $                   | (2,711  | )                  | $ | 35,066    |         | $     | 25,528 
|                                      | Total assets                  |                       | $ | 1,257,623 |        | $                   | 445,173 |                    | $ | 1,297,851 |         | $     | 980,093
|                                      | Depreciation and amortization |                       | $ | 12,034    |        | $                   | 6,798   |                    | $ | 8,766     |         | $     | 7,021  
|                                      | Capital expenditures          |                       | $ | 13,999    |        | $                   | 5,005   |                    | $ | 3,366     |         | $     | 6,775  
|Six Months Ended September 30, 2006   |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | Total revenues                |                       | $ | 546,334   |        | $                   | 266,064 |                    | $ | 215,432   |         | $     | 352,499
|                                      |                               | Intersegment revenues |   |           | (2,643 | )                   |         | (2,700             | ) |           | (31,099 | )     |        
|                                      |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | External revenues             |                       | $ | 543,691   |        | $                   | 263,364 |                    | $ | 184,333   |         | $     | 350,415
|                                      |                               |                       |   |           |        |                     |         |                    |   |           |         |       |        
|                                      | Operating income              |                       | $ | 60,403    |        | $                   | 25,824  |                    | $ | 24,615    |         | $     | 25,188 
|                                      | Total assets                  |                       | $ | 1,226,132 |        | $                   | 429,168 |                    | $ | 1,273,477 |         | $     | 979,922
|                                      | Depreciation and amortization |                       | $ | 12,775    |        | $                   | 7,376   |                    | $ | 8,313     |         | $     | 7,358  
|                                      | Capital expenditures          |                       | $ | 13,521    |        | $                   | 6,190   |                    | $ | 2,632     |         | $     | 2,252  

18

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13. Supplemental Cash Flow Information

Six Months Ended
September 30,2007

2006(in thousands)Cash paid for:Interest

$
54,306

$
59,452Income taxes

$
35,030

$
29,190Supplemental disclosure of significant non-cash investing activities:Acquisition earn-outCodem

$
2,638

$
Acquisition earn-outNight Vision Systems, Inc.

$


$
1,047Acquisition earn-outWalkAbout

$
160

$
226Contribution of fixed assets to joint venture

$
429

$
1,000Fixed assets vouchered but not paid

$
1,869

$



14. Cash Dividends on DRS Common Stock

On August 9, 2007, the Board of Directors declared a $0.03 per common share cash dividend, payable on September 28, 2007 to stockholders of record
as of September 14, 2007. Cash dividends paid for the three- and six-month periods ended September 30, 2007 were $1.2 million and $2.4 million, respectively. On
November 8, 2007, the Board of Directors declared a $0.03 per common share cash dividend, payable on December 31, 2007 to stockholders of record as of December 14, 2007.

15. Contingencies

Various legal actions, claims, assessments and other contingencies, including certain matters described below, are pending against the Company and certain of the
Company's subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters ultimately could be decided, resolved or settled adversely. The Company had
recorded accruals totaling $3.0 million at both September 30, 2007 and March 31, 2007 for losses related to those matters that the Company considers to be probable and that can be
reasonably estimated (certain legal and environmental matters are discussed in detail below). Although, at September 30, 2007, the precise amount of liability that may result from those matters
for which the Company has recorded accruals is not ascertainable, the Company believes that any amounts exceeding the Company's recorded accruals should not materially affect the Company's financial
condition or liquidity. It is possible, however, that the ultimate resolution of those matters could result in a material adverse effect on the Company's results of operations and/or cash flows from
operating activities for a particular reporting period.

Some
environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (also known as CERCLA or the Superfund law) and similar state statutes,
can impose liability for the entire cost of the clean up of contaminated sites upon any of the current or former site owners or operators (or upon parties who send waste to these sites), regardless of
the lawfulness of the original activities that led to the contamination. In July 2000, prior to its acquisition by Integrated Defense Technologies Inc. (IDT), and prior to the Company's
acquisition of IDT, Tech-Sym Corporation received a Section 104(e) Request for Information from the National Park

19

---



Service
(NPS), pursuant to CERCLA, regarding a site known as the Orphan Mine site in the Grand Canyon National Park, Arizona, which is the subject of an NPS investigation regarding the presence of
residual radioactive materials and contamination. A corporation of which Tech-Sym is an alleged successor operated this uranium mine from 1956 to 1967. In 1962, the land was transferred to
the U.S. government and the alleged predecessor of Tech Sym was given a 25-year mining lease. In 1967, the mining rights were transferred to a third party by a trustee in bankruptcy, and
the Company believes that the mine was operated by such third party until approximately 1969. The Company understands that there are other companies in the chain of title to the mining rights
subsequent to Tech-Sym's alleged predecessor, and, accordingly, that there are other potentially responsible parties (PRPs) for the environmental conditions at the site, including the U.S.
government as owner, operator and arranger at the site. During its period of ownership, IDT retained a technical consultant in connection with this matter, who conducted a limited, preliminary review
of site conditions and communicated with the NPS regarding actions that may be required at the site by all of the PRPs. On February 6, 2005, the NPS sent the Company an Engineering
Evaluation/Cost Analysis Work Plan (the NPS EE/CA) under CERCLA (the CERCLA Letter) with regards to Operable Unit 1 of the Orphan Mine site. In the Company's view, the NPS EE/CA included additional
clean up not covered by CERCLA. The CERCLA Letter also requested (a) payment of $0.5 million for costs incurred by the NPS related to the Orphan Mine, and (b) a "good faith offer"
to conduct the response activity outlined by the NPS and to reimburse the NPS for future costs. The NPS advised that a similar letter had been sent to another PRP. The Company initiated discussions
with the other PRP and with NPS, and engaged a technical consultant to evaluate the existing documentation and the site in depth. As a result the technical consultant submitted to the NPS, on behalf
of the Company and the other PRP, an alternative Engineering Evaluation/Cost Analysis Work Plan (the alternative EE/CA) with regard to Operable Units 1 and 2 of the Orphan Mine site.

Since
late 2005, the PRPs and NPS have discussed the technical merits of the alternative EE/CA and ways to resolve certain differences between the alternative EE/CA and the NPS EE/CA
provided with the CERCLA Letter. The parties also have discussed certain legal issues relating to the process for implementing an alternative EE/CA and entering into a settlement agreement that would
memorialize the parties' intent. The potential liability associated with this matter can change substantially due to such factors as additional information on the nature or extent of contamination,
methods of remediation that might be recommended or required, changes in the apportionment of costs among the responsible parties and other actions by governmental agencies or private parties.

In
connection with the Company's acquisition of ESSI in January 2006, the Company has been made aware of certain legal actions, claims, assessments and other contingencies,
including those described below.

In
December 2004, ESSI was notified by the Enforcement Division of the SEC of the issuance of a formal order directing a private investigation and was notified that the SEC had
issued subpoenas to various individuals associated with ESSI to produce certain documents. The SEC staff also requested that ESSI produce certain documents in connection with the investigation. The
subpoenas related to trading in ESSI stock around ESSI's earnings releases in 2003 and to the adequacy of certain disclosures made by ESSI regarding related-party transactions in 2002 and 2003
involving insurance policies placed by ESSI through an insurance brokerage firm in which an ESSI director was a principal

20

---



at
the time of the transactions. In February 2007, the SEC filed a civil injunctive action in the United States District Court for the Eastern District of Missouri, Eastern Division, against a
former director, officer and consultant of ESSI, alleging that he had violated the federal securities laws by "tipping" his financial advisor and close friend by sharing material, nonpublic
information regarding ESSI's financial condition shortly before certain 2003 earnings announcements.

On
or about September 23, 2005, the SEC staff advised ESSI's counsel that it had issued a subpoena directed to ESSI and expanded its investigation to include ESSI's disclosure of
a November 2004 stop work order relating to ESSI's Deployable Power Generation and Distribution Systems (DPGDS) program for the U.S. Air Force and relating to trading in ESSI stock by certain
individuals associated with ESSI. In connection with the foregoing SEC investigation, ESSI and certain of its directors and officers have provided information and/or testimony to the SEC.

In
January 2006, ESSI was informed that the Office of the U.S. Attorney for the Eastern District of Missouri was initiating an investigation into ESSI's disclosure of the DPGDS
stop-work order and into trading in ESSI stock by ESSI insiders, which preceded such disclosure. The U.S. Attorney's office advised ESSI that although it considered ESSI to be a subject of
its investigation, ESSI was not a target. In connection with this investigation, the U.S. Attorney's office issued ESSI a subpoena requesting specified information, which ESSI has furnished.

In
May 2006, the Company was advised that the Enforcement Division of the SEC and the U.S. Attorney's office each had expanded its investigation to include possible "backdating"
of the timing of option grants at ESSI prior to the time ESSI was acquired by the Company. As a part of its investigation, the SEC issued subpoenas to certain former officers and employees of ESSI to
provide testimony and produce certain documents.

In
February 2007, the SEC filed civil injunctive actions in the United States District Court for the Eastern District of Missouri, Eastern Division, alleging that ESSI's former
Chief Financial Officer and former Controller had each participated in a backdating scheme. Also in February 2007, the SEC reported that ESSI's former Controller had settled its action against
him by consenting to disgorgement, financial penalties, an officer and director bar and a permanent suspension from
practicing before the SEC as an accountant. In July 2007, the SEC filed civil injunctive actions in the United States District Court for the Eastern District of Missouri, Eastern Division,
alleging that ESSI's former Chairman of the Board and Chief Executive Officer and his son (who was also a member of ESSI's Board of Directors and Compensation Committee) each participated in a
backdating scheme.

In
March 2007, ESSI's former Controller pleaded guilty to a one-count information brought by the office of the United States Attorney for the Eastern District of
Missouri, charging him with making false statements to the government. In connection with his plea, this former ESSI executive admitted that a number of documents filed by ESSI with the SEC contained
the materially false statement that the option price of shares subject to the ESSI stock option plan was the closing price of the stock on the date the options were awarded.

In
March 2007, ESSI's former Chief Financial Officer was indicted by the grand jury of the United States District Court for the Eastern District of Missouri relating to the
backdating of the timing of stock options at ESSI prior to the time ESSI was acquired by DRS. In July 2007, ESSI's former Chairman of the Board and Chief Executive Officer and his son (who was
also a member of ESSI's

21

---



Board
of Directors and Compensation Committee) were each indicted on similar charges. The July 2007 superseding indictment charges these former ESSI officers and directors with twelve counts of
fraud based on allegations that they backdated stock options on at least eight occasions between 1996 and 2002.

Although
ESSI continues to be a subject of the U.S. Attorney's office's investigation, the U.S. Attorney's office has advised the Company that ESSI is not a target. Because the events
being investigated occurred prior to the time of the Company's acquisition of ESSI, the U.S. Attorney's office has further advised the Company that it considers DRS to be a witness, not a subject or
target of its investigation.

The
Company is committed to full cooperation with regard to the foregoing investigations. The Company is unable to determine at this time either the timing of the SEC or U.S. Attorney's
office investigations or the impact, if any, the investigations could have on the Company.

In
September 2006, the Internal Revenue Service commenced an audit of ESSI's Federal tax returns for the tax periods ended October 31, 2004, October 31, 2005 and
January 31, 2006. Thereafter, the Internal Revenue Service agreed, subject to Congressional approval, to close these audits based on ESSI's agreement to accept certain proposed adjustments
(primarily involving the reversal of certain compensation deductions taken during these tax years) and a corresponding assessment of approximately $11.3 million (exclusive of interest) which
was previously accrued. In September 2007, the Company received written confirmation from the Congressional Joint Committee on Taxation that it took no exception to the proposed adjustments.

In
August 2007, a shareholder derivative complaint was filed in the United States District Court for the Eastern District of Missouri against ESSI's former Chairman of the Board
and Chief Executive Officer, his son (who was also a member of ESSI's Board of Directors and Compensation Committee), ESSI's former Chief Financial Officer and ESSI's former Controller relating to the
alleged backdating of stock options prior to ESSI's acquisition by DRS. The complaint also contains claims against each of the current members of DRS's Board of Directors relating to the alleged
backdating of ESSI stock options and the ESSI acquisition. The Company believes the claims made against the current DRS Directors are without merit.

In
July 2006, DRS Technologies, Inc. and one of its subsidiaries, DRS Training & Control Systems, Inc., each were issued a subpoena by the United States
District Court for the Northern District of Florida. The subpoenas were issued in connection with an investigation conducted by the Antitrust Division of the U.S. Department of Justice involving
allegations of possible anticompetitive activity in certain international markets. On June 21, 2007, the Company received written notification from the Antitrust Division of the Department of
Justice that they had closed this investigation.

16. Related Party Transactions

The Company currently leases a building in Oakland, New Jersey owned by LDR Realty Co., a partnership that was wholly owned, in equal amounts, by
David E. Gross, DRS's co-founder and former President and Chief Technical Officer, and the late Leonard Newman, DRS's co-founder and former Chairman of the Board, Chief
Executive Officer and Secretary and the father of Mark S. Newman, DRS's current Chairman of the Board, President and Chief Executive Officer. Following Leonard

22

---



Newman's
death in November 1998, Mrs. Ruth Newman, the wife of Leonard Newman and the mother of Mark S. Newman, succeeded to Leonard Newman's interest in LDR Realty Co. The
lease agreement, with a monthly rental of $21.2 thousand, expired on April 30, 2007. The new lease commenced May 1, 2007 with the new monthly rental commencing on June 1,
2007 of $21.8 thousand for the first year with annual increases of approximately 3% every June 1. The lease expires August 31, 2010.

Skadden,
Arps, Slate, Meagher & Flom LLP, a law firm to which a member of the Company's Board is of counsel, provided legal services to the Company during the six months ended
September 30, 2007 and 2006. Fees paid to Skadden, Arps, Slate, Meagher & Flom LLP for the six months ended September 30, 2007 and 2006 were $1.3 million and
$2.8 million, respectively.

In
the fourth quarter of fiscal 2007, the stepson of Mark S. Newman, the Company's Chairman of the Board, President and Chief Executive Officer, commenced employment with Nemco
Brokerage, Inc., a firm that has a longstanding relationship of providing insurance brokerage services to the Company and which receives commissions from third-party insurers based on policies
it places on the Company's behalf.

17. Guarantor and Non-Guarantor Financial Statements

As presented in Note 8, "Debt," the Company has $350.0 million 65/8% Senior Notes, $550.0 million 67/8% Senior
Subordinated Notes, $250.0 million 75/8% Senior Subordinated Notes and $345.0 million 2% Convertible Senior Notes outstanding (collectively, the Notes). The Notes are
fully and unconditionally guaranteed, jointly and severally, by the Company's wholly-owned domestic subsidiaries (the Guarantor Subsidiaries). The foreign subsidiaries and certain domestic
subsidiaries of DRS (the Non-Guarantor Subsidiaries) do not guarantee the Notes.

The
following condensed consolidating financial information in the Condensed Consolidating Balance Sheets as of September 30, 2007 and March 31, 2007, the Condensed
Consolidating Statements of Earnings for the three- and six-month periods ended September 30, 2007 and 2006, and the Condensed Consolidating Statements of Cash Flows for the
six-month periods ended September 30, 2007 and 2006 presents:



The
information includes elimination entries necessary to consolidate the Parent with the Guarantor and Non-Guarantor Subsidiaries.

The
Guarantor and Non-Guarantor subsidiaries are presented on a combined basis. The principal elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions. Separate financial information for each of the Guarantor and Non-Guarantor Subsidiaries is not presented because management believes such financial statements
would not be meaningful to investors.

23

---





Condensed Consolidating Balance Sheet  As of September 30, 2007  (in thousands)

|                                                  |                                                                  | Parent
Company            |           | Guarantor
Subsidiaries |           | Non-
Guarantor
Subsidiaries |           | Eliminations |        | Consolidated
|------------------------------------------------- | ---------------------------------------------------------------- | ------------------------- | --------- | ---------------------- | --------- | --------------------------- | --------- | ------------ | ------ | ------------
|Assets                                            |                                                                  |                           |           |                        |           |                             |           |              |        |             
|Current assets                                    |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Cash and cash equivalents                                        |                           | $         | 45,168                 |           | $                           |          |              | $      | 19,018      
|                                                  | Accounts receivable, net                                         |                           |           | 4                      |           |                             | 474,888   |              |        | 38,417      
|                                                  | Inventories, net                                                 |                           |           |                       |           |                             | 327,516   |              |        | 53,353      
|                                                  | Prepaid expenses, deferred income taxes and other current assets |                           |           | 4,856                  |           |                             | 293,264   |              |        | 23,572      
|                                                  | Intercompany receivables                                         |                           |           | 2,106,490              |           |                             |          |              |        |            
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  |                                                                  | Total current assets      |           |                        | 2,156,518 |                             |           | 1,095,668    |        |             
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|Property, plant and equipment, net                |                                                                  |                           | 16,564    |                        |           | 209,058                     |           |              | 12,147 |             
|Acquired intangibles, net                         |                                                                  |                           |          |                        |           | 181,763                     |           |              | 672    |             
|Goodwill                                          |                                                                  |                           | 24,115    |                        |           | 2,548,104                   |           |              | 48,183 |             
|Deferred income taxes and other noncurrent assets |                                                                  |                           | 188,774   |                        |           | 2,438                       |           |              | 7,148  |             
|Investment in subsidiaries                        |                                                                  |                           | 1,143,419 |                        |           | 36,862                      |           |              | 43     |             
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Total assets                                                     |                           | $         | 3,529,390              |           | $                           | 4,073,893 |              | $      | 202,553     
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|Liabilities and Stockholders' Equity              |                                                                  |                           |           |                        |           |                             |           |              |        |             
|Current liabilities                               |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Current installments of long-term debt                           |                           | $         | 2,750                  |           | $                           | 197       |              | $      | 2,621       
|                                                  | Accounts payable                                                 |                           |           | 3,818                  |           |                             | 223,485   |              |        | 28,119      
|                                                  | Accrued expenses and other current liabilities                   |                           |           | 235,729                |           |                             | 394,474   |              |        | 39,527      
|                                                  | Intercompany payables                                            |                           |           |                       |           |                             | 793,434   |              |        | 6,712       
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  |                                                                  | Total current liabilities |           |                        | 242,297   |                             |           | 1,411,590    |        |             
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|Long-term debt, excluding current installments    |                                                                  |                           | 1,695,012 |                        |           | 3,132                       |           |              | 7,799  |             
|Other liabilities                                 |                                                                  |                           | 24,184    |                        |           | 257,450                     |           |              | 20,889 |             
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Total liabilities                                                |                           |           | 1,961,493              |           |                             | 1,672,172 |              |        | 105,667     
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Total stockholders' equity                                       |                           |           | 1,567,897              |           |                             | 2,401,721 |              |        | 96,886      
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Total liabilities and stockholders' equity                       |                           | $         | 3,529,390              |           | $                           | 4,073,893 |              | $      | 202,553     
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             

24

---





Condensed Consolidating Balance Sheet  As of March 31, 2007  (in thousands)

|                                                  |                                                                  | Parent
Company            |           | Guarantor
Subsidiaries |           | Non-Guarantor
Subsidiaries |           | Eliminations |        | Consolidated
|------------------------------------------------- | ---------------------------------------------------------------- | ------------------------- | --------- | ---------------------- | --------- | -------------------------- | --------- | ------------ | ------ | ------------
|Assets                                            |                                                                  |                           |           |                        |           |                            |           |              |        |             
|Current assets                                    |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Cash and cash equivalents                                        |                           | $         | 92,795                 |           | $                          |          |              | $      | 14,598      
|                                                  | Accounts receivable, net                                         |                           |           | 4                      |           |                            | 504,188   |              |        | 31,050      
|                                                  | Inventories, net                                                 |                           |           |                       |           |                            | 321,877   |              |        | 45,735      
|                                                  | Prepaid expenses, deferred income taxes and other current assets |                           |           | 8,547                  |           |                            | 298,737   |              |        | 21,120      
|                                                  | Intercompany receivables                                         |                           |           | 2,051,028              |           |                            |          |              |        | 24,115      
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  |                                                                  | Total current assets      |           |                        | 2,152,374 |                            |           | 1,124,802    |        |             
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|Property, plant and equipment, net                |                                                                  |                           | 15,389    |                        |           | 206,332                    |           |              | 9,485  |             
|Acquired intangibles, net                         |                                                                  |                           |          |                        |           | 196,488                    |           |              | 496    |             
|Goodwill                                          |                                                                  |                           | 24,115    |                        |           | 2,549,258                  |           |              | 43,269 |             
|Deferred income taxes and other noncurrent assets |                                                                  |                           | 196,737   |                        |           | 2,292                      |           |              | 7,227  |             
|Investment in subsidiaries                        |                                                                  |                           | 1,143,419 |                        |           | 36,905                     |           |              |       |             
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Total assets                                                     |                           | $         | 3,532,034              |           | $                          | 4,116,077 |              | $      | 197,095     
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|Liabilities and Stockholders' Equity              |                                                                  |                           |           |                        |           |                            |           |              |        |             
|Current liabilities                               |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Current installments of long-term debt                           |                           | $         | 2,750                  |           | $                          | 188       |              | $      | 2,223       
|                                                  | Accounts payable                                                 |                           |           | 11,022                 |           |                            | 253,796   |              |        | 32,609      
|                                                  | Accrued expenses and other current liabilities                   |                           |           | 226,667                |           |                            | 401,351   |              |        | 39,370      
|                                                  | Intercompany payables                                            |                           |           |                       |           |                            | 817,303   |              |        | 13,347      
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  |                                                                  | Total current liabilities |           |                        | 240,439   |                            |           | 1,472,638    |        |             
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|Long-term debt, excluding current installments    |                                                                  |                           | 1,771,953 |                        |           | 3,242                      |           |              | 7,851  |             
|Other liabilities                                 |                                                                  |                           | 17,192    |                        |           | 285,793                    |           |              | 19,723 |             
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Total liabilities                                                |                           |           | 2,029,584              |           |                            | 1,761,673 |              |        | 115,123     
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Total stockholders' equity                                       |                           |           | 1,502,450              |           |                            | 2,354,404 |              |        | 81,972      
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Total liabilities and stockholders' equity                       |                           | $         | 3,532,034              |           | $                          | 4,116,077 |              | $      | 197,095     
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             

25

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Condensed Consolidating Statements of Earnings  Three Months Ended September 30, 2007  (in thousands)

|                                  |                                                                    | Parent
Company |        | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiaries |        | Eliminations |        | Consolidated |  
|--------------------------------- | ------------------------------------------------------------------ | -------------- | ------ | ---------------------- | - | -------------------------- | ------ | ------------ | ------ | ------------ | -
|Revenues                          |                                                                    | $              |       |                        | $ | 712,557                    |        | $            | 75,675 |              | $
|Cost and expenses                 |                                                                    |                | 230    |                        |   | 627,006                    |        |              | 68,867 |              |  
|                                  |                                                                    |                |        |                        |   |                            |        |              |        |              |  
|                                  | Operating income                                                   |                |        | (230                   | ) |                            | 85,551 |              |        | 6,808        |  
|Interest income                   |                                                                    |                | 260    |                        |   | 51                         |        |              | 69     |              |  
|Interest and related expense      |                                                                    |                | 27,889 |                        |   | 70                         |        |              | 147    |              |  
|Other income (expense), net       |                                                                    |                | 648    |                        |   | (245                       | )      |              | (620   | )            |  
|Management fees                   |                                                                    |                | 787    |                        |   | (746                       | )      |              | (41    | )            |  
|Royalties                         |                                                                    |                | 648    |                        |   |                           |        |              | (648   | )            |  
|Intercompany interest             |                                                                    |                | 22,734 |                        |   | (22,663                    | )      |              | (71    | )            |  
|                                  |                                                                    |                |        |                        |   |                            |        |              |        |              |  
|                                  | Earnings (losses) before non-controlling interest and income taxes |                |        | (3,042                 | ) |                            | 61,878 |              |        | 5,350        |  
|Non-controlling interest          |                                                                    |                |       |                        |   | (195                       | )      |              | 781    |              |  
|                                  |                                                                    |                |        |                        |   |                            |        |              |        |              |  
|                                  | Earnings (losses) before income taxes                              |                |        | (3,042                 | ) |                            | 62,073 |              |        | 4,569        |  
|Income taxes                      |                                                                    |                | (852   | )                      |   | 20,113                     |        |              | 1,305  |              |  
|Earnings from subsidiary entities |                                                                    |                | 45,224 |                        |   |                           |        |              |       |              |  
|                                  |                                                                    |                |        |                        |   |                            |        |              |        |              |  
|                                  | Net earnings                                                       |                | $      | 43,034                 |   | $                          | 41,960 |              | $      | 3,264        |  
|                                  |                                                                    |                |        |                        |   |                            |        |              |        |              |  

26

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Condensed Consolidating Statements of Earnings  Three Months Ended September 30, 2006  (in thousands)

|                                  |                                                                    | Parent
Company |        | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiaries |        | Eliminations |        | Consolidated |  
|--------------------------------- | ------------------------------------------------------------------ | -------------- | ------ | ---------------------- | - | -------------------------- | ------ | ------------ | ------ | ------------ | -
|Revenues                          |                                                                    | $              |       |                        | $ | 654,138                    |        | $            | 61,175 |              | $
|Cost and expenses                 |                                                                    |                | (1,303 | )                      |   | 589,017                    |        |              | 55,709 |              |  
|                                  |                                                                    |                |        |                        |   |                            |        |              |        |              |  
|                                  | Operating income                                                   |                |        | 1,303                  |   |                            | 65,121 |              |        | 5,466        |  
|Interest income                   |                                                                    |                | 266    |                        |   | 31                         |        |              | 25     |              |  
|Interest and related expense      |                                                                    |                | 30,367 |                        |   | 92                         |        |              | 160    |              |  
|Other income (expense), net       |                                                                    |                | 28     |                        |   | (24                        | )      |              | (61    | )            |  
|Management fees                   |                                                                    |                | 730    |                        |   | (685                       | )      |              | (45    | )            |  
|Royalties                         |                                                                    |                | 623    |                        |   |                           |        |              | (623   | )            |  
|Intercompany interest             |                                                                    |                | 24,931 |                        |   | (24,823                    | )      |              | (108   | )            |  
|                                  |                                                                    |                |        |                        |   |                            |        |              |        |              |  
|                                  | Earnings (losses) before non-controlling interest and income taxes |                |        | (2,486                 | ) |                            | 39,528 |              |        | 4,494        |  
|Non-controlling interest          |                                                                    |                |       |                        |   |                           |        |              | 485    |              |  
|                                  |                                                                    |                |        |                        |   |                            |        |              |        |              |  
|                                  | Earnings (losses) before income taxes                              |                |        | (2,486                 | ) |                            | 39,528 |              |        | 4,009        |  
|Income taxes                      |                                                                    |                | (958   | )                      |   | 15,230                     |        |              | 1,548  |              |  
|Earnings from subsidiary entities |                                                                    |                | 26,759 |                        |   |                           |        |              |       |              |  
|                                  |                                                                    |                |        |                        |   |                            |        |              |        |              |  
|                                  | Net earnings                                                       |                | $      | 25,231                 |   | $                          | 24,298 |              | $      | 2,461        |  
|                                  |                                                                    |                |        |                        |   |                            |        |              |        |              |  

27

---





Condensed Consolidating Statements of Earnings  Six Months Ended September 30, 2007  (in thousands)

|                                  |                                                                    | Parent
Company |        | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiaries |         | Eliminations |         | Consolidated |  
|--------------------------------- | ------------------------------------------------------------------ | -------------- | ------ | ---------------------- | - | -------------------------- | ------- | ------------ | ------- | ------------ | -
|Revenues                          |                                                                    | $              |       |                        | $ | 1,387,060                  |         | $            | 139,913 |              | $
|Cost and expenses                 |                                                                    |                | 372    |                        |   | 1,275,773                  |         |              | 127,361 |              |  
|                                  |                                                                    |                |        |                        |   |                            |         |              |         |              |  
|                                  | Operating income                                                   |                |        | (372                   | ) |                            | 111,287 |              |         | 12,552       |  
|Interest income                   |                                                                    |                | 761    |                        |   | 43                         |         |              | 135     |              |  
|Interest and related expense      |                                                                    |                | 56,372 |                        |   | 155                        |         |              | 289     |              |  
|Other income (expense), net       |                                                                    |                | 1,225  |                        |   | (184                       | )       |              | (1,328  | )            |  
|Management fees                   |                                                                    |                | 1,568  |                        |   | (1,490                     | )       |              | (78     | )            |  
|Royalties                         |                                                                    |                | 1,060  |                        |   |                           |         |              | (1,060  | )            |  
|Intercompany interest             |                                                                    |                | 46,110 |                        |   | (46,026                    | )       |              | (84     | )            |  
|                                  |                                                                    |                |        |                        |   |                            |         |              |         |              |  
|                                  | Earnings (losses) before non-controlling interest and income taxes |                |        | (6,020                 | ) |                            | 63,475  |              |         | 9,848        |  
|Non-controlling interest          |                                                                    |                |       |                        |   | (209                       | )       |              | 1,288   |              |  
|                                  |                                                                    |                |        |                        |   |                            |         |              |         |              |  
|                                  | Earnings (losses) before income taxes                              |                |        | (6,020                 | ) |                            | 63,684  |              |         | 8,560        |  
|Income taxes                      |                                                                    |                | (1,954 | )                      |   | 20,710                     |         |              | 2,784   |              |  
|Earnings from subsidiary entities |                                                                    |                | 48,750 |                        |   |                           |         |              |        |              |  
|                                  |                                                                    |                |        |                        |   |                            |         |              |         |              |  
|                                  | Net earnings                                                       |                | $      | 44,684                 |   | $                          | 42,974  |              | $       | 5,776        |  
|                                  |                                                                    |                |        |                        |   |                            |         |              |         |              |  

28

---



Condensed Consolidating Statements of Earnings  Six Months Ended September 30, 2006  (in thousands)

|                                  |                                                                    | Parent
Company |        | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiaries |         | Eliminations |         | Consolidated |  
|--------------------------------- | ------------------------------------------------------------------ | -------------- | ------ | ---------------------- | - | -------------------------- | ------- | ------------ | ------- | ------------ | -
|Revenues                          |                                                                    | $              |       |                        | $ | 1,228,644                  |         | $            | 121,964 |              | $
|Cost and expenses                 |                                                                    |                | (917   | )                      |   | 1,102,386                  |         |              | 112,276 |              |  
|                                  |                                                                    |                |        |                        |   |                            |         |              |         |              |  
|                                  | Operating income                                                   |                |        | 917                    |   |                            | 126,258 |              |         | 9,688        |  
|Interest income                   |                                                                    |                | 391    |                        |   | 48                         |         |              | 59      |              |  
|Interest and related expense      |                                                                    |                | 60,045 |                        |   | 157                        |         |              | 319     |              |  
|Other income (expense), net       |                                                                    |                | 61     |                        |   | 38                         |         |              | (171    | )            |  
|Management fees                   |                                                                    |                | 1,450  |                        |   | (1,369                     | )       |              | (81     | )            |  
|Royalties                         |                                                                    |                | 1,140  |                        |   |                           |         |              | (1,140  | )            |  
|Intercompany interest             |                                                                    |                | 49,880 |                        |   | (49,690                    | )       |              | (190    | )            |  
|                                  |                                                                    |                |        |                        |   |                            |         |              |         |              |  
|                                  | Earnings (losses) before non-controlling interest and income taxes |                |        | (6,206                 | ) |                            | 75,128  |              |         | 7,846        |  
|Non-controlling interest          |                                                                    |                |       |                        |   |                           |         |              | 958     |              |  
|                                  |                                                                    |                |        |                        |   |                            |         |              |         |              |  
|                                  | Earnings (losses) before income taxes                              |                |        | (6,206                 | ) |                            | 75,128  |              |         | 6,888        |  
|Income taxes                      |                                                                    |                | (2,410 | )                      |   | 29,064                     |         |              | 2,667   |              |  
|Earnings from subsidiary entities |                                                                    |                | 50,285 |                        |   |                           |         |              |        |              |  
|                                  |                                                                    |                |        |                        |   |                            |         |              |         |              |  
|                                  | Net earnings                                                       |                | $      | 46,489                 |   | $                          | 46,064  |              | $       | 4,221        |  
|                                  |                                                                    |                |        |                        |   |                            |         |              |         |              |  

29

---





Condensed Consolidating Statements of Cash Flows  Six Months Ended September 30, 2007  (in thousands)

Parent
Company

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedNet cash provided by operating activities

$
61,608

$
3,503

$
(4,370
)
$


$
60,741Cash flows from investing activitiesCapital expenditures


(3,915
)

(25,207
)

(3,375
)




(32,497
)Payments pursuant to business combinations, net of cash acquired














Dispositions of property, plant & equipment





44


4





48Other, net














Net cash used in investing activities


(3,915
)

(25,163
)

(3,371
)




(32,449
)Cash flows from financing activitiesBorrowings on revolving line of credit


215,000











215,000Repayments of revolving line of credit


(215,000
)










(215,000
)Repayments of long-term debt


(76,375
)

(102
)

(1,238
)




(77,715
)Excess tax benefit realized from share-based payment arrangements


2,772











2,772Proceeds from stock option exercises


4,815











4,815Dividends paid


(2,449
)










(2,449
)Other








245





245Net (repayments to) borrowings from parent company


(34,083
)

21,762


12,676


(355
)

Net cash used in financing activities


(105,320
)

21,660


11,683


(355
)

(72,332
)Effect of exchange rates on cash and cash equivalents








478





478Net (decrease) increase in cash and cash equivalents


(47,627
)




4,420


(355
)

(43,562
)Cash and cash equivalents, beginning of period


92,795





14,598


(11,560
)

95,833Cash and cash equivalents, end of period

$
45,168

$


$
19,018

$
(11,915
)
$
52,271


30

---



Condensed Consolidating Statements of Cash Flows  Six Months Ended September 30, 2006  (in thousands)

Parent
Company

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedNet cash provided by (used in) operating activities

$
12,042

$
18,068

$
2,219

$


$
32,329Cash flows from investing activitiesCapital expenditures


(2,623
)

(23,459
)

(1,136
)




(27,218
)Payments pursuant to business combinations, net of cash acquired


(7,705
)

(1,550
)







(9,255
)Dispositions of property, plant and equipment





335








335Other, net


60











60Net cash used in investing activities


(10,268
)

(24,674
)

(1,136
)




(36,078
)Cash flows from financing activitiesBorrowings on revolving line of credit


105,000











105,000Repayments of revolving line of credit


(65,000
)










(65,000
)Borrowings of long-term debt








467





467Repayments of long-term debt


(1,375
)

(115
)

(683
)




(2,173
)Excess tax benefit realized from share-based payment arrangements


97











97Proceeds from stock option exercises


1,305


(1
)







1,304Dividends paid


(2,397
)

(8
)







(2,405
)Other





245








245Net (repayments to) borrowings from parent company


(16,101
)

11,617


4,484





Net cash provided by (used in) financing activities


21,529


11,738


4,268





37,535Effects of exchange rates on cash and cash equivalents





(98
)

(119
)




(217
)Net increase in cash and cash equivalents


23,303


5,034


5,232





33,569Cash and cash equivalents, beginning of period


15,905


(19,520
)

4,908





1,293Cash and cash equivalents, end of period

$
39,208

$
(14,486
)
$
10,140

$


$
34,862


31

---





18. Recently Issued Accounting Pronouncements

In September of 2006, the FASB issued SFAS No. 157, "Fair Value Measurement." SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. This statement is effective
beginning April 1, 2008 for DRS, and the Company is evaluating the impact of this statement on its consolidated financial statements.

In
December 2006, the FASB issued FASB Staff Position on Emerging Issues Task Force (EITF) No. 00-19-2, "Accounting for Registration
Payment Arrangements" (FSP EITF 00-19-2). FSP EITF 00-19-2 provides that the contingent obligation to make future payments
or otherwise transfer consideration under a registration payment arrangement should be recognized separately and measured in accordance with SFAS No. 5, "Accounting for Contingencies,"
which provides that loss contingencies should be recognized as liabilities if they are probable and reasonably estimable. Subsequent to the adoption of
FSP EITF 00-19-2, any changes in the carrying amount of the contingent liability will result in a gain or loss that will be recognized in the consolidated
statement of earnings in the period the changes occur. The guidance in FSP EITF 00-19-2 is effective for the Company beginning in fiscal 2008 and interim periods
within that year. The adoption of EITF 00-19-2 did not have a material impact on the Company's consolidated financial statements.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of
FASB Statement No. 115" (SFAS No. 159). SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates and report
unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for DRS beginning
April 1, 2008. The Company is evaluating the impact of this statement on its consolidated financial statements.

32

---





Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

We begin the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) of DRS Technologies, Inc. and its wholly-owned
subsidiaries and controlling interests (hereinafter, we, us, our, the Company or DRS) with a company overview, followed by summaries of defense industry, strategy and other business considerations to
provide context for understanding our business. This is followed by a discussion of the critical accounting estimates that we believe are important to understanding the assumptions and judgments
incorporated in our reported financial results, which we discuss under "Results of Operations." We then provide an analysis of cash flows and discuss our financial commitments under "Liquidity and
Capital Resources" and "Contractual Obligations," respectively. This MD&A should be read in conjunction with the consolidated financial statements and related notes contained herein and in our
March 31, 2007 Annual Report on Form 10-K.

Forward-Looking Statements

The following discussion and analysis contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management's beliefs and assumptions, current expectations, estimates and projections. Such statements,
including statements relating to the Company's expectations for future financial performance, are not considered historical facts and are considered forward-looking statements under the federal
securities laws. These statements may contain words such as "believes," "anticipates," "plans," "expects," "intends," "estimates" or similar expressions. These statements are not guarantees of our
future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to differ materially from those expressed or implied by
these forward-looking statements and include, without limitation: the effect of our acquisition strategy on future operating results, including our ability to effectively integrate acquired companies
into our existing operations; the uncertainty of acceptance of new products and successful bidding for new contracts; the effect of technological changes or obsolescence relating to our products and
services; and the effects of government regulation or shifts in government policy, as they may relate to our products and services, and other risks or uncertainties detailed in Item 1A, "Risk
Factors," included in our March 31, 2007 Annual Report on Form 10-K. Given these uncertainties, you should not rely on forward-looking statements. The Company undertakes no
obligations to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Company Overview

DRS is a supplier of defense electronic products, systems and military support services. We provide high-technology products, services and support to
all branches of the U.S. military, major aerospace and defense prime contractors, government intelligence agencies, certain international military forces and industrial markets.

On
October 2, 2006, we implemented a new organizational operating structure that realigned our three operating segments into four operating segments. The four operating segments
are the Command, Control, Communications, Computers and Intelligence (C4I) Segment, the Reconnaissance, Surveillance & Target Acquisition (RSTA) Segment, the Sustainment Systems
Segment and the Technical Services Segment. All other operations, primarily our Corporate Headquarters, are grouped in Other. All prior-year amounts presented by segment have been
reclassified to reflect the new operating segment structure.

The
C4I Segment is comprised of the following business areas: Command, Control & Communications (C3), which includes naval display systems, ship communications systems, radar
systems, technical support, electronic manufacturing and system integration services, secure voice and

33

---



data
communications, air combat training, and electronic warfare and ship network systems; Power Systems, which includes naval and industrial power generation, conversion, propulsion, distribution and
control systems; Intelligence Technologies, which includes signals intelligence, communications intelligence, data collection, processing and dissemination equipment, high-speed digital
data and imaging systems, unmanned vehicles, and mission and flight recorders; Tactical Systems, which includes battle management tactical computer systems, peripherals, electronic test and
diagnostics, and vehicle electronics; and Homeland Security, which includes integration of traditional security infrastructures into a single, comprehensive border security suite for the Department of
Homeland Security.

The
RSTA Segment develops and produces electro-optical sighting, targeting and weapon sensor systems, and image intensification (I2) night vision, combat
identification and laser aimer/illuminator products, and provides electronic manufacturing services.

The
Sustainment Systems Segment designs, engineers and manufactures integrated military electronics and other military support equipment, primarily for the U.S. Department of
Defense (DoD), as well as related heat transfer and air handling equipment, and power generation and distribution equipment for domestic commercial and industrial users.

The
Technical Services Segment provides engineering services, logistics and training services, advanced technology services, asset protection systems and services, telecommunication
systems integration and information technology services, power generation and vehicle armor kits for military, intelligence, humanitarian, disaster recovery and emergency responder applications.

Defense Industry Considerations and Business Strategy

The substantial majority of our revenue is generated pursuant to written contractual arrangements to design, develop, manufacture and/or modify complex products
and to provide related engineering, technical and other services according to the specifications of the buyers (customers). Our primary "end-use" customer is the DoD. Our other customers
include certain U.S. government intelligence agencies, foreign governments, commercial customers and other U.S. federal, state and local government agencies.

The
Global War on Terrorism (GWOT), Operation Enduring Freedom in Afghanistan and Operation Iraqi Freedom have altered the global defense and security environment and have had, and for
the foreseeable future are likely to continue to have, a significant impact on the markets for defense and advanced technology systems and products. The DoD continues to focus on both supporting
ongoing operations in Afghanistan and Iraq and transforming the U.S. military to confront future threats. In addition, the Office of Homeland Security and other U.S. government agencies
continue to focus on enhancing the security of the United States. While the future direction of current operations remains unsettled, we believe that the 2006 Quadrennial Defense Review, a
comprehensive report issued by the DoD every four years on defense strategy, force structure, force modernization plans, infrastructure, budget plans, and other elements of U.S. defense
programs and policies (the QDR), will continue to drive strategic thinking and budget priorities in the near term. The QDR recommended certain changes to force structure, particularly with respect to
special operations forces, relating to the GWOT and the insurgency in Iraq. However, at the same time, the QDR also largely maintained the DoD's transformation initiatives. The President's fiscal year
2008 budget and Future Years Defense Plan (FYDP), which projects defense costs for the next five years, are consistent with the 2006 QDR's recommendations.

Congress
recently passed a continuing resolution to provide continued appropriations for the government's fiscal year 2008. A continuing resolution provides funding for the Federal
government at the government's fiscal year 2007 level until its expiration on November 16, 2007, unless extended, or

34

---



the
enactment of the 2008 appropriations, whichever occurs first. During such period (or until the regular appropriation bills are passed), delays can occur in procurement of products and services due
to lack of funding, and such delays can affect our revenue and profit during the period of delay.

Over
the past several years, DoD budgets have experienced increased focus on command, control, communications, computers, intelligence, surveillance and
reconnaissance (C4ISR), precision-guided weapons, unmanned aerial vehicles (UAVs), network-centric communications, Special Operations Forces (SOF) and missile defense. In
addition, we believe the DoD philosophy has focused on a transformation strategy that balances modernization and recapitalization (or upgrading existing platforms), while enhancing readiness and joint
operations. As a result, we believe defense budget program allocations continue to favor advanced information technologies related to C4ISR. Furthermore, the DoD's emphasis on system interoperability,
force multipliers and the provision to battlefield commanders of real-time data is increasing the electronic content of nearly all major military procurement and research programs.

Our
strategy is designed to capitalize on the breadth of our technology and extensive expertise in order to meet the evolving needs of our customers. We intend to expand our share of
existing programs and participate in new programs by leveraging the strong relationships that we have developed with the DoD, several other U.S. government agencies and all of the major
U.S. defense prime contractors. We plan to continue to align our research and development, manufacturing and new business efforts to complement our customers' requirements and to provide
state-of-the-art products and services. We plan to maintain a diversified and broad business mix with limited reliance on any single program, significant
follow-on business and an attractive customer profile. We also intend to expand our technical services and support offerings to the DoD, thus diversifying our business beyond the
historical investment accounts and into Operations and Maintenance (O&M) funded activities.

A
significant component of our strategy has been to enhance our existing product base through selective acquisitions that add new products, services and technologies in areas that
complement our present business base. We intend to continue acquiring select publicly and privately held companies, as well as defense businesses of larger companies that (i) exhibit
significant market position(s) in their business areas, (ii) offer products that complement and/or expand our product offerings and (iii) display growing revenues and positive operating
income and cash flow prospects.

Other Business Considerations

As a government contractor, we are subject to U.S. government oversight. The government may ask about and investigate our business practices and audit our
compliance with applicable rules and regulations. Depending on the results of those audits and investigations, the government could make claims against us. Under government procurement regulations and
practices, an indictment of a government contractor could result in that contractor being fined and/or suspended from being able to bid on, or be awarded, new government contracts for a period of
time. A conviction could result in debarment for a specific period of time. Similar government oversight exists in most other countries where we conduct business.

We
are party to various legal actions and claims arising in the ordinary course of our business. We believe we have adequate legal defenses for each of the actions and claims, and we
believe that their ultimate disposition will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. It is possible, however, that the ultimate
resolution of those matters could result in a material adverse effect on our results of operations and/or cash flows from operating activities for a particular reporting period. (see Part II.
Other Information, Item 1. Legal Proceedings).

35

---



We
assume greater financial risk on fixed-price contracts than on cost-type contracts. Failure to anticipate technical problems, estimate costs accurately or control costs
during performance of a fixed-price contract will reduce our profit or cause a loss. In particular, because of their inherent uncertainties and consequent cost overruns, development and development
with follow-on production-type contracts historically have been less profitable than pure production contracts. Although we believe that adequate provision for our costs of
performance is reflected in our consolidated financial statements, we can give no assurance that losses on fixed-price and cost-type contracts will not occur in the future. We also cannot
assure you that current cost-type contracts will not be changed to fixed-price contracts.

Our
sales to international customers involve additional risks, such as exposure to currency fluctuations and changes in foreign economic and political environments. International
transactions frequently involve increased financial and legal risks arising from stringent contractual terms and conditions, and widely differing legal systems, licensing requirements, customs and
practices in foreign countries. We expect that international sales, as a percentage of our overall sales, may increase in future years as a result of, among other factors, our growth strategy and
continuing changes in the defense industry.

Our
future operating results depend on our ability to successfully compete in a highly competitive industry that is characterized by rapid technological change. We have historically
participated successfully in the defense industry consolidation through strategic business acquisitions and by streamlining our existing operations; however, we cannot guarantee that we will have
sufficient funds available to us to continue investing in business acquisitions.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of
America. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosures of
contingent assets and liabilities. These estimates and assumptions are affected by the application of our accounting policies. Our significant
accounting policies are described in Note 1 to the Consolidated Financial Statements included in our March 31, 2007 Annual Report on Form 10-K. Except as described
below, there were no significant changes in the Company's critical accounting policies during the six months ended September 30, 2007. Critical accounting policies are those that require
application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change
in subsequent periods. Critical accounting policies for us include revenue recognition on contracts and contract estimates, valuation of goodwill and acquired intangible assets, pension plan and
postretirement benefit plan obligations, accounting for income taxes, share-based payments and other management estimates.

We
adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48) effective April 1, 2007. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes," and prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We had no cumulative effect adjustment related to the adoption. However, certain
amounts have been reclassified in the consolidated balance sheet in order to comply with the requirements of the statement.

36

---



Results of Operations

Our operating cycle is long term and involves various types of production contracts and varying production delivery schedules. Accordingly, operating results of a
particular year, or year-to-year comparisons of recorded revenues and earnings, may not be indicative of future operating results. Members of our senior management team
regularly review key performance metrics and the status of operating initiatives within our business. These key performance indicators are primarily revenues, operating income and bookings. We review
this information on a monthly basis through operating segment reviews, which include, among other operating issues, discussions related to significant programs, proposed investments in new business
opportunities or property, plant and equipment, and integration and cost reduction efforts. The following table presents a summary comparison of the key performance metrics, other significant
financial metrics and significant liquidity metrics monitored by our senior management.

|                                    |  | Three Months Ended September 30, |           |  |   | Six Months Ended September 30, |  |      |   
|----------------------------------- |  | -------------------------------- | --------- |  | - | ------------------------------ |  | ---- | --
|
|
|
|Key performance metrics             |  |                                  |           |  |   |                                |  |      |   
|Revenues                            |  | $                                | 783,769   |  | $ | 711,538                        |  | 10.2 | % 
|Operating income                    |  | $                                | 92,129    |  | $ | 71,888                         |  | 28.2 | % 
|Bookings                            |  | $                                | 1,107,989 |  | $ | 915,241                        |  | 21.1 | % 
|Other significant financial metrics |  |                                  |           |  |   |                                |  |      |   
|Interest and related expenses       |  | $                                | 28,106    |  | $ | 30,619                         |  | (8.2 | )%
|Income taxes                        |  | $                                | 20,566    |  | $ | 15,821                         |  | 30.0 | % 
|Significant liquidity metrics(A)    |  |                                  |           |  |   |                                |  |      |   
|Free cash flow                      |  | $                                | 41,610    |  | $ | 44,133                         |  | (5.7 | )%
|EBITDA                              |  | $                                | 110,173   |  | $ | 90,587                         |  | 21.6 | % 

---

Three-Month and Six-Month Periods Ended September 30, 2007, Compared with the Three-and Six-Month Periods Ended
September 30, 2006

Revenues and operating incomeConsolidated revenues and operating income for the three-month period ended
September 30, 2007 increased $72.2 million and $20.2 million, respectively, to $783.8 million and $92.1 million, respectively, as compared with the corresponding
period in the prior year. The primary drivers of increased revenues over the prior-year period were increased demand for driver vision enhancement equipment and components for ground-based vehicles
and certain rugged computer systems, and increased shipments of ground-based target acquisition and missile control subsystems, and thermal imaging systems and subsystems for long-range
surveillance systems. Partially offsetting the overall increase in revenues were lower demand from certain defense communication transmission systems, decreased engineering and development volume for
certain power conversion equipment, lower shipments of rugged computers sold in the international market and delays in shipments on the Thermal Weapons Sights II (TWS II) program. The
Company recommenced shipments of certain variations of TWS II in late September 2007.

The
growth in operating income in the second quarter of fiscal 2008, as compared with the second quarter in the prior year, was largely due to the overall increase in revenues and an
$11.7 million curtailment gain recorded in the Sustainment Systems Segment for a defined benefit pension plan (see Note 11). Partially offsetting the overall higher operating income were
lower margins from C4I's Intelligence Technologies and Command, Control & Communications (C3) strategic business units. During the three months ended September 30, 2006, we recorded
$3.7 million of severance-related

37

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costs
in advance of the new organizational operating structure implemented in the third quarter of fiscal 2007. SeeOperating Segmentsdiscussion below
for additional information.

Consolidated
revenues and operating income for the six-month period ended September 30, 2007 increased $177.6 million and decreased $13.4 million,
respectively, to $1.52 billion and $123.5 million, respectively, as compared with the corresponding period in the prior year. The primary drivers of higher revenues over the prior-year
period were increased shipments of driver vision enhancement equipment and components for ground-based vehicles, ground-based target acquisition and missile control subsystems, certain rugged computer
systems, and thermal imaging systems and subsystems for long-range surveillance systems. Also contributing to higher overall revenues was increased demand for equipment and services under
the Rapid Response (R2) program.
Partially offsetting higher overall revenues were lower demand for commercial vehicle armor kits and certain rugged computers sold in the international market, decreased engineering and development
volume for certain power conversion equipment and delays in shipments of TWS II.

The
decline in operating income for the six-month period ended September 30, 2007, as compared with the corresponding prior-year period, was largely due to a charge of
$36.8 million on the TWS II program. The operating charge primarily reflected the cost of procuring new material following recent design modifications, coupled with the write-off of
existing inventory that can no longer be utilized on the program. We also realized lower operating margins from C4I's Intelligence Technologies and C3 strategic business units. Partially offsetting
lower overall operating income was an $11.7 million curtailment gain recorded in the Sustainment Systems Segment and higher overall revenues. During the six months ended September 30,
2006, we recorded $3.7 million of severance-related costs in advance of the new organizational operating structure implemented in the third quarter of fiscal 2007. See Operating Segmentsdiscussion
below for additional information.

BookingsWe generally define bookings as the value of contract awards received from the U.S. government, for which the U.S.
government has appropriated funds, plus the value of contract awards and orders received from customers other than the U.S. government. Bookings for the three-month period ended September 30,
2007 increased $192.7 million, as compared with the same period in the prior year, to $1.11 billion. The primary drivers of the increase were strong bookings for equipment and services
under the Rapid Response (R2) program from our Technical Services Segment and strong demand for driver vision enhancement equipment and components for ground-based vehicles from our C4I and RSTA
Segments.

Bookings
for the six-month period ended September 30, 2007 increased $350.1 million, as compared with the same period in the prior year, to
$2.05 billion. The primary drivers of the increase were strong bookings for equipment and services under the Rapid Response (R2) program from our Technical Services Segment and strong demand
for driver vision enhancement equipment and components for ground-based vehicles from our C4I and RSTA Segments, and ground-based target acquisition and missile control subsystems from our RSTA
Segment.

Interest and related expensesInterest and related expenses decreased $2.5 million and $3.7 million for the
three- and six-month periods ended September 30, 2007, as compared with the same periods in the prior year, to $28.1 million and $56.8 million, respectively. Lower
interest and related expenses were primarily the result of a decrease in our average borrowings outstanding for the three-and six-month periods ended September 30, 2007, as compared
with the corresponding periods in the prior year. We had no borrowings outstanding under our revolving credit facility at September 30, 2007 and had approximately $80.0 million
outstanding at September 30, 2006. With the adoption of FIN 48 on April 1, 2007, we began recording the interest associated with our income tax contingencies as a component of interest
expense. For the six-month period ended September 30, 2007, we recorded $0.3 million of interest expense associated with tax contingencies which is net of a $0.2 million reduction
to interest expense related to tax contingencies, reversed or settled during the three months ended September 30, 2007.

38

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Income taxesThe provision for income taxes for the three- and six-month periods ended September 30, 2007
reflected an effective income tax rate of approximately 32.3% and 32.5%, respectively, as compared with 38.5% and 38.7%, respectively, in the same period last year. Our effective tax rate declined
primarily due to the scheduled increase in the Domestic Manufacturing Deduction, reinstatement of the Research & Development Credit and, effective April 1, 2007, our election to report
interest expense associated with the income tax contingencies as interest expense rather than a component of the income tax provision, partially offset by a reduction in the Extraterritorial Income
Exclusion. Additionally during the second quarter the effective tax rate was reduced by the impact of $3.1 million of non-recurring items, primarily related to the reversal of a portion of a
valuation allowance that had been established against certain state deferred tax assets. We anticipate that our effective income tax rate for the year ended March 31, 2008 will approximate 36%.

Operating Segments

The following tables set forth, by operating segment, revenues, operating income and operating margin, and the percentage increase or decrease of those items, as
compared with the prior fiscal year:

|                            |  |   |         |   |   | Three Months Ended
Percent Changes |   |        |    |   |         | Six
Months Ended
Percent Changes |  
|--------------------------- |  | - | ------- | - | - | ---------------------------------- | - | ------ | -- | - | ------- | -------------------------------- | -
|
|
|
|
|C4I Segment                 |  |   |         |   |   |                                    |   |        |    |   |         |                                  |  
|Revenues                    |  | $ | 309,425 |   | $ | 273,375                            |   | 13.2   | %  | $ | 607,817 |                                  | $
|Operating income            |  | $ | 34,083  |   | $ | 32,699                             |   | 4.2    | %  | $ | 65,988  |                                  | $
|Operating margin            |  |   | 11.0    | % |   | 12.0                               | % | (7.9   | )% |   | 10.9    | %                                |  
|RSTA Segment                |  |   |         |   |   |                                    |   |        |    |   |         |                                  |  
|Revenues                    |  | $ | 188,770 |   | $ | 146,730                            |   | 28.7   | %  | $ | 342,354 |                                  | $
|Operating income (loss)     |  | $ | 18,416  |   | $ | 12,843                             |   | 43.4   | %  | $ | (2,711  | )                                | $
|Operating margin            |  |   | 9.8     | % |   | 8.8                                | % | 11.4   | %  |   | (0.8    | )%                               |  
|Sustainment Systems Segment |  |   |         |   |   |                                    |   |        |    |   |         |                                  |  
|Revenues                    |  | $ | 108,440 |   | $ | 97,785                             |   | 10.9   | %  | $ | 216,418 |                                  | $
|Operating income            |  | $ | 24,843  |   | $ | 13,212                             |   | 88.0   | %  | $ | 35,066  |                                  | $
|Operating margin            |  |   | 22.9    | % |   | 13.5                               | % | 69.6   | %  |   | 16.2    | %                                |  
|Technical Services Segment  |  |   |         |   |   |                                    |   |        |    |   |         |                                  |  
|Revenues                    |  | $ | 177,134 |   | $ | 193,648                            |   | (8.5   | )% | $ | 352,810 |                                  | $
|Operating income            |  | $ | 15,036  |   | $ | 11,868                             |   | 26.7   | %  | $ | 25,528  |                                  | $
|Operating margin            |  |   | 8.5     | % |   | 6.1                                | % | 39.3   | %  |   | 7.2     | %                                |  
|Other                       |  |   |         |   |   |                                    |   |        |    |   |         |                                  |  
|Operating (loss) income     |  | $ | (249    | ) | $ | 1,266                              |   | (119.7 | )% | $ | (408    | )                                | $

Three-Month Period Ended September 30, 2007, Compared with the Three-Month Period Ended September 30, 2006

C4I SegmentRevenues increased $36.1 million, or 13.2%, to $309.4 million for the three-month period ended
September 30, 2007, as compared with the corresponding prior-year period. Operating income increased $1.4 million, or 4.2%, to $34.1 million. The increase in revenue
was primarily attributable to increased shipments of certain rugged computer systems, components for driver vision enhancement components for ground-based vehicles, replacement video display modules
for the FAA and certain unmanned aerial vehicles. Partially offsetting higher overall revenues were less engineering and development volume for certain power conversion equipment and lower shipments
of certain rugged computer systems sold in international markets, as well as ship automation components.

39

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The
increase in operating income for the three-month period ended September 30, 2007, as compared with the corresponding period in the prior year, was largely due to higher
overall revenues, favorable margins for a commercial nuclear control program and improved margins at C4I's Tactical Systems strategic business unit, offset in part by lower margins at C4I's
Intelligence Technologies and C3 strategic business units.

RSTA SegmentRevenues increased $42.0 million, or 28.7%, to $188.8 million for the three-month period ended
September 30, 2007, as compared with the corresponding prior-year period. Operating income increased $5.6 million, or 43.4%, to $18.4 million. The increase in revenues
was primarily attributable to higher shipments of driver vision enhancement equipment for ground-based vehicles, ground-based target acquisition and missile control subsystems, thermal imaging systems
and subsystems for a long-range surveillance system, and certain airborne and ship-based infrared target acquisition systems. Partially offsetting the overall increase in
revenues were lower revenue for the TWS II program due to delayed shipments, which recommenced
in late September 2007, and lower volume from infrared sighting and targeting systems for ground-based vehicles.

The
increase in operating income for the three-month period ended September 30, 2007, as compared with the corresponding period in the prior year, was largely due to higher
overall revenues and favorable margins for certain thermal imaging systems and subsystems. During the three-month period ended September 30, 2006, the RSTA Segment recorded $2.0 million
of severance-related costs in advance of the new organizational operating structure implemented in the third quarter of fiscal 2007.

Sustainment Systems SegmentRevenues increased $10.7 million, or 10.9%, to $108.4 million for the three-month
period ended September 30, 2007, as compared with the corresponding prior-year period. Operating income increased $11.6 million, or 88.0%, to $24.8 million. The
primary drivers of the increase in revenue during the period were demand for replacement environmental control systems for missile launch and alert facilities, heavy mobile ammunition trailers for the
U.S. Army, and increased revenues for an automated test program due to a transition from the engineering phase of the program to production. Partially offsetting higher overall revenues was lower
demand for battlefield digital command, control and communication systems and support services for certain cargo loaders and transporters.

The
increase in operating income over the same period in the prior year was due to an $11.7 million curtailment gain recorded for one of the Sustainment Systems Segment's defined
benefit pension plans. Higher overall revenues were offset by cost growth on certain defense electronics and environmental programs. During the three-month period ended September 30, 2006, we
recorded $1.2 million of severance-related costs in advance of the new organizational operating structure implemented in the third quarter of fiscal 2007.

Technical Services SegmentRevenues decreased $16.5 million, or 8.5%, to $177.1 million for the three-month
period ended September 30, 2007, as compared with the corresponding prior-year period. Operating income increased $3.2 million, or 26.7%, to $15.0 million. Revenues
declined primary due to lower demand for the defense communication transmission system program, and lower volume from add-on commercial vehicle armor kits, partially offset by equipment
and services provided under the R2 program.

The
increase in operating income and operating margin was largely due to improved margins on the R2 program and the settlement of an assumed liability related to the Engineered Support
Systems, Inc. (ESSI) acquisition, partially offset by lower overall revenue. During the three-month period ended September 30, 2006, we recorded $0.5 million of severance-related costs
in advance of the new organizational operating structure implemented in the third quarter of fiscal 2007.

OtherThe operating loss in Other consists of certain non-allocable general and administrative expenses at DRS
corporate. During the three-month period ended September 30, 2006, we realized a $1.3 million gain on the collection of a note receivable that previously had been partially reserved.

40

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Six-Month Period Ended September 30, 2007, Compared with the Six-Month Period Ended September 30, 2006

C4I SegmentRevenues increased $64.1 million, or 11.8%, to $607.8 million for the six-month period
ended September 30, 2007, as compared with the corresponding prior-year period. Operating income increased $5.6 million, or 9.2%, to $66.0 million. The increase in
revenue was principally attributable to increased shipments of certain rugged computer systems, components for driver vision enhancement equipment for ground-based vehicles, replacement video display
modules for the FAA and certain embedded diagnostics systems. Partially offsetting the overall higher revenue were lower shipments of rugged computer systems sold in the international market, less
engineering and development for certain power conversion equipment, and lower shipments of chassis modernization kits.

The
increase in operating income for the six-month period ended September 30, 2007, as compared with the corresponding period in the prior year, was largely due to
higher overall revenue, favorable margins for a commercial nuclear control program and improved margins at C4I's Tactical Systems strategic business unit, offset in part by lower margins at C4I's
Intelligence Technologies and C3 business units.

RSTA SegmentRevenues increased $79.0 million, or 30.0%, to $342.4 million for the six-month period
ended September 30, 2007, as compared with the corresponding prior-year period. Operating income decreased $28.5 million, or 110.5%, to a loss of $2.7 million. The
increase in revenues was primarily attributable to higher shipments of ground-based target acquisition and missile control subsystems, driver vision enhancement equipment for ground-based vehicles,
and thermal imaging systems and subsystems for a long-range surveillance system. Partially offsetting the overall increase in revenues was lower revenue for the TWS II program due to
delayed shipments, which recommenced in September 2007.

The
decrease in operating income and operating margin for the six-month period ended September 30, 2007, as compared with the corresponding period in the prior year,
was largely due to a
charge of $36.8 million on the TWS II program. Partially offsetting the lower operating income were higher overall revenues and favorable margins for certain thermal imaging systems and
subsystems. During the six-month period ended September 30, 2006, we recorded $2.0 million of severance-related costs in advance of the new organizational operating structure implemented
in the third quarter of fiscal 2007.

The
TWS II charge reflected the cost of procuring new material following recent design modifications, as well as the write-off of certain obsolete inventory. As a
result of the design changes, we also transferred $30.0 million of saleable inventory from the TWS II program (transferred inventory) to inventory, which is valued at the lower of cost or
market as of September 30, 2007. We believe that the transferred inventory will be sold primarily through international distribution channels. The sale of certain products outside of the United
States is highly regulated, and any inability to obtain the requisite licenses or comply with applicable government export regulations may affect our ability to export the transferred inventory. If we
are precluded from the sale of the transferred inventory to certain international customers and, or are unable to generate sufficient domestic revenues, the value of the transferred inventory may be
required to be written-down or written-off in a future period. Such a write-down or write-off could be material to the results of operations in any one
period.

Sustainment Systems SegmentRevenues increased $32.1 million, or 17.4%, to $216.4 million for the
six-month period ended September 30, 2007, as compared with the corresponding prior-year period. Operating income increased $10.5 million, or 42.5%, to
$35.1 million. The primary drivers of the increase in revenues were demand for replacement environmental control systems for missile launch and alert facilities and increased shipments of
tactical quiet generators sets and heavy mobile ammunition trailers for the U.S. Army. Partially offsetting overall higher revenues was lower demand for spares and repairs for certain generator sets.

41

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The increase in operating income over the corresponding period in the prior year was due to an $11.7 million curtailment gain recorded for one of our retirement plans. Higher
overall revenues were offset by cost growth on certain defense electronics and environmental programs. During the six-month period ended September 30, 2006, we recorded $1.2 million of
severance-related costs in advance of the new organizational operating structure implemented in the third quarter of fiscal 2007.

Technical Services SegmentRevenues increased $2.4 million, or 0.7%, to $352.8 million for the
six-month period ended September 30, 2007, as compared with the corresponding prior-year period. Operating income increased $0.3 million, or 1.3%, to
$25.5 million. The primary revenue drivers in the segment were demand for equipment and services provided under the R2 program and higher demand for a satellite transmission services program,
largely offset by lower volume from add-on commercial vehicle armor kits and for the defense communication transmission system program.

Operating
income essentially was unchanged. The settlement of an assumed liability related to the ESSI acquisition and higher overall revenues were offset by a lower margin defense
communications transmission system program and to cost growth on certain engineering and logistics programs. During the six-month period ended September 30, 2006, we recorded
$0.5 million of severance-related costs in advance of the new organizational operating structure implemented in the third quarter of fiscal 2007.

OtherThe operating loss in Other consists of certain non-allocable general and administrative expenses at DRS
corporate. During the six-month period ended September 30, 2006, we realized a $1.3 million gain on the collection of a note receivable that previously had been partially reserved.

Liquidity and Capital Resources

Six Months Ended September 30,2007

2006(in thousands)Net cash provided by operating activities

$
60,741

$
32,329Net cash used in investing activities

$
(32,449
)
$
(36,078
)Net cash (used in) provided by financing activities

$
(72,332
)
$
37,535


Operating activitiesDuring the six months ended September 30, 2007, we generated $60.7 million of operating
cash flow, $28.4 million more than the $32.3 million of operating cash flow generated in the same period in the prior year. Net earnings decreased $1.8 million to
$44.7 million. Non-cash adjustments to reconcile net earnings to cash flows from operating activities increased $26.3 million over the corresponding period in the prior year,
driven primarily by a $36.8 million non-cash write-off of inventory related to the TWS II program, offset in-part by a non-cash pension
curtailment gain of $11.7 million.

Changes
in assets and liabilities, net of effects from business combinations, used $61.5 million in cash for the six months ended September 30, 2007. Inventories used
$48.0 million of cash during the period primarily driven by the TWS II program, as we continued to procure new material following recent design modifications. The increase in TWS II
inventory and certain other programs was offset, in part, by increased shipments of ground-based target acquisition and missile control subsystems and progress related payments received on tactical
generators. Accounts payable used $40.1 million of cash during the period. Customer advances provided $32.7 million of cash during the period, as a result of payments received on
ground-based target acquisition and missile control subsystems, vision enhancement equipment for ground-based vehicles, and thermal imaging systems and subsystems for a long-range
surveillance system. Accounts receivable provided $23.4 million of cash, as net collections exceeded billings. Accrued expenses and other current liabilities used $29.3 million of cash,
mainly due to the payment of income taxes and the liquidation of certain contract-related reserves.

Investing activitiesWe paid $32.5 million for capital improvements during the six months ended September 30,
2007, as compared with $27.2 million in the corresponding prior-year period. We expect

42

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our
capital expenditures to be in the range of $70.0 million to $85.0 million in fiscal 2008, as we continue to upgrade our facilities and information technology infrastructure.

Financing activitiesFor the six months ended September 30, 2007, financing activities used $72.3 million in
cash. We prepaid $75 million of our term loan and made $2.7 million in scheduled repayments under various long-term debt arrangements during the first six months of fiscal
2008. We also received $7.6 million from the exercise of stock options and related excess tax benefits, and paid $2.4 million in cash dividends.

Simultaneously
with the closing of our acquisition of Engineered Support Systems, Inc. (ESSI), on January 31, 2006 we entered into an amended and restated credit facility
for up to an aggregate amount of $675.0 million with a syndicate of lenders (the Credit Facility), replacing our previously existing credit facility. The Credit Facility consists of a
$400.0 million senior secured revolving line of credit and a $275.0 million senior secured term loan. We are permitted, on no more than two occasions, to increase the aggregate amount of
the Credit Facility by up to $250.0 million, subject to certain restrictions. Any increase in the aggregate amount of the Credit Facility may be borrowed in the form of either additional term
loans or available amounts under the revolving line of credit. The Credit Facility is guaranteed by substantially all of DRS's domestic subsidiaries. In addition, it is collateralized by liens on
substantially all of the assets of our subsidiary guarantors' and certain of DRS's other subsidiaries' assets and by a pledge of a portion of certain of our non-guarantor subsidiaries'
capital stock.

From
time to time, we enter into standby letters-of-credit and bank guarantee agreements with financial institutions and customers, primarily relating to the
guarantee of our future performance on certain contracts to provide products and services and to secure advance payments we have received from our customers. As of September 30, 2007,
$46.3 million was contingently payable under letters of credit and bank guarantees. Of this amount, approximately $0.9 million and $0.3 million in letters of credit and bank
guarantees, respectively, as of September 30, 2007 were issued under a previous credit agreement and by a bank agreement for our U.K. subsidiary, respectively, and are not considered when
determining the availability under our revolving line of credit. At September 30, 2007, we had $354.9 million of availability under our revolving line of credit.

On
March 29, 2006, DRS Technologies Canada Company (DRS Canada) established a five-year senior secured term loan for approximately $9.9 million
(C$11.5 million), maturing on April 1, 2011. The proceeds of the loan were utilized to permit repatriation of certain amounts from Canada to the U.S., which were subject to more
favorable tax treatment under the Jobs Act. The debt is collateralized by the assets of DRS Canada and guaranteed by DRS Technologies, Inc. We are subject to the same financial covenants under
the DRS Canada loan, as we are under the
Credit Facility, and DRS Canada is subject to other non-financial covenants that are similar to those described for the Credit Facility.

On
October 30, 2003, we issued $350.0 million aggregate principal amount of 67/8% senior subordinated notes, due November 1, 2013 (the
October 2003 Notes). The net proceeds of the October 2003 Notes, together with a portion of our available cash and initial borrowings under the then existing credit facility, were used
to fund the acquisition of Integrated Defense Technologies, Inc. (IDT), repay certain of DRS's and IDT's outstanding indebtedness, and pay related fees and expenses. The October 2003
Notes were issued under an indenture with The Bank of New York. Subject to a number of exceptions, the indenture restricts our ability and the ability of our subsidiaries to incur more debt, pay
dividends and make distributions, make certain investments, repurchase stock, create liens, enter into transactions with affiliates, enter into sale lease-back transactions, merge or
consolidate, and transfer or sell assets. The October 2003 Notes are unconditionally guaranteed, jointly and severally, by DRS's current and future wholly-owned domestic subsidiaries. The
foreign subsidiaries and certain domestic subsidiaries of DRS do not guarantee the October 2003 Notes.

On
December 23, 2004, we issued an additional $200.0 million aggregate principal amount of 67/8% senior subordinated notes, due November 2013 (the
December 2004 Notes). The December 2004 Notes

43

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were
offered as additional debt securities under our indenture with the Bank of New York with identical terms and the same guarantors as the October 2003 Notes.

On
January 31, 2006, in connection with the acquisition of ESSI, we issued $900.0 million of new debt securities, including $350.0 million aggregate principal amount
of 65/8% senior notes due 2016, $250.0 million aggregate principal amount of 75/8% senior subordinated notes due 2018 (collectively called the January 2006
Notes) and $300.0 million aggregate principal amount of 2.0% convertible senior notes due 2026 (Convertible Notes). On February 8, 2006, we sold an additional $45.0 million of
Convertible Notes pursuant to an overallotment option exercised by the initial purchasers of the Convertible Notes. The net proceeds of the January 2006 Notes and the Convertible Notes,
together with a portion of our available cash and initial borrowings under the Credit Facility, were used to fund the ESSI acquisition, repay certain of ESSI's outstanding indebtedness, and pay
related fees and expenses.

In
January 2006, in connection with the offering of our 2% Convertible Senior Notes due 2026 (Convertible Notes), we entered into a registration rights agreement relating to our
Common Stock issuable upon conversion of the Convertible Notes. Pursuant to the registration rights agreement, if we do not file a prospectus supplement or shelf registration statement relating
to the resale of the Common Stock within certain specified time periods or maintain the effectiveness of a registration statement related to the resale of the Common Stock, subject to certain
exceptions, we could be subject to additional interest. We believe the likelihood of occurrence of such event is remote and, as such, we have not recorded a liability at September 30, 2007. In
the event that it becomes probable that we would have to pay additional interest under the registration rights agreement, we estimate the maximum potential amount as of September 30, 2007 to be
approximately $3.5 million per year.

The
January 2006 Notes are unsecured. The 75/8% senior subordinated notes rank behind the Credit Facility, the 65/8% senior notes, the Convertible
Notes and trade payables, and arepari passuwith the 67/8% senior subordinated notes. The January 2006 Notes were issued under
indentures with The Bank of New York. Subject to a number of exceptions, the indentures restrict our ability and the ability of our subsidiaries to incur more debt, pay dividends and make
distributions, make certain investments, repurchase stock, create liens, enter into transactions with affiliates, enter into sale lease-back transactions, merge or consolidate, and
transfer or sell assets. The January 2006 Notes are unconditionally guaranteed, jointly and severally, by certain of our existing and future domestic subsidiaries.

Certain
of our debt arrangements contain customary representations, warranties and default provisions, as well as restrictions that, among other things, limit the amount of debt that we
may have outstanding. As of September 30, 2007, we were in compliance with all such financial covenants.

Accrued
interest expense at September 30, 2007 and March 31, 2007 was approximately $25.4 million and $25.6 million, respectively.

Based
upon our anticipated level of future operations, we believe that our existing cash and cash equivalents balances and our cash generated from operating activities, together with
available borrowings under our amended and restated senior secured credit facility, will be adequate to meet our anticipated requirements for working capital, capital expenditures, commitments,
research and development expenditures, contingent purchase prices, program and other discretionary investments, and interest and principal payments for the foreseeable future. There can be no
assurance, however, that our business will continue to generate cash flow at current levels. If we are unable to generate sufficient cash flow from operations to service our debt, we may be required
to sell assets, reduce capital expenditures, refinance all or a portion of our existing debt or obtain additional financing. Our ability to make scheduled principal payments or to pay interest on or
to refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the defense industry and to general
economic, political, financial, competitive, legislative and regulatory factors beyond our control. There can be no assurance that

44

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sufficient
funds will be available to enable us to service our indebtedness, make necessary capital expenditures or to make discretionary investments.

DividendsOn August 9, 2007, the Board of Directors declared a $0.03 per common share cash dividend, payable on
September 28, 2007 to stockholders of record as of September 14, 2007. On November 8, 2007, the Board of Directors declared a $0.03 per common share cash dividend, payable on
December 31, 2007 to stockholders of record as of December 14, 2007.

Free cash flowFree cash flow represents net cash provided by operating activities less capital expenditures. Free cash flow
for the three-month period ended September 30, 2007 was $41.6 million, or $2.5 million less than $44.1 million in the corresponding period in the prior year. Free cash flow
for the six-month period ended September 30, 2007 was $28.2 million, or $23.1 million more than $5.1 million in the corresponding period in the prior year. See
"Use of Non-GAAP Financial Measures" below for additional discussion and information.

EBITDANet earnings before net interest and related expenses (primarily the amortization and write-off of debt
premium and issuance costs), income taxes, depreciation and amortization (EBITDA) for the three-month period ended September 30, 2007 was $110.2 million, or $19.6 million more
than the $90.6 million in the corresponding period in the prior year. EBITDA for the six-month period ended September 30, 2007 was $159.5 million or
$14.7 million less than the $174.2 million in the corresponding period in the prior year. See "Use of Non-GAAP Financial Measures" below for additional discussion and
information.

Off-Balance Sheet Financing ArrangementsWe have $345 million of 2% senior convertible notes with a
conversion price of $59.70 per share. Upon conversion, we would satisfy our obligation to convert the notes by delivering to the holders cash for the principal amount of the notes and stock for the
value of the notes in excess of the principal amount of the notes, as defined in the convertible debt agreement. We believe the number of shares to be issued upon conversion does not pose a reasonable
likelihood of potential significant dilution over the next twelve months. For further information on our Convertible Notes, see Note 8 to our Consolidated Financial Statements.

In
addition, there are 2.4 million stock options outstanding to purchase DRS common stock at a weighted average exercise price of $35.72 per share and 0.6 million of
non-vested stock awards outstanding at September 30, 2007 that represent additional potential dilution.

We
have not entered into any other off-balance sheet financing arrangements.

Contractual ObligationsOur contractual obligations and commitments principally include obligations associated with our
outstanding indebtedness, future minimum operating lease obligations, acquisition earn-outs and purchase obligations. Except as discussed below, the disclosures relating to our contractual
obligations in our Annual Report on Form 10-K for the year ended March 31, 2007 have not materially changed since we filed that report. Based upon the expiration of statutes
of limitations and/or the conclusion of tax examinations in several jurisdictions, we believe it is reasonably possible that the total amount of previously unrecognized tax benefits may decrease by up
to $6.8 million within twelve months of September 30, 2007. We are unable to reasonably determine any amounts for years subsequent to September 30, 2008. See Note 3, Income
Taxes in the notes to the unaudited condensed consolidated financial statements contained in this report.

BacklogFunded backlog represents products or services that our customers have committed by contract to purchase from us. Due
to the general nature of defense procurement and contracting, the operating cycle for our military business typically has been long term. Military backlog currently consists of various production and
engineering development contracts with varying delivery schedules and project timetables. Our backlog also includes certain commercial off-the-shelf (COTS)-based systems for
the military, which have shorter delivery times. Accordingly, revenues for a particular year, or year-to-year comparisons of reported revenues and related backlog positions,
may not be indicative

45

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of
future results. Backlog at September 30, 2007 was $3.59 billion, as compared with $3.04 billion at March 31, 2007. We booked $1.11 billion and
$2.05 billion in new orders for the three- and six-month periods ended September 30, 2007.

Internal Research and DevelopmentIn addition to customer-funded research and development, we also engage in internal
research and development. These expenditures reflect our continued investment in new technology and diversification of our products. Expenditures for internal research and development for the
three-month periods ended September 30, 2007 and 2006 were $14.1 million and $14.3 million, respectively, and $25.5 million and $25.3 million for the
six-month periods ended September 30, 2007 and 2006, respectively.

Use of Non-GAAP Financial MeasuresCertain disclosures in this document include "non-GAAP (Generally
Accepted Accounting Principles) financial measures." A non-GAAP financial measure is defined as a numerical measure of our financial performance that excludes or includes amounts so as to
be different than the most directly comparable measure calculated and presented in accordance with GAAP in our Consolidated Balance Sheets, Statements of Earnings or Statements of Cash Flows. The
components of EBITDA and a reconciliation of EBITDA and "free cash flow" with the most directly comparable GAAP measure follows:

Three Months Ended
September 30,

Six Months Ended
September 30,2007

2006

2007

2006(in thousands)Net Earnings

$
43,034

$
25,231

$
44,684

$
46,489Income taxes


20,566


15,821


21,536


29,331Interest income


(380
)

(322
)

(939
)

(498
)Interest and related expenses


28,106


30,619


56,816


60,521Depreciation and amortization


18,847


19,238


37,360


38,363EBITDA(A)


110,173


90,587


159,457


174,206Income taxes


(20,566
)

(15,821
)

(21,536
)

(29,331
)Interest income


380


322


939


498Interest and related expenses


(28,106
)

(30,619
)

(56,816
)

(60,521
)Deferred income taxes


4,711


3,623


3,785


4,083Changes in assets and liabilities, net of effects from business combinations and divestitures


(1,985
)

6,363


(61,507
)

(65,435
)Other, net


(4,393
)

3,816


36,419


8,829Net cash provided by operating activities


60,214


58,271


60,741


32,329Capital expenditures


(18,604
)

(14,138
)

(32,497
)

(27,218
)Free cash flow(B)

$
41,610

$
44,133

$
28,244

$
5,111




46

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OTHER MATTERS

New Accounting Pronouncements

New accounting pronouncements have been issued by the Financial Accounting Standards Board which are not effective until after September 30, 2007. For
further discussion of new accounting standards, see Note 18 to our Consolidated Financial Statements in Item 1.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Market Risk

See Part II, Item 7A, "Qualitative and Quantitative Disclosures About Market Risk," of the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 2007 for a discussion of the Company's exposure to market risks.

Item 4.    Controls and Procedures

(a) Disclosure Controls and ProceduresThe Company's management, with the participation of the Company's Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing
and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

(b) Internal Control Over Financial ReportingThere have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2007 that
materially have affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

47

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

Various legal actions, claims, assessments and other contingencies, including certain matters described below, are pending against us and certain of our
subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters ultimately could be decided, resolved or settled adversely. We have recorded accruals
totaling $3.0 million at both September 30, 2007 and March 31, 2007 for losses related to those matters that we consider to be probable and that can be reasonably estimated
(certain legal and environmental matters are discussed in detail below). Although, at September 30, 2007, the precise amount of liability that may result from those matters for which we have
recorded accruals is not ascertainable, we believe that any amounts exceeding our recorded accruals should not materially affect our financial condition or liquidity. It is possible, however, that the
ultimate resolution of those matters could result in a material adverse effect on our results of operations and/or cash flows from operating activities for a particular reporting period.

Some
environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (also known as CERCLA or the Superfund law) and similar state statutes,
can impose liability for the entire cost of the clean up of contaminated sites upon any of the current or former site owners or operators (or upon parties who send waste to these sites), regardless of
the lawfulness of the original activities that led to the contamination. In July 2000, prior to its acquisition by Integrated Defense Technologies Inc. (IDT), and prior to our
acquisition of IDT, Tech-Sym Corporation received a Section 104(e) Request for Information from the National Park Service (NPS), pursuant to CERCLA, regarding a site known as the
Orphan Mine site in the Grand Canyon National Park, Arizona, which is the subject of an NPS investigation regarding the presence of residual radioactive materials and contamination. A corporation of
which Tech-Sym is an alleged successor operated this uranium mine from 1956 to 1967. In 1962, the land was transferred to the U.S. government and the alleged predecessor of Tech Sym was
given a 25-year mining lease. In 1967, the mining rights were transferred to a third party by a trustee in bankruptcy, and we believe that the mine was operated by such third party until
approximately 1969. We understand that there are other companies in the chain of title to the mining rights subsequent to Tech-Sym's alleged predecessor, and, accordingly, that there are
other potentially responsible parties (PRPs) for the environmental conditions at the site, including the U.S. government as owner, operator and arranger at the site. During its period of ownership,
IDT
retained a technical consultant in connection with this matter, who conducted a limited, preliminary review of site conditions and communicated with the NPS regarding actions that may be required at
the site by all of the PRPs. On February 6, 2005, the NPS sent us an Engineering Evaluation/Cost Analysis Work Plan (the NPS EE/CA) under CERCLA (the CERCLA Letter) with regards to Operable
Unit 1 of the Orphan Mine site. In our view, the NPS EE/CA included additional clean up not covered by CERCLA. The CERCLA Letter also requested (a) payment of $0.5 million for costs
incurred by the NPS related to the Orphan Mine, and (b) a "good faith offer" to conduct the response activity outlined by the NPS and to reimburse the NPS for future costs. The NPS advised that
a similar letter had been sent to another PRP. We initiated discussions with the other PRP and with NPS, and engaged a technical consultant to evaluate the existing documentation and the site in
depth. As a result the technical consultant submitted to the NPS, on behalf of us and the other PRP, an alternative Engineering Evaluation/Cost Analysis Work Plan (the alternative EE/CA) with regard
to Operable Units 1 and 2 of the Orphan Mine site.

Since
late 2005, the PRPs and NPS have discussed the technical merits of the alternative EE/CA and ways to resolve certain differences between the alternative EE/CA and the NPS EE/CA
provided with the CERCLA Letter. The parties also have discussed certain legal issues relating to the process for implementing an alternative EE/CA and entering into a settlement agreement that would
memorialize the parties' intent. The potential liability associated with this matter can change substantially due to such factors as additional information on the nature or extent of contamination,

48

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methods
of remediation that might be recommended or required, changes in the apportionment of costs among the responsible parties and other actions by governmental agencies or private parties.

In
connection with our acquisition of ESSI in January 2006, we have been made aware of certain legal actions, claims, assessments and other contingencies, including those
described below.

In
December 2004, ESSI was notified by the Enforcement Division of the SEC of the issuance of a formal order directing a private investigation and was notified that the SEC had
issued subpoenas to various individuals associated with ESSI to produce certain documents. The SEC staff also requested that ESSI produce certain documents in connection with the investigation. The
subpoenas related to trading in ESSI stock around ESSI's earnings releases in 2003 and to the adequacy of certain disclosures made by ESSI regarding related-party transactions in 2002 and 2003
involving insurance policies placed by ESSI through an insurance brokerage firm in which an ESSI director was a principal at the time of the transactions. In February 2007, the SEC filed a
civil injunctive action in the United States District Court for the Eastern District of Missouri, Eastern Division, against a former director, officer and consultant of ESSI, alleging that he had
violated the federal securities laws by "tipping" his financial advisor and close friend by sharing material, nonpublic information regarding ESSI's financial condition shortly before certain 2003
earnings announcements.

On
or about September 23, 2005, the SEC staff advised ESSI's counsel that it had issued a subpoena directed to ESSI and expanded its investigation to include ESSI's disclosure of
a November 2004 stop
work order relating to ESSI's Deployable Power Generation and Distribution Systems (DPGDS) program for the U.S. Air Force and relating to trading in ESSI stock by certain individuals associated with
ESSI. In connection with the foregoing SEC investigation, ESSI and certain of its directors and officers have provided information and/or testimony to the SEC.

In
January 2006, ESSI was informed that the Office of the U.S. Attorney for the Eastern District of Missouri was initiating an investigation into ESSI's disclosure of the DPGDS
stop-work order and into trading in ESSI stock by ESSI insiders, which preceded such disclosure. The U.S. Attorney's office advised ESSI that although it considered ESSI to be a subject of
its investigation, ESSI was not a target. In connection with this investigation, the U.S. Attorney's office issued ESSI a subpoena requesting specified information, which ESSI has furnished.

In
May 2006, we were advised that the Enforcement Division of the SEC and the U.S. Attorney's office each had expanded its investigation to include possible "backdating" of the
timing of option grants at ESSI prior to the time ESSI was acquired by us. As a part of its investigation, the SEC issued subpoenas to certain former officers and employees of ESSI to provide
testimony and produce certain documents.

In
February 2007, the SEC filed civil injunctive actions in the United States District Court for the Eastern District of Missouri, Eastern Division, alleging that ESSI's former
Chief Financial Officer and former Controller each had participated in a backdating scheme. Also in February 2007, the SEC reported that ESSI's former Controller had settled its action against
him by consenting to disgorgement, financial penalties, an officer and director bar and a permanent suspension from practicing before the SEC as an accountant. In July 2007, the SEC filed civil
injunctive actions in the United States District Court for the Eastern District of Missouri, Eastern Division, alleging that ESSI's former Chairman of the Board and Chief Executive Officer and his son
(who was also a member of ESSI's Board of Directors and Compensation Committee) each participated in a backdating scheme.

In
March 2007, ESSI's former Controller pleaded guilty to a one-count information brought by the office of the United States Attorney for the Eastern District of
Missouri, charging him with making false statements to the government. In connection with his plea, this former ESSI executive admitted that a number of documents filed by ESSI with the SEC contained
the materially false statement that the option price of shares subject to the ESSI stock option plan was the closing price of the stock on the date the options were awarded.

49

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In
March 2007, ESSI's former Chief Financial Officer was indicted by the grand jury of the United States District Court for the Eastern District of Missouri relating to the
backdating of the timing of stock options at ESSI prior to the time ESSI was acquired by DRS. In July 2007, ESSI's former Chairman of the Board and Chief Executive Officer and his son (who was
also a member of ESSI's
Board of Directors and Compensation Committee) each were indicted on similar charges. The July 2007 superseding indictment charges these former ESSI officers and directors with twelve counts of
fraud based on allegations that they backdated stock options on at least eight occasions between 1996 and 2002.

Although
ESSI continues to be a subject of the U.S. Attorney's office's investigation, the U.S. Attorney's office has advised us that ESSI is not a target. Because the events being
investigated occurred prior to the time of our acquisition of ESSI, the U.S. Attorney's office further has advised us that it considers DRS to be a witness, not a subject or target of its
investigation.

We
are committed to full cooperation with regard to the foregoing investigations. We are unable to determine at this time either the timing of the SEC or U.S. Attorney's office
investigations or the impact, if any, the investigations could have on us.

In
September 2006, the Internal Revenue Service commenced an audit of ESSI's Federal tax returns for the tax periods ended October 31, 2004, October 31, 2005 and
January 31, 2006. Thereafter, the Internal Revenue Service agreed, subject to Congressional approval, to close these audits based on ESSI's agreement to accept certain proposed adjustments
(primarily involving the reversal of certain compensation deductions taken during these tax years) and a corresponding assessment of approximately $11.3 million (exclusive of interest) which
was previously accrued. In September 2007, we received written confirmation from the Congressional Joint Committee on Taxation that it took no exception to the proposed adjustments.

In
August 2007, a shareholder derivative complaint was filed in the United States District Court for the Eastern District of Missouri against ESSI's former Chairman of the Board
and Chief Executive Officer, his son (who was also a member of ESSI's Board of Directors and Compensation Committee), ESSI's former Chief Financial Officer and ESSI's former Controller relating to the
alleged backdating of stock options prior to ESSI's acquisition by DRS. The complaint also contains claims against each of the current members of DRS's Board of Directors relating to the alleged
backdating of ESSI stock options and the ESSI acquisition. We believe the claims made against the current DRS Directors are without merit.

In
July 2006, DRS Technologies, Inc. and one of its subsidiaries, DRS Training & Control Systems, Inc., each were issued a subpoena by the United States
District Court for the Northern District of Florida. The subpoenas were issued in connection with an investigation conducted by the Antitrust Division of the U.S. Department of Justice involving
allegations of possible anticompetitive activity in certain international markets. On June 21, 2007, we received written notification from the Antitrust Division of the Department of Justice
that they had closed this investigation.

Item 1.A.    Risk Factors

In addition to the information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our
Annual Report on Form 10-K for the year ended March 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our
Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also
may materially adversely affect our business, financial condition and/or operating results.

50

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Item 4.    Submissions of Matters to a Vote of Security Holders

On August 9, 2007, the Company held its Annual Meeting of Stockholders at our corporate offices located at 5 Sylvan Way, Parsippany, New Jersey,
07054. The following matters were submitted to a vote of stockholders:



The
following summarizes the voting results:

For

WithheldProposal (i):William F. Heitmann

36,941,079

366,266C. Shelton James

36,941,191

366,191Stuart F. Platt

35,305,866

2,001,479Eric J. Rosen

36,910,013

397,013


For

Abstain

AgainstProposal (ii):

36,936,262

10,720

227,753


For

Abstain

AgainstProposal (iii):

32,483,244

66,014

706,445


Items 2, 3 and 5 are not applicable and have been omitted.

Item 6.    Exhibits



|Exhibit No. |  | Description                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|10.1        |  | DRS Technologies, Inc. Incentive Compensation Plan, incorporated by reference from DRS's definitive proxy statement filed July 3, 2007
|10.2*       |  | First Amendment to the DRS Technologies, Inc. Incentive Compensation Plan effective as of November 8, 2007                            
|31.1*       |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                    
|31.2*       |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                    
|32.1*       |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                    
|32.2*       |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                    

---

51

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                       | DRS TECHNOLOGIES, INC.                                                                       
|---------------------- | ---------------------------------------------------------------------------------------------
|Date: November 9, 2007 | /s/RICHARD A. SCHNEIDERRichard A. Schneider Executive Vice President, Chief Financial
Officer

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