UNITED STATESSECURITIES 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 June 30, 2004
|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                                                       |  | 13-2632319                       
|-------------------------------------------------------------- |  | ---------------------------------
|(State or other jurisdiction of
incorporation or organization) |  | (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)

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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 an accelerated filer (as defined in Exchange Act Rule 12b-2).
 Yes ý        No o

As of August 5, 2004, 27,195,823 shares of DRS Technologies, Inc. $0.01 par value common stock were outstanding.



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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES

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Index to Quarterly Report on Form 10-Q  For the Quarter Ended June 30, 2004

|                             |  |                                                                                       |  | Page
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART IFINANCIAL INFORMATION
|Item 1.                      |  | Financial Statements (unaudited)                                                      |  |     
|                             |  | Consolidated Balance SheetsJune 30, 2004 and March 31, 2004                          |  | 1   
|                             |  | Consolidated Statements of EarningsThree-Months Ended June 30, 2004 and 2003         |  | 2   
|                             |  | Consolidated Statements of Cash FlowsThree-Months Ended June 30, 2004 and 2003       |  | 3   
|                             |  | Notes to Consolidated Financial Statements                                            |  | 4   
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 23  
|Item 3.                      |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 33  
|Item 4.                      |  | Controls and Procedures                                                               |  | 34  
|PART IIOTHER INFORMATION   
|Item 1.                      |  | Legal Proceedings                                                                     |  | 35  
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                      |  | 36  
|SIGNATURES                   |  | 37                                                                                   

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PART IFINANCIAL INFORMATION

Item 1.    Financial Statements

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

|                                                                                                                                      |                                                                                                                                                                 | June 30,
2004                              |         | March 31,
2004 |          
|------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | -------------- | ---------
|Assets                                                                                                                                |                                                                                                                                                                
|Current assets                                                                                                                        |                                                                                                                                                                 |                                            |         |                |          
|                                                                                                                                      | Cash and cash equivalents                                                                                                                                       |                                            | $       | 64,221         |          
|                                                                                                                                      | Accounts receivable, net of allowances for doubtful accounts of $3,885 and $3,908 as of June 30, 2004 and March 31, 2004, respectively                          |                                            |         | 214,059        |          
|                                                                                                                                      | Inventories, net                                                                                                                                                |                                            |         | 174,124        |          
|                                                                                                                                      | Prepaid expenses, deferred income taxes and other current assets                                                                                                |                                            |         | 22,637         |          
|                                                                                                                                      |                                                                                                                                                                 |                                            |         |                |          
|                                                                                                                                      |                                                                                                                                                                 | Total current assets                       |         |                | 475,041  
|                                                                                                                                      |                                                                                                                                                                 |                                            |         |                |          
|Property, plant and equipment, less accumulated depreciation of $80,821 and $73,112 at June 30, 2004 and March 31, 2004, respectively |                                                                                                                                                                 |                                            | 148,661 |                |          
|Acquired intangible assets, net                                                                                                       |                                                                                                                                                                 |                                            | 103,413 |                |          
|Goodwill                                                                                                                              |                                                                                                                                                                 |                                            | 809,340 |                |          
|Other noncurrent assets                                                                                                               |                                                                                                                                                                 |                                            | 28,671  |                |          
|                                                                                                                                      |                                                                                                                                                                 |                                            |         |                |          
|                                                                                                                                      |                                                                                                                                                                 | Total assets                               |         | $              | 1,565,126
|                                                                                                                                      |                                                                                                                                                                 |                                            |         |                |          
|Liabilities and Stockholders' Equity                                                                                                  |                                                                                                                                                                
|Current liabilities                                                                                                                   |                                                                                                                                                                 |                                            |         |                |          
|                                                                                                                                      | Current installments of long-term debt                                                                                                                          |                                            | $       | 5,790          |          
|                                                                                                                                      | Short-term bank debt                                                                                                                                            |                                            |         | 433            |          
|                                                                                                                                      | Accounts payable                                                                                                                                                |                                            |         | 81,388         |          
|                                                                                                                                      | Accrued expenses and other current liabilities                                                                                                                  |                                            |         | 266,989        |          
|                                                                                                                                      |                                                                                                                                                                 |                                            |         |                |          
|                                                                                                                                      |                                                                                                                                                                 | Total current liabilities                  |         |                | 354,600  
|Long-term debt, excluding current installments                                                                                        |                                                                                                                                                                 |                                            | 554,988 |                |          
|Other liabilities                                                                                                                     |                                                                                                                                                                 |                                            | 47,229  |                |          
|                                                                                                                                      |                                                                                                                                                                 |                                            |         |                |          
|                                                                                                                                      |                                                                                                                                                                 | Total liabilities                          |         |                | 956,817  
|                                                                                                                                      |                                                                                                                                                                 |                                            |         |                |          
|Commitments and contingencies                                                                                                         |                                                                                                                                                                 |                                            |         |                |          
|Stockholders' equity                                                                                                                  |                                                                                                                                                                 |                                            |         |                |          
|                                                                                                                                      | Preferred stock, no par value. Authorized 2,000,000 shares; none issued at June 30, 2004 and March 31, 2004                                                     |                                            |         |               |          
|                                                                                                                                      | Common Stock, $.01 par value per share. Authorized 50,000,000 shares; issued 27,083,348 and 27,063,093 shares at June 30, 2004 and March 31, 2004, respectively |                                            |         | 271            |          
|                                                                                                                                      | Additional paid-in capital                                                                                                                                      |                                            |         | 457,074        |          
|                                                                                                                                      | Retained earnings                                                                                                                                               |                                            |         | 151,018        |          
|                                                                                                                                      | Accumulated other comprehensive earnings                                                                                                                        |                                            |         | 3,226          |          
|                                                                                                                                      | Unamortized stock compensation                                                                                                                                  |                                            |         | (3,280         | )        
|                                                                                                                                      |                                                                                                                                                                 |                                            |         |                |          
|                                                                                                                                      |                                                                                                                                                                 | Total stockholders' equity                 |         |                | 608,309  
|                                                                                                                                      |                                                                                                                                                                 |                                            |         |                |          
|                                                                                                                                      |                                                                                                                                                                 | Total liabilities and stockholders' equity |         | $              | 1,565,126
|                                                                                                                                      |                                                                                                                                                                 |                                            |         |                |          

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
June 30,
|--------------------------------------- | -------------------------------------------------- | ---------------------------
|
|Revenues                                |                                                    | $                          
|Costs and expenses                      |                                                    |                            
|                                        |                                                    |                            
|                                        | Operating income                                   |                            
|Interest income                         |                                                    |                            
|Interest and related expenses           |                                                    |                            
|Other expense, net                      |                                                    |                            
|                                        |                                                    |                            
|                                        | Earnings before minority interest and income taxes |                            
|Minority interest                       |                                                    |                            
|                                        |                                                    |                            
|                                        | Earnings before income taxes                       |                            
|Income taxes                            |                                                    |                            
|                                        |                                                    |                            
|                                        | Net earnings                                       |                            
|                                        |                                                    |                            
|Net earnings per share of common stock: |                                                    |                            
|                                        | Basic earnings per share                           |                            
|                                        | Diluted earnings per share                         |                            

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)

|                                                                               |                                                                               | Three Months Ended
June 30,                                |        
|------------------------------------------------------------------------------ | ----------------------------------------------------------------------------- | ---------------------------------------------------------- | -------
|
|Cash Flows from Operating Activities                                           |                                                                               |                                                            |        
|Net earnings                                                                   |                                                                               | $                                                          | 11,771 
|Adjustments to reconcile net earnings to cash flows from operating activities: |                                                                               |                                                            |        
|                                                                               | Depreciation and amortization                                                 |                                                            |        
|                                                                               | Deferred income taxes                                                         |                                                            |        
|                                                                               | Inventory reserve and provision for doubtful accounts                         |                                                            |        
|                                                                               | Amortization of deferred financing fees                                       |                                                            |        
|                                                                               | Other, net                                                                    |                                                            |        
|                                                                               | Changes in assets and liabilities, net of effects from business combinations: |                                                            |        
|                                                                               |                                                                               | Decrease in accounts receivable                            |        
|                                                                               |                                                                               | Decrease (increase) in inventories                         |        
|                                                                               |                                                                               | Increase in prepaid expenses and other current assets      |        
|                                                                               |                                                                               | Decrease in accounts payable                               |        
|                                                                               |                                                                               | Decrease in accrued expenses and other current liabilities |        
|                                                                               |                                                                               | (Decrease) increase in customer advances                   |        
|                                                                               |                                                                               | Other, net                                                 |        
|                                                                               |                                                                               |                                                            |        
|                                                                               | Net cash provided by operating activities                                     |                                                            |        
|                                                                               |                                                                               |                                                            |        
|Cash Flows from Investing Activities                                           |                                                                               |                                                            |        
|                                                                               | Capital expenditures                                                          |                                                            |        
|                                                                               | Acquisition-related payments                                                  |                                                            |        
|                                                                               | Other                                                                         |                                                            |        
|                                                                               |                                                                               |                                                            |        
|                                                                               | Net cash used in investing activities                                         |                                                            |        
|                                                                               |                                                                               |                                                            |        
|Cash Flows from Financing Activities                                           |                                                                               |                                                            |        
|                                                                               | Net borrowings of short-term debt                                             |                                                            |        
|                                                                               | Repayment of long-term debt                                                   |                                                            |        
|                                                                               | Proceeds from stock option exercises                                          |                                                            |        
|                                                                               | Other, net                                                                    |                                                            |        
|                                                                               |                                                                               |                                                            |        
|Net cash used in financing activities                                          |                                                                               |                                                            | (10,080
|                                                                               |                                                                               |                                                            |        
|Effect of exchange rates on cash and cash equivalents                          |                                                                               |                                                            | (366   
|                                                                               |                                                                               |                                                            |        
|Net increase (decrease) in cash and cash equivalents                           |                                                                               |                                                            | 7,431  
|Cash and cash equivalents, beginning of period                                 |                                                                               |                                                            | 56,790 
|                                                                               |                                                                               |                                                            |        
|                                                                               | 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 Consolidated Financial Statements        (Unaudited)

1.    Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of DRS Technologies, Inc., its wholly-owned subsidiaries and a partnership of which DRS owns
an 80% controlling interest, (hereinafter, DRS or the Company) 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 June 30, 2004, the results of operations
for the three-month periods ended June 30, 2004 and 2003, and cash flows for the three-month periods ended June 30, 2004 and 2003. The results of operations for the three-month period
ended June 30, 2004 are not necessarily indicative of the results to be expected for the full year. Certain fiscal 2004 amounts have been reclassified to conform to the fiscal 2005
presentation. 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, 2004,
included in the Company's filing on Form 10-K, as amended, for the year ended March 31, 2004.

On
November 4, 2003, a wholly-owned subsidiary of the Company merged with and into Integrated Defense Technologies, Inc. (IDT) in a purchase business combination with IDT
being the surviving corporation and continuing as a wholly-owned subsidiary of DRS (the Merger). The total consideration for the Merger consisted of $261.3 million in cash (excluding cash
acquired of $27.5 million) and 4,323,172 shares of DRS common stock, or an aggregate value of approximately $367.4 million, and the assumption of $201.0 million in debt, including
$0.2 million of IDT's capital leases. The Company financed the Merger with borrowings under its credit facility, the issuance of $350.0 million of senior subordinated notes and with
existing cash on hand. The results of IDT's operations have been included in the Company's consolidated financial statements since the date of the Merger.

During
the fourth quarter of fiscal 2004, the Company implemented a new organizational operating structure that realigned its four legacy operating segments (i.e., the Electronic Systems
Group, Electro-Optical Systems Group, Flight Safety and Communications Group and the Intelligence, Training and Test Group) into two operating segments. The two new operating segments are the Command,
Control, Communications, Computers and Intelligence Group (C4I Group) and the Surveillance and Reconnaissance Group (SR Group). See Note 10 for a description of the operations of the C4I Group
and SR Group. All prior-year amounts presented by operating segment have been restated to reflect the new operating segment structure.

2.    Stock-Based Compensation

The Company has one stock-based compensation plan, the 1996 Omnibus Plan (Omnibus Plan). Under the terms of the Omnibus Plan, stock options and restricted stock
may be granted to key employees, directors and consultants of the Company. The Company accounts for stock options granted to employees and directors under the recognition and measurement principles of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Compensation expense for stock options granted to an employee or director is
recognized in earnings based on the excess, if any, of the quoted market price of DRS common stock at the date of the grant, or other measurement date, over the amount an employee or director must pay
to acquire the common stock. When the exercise price of the option granted to an employee or director equals or exceeds the

4

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quoted
market price of DRS common stock at the date of grant, the Company does not recognize compensation expense. Compensation cost for restricted stock is recorded based on the quoted market price
of DRS common stock on the date of grant.

The
Company elected not to adopt the fair-value-based method of accounting for stock-based employee compensation, as permitted by Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), as amended by SFAS No. 148, "Accounting for Stock-Based CompensationTransition and
Disclosurean amendment of SFAS No. 123." Had the Company adopted the fair-value-based method of SFAS 123, it would have recorded a non-cash expense
for the estimated fair value of the stock options on the date of grant that the Company has granted to its employees and directors.

The
table below compares the "as reported" net earnings and earnings per share to the "pro forma" net earnings and earnings per share that the Company would have reported if it had
elected to recognize compensation expense in accordance with the fair value-based method of accounting of SFAS 123. For purposes of determining the pro forma effects of SFAS 123, the
estimated fair value of options granted was calculated using the Black-Scholes option pricing valuation model.

Three Months Ended
June 30,2004

2003(in thousands,
except per-
share data)Net earnings, as reported

$
11,771

$
7,296Add: Stock-based compensation expense included in reported net earnings, net of related tax effects


196


Less: Total stock-based compensation expense determined under fair-value based method for all awards, net of related tax effects


(1,272
)

(723
)Pro forma net earnings

$
10,695

$
6,573Earnings per share:Basicas reported

$
0.44

$
0.33Basicpro forma

$
0.40

$
0.29Dilutedas reported

$
0.43

$
0.32Dilutedpro forma

$
0.39

$
0.29


5

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3.    Inventories

Inventories are summarized as follows:

June 30,
2004

March 31,
2004(in thousands)Work-in-process

$
190,463

$
186,270General and administrative costs


34,950


32,798Raw material and finished goods


23,595


25,982249,008


245,050Less: Progress payments and certain customer advances


(67,486
)

(59,522
)Inventory reserve


(7,398
)

(7,060
)Total

$
174,124

$
178,468


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
certain contracts, and accounts for them as product costs, not as period expenses.

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 charged to costs and expenses for the
three-month periods ended June 30, 2004 and 2003. The cost data in the tables below do not include the G&A, IRAD and B&P costs for the Company's businesses that are not primarily U.S.
Government contractors, as these costs are expensed as incurred:

Three Months Ended
June 30,2004

2003(in thousands)Balance in inventory at beginning of period

$
32,798

$
25,489Add: Incurred costs


50,345


33,524Less: Amounts charged to costs and expenses


(48,193
)

(31,120
)Balance in inventory at end of period

$
34,950

$
27,893


The
Company expensed costs for internal research and development amounting to $8.8 million and $3.7 million for the three-month periods ended June 30, 2004 and 2003,
respectively.

6

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4.    Goodwill and Intangible Assets

The following presents certain information about the Company's acquired intangible assets as of June 30, 2004 and March 31, 2004. 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 June 30, 2004        |                              |                                      |          |                       |         |                          |   |            
|                           | Technology-based intangibles |                                      | 19 years |                       | $       | 52,559                   |   | $          
|                           | Customer-related intangibles |                                      | 19 years |                       |         | 67,363                   |   |            
|                           |                              |                                      |          |                       |         |                          |   |            
|Total                      |                              |                                      |          | $                     | 119,922 |                          | $ | (16,509    
|                           |                              |                                      |          |                       |         |                          |   |            
|As of March 31, 2004       |                              |                                      |          |                       |         |                          |   |            
|                           | Technology-based intangibles |                                      | 19 years |                       | $       | 52,559                   |   | $          
|                           | Customer-related intangibles |                                      | 19 years |                       |         | 67,363                   |   |            
|                           |                              |                                      |          |                       |         |                          |   |            
|Total                      |                              |                                      |          | $                     | 119,922 |                          | $ | (14,723    
|                           |                              |                                      |          |                       |         |                          |   |            

The
aggregate acquired intangible asset amortization expense for the three-month periods ended June 30, 2004 and 2003 was $1.8 million and $1.0 million,
respectively. The estimated acquired intangible amortization expense, based on gross carrying amounts at June 30, 2004, is estimated to be $7.1 million per year for fiscal 2005 through
2008, $7.0 million for fiscal 2009 and $6.9 million for fiscal 2010.

7

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The table below reconciles the change in the carrying amount of goodwill, by operating segment, for the period from March 31, 2004 to June 30, 2004.

C4I
Group

SR
Group

Total(in thousands)Balance as of March 31, 2004

$
450,567

$
358,056

$
808,623IDT purchase price allocation adjustments(a)


3,498


(2,489
)

1,009Acquisition earn-out adjustment





118


118Foreign currency translation adjustment


(404
)

(6
)

(410
)Balance as of June 30, 2004

$
453,661

$
355,679

$
809,340


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Three Months Ended June 30, 2004C4I Group

SR Group

Total(in thousands)Severance and related charges and facility exit costs

$
3,198

$


$
3,198Adjustments to fair value of acquired contracts


300


(2,166
)

(1,866
)Other





(323
)

(323
)Total

$
3,498

$
(2,489
)
$
1,009


The
$3.2 million increase to goodwill is associated with an IDT merger-related facility consolidation. The Company anticipates terminating approximately sixty
individuals and exiting a leased facility, with the severance and lease payments being completed by the first quarter of fiscal 2006 and fiscal 2007, respectively. The Company is in the process of
finalizing its estimates to complete certain contracts and certain other acquisition-related liabilities; thus the allocation of purchase price may change, however, such changes are not expected to be
material. The Company anticipates completing its purchase price allocation in the second quarter of fiscal 2005.

5.    Product Warranties

Product warranty costs are accrued when the covered products are delivered to the customer. Product warranty expense is 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 may be
otherwise modified as specific product performance issues are identified and resolved. The table below presents the changes in the

8

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Company's
accrual for product warranties for the three months ended June 30, 2004 and 2003, which is included in accrued expenses and other current liabilities.

Three Months Ended
June 30,2004

2003(in thousands)Balance, beginning of period

$
25,520

$
19,365Accruals for product warranties issued during the period


2,614


799Settlements made during the period


(3,019
)

(1,042
)Other adjustments


1,681


Balance at end of period

$
26,796

$
19,122


6.    Debt

A summary of debt is as follows:

June 30,
2004

March 31,
2004(in thousands)Senior subordinated notes

$
350,000

$
350,000Term loan


204,230


214,820Other obligations


6,981


6,773Total debt


561,211


571,593Less:Current installments of long-term debt


(5,790
)

(5,894
)Short-term bank debt


(433
)

(45
)Total long-term debt

$
554,988

$
565,654


On
October 30, 2003, the Company issued $350.0 million of 67/8% Senior Subordinated Notes, due November 1, 2013 (the Notes). The Notes were issued
under an indenture with The Bank of New York. Subject to a number of exceptions, the indenture restricts the Company's ability and the ability of its 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 Notes are
unconditionally guaranteed, jointly and severally, by certain of DRS's current and future wholly-owned domestic subsidiaries. The foreign subsidiaries and certain domestic subsidiaries of DRS do not
guarantee the Notes. The market value of the Notes at June 30, 2004 was approximately $341.3 million. See Note 13, "Guarantor and Non-guarantor Financial Statements,"
for additional disclosure.

The
Company has a $411.0 million credit facility (the Credit Facility) consisting of a $175.0 million senior secured revolving line of credit and a $236.0 million
senior secured term loan, and has the ability to borrow up to two additional term loans totaling $100.0 million at any time prior to maturity. As of June 30, 2004 and March 31,
2004, the Company had $204.2 million and $214.8 million of term loans outstanding against the Credit Facility. 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 the Company's subsidiary guarantors' and certain of DRS's other subsidiaries assets and by a pledge of
certain of the Company's non-guarantor subsidiaries' capital stock. The term loan and the revolving

9

---



credit
facility will mature in November 2008 and November 2010, respectively. The interest rate on the Company's term loans was 3.2% as of June 30, 2004 (3.0% as of
March 31, 2004) excluding the impact of the Company's interest rate swap agreements and the amortization of debt issuance costs. As of June 30, 2004, the Company had
$137.6 million available under its revolving line of credit. There were no borrowings under the Company's revolving line of credit as of June 30, 2004 and March 31, 2004.

During
the three months ended June 30, 2004, the Company repaid an additional $10.0 million of its term loan, at its discretion, and recorded a $0.3 million charge
to interest and related expenses for the related write-off of a portion of debt issuance costs. On July 1, 2004, the Company repaid an additional $5.0 million of its term
loan at its discretion and recorded a $0.1 million charge to interest and related expenses for the write-off of debt issuance costs.

From
time to time, the Company enters into standby letter-of-credit 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 advanced payments it has received from its customers. As of June 30, 2004, $44.0 million was
contingently payable under letters of credit (approximately $1.5 million and $5.1 million of the letters of credit outstanding as of June 30, 2004 were issued under the Company's
previous credit agreement and IDT's previous credit agreement, respectively, and are not considered when determining the availability under the Company's revolving line of credit).

The
Company has a mortgage note payable that is secured by a lien on its facility located in Palm Bay, Florida, and bears interest at a rate equal to the one-month LIBOR plus
1.65%. The balance of the mortgage at both June 30, 2004 and March 31, 2004 was $3.1 million. The Company has
an interest rate swap that hedges the mortgage pursuant to which the Company receives interest at a variable rate equal to the one-month LIBOR plus 1.65% and pays interest at a fixed rate
of 7.85%. This swap agreement is accounted for as a cash flow hedge, and as such, changes in the fair value of the swap agreement are recorded as adjustments to accumulated other comprehensive
earnings. At June 30, 2004, the Company also had $3.0 million outstanding on a promissory note bearing interest at 6% per annum, relating to DRS's October 15, 2002, acquisition of
DKD, Inc. The remaining principal and related accrued interest are due on October 15, 2004.

The
Company has two interest rate swap agreements, each in the amount of $25.0 million expiring on June 30, 2008, with Wachovia Bank, N.A. and Fleet National Bank (the
Banks), respectively. These swap agreements effectively convert the variable interest rate on a total of $50.0 million of the Company's term loan to a fixed interest rate. Under the terms of
these swap agreements, the Company will pay or receive the difference between the variable interest rate payable by the Banks and the fixed 2.59% interest rate payable by the Company. These swap
agreements are accounted for as cash flow hedges, and as such, changes in the fair values of the swap agreements are recorded as adjustments to accumulated other comprehensive earnings.

7.    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,

10

---



restricted
stock and restricted stock units. The following table presents the components of basic and diluted earnings per share:

Three Months Ended
June 30,2004

2003(in thousands, except per-share data)Basic EPS computationNet earnings

$
11,771

$
7,296Weighted average common shares outstanding


26,936


22,438Basic earnings per share

$
0.44

$
0.33Diluted EPS computationNet earnings

$
11,771

$
7,296Diluted common shares outstanding:Weighted average common shares outstanding


26,936


22,438Stock options, restricted stock and restricted stock units


537


511Diluted common shares outstanding


27,473


22,949Diluted earnings per share

$
0.43

$
0.32


At
June 30, 2004 and 2003, there were 1,167,270 and 1,288,832 options outstanding, respectively, that are excluded from the above calculation because their inclusion would have
had an antidilitve effect on EPS.

8.    Comprehensive earnings

The components of comprehensive earnings for the three-months periods ended June 30, 2004 and 2003 consisted of the following:

Three Months Ended
June 30,2004

2003(in thousands)Net earnings

$
11,771

$
7,296Other comprehensive earnings:Foreign currency translation adjustments


(1,093
)

3,193Unrealized net gains on hedging instruments arising during the period


1,284


95Comprehensive earnings

$
11,962

$
10,584


9.    Pensions and Other Employee Benefits

The following table summarizes the components of net periodic benefit cost for the Company's pension and postretirement benefit plans for the three-month periods
ended June 30, 2004 and 2003. These plans are more fully described in Note 12 to the Company's consolidated financial statements for the year ended March 31, 2004.

11

---



|                                                |  | Funded Defined
Benefit Pension Plans |        | Postretirement
Benefit Plans |   | Unfunded Supplemental
Retirement Plans
|----------------------------------------------- |  | ------------------------------------ | ------ | ---------------------------- | - | --------------------------------------
|
|
|
|Service cost                                    |  | $                                    | 961    |                              | $ | 722                                   
|Interest cost                                   |  |                                      | 1,455  |                              |   | 1,140                                 
|Expected return on plan assets                  |  |                                      | (1,600 | )                            |   | (1,110                                
|Amortization of unrecognized loss (gain)        |  |                                      | 32     |                              |   | 135                                   
|Amortization of transition obligation           |  |                                      |       |                              |   |                                      
|Amortization of unrecognized prior-service cost |  |                                      | 1      |                              |   |                                      
|                                                |  |                                      |        |                              |   |                                       
|Net periodic benefit cost                       |  | $                                    | 849    |                              | $ | 887                                   
|                                                |  |                                      |        |                              |   |                                       

10.    Operating Segments

As discussed in Note 1, during the fourth quarter of fiscal 2004, the Company implemented a new organizational operating structure which realigned all of
the Company's businesses into two operating segments from four operating segments. The Company's two principal operating segments, on the basis of products and services offered are: the Command,
Control, Communications, Computers and Intelligence (C4I) Group and the Surveillance and Reconnaissance (SR) Group. All other operations are grouped in Other.

The
C4I Group is comprised of the following product categories: Command, Control and Communications (C3), which includes naval display systems, ship communications systems, radar
systems, technical support, electronic manufacturing and system integration services, secure voice and data communications, meteorological surveillance and analysis and radio frequency broadcast
transmissions equipment; Power Systems, which includes the naval and industrial power generation, conversion, propulsion, distribution and control systems lines; Intelligence Technologies, which
includes signals intelligence, data collection, processing and dissemination equipment; and Tactical Systems, which includes battle management tactical computer systems and peripherals product lines.

The
SR Group is comprised of the following product categories areas: Reconnaissance, Surveillance and Target Acquisition (RSTA), which develops and produces electro-optical sighting,
targeting and weapon sensor systems, unmanned vehicles, high-speed digital data and imaging systems, aircraft weapons alignment systems and provides electronic manufacturing services;
Training Systems, which develops and produces air combat training, electronic warfare and network systems; and Test & Energy Management, which develops and produces electronic test, diagnostics
and vehicle electronics.

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

12

---



Information
about the Company's operating segments for the three-month periods ended June 30, 2004 and 2003 is as follows:

C4I Group

SR Group

Other

Total(in thousands)Three Months Ended June 30, 2004Total revenues

$
167,287

$
135,661

$


$
302,948Intersegment revenues

$
(448
)
$
(1,771
)
$


$
(2,219
)External revenues

$
166,839

$
133,890

$


$
300,729Operating income

$
17,290

$
12,553

$
(46
)
$
29,797Total assets

$
780,339

$
689,332

$
95,455

$
1,565,126Depreciation and amortization

$
3,301

$
6,488

$
833

$
10,622Capital expenditures

$
2,335

$
4,555

$
701

$
7,591Three Months Ended June 30, 2003Total revenues

$
94,630

$
73,171

$


$
167,801Intersegment revenues

$
(419
)
$
(184
)
$


$
(603
)External revenues

$
94,211

$
72,987

$


$
167,198Operating income (loss)

$
10,165

$
6,210

$
(15
)
$
16,360Total assets

$
527,441

$
330,636

$
106,294

$
964,371Depreciation and amortization

$
1,762

$
3,134

$
512

$
5,408Capital expenditures

$
1,588

$
1,915

$
734

$
4,237


11.    Supplemental Cash Flow Information

Three Months Ended
June 30,2004

2003(in thousands)Cash paid for:Income taxes

$
2,564

$
1,983Interest

$
14,151

$
2,962Noncash investing and financing activities:Acquisition costs for business combinations

$


$
(3,326
)


13

---



12.    Contingencies and Related Party Transactions

ContingenciesThe Company is party to various legal actions and claims arising in the ordinary course of its business. In the
Company's opinion, the Company has adequate legal defenses for each of the actions and claims, and believes that their ultimate disposition will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.

On
October 3, 2001, a lawsuit was filed in the United States District Court of the Eastern District of New York by Miltope Corporation, a corporation of the State of Alabama, and
IV Phoenix Group, Inc.,
a corporation of the State of New York, against DRS Technologies, Inc., DRS Electronic Systems, Inc. and a number of individual defendants, several of whom had been employed by DRS
Electronic Systems, Inc. The plaintiffs' claims against DRS alleged infringement of a number of patents, breach of a confidentiality agreement, misappropriation of trade secrets, unjust
enrichment and unfair competition. The claims relate generally to the activities of certain former employees of IV Phoenix Group and the hiring of some of those employees by us. The plaintiffs seek
damages of not less than $5.0 million for each of the claims. The plaintiffs also allege claims for tortious interference with business relationships, tortious interference with contracts and
conspiracy to breach fiduciary duty. The plaintiffs seek damages of not less than $47.1 million for each claim. In addition, plaintiffs seek punitive and treble damages, injunctive relief and
attorney's fees. In our answer, we have denied the plaintiffs' allegations and intend to vigorously defend this action. In February 2002, plaintiffs filed an amended complaint, which eliminated
the patent infringement claims and added claims related to statutory and common-law trademark infringement. Discovery has been completed, and this action is expected to go to trial in
November 2004. We believe that we have meritorious defenses and do not believe the action will have a material adverse effect on our financial position, results of operations or liquidity. The
Company has recorded an accrual of $1.0 million in connection with attempting to resolve this matter; however, the Company may incur charges in excess of that amount, but is unable at this
time, to reasonably estimate the possible range of additional loss. The Company will continue to evaluate its estimate to the extent additional information arises.

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 cleanup of contaminated sites upon any of the current or former site owners or operators (or upon parties who sent 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 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 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. Tech-Sym Corporation's predecessor operated
this uranium mine from 1956 to 1967. In 1962, the land was sold to the U.S. Government, although the mining rights for the next twenty-five years were retained. Tech-Sym
Corporation sold the mining rights in 1967, and we believe that the mine was operated until approximately 1972. We believe that there are several other companies in the chain of title to the mining
rights subsequent to Tech-Sym, and, accordingly, that there are several other potentially responsible parties (PRPs) for the environmental conditions at the site, including the U.S.
Government as owner of the land. The NPS has not yet made a demand on us, nor, to our knowledge, on any other PRP, nor has it listed the Orphan Mine site on the National Priority List of contaminated
sites. Nonetheless, IDT retained a technical consultant in connection with this matter, who has conducted a limited, preliminary review of site conditions, and communicated with the NPS regarding

14

---



actions
that may be required at the site by all of the PRPs. In addition, the Company retained a technical consultant, who has reviewed the existing documentation. The initial remediation estimate for
the site was $0.8 million and the second was $1.0 million, each developed independently of the other. As of June 30, 2004 and March 31, 2004, the Company has approximately
$1.0 million accrued in connection with the potential remediation effort at the Orphan Mine site, an event which we believe to be probable. In such event, the Company may incur charges in
excess of that amount and/or may have its liability reduced to the extent that other PRPs are required to participate in the remediation effort. The Company will continue to evaluate its estimate to
the extent additional information arises. No assurances can be made, however, that material changes will not occur.

Related Party TransactionsThe 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 the former President and Chief Technical Officer, and the late Leonard Newman, DRS's
co-founder and the former Chairman of the Board, Chief Executive Officer and Secretary and the father of Mark Newman, our current Chairman of the Board, President and Chief Executive
Officer. The lease agreement with a monthly rental of $21,152 expires on April 30, 2007. Following Leonard Newman's death in November 1998, Mrs. Ruth Newman, the wife of Leonard
Newman and the mother of Mark Newman, succeeded to Leonard Newman's interest in LDR Realty Co.

Skadden,
Arps, Slate, Meagher & Flom LLP, a law firm to which a member of our Board is of counsel, provided legal services to DRS during the three-months ended June 30,
2004 and 2003. The amount paid to the firm during each period was $179,151 and $3,627, respectively.

Kronish
Lieb Weiner & Hellman LLP, a law firm of which Alison Newman, sister of Mark Newman, is a partner, provided legal services to DRS during the three-months ended
June 30, 2004 and 2003. The Company did not pay any fees to the firm during each of the respective periods.

13.   Guarantor and Non-Guarantor Financial Statements

As further discussed in Note 6, "Debt," to finance the merger with IDT, the Company issued $350.0 million 67/8% Senior Subordinated
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 presents the Condensed Consolidating
Balance Sheets as of June 30, 2004 and March 31, 2004, the Condensed Consolidating Statements of Earnings and Condensed Consolidating Statements of Cash Flows for the three months ended
June 30, 2004 and 2003 for:



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

15

---



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 statements for each of the Guarantor and Non-guarantor subsidiaries are not presented because management believes such financial statements
would not be meaningful to investors.

Condensed Consolidating Balance Sheet  As of June 30, 2004  (in thousands)

|                                               |                                                                  | Parent Company                             |         | Guarantor
Subsidiaries |           | Non-Guarantor
Subsidiaries |         | Eliminations |        | Consolidated
|---------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------------ | ------- | ---------------------- | --------- | -------------------------- | ------- | ------------ | ------ | ------------
|Assets                                         |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|Current assets                                 |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               | Cash and cash equivalents                                        |                                            | $       | 63,239                 |           | $                          | (4,487  | )            | $      | 5,469       
|                                               | Accounts receivable, net                                         |                                            |         | 3                      |           |                            | 183,943 |              |        | 30,113      
|                                               | Inventories, net                                                 |                                            |         |                       |           |                            | 137,891 |              |        | 36,295      
|                                               | Prepaid expenses, deferred income taxes and other current assets |                                            |         | 5,094                  |           |                            | 15,112  |              |        | 2,606       
|                                               | Intercompany receivables                                         |                                            |         | 526,652                |           |                            | 1,217   |              |        | 21,898      
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total current assets                       |         |                        | 594,988   |                            |         | 333,676      |        |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|Property, plant and equipment, net             |                                                                  |                                            | 9,878   |                        |           | 132,147                    |         |              | 6,636  |             
|Acquired intangible assets, net                |                                                                  |                                            |        |                        |           | 103,413                    |         |              |       |             
|Goodwill                                       |                                                                  |                                            |        |                        |           | 788,076                    |         |              | 21,264 |             
|Other noncurrent assets                        |                                                                  |                                            | 22,647  |                        |           | 4,428                      |         |              | 2,891  |             
|Investment in subsidiaries                     |                                                                  |                                            | 382,036 |                        |           | 35,635                     |         |              |       |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total assets                               |         | $                      | 1,009,549 |                            | $       | 1,397,375    |        | $           
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|Liabilities and Stockholders' Equity           |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|Current liabilities                            |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               | Current installments of long-term debt                           |                                            | $       | 5,360                  |           | $                          | 430     |              | $      |            
|                                               | Short-term bank debt                                             |                                            |         |                       |           |                            |        |              |        | 433         
|                                               | Accounts payable                                                 |                                            |         | 2,333                  |           |                            | 66,808  |              |        | 12,247      
|                                               | Accrued expenses and other current liabilities                   |                                            |         | 9,402                  |           |                            | 241,039 |              |        | 16,791      
|                                               | Intercompany payables                                            |                                            |         |                       |           |                            | 516,619 |              |        | 33,417      
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total current liabilities                  |         |                        | 17,095    |                            |         | 824,896      |        |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|Long-term debt, excluding current installments |                                                                  |                                            | 551,870 |                        |           | 3,118                      |         |              |       |             
|Other liabilities                              |                                                                  |                                            | 7,326   |                        |           | 30,012                     |         |              | 11,187 |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total liabilities                          |         |                        | 576,291   |                            |         | 858,026      |        |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total stockholders' equity                 |         |                        | 433,258   |                            |         | 539,349      |        |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total liabilities and stockholders' equity |         | $                      | 1,009,549 |                            | $       | 1,397,375    |        | $           
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             

16

---



Condensed Consolidating Balance Sheet  As of March 31, 2004  (in thousands)

|                                               |                                                                  | Parent Company                             |         | Guarantor Subsidiaries |           | Non-Guarantor Subsidiaries |         | Eliminations |        | Consolidated
|---------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------------ | ------- | ---------------------- | --------- | -------------------------- | ------- | ------------ | ------ | ------------
|Assets                                         |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|Current assets                                 |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               | Cash and cash equivalents                                        |                                            | $       | 55,306                 |           | $                          | (5,594  | )            | $      | 7,078       
|                                               | Accounts receivable, net                                         |                                            |         | 3                      |           |                            | 208,134 |              |        | 37,737      
|                                               | Inventories, net                                                 |                                            |         |                       |           |                            | 143,498 |              |        | 35,056      
|                                               | Prepaid expenses, deferred income taxes and other current assets |                                            |         | 6,209                  |           |                            | 13,785  |              |        | 1,256       
|                                               | Intercompany receivables                                         |                                            |         | 551,126                |           |                            | 121,242 |              |        | 27,842      
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total current assets                       |         |                        | 612,644   |                            |         | 481,065      |        |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|Property, plant and equipment, net             |                                                                  |                                            | 9,853   |                        |           | 133,329                    |         |              | 6,360  |             
|Acquired intangible assets, net                |                                                                  |                                            |        |                        |           | 105,199                    |         |              |       |             
|Goodwill                                       |                                                                  |                                            |        |                        |           | 775,647                    |         |              | 32,976 |             
|Other noncurrent assets                        |                                                                  |                                            | 23,172  |                        |           | 5,048                      |         |              | 2,891  |             
|Investment in subsidiaries                     |                                                                  |                                            | 382,036 |                        |           | 35,635                     |         |              |       |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total assets                               |         | $                      | 1,027,705 |                            | $       | 1,535,923    |        | $           
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|Liabilities and Stockholders' Equity           |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|Current liabilities                            |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               | Current installments of long-term debt                           |                                            | $       | 5,360                  |           | $                          | 534     |              | $      |            
|                                               | Short-term bank debt                                             |                                            |         |                       |           |                            |        |              |        | 45          
|                                               | Accounts payable                                                 |                                            |         | 2,415                  |           |                            | 72,157  |              |        | 11,435      
|                                               | Accrued expenses and other current liabilities                   |                                            |         | 19,203                 |           |                            | 255,898 |              |        | 20,884      
|                                               | Intercompany payables                                            |                                            |         | 182                    |           |                            | 646,078 |              |        | 53,762      
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total current liabilities                  |         |                        | 27,160    |                            |         | 974,667      |        |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|Long-term debt, excluding current installments |                                                                  |                                            | 562,460 |                        |           | 3,194                      |         |              |       |             
|Other liabilities                              |                                                                  |                                            | 6,597   |                        |           | 30,159                     |         |              | 10,893 |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total liabilities                          |         |                        | 596,217   |                            |         | 1,008,020    |        |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total stockholders' equity                 |         |                        | 431,488   |                            |         | 527,903      |        |             
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             
|                                               |                                                                  | Total liabilities and stockholders' equity |         | $                      | 1,027,705 |                            | $       | 1,535,923    |        | $           
|                                               |                                                                  |                                            |         |                        |           |                            |         |              |        |             

17

---



Condensed Consolidating Statements of Earnings  Three Months Ended June 30, 2004  (in thousands)

|                              |                                                    | Parent
Company |       | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiaries |        | Eliminations |        | Consolidated |  
|----------------------------- | -------------------------------------------------- | -------------- | ----- | ---------------------- | - | -------------------------- | ------ | ------------ | ------ | ------------ | -
|Revenues                      |                                                    | $              |      |                        | $ | 260,743                    |        | $            | 43,507 |              | $
|Costs and expenses            |                                                    |                | 46    |                        |   | 232,777                    |        |              | 41,654 |              |  
|                              |                                                    |                |       |                        |   |                            |        |              |        |              |  
|                              | Operating income                                   |                |       | (46                    | ) |                            | 27,966 |              |        | 1,853        |  
|Interest income               |                                                    |                | 117   |                        |   |                           |        |              | 12     |              |  
|Interest and related expenses |                                                    |                | 8,916 |                        |   | 44                         |        |              | 35     |              |  
|Other income (expense), net   |                                                    |                | 42    |                        |   | (292                       | )      |              | 187    |              |  
|Management fees               |                                                    |                | 426   |                        |   | (390                       | )      |              | (36    | )            |  
|Royalties                     |                                                    |                | 368   |                        |   |                           |        |              | (368   | )            |  
|Intercompany interest         |                                                    |                | 7,808 |                        |   | (7,493                     | )      |              | (315   | )            |  
|                              |                                                    |                |       |                        |   |                            |        |              |        |              |  
|                              | Earnings before minority interest and income taxes |                |       | (201                   | ) |                            | 19,747 |              |        | 1,298        |  
|Minority interest             |                                                    |                |      |                        |   |                           |        |              | 397    |              |  
|                              |                                                    |                |       |                        |   |                            |        |              |        |              |  
|                              | Earnings before income taxes                       |                |       | (201                   | ) |                            | 19,747 |              |        | 901          |  
|Income taxes                  |                                                    |                | (85   | )                      |   | 8,392                      |        |              | 383    |              |  
|                              |                                                    |                |       |                        |   |                            |        |              |        |              |  
|                              | Net earnings                                       |                | $     | (116                   | ) | $                          | 11,355 |              | $      | 518          |  
|                              |                                                    |                |       |                        |   |                            |        |              |        |              |  

18

---



Condensed Consolidating Statements of Earnings  Three Months Ended June 30, 2003  (in thousands)

|                              |                                                    | Parent
Company |       | Guarantor
Subsidiaries |      | Non-Guarantor
Subsidiaries |        | Eliminations |        | Consolidated |    
|----------------------------- | -------------------------------------------------- | -------------- | ----- | ---------------------- | ---- | -------------------------- | ------ | ------------ | ------ | ------------ | ---
|Revenues                      |                                                    | $              |      |                        | $    | 145,864                    |        | $            | 22,478 |              | $  
|Costs and expenses            |                                                    |                | 15    |                        |      | 131,085                    |        |              | 20,766 |              |    
|                              |                                                    |                |       |                        |      |                            |        |              |        |              |    
|                              | Operating income                                   |                |       | (15                    | )    |                            | 14,779 |              |        | 1,712        |    
|Interest income               |                                                    |                | 228   |                        |      |                           |        |              | 109    |              |    
|Interest and related expenses |                                                    |                | 2,855 |                        |      | 94                         |        |              | 80     |              |    
|Other income (expense), net   |                                                    |                | 45    |                        |      | 26                         |        |              | (472   | )            |    
|Management fees               |                                                    |                | 273   |                        |      | (247                       | )      |              | (26    | )            |    
|Royalties                     |                                                    |                | 186   |                        |      |                           |        |              | (186   | )            |    
|Intercompany interest         |                                                    |                | 680   |                        |      | (337                       | )      |              | (343   | )            |    
|                              |                                                    |                |       |                        |      |                            |        |              |        |              |    
|                              | Earnings before minority interest and income taxes |                |       | (1,458                 | )    |                            | 14,127 |              |        | 714          |    
|Minority interest             |                                                    |                |      |                        |      |                           |        |              | 239    |              |    
|                              |                                                    |                |       |                        |      |                            |        |              |        |              |    
|                              | Earnings before income taxes                       |                |       | (1,458                 | )    |                            | 14,127 |              |        | 475          |    
|Income taxes                  |                                                    |                | (642  | )                      |      | 6,216                      |        |              | 209    |              |    
|                              |                                                    |                |       |                        |      |                            |        |              |        |              |    
|                              |                                                    | Net earnings   |       | $                      | (816 | )                          | $      | 7,911        |        | $            | 266
|                              |                                                    |                |       |                        |      |                            |        |              |        |              |    

19

---



Condensed Consolidating Statements of Cash Flows  Three Months Ended June 30, 2004  (in thousands)

|                                                       |                                      | Parent Company                                      |         | Guarantor
Subsidiaries |        | Nonguarantor
Subsidiaries |         | Eliminations |        | Consolidated |        
|------------------------------------------------------ | ------------------------------------ | --------------------------------------------------- | ------- | ---------------------- | ------ | ------------------------- | ------- | ------------ | ------ | ------------ | -------
|Net cash (used in) provided by operating activities    |                                      | $                                                   | (18,911 | )                      | $      | 40,535                    |         | $            | 3,252  |              | $      
|                                                       |                                      |                                                     |         |                        |        |                           |         |              |        |              |        
|Cash Flows from Investing Activities                   |                                      |                                                     |         |                        |        |                           |         |              |        |              |        
|                                                       | Capital expenditures                 |                                                     |         | (701                   | )      |                           | (6,121  | )            |        | (769         | )      
|                                                       | Acquisition-related payments         |                                                     |         | (132                   | )      |                           | 132     |              |        |             |        
|                                                       | Other                                |                                                     |         | 24                     |        |                           | (10,568 | )            |        | 11,136       |        
|                                                       |                                      |                                                     |         |                        |        |                           |         |              |        |              |        
|                                                       |                                      | Net cash (used in) provided by investing activities |         |                        | (809   | )                         |         | (16,557      | )      |              | 10,367 
|                                                       |                                      |                                                     |         |                        |        |                           |         |              |        |              |        
|Cash Flows from Financing Activities                   |                                      |                                                     |         |                        |        |                           |         |              |        |              |        
|                                                       | Net borrowings of short-term debt    |                                                     |         |                       |        |                           |        |              |        | 388          |        
|                                                       | Repayment of long-term debt          |                                                     |         | (10,590                | )      |                           | (180    | )            |        |             |        
|                                                       | Proceeds from stock option exercises |                                                     |         | 241                    |        |                           |        |              |        |             |        
|                                                       | Other, net                           |                                                     |         | 38,002                 |        |                           | (21,425 | )            |        | (16,516      | )      
|                                                       |                                      |                                                     |         |                        |        |                           |         |              |        |              |        
|                                                       |                                      | Net cash provided by (used in) financing activities |         |                        | 27,653 |                           |         | (21,605      | )      |              | (16,128
|Effects of exchange rates on cash and cash equivalents |                                      |                                                     |        |                        |        | (1,266                    | )       |              | 900    |              |        
|                                                       |                                      |                                                     |         |                        |        |                           |         |              |        |              |        
|Net increase (decrease) in cash and cash equivalents   |                                      |                                                     | 7,933   |                        |        | 1,107                     |         |              | (1,609 | )            |        
|Cash and cash equivalents, beginning of period         |                                      |                                                     | 55,306  |                        |        | (5,594                    | )       |              | 7,078  |              |        
|                                                       |                                      |                                                     |         |                        |        |                           |         |              |        |              |        
|Cash and cash equivalents, end of period               |                                      | $                                                   | 63,239  |                        | $      | (4,487                    | )       | $            | 5,469  |              | $      
|                                                       |                                      |                                                     |         |                        |        |                           |         |              |        |              |        

20

---



Condensed Consolidating Statements of Cash Flows  Three Months Ended June 30, 2003  (in thousands)

|                                                       |                                      | Parent Company                                      |         | Guarantor
Subsidiaries |         | Nonguarantor
Subsidiaries |         | Eliminations |        | Consolidated |       
|------------------------------------------------------ | ------------------------------------ | --------------------------------------------------- | ------- | ---------------------- | ------- | ------------------------- | ------- | ------------ | ------ | ------------ | ------
|Net cash (used in) provided by operating activities    |                                      | $                                                   | (35,446 | )                      | $       | 26,700                    |         | $            | 8,975  |              | $     
|                                                       |                                      |                                                     |         |                        |         |                           |         |              |        |              |       
|Cash Flows from Investing Activities                   |                                      |                                                     |         |                        |         |                           |         |              |        |              |       
|                                                       | Capital expenditures                 |                                                     |         | (734                   | )       |                           | (3,231  | )            |        | (272         | )     
|                                                       | Acquisition-related payments         |                                                     |         |                       |         |                           | (2,206  | )            |        |             |       
|                                                       | Other                                |                                                     |         | 45,356                 |         |                           | (43,165 | )            |        | (1,911       | )     
|                                                       |                                      |                                                     |         |                        |         |                           |         |              |        |              |       
|                                                       |                                      | Net cash provided by (used in) investing activities |         |                        | 44,622  |                           |         | (48,602      | )      |              | (2,183
|                                                       |                                      |                                                     |         |                        |         |                           |         |              |        |              |       
|Cash Flows from Financing Activities                   |                                      |                                                     |         |                        |         |                           |         |              |        |              |       
|                                                       | Net borrowings of short-term debt    |                                                     |         |                       |         |                           | (349    | )            |        | 592          |       
|                                                       | Repayment of long-term debt          |                                                     |         | (537                   | )       |                           | (150    | )            |        |             |       
|                                                       | Proceeds from stock option exercises |                                                     |         | 401                    |         |                           |        |              |        |             |       
|                                                       | Other, net                           |                                                     |         | (15,788                | )       |                           | 26,144  |              |        | (10,326      | )     
|                                                       |                                      |                                                     |         |                        |         |                           |         |              |        |              |       
|                                                       |                                      | Net cash (used in) provided by financing activities |         |                        | (15,924 | )                         |         | 25,645       |        |              | (9,734
|Effects of exchange rates on cash and cash equivalents |                                      |                                                     |        |                        |         |                          |         |              | 440    |              |       
|                                                       |                                      |                                                     |         |                        |         |                           |         |              |        |              |       
|Net (decrease) increase in cash and cash equivalents   |                                      |                                                     | (6,748  | )                      |         | 3,743                     |         |              | (2,502 | )            |       
|Cash and cash equivalents, beginning of period         |                                      |                                                     | 88,114  |                        |         | 1,367                     |         |              | 6,457  |              |       
|                                                       |                                      |                                                     |         |                        |         |                           |         |              |        |              |       
|Cash and cash equivalents, end of period               |                                      | $                                                   | 81,366  |                        | $       | 5,110                     |         | $            | 3,955  |              | $     
|                                                       |                                      |                                                     |         |                        |         |                           |         |              |        |              |       

21

---



14.   Recently Issued Accounting Pronouncements

In December 2003, Congress passed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act). In January 2004, the
Financial Accounting Standards Board (FASB) issued FASB Staff Position No. 106-1 (FSP 106-1), "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003." FSP 106-1 permitted the deferred recognition of the effects of the Medicare Act in the accounting for postretirement health
care plans. The Company elected the deferral provided by this FSP. In May 2004, the FASB issued FASB Staff Position No. 106-2 (FSP 106-2), "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." FSP 106-2 discusses the effect of the Medicare Act and supersedes FSP
106-1. FSP 106-2 requires companies to account for the reduction in accumulated postretirement benefit obligation (APBO) as an actuarial gain to be amortized into earnings over
the average remaining service period of plan participants. FSP 106-2 is effective for the first interim or annual period beginning after June 15, 2004. Companies may adopt the FSP
retroactively or prospectively. The Company has chosen to defer the accounting for the adjustment to benefit costs and the benefit obligation and intends on implementing the new accounting standard in
the second quarter of fiscal 2005 as permitted by the FSP. The Company's APBO and net periodic postretirement benefit costs as of and for the three-months ended June 30, 2004 do not reflect the
effect of the Medicare Act. While still preliminary, the Company does not expect a significant reduction to its net periodic postretirement benefit cost.

22

---



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 subsidiaries
(hereinafter, we, us, our, the Company or DRS) with a company overview, followed by summaries of defense industry considerations 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 in our March 31, 2004 Form 10-K, as
amended.

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 the Company's
Securities and Exchange Commission filings. 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 and systems. We provide 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. We are a leading provider of thermal imaging devices, combat
display workstations, electronic sensor systems, power systems, battlefield digitization systems, air combat training systems, mission recorders and deployable flight incident recorders.

During
the fourth quarter of fiscal 2004, we implemented a new organizational operating structure that realigned our four legacy operating segments (i.e., the Electronic Systems Group,
Electro-Optical Systems Group, Flight Safety and Communications Group and Intelligence, Training and Test Group) into two operating segments. The two new operating segments are the Command, Control,
Communications, Computers and Intelligence Group (C4I Group) and the Surveillance and Reconnaissance Group (SR Group). All other operations, primarily our Corporate Headquarters, are grouped in Other.
All prior-year amounts presented by operating segment have been restated to reflect the new operating segment structure.

The
C4I Group is comprised of the following product categories: Command, Control and Communications (C3), which includes naval display systems, ship communications systems, radar

23

---



systems,
technical support, electronic manufacturing and system integration services, secure voice and data communications, meteorological surveillance and analysis and radio frequency broadcast
transmission equipment; Power Systems, which includes the naval and industrial power generation, conversion, propulsion, distribution and control systems lines; Intelligence Technologies, which
includes signals intelligence, data collection, processing and dissemination equipment; and Tactical Systems, which includes battle management tactical computer systems and peripherals product lines.

The
SR Group is comprised of the following product categories: Reconnaissance, Surveillance and Target Acquisition (RSTA), which develops and produces electro-optical sighting, targeting
and weapon sensor systems, unmanned vehicles, high-speed digital data and imaging systems, and aircraft weapons alignment systems and provides electro-optical system manufacturing
services; Training Systems, which develops and produces air combat training, electronic warfare and network systems; and Test & Energy Management, which develops and produces electronic test,
diagnostics and vehicle electronics.

The
substantial majority of our sales are generated using written contractual arrangements. These contracts require us to design, develop, manufacture, modify, test and/or integrate
complex defense electronic equipment and systems, and to provide related engineering and technical services according
to specifications provided to us by our customers. Our primary "end-use" customer is the Department of Defense (DoD).

Recent
events, including the global war on terrorism, Operation Enduring Freedom and Operation Iraqi Freedom, have altered the defense and homeland security environment of the Unites
States. These events have had, and for the foreseeable future are likely to continue to have, a significant impact on the markets for defense and advanced technology products. The Department of
Defense (DoD) continues to focus on both supporting ongoing operations and transforming our military to confront future threats. We believe that the current business, political and global environments
will create new opportunities for mid-tier defense companies like DRS to develop strategic relationships with prime contractors. Through these relationships, we believe we can provide new
systems and subsystems, which are capable of meeting the military's evolving requirements.

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 expect to continue to benefit from the outsourcing of subsystems, components and products by 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. We plan to maintain a diversified and
broad business mix with limited reliance on any single program, a significant follow-on business and an attractive customer profile.

A
significant component of our strategy has been to enhance our existing product base through selective acquisitions that add new products 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 extend 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

24

---



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. In our opinion, 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.

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, customs and practices in foreign
countries. We expect that international sales, as a percentage of our overall sales will continue to increase in future years as a result of, among other factors, our growth strategy and continuing
changes in the defense industry.

On
November 4, 2003, one of our wholly-owned subsidiaries merged with and into Integrated Defense Technologies, Inc. (IDT) in a purchase business combination with IDT being
the surviving corporation and continuing as a wholly-owned subsidiary of DRS (the Merger). The total consideration for the Merger consisted of $261.3 million in cash (excluding cash acquired of
$27.5 million) and 4,323,172 shares of DRS common stock, or an aggregate value of approximately $367.4 million, and the assumption of $201.0 million in debt, including
$0.2 million of IDT's capital leases. We financed the Merger with borrowings under our credit facility, the issuance of $350.0 million of senior subordinated notes and with existing cash
on hand. The results of IDT's operations have been included in our consolidated financial statements since the date of the Merger.

Our
future operating results depend on our ability to successfully compete in a highly competitive industry that is characterized by rapid technological change and to effectively
integrate acquired companies into our existing operations. Continuation of our recent revenue growth rate depends primarily on our ability to identify and acquire suitable acquisition targets as well
as our ability to increase non-acquisition related revenues. We have 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. Our debt arrangements may also limit or prohibit acquisitions of businesses.

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, 2004 Form 10-K, as amended. 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, valuation of deferred tax assets and liabilities, and other management estimates.

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 period, or year-to-year comparisons of recorded revenues and earnings, may not be indicative of future operating results.

25

---



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 extensive operating segment reviews which include, among other operating issues, detailed 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 senior management of the Company.

Consolidated Summary

Three Months Ended
June 30, 2004Percent
Change2004

2003(in thousands)Key performance metricsRevenues

$
300,729

$
167,198

79.9
%Operating income

$
29,797

$
16,360

82.1
%Bookings

$
355,255

$
193,419

83.7
%Other significant financial metricsInterest and related expenses

$
8,995

$
3,029

197.0
%Income taxes

$
8,700

$
5,732

51.8
%Significant liquidity metrics(A)Free cash flow

$
17,285

$
(4,008
)
531.1
%EBITDA

$
39,959

$
21,128

89.1
%


---



Three-Month Period Ended June 30, 2004, Compared with the Three-Month Period Ended June 30, 2003

Revenues and operating incomeConsolidated revenues and operating income for the three-month period ended June 30,
2004 increased approximately $133.5 million and $13.4 million, respectively, as compared with the corresponding period in the prior year. The increase in revenues was primarily driven by
our November 4, 2003 merger with Integrated Defense Technologies, Inc. (IDT), which contributed incremental (quarter-over-quarter) revenues of
$84.4 million to the three-month period ended June 30, 2004. Also contributing to the overall increase in revenues were increased shipments of combat display workstations, rugged
computers and certain airborne-based electro-optical sighting and targeting systems, as well as revenues recognized on engineering and development of propulsion motors, drive controls and power
electronics. Partially offsetting the overall increase in revenues were decreased shipments of power conversion products for the U.S. Navy, infrared focal plane arrays for a certain missile system and
a certain long-range multi-sensor ground based electro-optical program. The growth in operating income was due primarily to the overall increase in revenues. IDT contributed incremental
operating income of $9.5 million for the three-month period ended June 30, 2004. Partially offsetting the overall increase in operating income were certain program related charges. See
Operating Segments discussion below for additional information.

BookingsWe define bookings as the value of contracts 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 increased $161.8 million or 83.7%, in the three-month
period ended June 30, 2004 versus the same period in the prior year. The primary driver of the overall increase was the acquisition of IDT, which contributed

26

---



$121.7 million,
as well as orders for certain infrared sighting and targeting systems, rugged computers and ship propulsion programs.

Interest and related expensesInterest and related expenses increased $6.0 million for the three-month period ended
June 30, 2004, as compared to the same period in the prior year. The increase in interest and related expenses is primarily the result of an increase in our average borrowings outstanding for
the three-month period ended June 30, 2004, as compared to the corresponding prior-year period, substantially driven by the financing of the IDT merger. We had no borrowings
outstanding under our revolving credit facility as of June 30, 2004 and 2003.

Income TaxesThe provision for income taxes for the three-month period ended June 30, 2004 reflects an estimated
effective income tax rate of approximately 42.5%, as compared with 44% in the same period last year. The decrease in our effective tax rate was driven by the growth of our operations which has reduced
the impact of certain non-deductible expenses, and decreased losses at C4I's Group's U.K. operation, for which the full tax benefit has not been recognized. We anticipate that our
effective income tax rate will approximate 42.5% for the year ending March 31, 2005.

Operating Segments

The following table sets forth, by operating segment, revenues, operating income and operating margin, and the percentage increase or decrease of those items, as
compared with the corresponding prior-year period:

Three Months Ended
June 30,

Three Months
Ended Percent
Changes2004

2003

2004 vs. 2003(in thousands, except for percentages)C4IRevenues*

$
166,839

$
94,211

77.1
%Operating income

$
17,290

$
10,165

70.1
%Operating margin


10.4
%

10.8
%
(4.0
%)SRRevenues*

$
133,890

$
72,987

83.4
%Operating income

$
12,553

$
6,210

102.1
%Operating margin


9.4
%

8.5
%
10.6
%OtherRevenues*

$


$


n/aOperating (loss)

$
(46
)
$
(15
)
(206.7
%)Operating margin


n/a


n/a

n/a


---

Three-Months Ended June 30, 2004, Compared with the Three-Months Ended June 30, 2003

Command, Control, Communication, Computers and Intelligence GroupRevenues increased $72.6 million, or 77.1%, to
$166.8 million for the three-months ended June 30, 2004 as compared to the corresponding prior-year period. Operating income increased $7.1 million or 70.1%, to
$17.3 million. The increase in revenue is largely attributable to the four operating units included within the C4I Group that were acquired in our merger with IDT. The four legacy IDT operating
units contributed incremental revenues of $33.3 million. Also contributing to the overall increase in revenues were increased shipments of combat display workstations and rugged computers, as
well as revenues recognized on engineering and development of propulsion motors, drive controls and power electronics.

27

---



Partially
offsetting the overall increase in revenues were decreased shipments of power conversion products for the U.S. Navy.

The
increase in operating income for the three-months ended June 30, 2004, as compared with the corresponding period in the prior year, was primarily driven by the overall
increase in revenues. The legacy IDT operating units contributed $4.7 million of operating income to fiscal 2005 first quarter operating results. Operating income was unfavorably impacted by
$0.8 million in severance-related charges and $0.6 million of inventory write-offs on certain rugged computer programs. The corresponding period in the prior year included
charges of $0.9 million and $0.4 million for cost growth on certain surface search radar programs and charges at the operating segment's U.K operating unit, respectively. The U.K.
operating unit's charges included $0.3 million for cost growth on certain programs and $0.1 million for reorganization costs.

Surveillance & Reconnaissance GroupRevenues increased $60.9 million, or 83.4%, to $133.9 million for
the three-months ended June 30, 2004, compared with the corresponding prior year period. Operating income increased $6.3 million or 102.1%, to $12.6 million. The increase in
revenues was primarily attributable to the three operating units that were acquired from our merger with IDT. The three legacy IDT operating units contributed incremental revenues of
$51.1 million. Revenues were also favorably impacted by increased shipments of certain airborne-based electro-optical sighting and targeting systems, as well as certain ground-based and
maritime-based infrared sighting and targeting systems. Partially offsetting revenues were lower shipments of certain infrared focal plane arrays for a certain missile system and a certain
long-range multi-sensor ground based electro-optical systems program.

This
increase in operating income for the three-months ended June 30, 2004, as compared to the corresponding period in the prior year was primarily driven by our merger with IDT,
which contributed $4.8 million, as well as overall higher revenues as mentioned above. Partially offsetting the overall increase in operating income was the unfavorable impact of a
$1.0 million inventory write-down on certain uncooled infrared projects. The corresponding period in the prior-year was unfavorably impacted by a $1.0 million
charge for a thermal target and acquisition system program and a charge of $0.6 million for employee benefit liabilities in the Group's U.K. operating unit.

OtherOther operating loss consists of certain non-allocable general and administrative expenses at DRS
corporate.

Liquidity and Capital Resources

Cash FlowsThe following table provides our cash flow data for the three months ended June 30, 2004 and 2003:

Three Months Ended June 30,2004

2003(in thousands)Net cash provided by operating activities

$
24,876

$
229Net cash used in investing activities

$
(6,999
)
$
(6,163
)Net cash used in financing activities

$
(10,080
)
$
(13
)


Operating ActivitiesDuring the three months ended June 30, 2004, we generated $24.9 million of operating cash
flow, $24.7 million more than the $0.2 million reported in the prior fiscal year. Net earnings increased by $4.5 million to $11.8 million. Non-cash adjustments
to reconcile net earnings to cash flows from operating activities increased $6.0 million over the corresponding prior fiscal year. These non-cash adjustments consist of depreciation
and amortization of fixed assets and acquired intangible assets, changes in deferred income taxes, non-cash adjustments to accounts receivable and

28

---



inventory
reserves, amortization of debt-issuance costs, which are recognized as a component of interest and related expenses, and minority interest. The primary driver for the increase in
these non-cash adjustments was depreciation and amortization of fixed assets and acquired intangible assets related to our increased capital investments in prior periods and our
acquisition of IDT in the prior year. Changes in assets and liabilities, net of effects from business combinations provided $0.1 million for the three months ended June 30, 2004.
Accounts receivable provided $31.9 million of cash due to strong collections in the first quarter. Inventories provided $5.2 million of cash. The cash provided by inventories was
generated by decreases in certain rugged computers and peripherals and mechanical control inventories, offset in part by increases in certain Navy nuclear power control products and combat display
workstations. Accounts payable used $4.3 million of cash during the quarter, primarily for the liquidation of payables existing at March 31, 2004 that were generated by purchases of
materials required to meet our significant fourth quarter product shipments. Accrued expenses and other current liabilities used $23.8 million of cash during the year. The cash used by these
accounts resulted from payments for compensation and interest related liabilities and the liquidation of certain contract related reserves. Net liquidations in customer advances used
$8.2 million in cash.

Investing ActivitiesWe paid $7.6 million for capital improvements during the first quarter of fiscal 2005 as compared
with $4.2 million in the corresponding prior year period. We expect our capital expenditures to range between $35.0 million to $45.0 million in fiscal 2005, as we continue to
upgrade our facilities and integrate recent acquisitions into our existing businesses. Cash provided by other financing activities primarily consisted of a payment received for the sale of certain
property acquired with our acquisition of IDT. The cash received for this property was recorded as an adjustment to goodwill as we did not assign a value to this property during the IDT purchase price
allocation.

Our
long-term growth strategy includes a disciplined program of acquiring companies that are both strategic and expected to be accretive to our earnings. Continuation of our
acquisition program will depend, in part, on the availability of financial resources at a cost of capital that is acceptable to us. We would expect to utilize cash generated by operations, as well as
cash available under our Credit Facility, which also may include the renegotiation of our credit limit to finance such acquisitions. Other sources of capital could include proceeds from a sale of our
common stock and the placement of debt. We continually evaluate the capital markets climate and may access such markets when the circumstances appear favorable to us. We believe that sufficient
capital resources will be available to us from one or several of these sources to finance future acquisitions that we determine to be strategic and accretive to our net earnings. However, no
assurances can be made that such financing will be available and at a cost that is acceptable to us, that we will identify acceptable acquisition candidates, or that such acquisitions will be
accretive to earnings.

Financing ActivitiesFor the quarter ended June 30, 2004, all financing activities resulted in a net expenditure of
$10.1 million of cash. We paid down $10.8 million of our long-term debt (including $10.0 million of prepayments during the quarter), incurred additional borrowings on
certain short-term debt and received cash from the exercise of stock options.

On
October 30, 2003 we issued $350.0 million of 67/8% Senior Subordinated Notes, due November 1, 2013 (the Notes). The 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 Notes are unconditionally guaranteed, jointly and severally, by certain of our current and future wholly-owned domestic subsidiaries. The foreign subsidiaries and certain
domestic subsidiaries of DRS do not guarantee the Notes. The market value of the Notes at June 30, 2004 was approximately $341.3 million. See Note 13, "Guarantor and
Non-guarantor Financial Statements," of our consolidated financial statements for additional disclosure.

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We
currently have a $411.0 million credit facility (the Credit Facility) consisting of a $175.0 million senior secured revolving line of credit and a $236.0 million
senior secured term loan, with the ability to borrow up to two additional term loans totaling $100.0 million at any time prior to maturity. As of June 30, 2004 and March 31, 2004
we had $204.2 million and $214.8 million of term loans outstanding against the Credit Facility. 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 the Company's subsidiary guarantors' and certain of DRS's other subsidiaries assets and by a pledge of certain of the
Company's non-guarantor subsidiaries' capital stock. The term loan and the revolving credit facility will mature in November 2008 and November 2010, respectively. The
effective interest rate on our term loans was 3.2% as of June 30, 2004 (3.0% as of March 31, 2004) excluding the impact of our interest rate swap agreements and the amortization of debt
issuance costs. As of June 30, 2004 we had $137.6 million available under our revolving line of credit. There were no borrowings under our revolving line of credit as of June 30,
2004 and March 31, 2004.

During
the three months ended June 30, 2004, we repaid an additional $10.0 million of our term loan at our discretion and recorded a $0.3 million charge to interest
and related expenses for the related write-off of a portion of debt issuance costs. On July 1, 2004 we repaid an additional $5.0 million of our term loan, at our discretion,
and recorded a $0.1 million charge to interest and related expenses for the write-off of debt issuance costs.

From
time to time, we enter into standby letter-of-credit 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 advanced payments we have received
from our customers. As of June 30, 2004, $44.0 million was contingently payable under letters of credit (approximately $1.5 million and $5.1 million of the letters of
credit outstanding as of June 30, 2004 were issued under our previous credit agreement and IDT's previous credit agreement, respectively, and are not considered when determining the
availability under our revolving line of credit).

We
have two interest rate swap agreements, each in the amount of $25.0 million expiring on June 30, 2008, with Wachovia Bank, N.A. and Fleet National Bank (the Banks),
respectively. These swap agreements effectively convert the variable interest rate on a total of $50.0 million of our term loan to a fixed interest rate. Under the terms of these swap
agreements, we will pay or receive the difference between the variable interest rate payable by the Banks and the fixed 2.59% interest rate payable by us. These swap agreements are accounted for as
cash flow hedges, and as such, changes in the fair values of the swap agreements are recorded as adjustments to accumulated other comprehensive earnings.

We
have a mortgage note payable that is secured by a lien on our facility located in Palm Bay, Florida, and bears interest at a rate equal to the one-month LIBOR plus 1.65%.
The balance of the mortgage at both June 30, 2004 and March 31, 2004 was $3.1 million. We have an interest rate swap that hedges the mortgage pursuant to which we receive interest
at a variable rate equal to the one-month LIBOR plus 1.65% and pay interest at a fixed rate of 7.85%. This swap agreement is accounted for as a cash flow hedge, and as such, changes in the
fair value of the swap agreement are recorded as adjustments to accumulated other comprehensive earnings. At June 30, 2004 we also had $3.0 million outstanding on a promissory note
bearing interest at 6% per annum, relating to DRS's October 15, 2002, acquisition of DKD, Inc. The remaining principal and related accrued interest is due on October 15, 2004.

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 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 payments for the foreseeable future. There can be no assurance, however, that our business will

30

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

Free Cash FlowFree cash flow represents net cash flow from operations less capital expenditures. Free cash flow for the
three-months ended June 30, 2004 was $17.3 million, $21.3 million greater than negative free cash flow of $4.0 million in the corresponding prior year period. See "Use of
Non-GAAP Financial Measures" below for additional discussion and information.

EBITDAEarnings before net interest and related expenses (primarily the amortization of debt issuance costs), income taxes,
depreciation and amortization (EBITDA) for the three-months ended June 30, 2004 was $40.0 million or 89% greater when compared to $21.1 million in the corresponding period in the
prior year. See "Use of Non-GAAP Financial Measures" below for additional discussion and information.

Contractual ObligationsOur contractual obligations and commitments principally include obligations associated with our
outstanding indebtedness, future minimum operating lease obligations and acquisition earnouts, as set forth in the table below:

|Contractual Obligations       |  | As of June 30, 2004
|----------------------------- |  | -------------------
|
|
|
|Total debt                    |  | $                  
|Operating lease commitments   |  |                    
|Acquisition earnouts(A)       |  |                    
|                              |  |                    
|Total contractual obligations |  | $                  
|                              |  |                    

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We
enter into standby letter-of-credit 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 certain international customers. At June 30, 2004, we had contingent liabilities on
outstanding letters of credit as follows:

Contingent Payments Due by PeriodTotal

Less than
1 year

1-3 years

More than
3 years(in thousands)Standby letters of credit

$
43,979

$
35,756

$
8,223

$



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

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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 a significant amount of commercial off-the-shelf (COTS)-based systems for the military, which have shorter delivery times.
Accordingly, revenues for a particular period, or year-to-year comparisons of reported revenues and related backlog positions, may not be indicative of future results. Backlog
at June 30, 2004 was $1.27 billion, as compared with $1.22 billion at March 31, 2004. We booked $355.3 million in new orders for the three months ended
June 30, 2004.

Internal Research and DevelopmentIn addition to customer-sponsored 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
months ended June 30, 2004 and 2003 was $8.8 million and $3.7 million, 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 a company's 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 the Consolidated Balance Sheets, Statements of Earnings, or Statements of Cash Flows
of the Company. The components of EBITDA and a reconciliation of EBITDA and "free cash flow" with the most directly comparable GAAP measure follows:

Three Months Ended
June 30,2004

2003(in thousands)Net earnings

$
11,771

$
7,296Income taxes


8,700


5,732Interest income


(129
)

(337
)Interest and related expenses


8,995


3,029Depreciation and amortization


10,622


5,408EBITDA(A)


39,959


21,128Income taxes


(8,700
)

(5,732
)Interest income


129


337Interest and related expenses


(8,995
)

(3,029
)Deferred income taxes


476


161Changes in assets and liabilities, net of effects from business combinations


96


(14,087
)Other, net


1,911


1,451Net cash provided by operating activities


24,876


229Capital expenditures


(7,591
)

(4,237
)Free cash flow(B)

$
17,285

$
(4,008
)


---

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Recently Issued Accounting Pronouncements

In
December 2003, Congress passed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act). In January 2004, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position No. 106-1 (FSP 106-1), "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization
Act of 2003." FSP 106-1 permitted the deferred recognition of the effects of the Medicare Act in the accounting for postretirement health care plans. We elected the deferral provided by
this FSP. In May 2004, the FASB issued FASB Staff Position No. 106-2 (FSP 106-2), "Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003." FSP 106-2 discusses the effect of the Medicare Act and supersedes FSP 106-1. FSP 106-2 requires companies to
account for the reduction in accumulated postretirement benefit obligation (APBO) as an actuarial gain to be amortized into earnings over the average remaining service period of plan participants. FSP
106-2 is effective for the first interim or annual period beginning after June 15, 2004. Companies may adopt the FSP retroactively or prospectively. We have chosen to defer the
accounting for the adjustment to benefit costs and the benefit obligation and intend on implementing the new accounting standard in the second quarter of fiscal 2005 as permitted by the FSP. Our APBO
and net periodic postretirement benefit costs as of and for the three-months ended June 30, 2004 do not reflect the effect of the Medicare Act. While still preliminary, we do not expect a
significant reduction to our net periodic postretirement benefit cost.

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,
as amended, for the fiscal year ended March 31, 2004 for a discussion of the Company's exposure to market risks. For the three-months ended June 30, 2004, there have been no significant
changes to the Company's exposure to market risks.

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Item 4.    Controls and Procedures

(a)   Disclosure
Controls and Procedures. The 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 5d-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 at the reasonable assurance level 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 Reporting. There 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 first quarter of the fiscal year ending March 31, 2005, that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

We are party to various legal actions and claims arising in the ordinary course of our business. In our opinion, 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.

On
October 3, 2001, a lawsuit was filed in the United States District Court of the Eastern District of New York by Miltope Corporation, a corporation of the State of Alabama, and
IV Phoenix Group, Inc., a corporation of the State of New York, against DRS Technologies, Inc., DRS Electronic Systems, Inc. and a number of individual defendants, several
of whom had been employed by DRS Electronic Systems, Inc. The plaintiffs' claims against DRS alleged infringement of a number of patents, breach of a confidentiality agreement, misappropriation
of trade secrets, unjust enrichment and unfair competition. The claims relate generally to the activities of certain former employees of IV Phoenix Group and the hiring of some of those employees by
us. The plaintiffs seek damages of not less than $5.0 million for each of the claims. The plaintiffs also allege claims for tortious interference with business relationships, tortious
interference with contracts and conspiracy to breach fiduciary duty. The plaintiffs seek damages of not less than $47.1 million for each claim. In addition, plaintiffs seek punitive and treble
damages, injunctive relief and attorney's fees. In our answer, we have denied the plaintiffs' allegations and intend to vigorously defend this action. In February 2002, plaintiffs filed an
amended complaint, which eliminated the patent infringement claims and added claims related to statutory and common-law trademark infringement. Discovery has been completed, and this
action is expected to go to trial in November 2004. We believe that we have meritorious defenses and do not believe the action will have a material adverse effect on our financial position,
results of operations or liquidity. The Company has recorded an accrual of $1.0 million in connection with attempting to resolve this matter; however, the Company may incur charges in excess of
that amount, but is unable at this time, to reasonably estimate the possible range of additional loss. The Company will continue to evaluate its estimate to the extent additional information arises.

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 cleanup of contaminated sites upon any of the current or former site owners or operators (or upon parties who sent 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 IDT, and prior to 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. Tech-Sym Corporation's predecessor operated this uranium
mine from 1956 to 1967. In 1962, the land was sold to the U.S. Government, although the mining rights for the next twenty-five years were retained. Tech-Sym Corporation sold
the mining rights in 1967, and we believe that the mine was operated until approximately 1972. We believe that there are several other companies in the chain of title to the mining rights subsequent
to Tech-Sym, and, accordingly, that there are several other potentially responsible parties (PRPs) for the environmental conditions at the site, including the U.S. Government as owner of
the land. The NPS has not yet made a demand on us, nor, to our knowledge, on any other PRP, nor has it listed the Orphan Mine site on the National Priority List of contaminated sites. Nonetheless, IDT
retained a technical consultant in connection with this matter, who has 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. In addition, we retained a technical consultant, who has reviewed the existing documentation. The initial remediation estimate for the site was $0.8 million and
the second was $1.0 million, each developed independently of the other. As of June 30, 2004 and

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March 31,
2004, the Company has approximately $1.0 million accrued in connection with the potential remediation effort at the Orphan Mine site, an event which we believe to be probable.
In such event, the Company may incur charges in excess of that amount and/or may have its liability reduced to the extent that other PRPs are required to participate in the remediation effort. The
Company will continue to evaluate its estimate to the extent additional information arises. No assurances can be made, however, that material changes will not occur.

Item 6.    Exhibits and Reports on Form 8K

(a)
Exhibits

|Exhibit No. |  | Description                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------
|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

We
filed the following current reports on Form 8-K with the SEC during the three months ended June 30, 2004.

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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.Registrant                                                             
|-------------------- |  | ---------------------------------------------------------------------------------------------
|Date: August 9, 2004 |  | /s/RICHARD A. SCHNEIDERRichard A. Schneider Executive Vice President, Chief Financial
Officer

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