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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 December 31, 2003
|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 February 12, 2004, 26,955,658 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 December 31, 2003

|                             |  |                                                                                            |  | Page
|---------------------------- |  | ------------------------------------------------------------------------------------------ |  | ----
|PART IFINANCIAL INFORMATION
|Item 1.                      |  | Financial Statements                                                                       |  |     
|                             |  | Consolidated Balance SheetsDecember 31, 2003 and March 31, 2003                           |  | 1   
|                             |  | Consolidated Statements of EarningsThree and Nine Months Ended December 31, 2003 and 2002 |  | 2   
|                             |  | Consolidated Statements of Cash FlowsNine Months Ended December 31, 2003 and 2002         |  | 3   
|                             |  | Notes to Consolidated Financial Statements                                                 |  | 4   
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations      |  | 28  
|Item 3.                      |  | Quantitative and Qualitative Disclosures about Market Risk                                 |  | 44  
|Item 4.                      |  | Controls and Procedures                                                                    |  | 44  
|PART IIOTHER INFORMATION   
|Item 1.                      |  | Legal Proceedings                                                                          |  | 45  
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                           |  | 46  
|SIGNATURES                   |  | 47                                                                                        

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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)

|                                                                                                                                                           |                                                                                                                                                                     | December 31,
2003                          |         | March 31,
2003 |          
|---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | -------------- | ---------
|Assets                                                                                                                                                     |                                                                                                                                                                    
|Current assets                                                                                                                                             |                                                                                                                                                                     |                                            |         |                |          
|                                                                                                                                                           | Cash and cash equivalents                                                                                                                                           |                                            | $       | 29,686         |          
|                                                                                                                                                           | Accounts receivable, net of allowances for doubtful accounts of $3.4 million and $2.9 million as of December 31, 2003 and March 31, 2003, respectively              |                                            |         | 240,675        |          
|                                                                                                                                                           | Inventories, net                                                                                                                                                    |                                            |         | 184,333        |          
|                                                                                                                                                           | Prepaid expenses, deferred income taxes and other current assets                                                                                                    |                                            |         | 31,955         |          
|                                                                                                                                                           |                                                                                                                                                                     |                                            |         |                |          
|                                                                                                                                                           |                                                                                                                                                                     | Total current assets                       |         |                | 486,649  
|                                                                                                                                                           |                                                                                                                                                                     |                                            |         |                |          
|Property, plant and equipment, less accumulated depreciation and amortization of $64,913 and $53,151 at December 31, 2003 and March 31, 2003, respectively |                                                                                                                                                                     |                                            | 149,293 |                |          
|Acquired intangible assets, net                                                                                                                            |                                                                                                                                                                     |                                            | 98,312  |                |          
|Goodwill                                                                                                                                                   |                                                                                                                                                                     |                                            | 878,572 |                |          
|Other noncurrent assets                                                                                                                                    |                                                                                                                                                                     |                                            | 31,416  |                |          
|                                                                                                                                                           |                                                                                                                                                                     |                                            |         |                |          
|                                                                                                                                                           |                                                                                                                                                                     | Total assets                               |         | $              | 1,644,242
|                                                                                                                                                           |                                                                                                                                                                     |                                            |         |                |          
|Liabilities and Stockholders' Equity                                                                                                                       |                                                                                                                                                                    
|Current liabilities                                                                                                                                        |                                                                                                                                                                     |                                            |         |                |          
|                                                                                                                                                           | Current installments of long-term debt                                                                                                                              |                                            | $       | 5,887          |          
|                                                                                                                                                           | Short-term bank debt                                                                                                                                                |                                            |         | 1,180          |          
|                                                                                                                                                           | Accounts payable                                                                                                                                                    |                                            |         | 83,663         |          
|                                                                                                                                                           | Accrued expenses and other current liabilities                                                                                                                      |                                            |         | 347,361        |          
|                                                                                                                                                           |                                                                                                                                                                     |                                            |         |                |          
|                                                                                                                                                           |                                                                                                                                                                     | Total current liabilities                  |         |                | 438,091  
|Long-term debt, excluding current installments                                                                                                             |                                                                                                                                                                     |                                            | 586,417 |                |          
|Other liabilities                                                                                                                                          |                                                                                                                                                                     |                                            | 38,085  |                |          
|                                                                                                                                                           |                                                                                                                                                                     |                                            |         |                |          
|                                                                                                                                                           |                                                                                                                                                                     | Total liabilities                          |         |                | 1,062,593
|                                                                                                                                                           |                                                                                                                                                                     |                                            |         |                |          
|Commitments and contingencies (Notes 7 and 12)                                                                                                             |                                                                                                                                                                     |                                            |         |                |          
|Stockholders' equity                                                                                                                                       |                                                                                                                                                                     |                                            |         |                |          
|                                                                                                                                                           | Preferred stock, no par value. Authorized 2,000,000 shares; none issued at December 31, 2003 and March 31, 2003                                                     |                                            |         |               |          
|                                                                                                                                                           | Common stock, $.01 par value per share. Authorized 30,000,000 shares; issued 26,915,158 and 22,421,986 shares at December 31, 2003 and March 31, 2003, respectively |                                            |         | 269            |          
|                                                                                                                                                           | Additional paid-in capital                                                                                                                                          |                                            |         | 452,929        |          
|                                                                                                                                                           | Retained earnings                                                                                                                                                   |                                            |         | 122,899        |          
|                                                                                                                                                           | Accumulated other comprehensive earnings (losses)                                                                                                                   |                                            |         | 7,149          |          
|                                                                                                                                                           | Unamortized stock compensation                                                                                                                                      |                                            |         | (1,597         | )        
|                                                                                                                                                           |                                                                                                                                                                     |                                            |         |                |          
|                                                                                                                                                           |                                                                                                                                                                     | Total stockholders' equity                 |         |                | 581,649  
|                                                                                                                                                           |                                                                                                                                                                     |                                            |         |                |          
|                                                                                                                                                           |                                                                                                                                                                     | Total liabilities and stockholders' equity |         | $              | 1,644,242
|                                                                                                                                                           |                                                                                                                                                                     |                                            |         |                |          

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
December 31, |         | Nine Months Ended
December 31,
|--------------------------------------- | -------------------------------------------------- | ------------------------------- | ------- | ------------------------------
|
|Revenues                                |                                                    | $                               | 280,636 |                               
|Costs and expenses                      |                                                    |                                 | 252,213 |                               
|                                        |                                                    |                                 |         |                               
|                                        | Operating income                                   |                                 |         | 28,423                        
|Interest income                         |                                                    |                                 | 85      |                               
|Interest and related expenses           |                                                    |                                 | 7,513   |                               
|Other expense (income), net             |                                                    |                                 | 49      |                               
|                                        |                                                    |                                 |         |                               
|                                        | Earnings before minority interest and income taxes |                                 |         | 20,946                        
|Minority interest                       |                                                    |                                 | 537     |                               
|                                        |                                                    |                                 |         |                               
|                                        | Earnings before income taxes                       |                                 |         | 20,409                        
|Income taxes                            |                                                    |                                 | 8,776   |                               
|                                        |                                                    |                                 |         |                               
|                                        | Net earnings                                       |                                 | $       | 11,633                        
|                                        |                                                    |                                 |         |                               
|Net earnings per share of common stock: |                                                    |                                 |         |                               
|                                        | Basic earnings per share                           |                                 | $       | 0.46                          
|                                        | Diluted earnings per share                         |                                 | $       | 0.45                          

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)

|                                                                               |                                                                                                | Nine Months Ended
December 31,                             |        
|------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | -------
|
|Cash Flows from Operating Activities                                           |                                                                                                |                                                            |        
|Net earnings                                                                   |                                                                                                | $                                                          | 28,372 
|Adjustments to reconcile net earnings to cash flows from operating activities: |                                                                                                |                                                            |        
|                                                                               | Depreciation and amortization                                                                  |                                                            |        
|                                                                               | Deferred income taxes                                                                          |                                                            |        
|                                                                               | Loss on sale of business                                                                       |                                                            |        
|                                                                               | Other, net                                                                                     |                                                            |        
|                                                                               | Changes in assets and liabilities, net of effects from business combinations and divestitures: |                                                            |        
|                                                                               |                                                                                                | Decrease (increase) in accounts receivable                 |        
|                                                                               |                                                                                                | Increase in inventories                                    |        
|                                                                               |                                                                                                | Increase in prepaid expenses and other current assets      |        
|                                                                               |                                                                                                | Increase in accounts payable                               |        
|                                                                               |                                                                                                | Decrease in accrued expenses and other current liabilities |        
|                                                                               |                                                                                                | Increase in customer advances                              |        
|                                                                               |                                                                                                | Other, net                                                 |        
|                                                                               |                                                                                                |                                                            |        
|                                                                               | Net cash provided by operating activities                                                      |                                                            |        
|                                                                               |                                                                                                |                                                            |        
|Cash Flows from Investing Activities                                           |                                                                                                |                                                            |        
|                                                                               | Capital expenditures                                                                           |                                                            |        
|                                                                               | Payments pursuant to business combinations, net of cash acquired                               |                                                            |        
|                                                                               | Proceeds from sale of business                                                                 |                                                            |        
|                                                                               | Other, net                                                                                     |                                                            |        
|                                                                               |                                                                                                |                                                            |        
|                                                                               | Net cash used in investing activities                                                          |                                                            |        
|                                                                               |                                                                                                |                                                            |        
|Cash Flows from Financing Activities                                           |                                                                                                |                                                            |        
|                                                                               | Net borrowings of short-term debt                                                              |                                                            |        
|                                                                               | Additional borrowings of long-term debt                                                        |                                                            |        
|                                                                               | Proceeds from senior subordinated notes                                                        |                                                            |        
|                                                                               | Debt issuance costs                                                                            |                                                            |        
|                                                                               | Repayment of long-term debt                                                                    |                                                            |        
|                                                                               | Proceeds from issuance of common stock                                                         |                                                            |        
|                                                                               | Proceeds from stock option exercises                                                           |                                                            |        
|                                                                               | Other, net                                                                                     |                                                            |        
|                                                                               |                                                                                                |                                                            |        
|                                                                               | Net cash provided by financing activities                                                      |                                                            |        
|                                                                               |                                                                                                |                                                            |        
|Effect of exchange rates on cash and cash equivalents                          |                                                                                                |                                                            | 852    
|                                                                               |                                                                                                |                                                            |        
|Net (decrease) increase in cash and cash equivalents                           |                                                                                                |                                                            | (66,252
|Cash and cash equivalents, beginning of period                                 |                                                                                                |                                                            | 95,938 
|                                                                               |                                                                                                |                                                            |        
|                                                                               | 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. and its Subsidiaries (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 December 31, 2003, the results of operations for the three- and nine-month
periods ended December 31, 2003 and 2002, and cash flows for the nine-month periods ended December 31, 2003 and 2002. The results of operations for the three- and
nine-month periods ended December 31, 2003 are not necessarily indicative of the results to be expected for the full year. Certain fiscal 2003 amounts have been reclassified to
conform to the fiscal 2004 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, 2003,
included in the Company's filing on Form S-4 with the Securities and Exchange Commission on February 2, 2004.

2.     Business Combinations

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 Merger consideration consisted of $261.3 million in cash 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. In addition to the purchase price,
the estimated costs related to the acquisition, including professional fees, approximated $5.0 million. In accordance with EITF 99-12, the stock component of the
consideration was valued at $24.55 per share using the average stock price of DRS common stock on the measurement date of the transaction, October 31, 2003, and a few days before and
after the measurement date. Upon closing of the Merger, the Company repaid IDT's term loan in the amount of $200.8 million. The Company financed the Merger with borrowings under its amended and
restated credit facility, the issuance of $350.0 million of senior subordinated notes (see footnote 7, "Debt", for a description of the amended and restated credit facility and the
senior subordinated notes) and with existing cash on hand. The results of IDT's operations have been included in the Company's financial statements since the date of the Merger.

Headquartered
in Huntsville, Alabama, IDT is a designer and developer of advanced electronics and technology products for the defense and intelligence industries. The Merger is expected
to enhance DRS's content on key US Army and Navy weapons programs, contribute a significant new base of US Air Force programs and greatly expand DRS's intelligence agency business. IDT now operates as
the Intelligence, Training and Test Group (ITTG), the Company's newly established and fourth operating segment.

The
following table summarizes the estimated fair value of the assets acquired and liabilities assumed in the Merger. The Company is in the process of obtaining third-party valuations of
certain assets acquired and liabilities assumed, as well as performing its own internal assessment of the acquired contracts; thus the preliminary allocation of the purchase price, and such change
could be

4

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significant.
The Company expects to have the purchase price allocation substantially complete in the fourth quarter of fiscal 2004.

November 4,
2003(in thousands)Current assets

$
168,133Property, plant and equipment


62,684Goodwill


441,617Acquired intangible assets


54,000Other assets


19,240Total assets acquired


745,674Acquired contract liabilities


88,635Other current liabilities


67,770Other long-term liabilities


216,868Total liabilities assumed


373,273Net assets acquired

$
372,401


The
$441.6 million of goodwill was allocated to the Company's ITTG operating segment. The preliminary purchase price allocation reflects an estimate of $54.0 million of
acquired intangible assets, which were assigned to customer-related intangibles, and are being amortized over a period of approximately 14 years. A $1.0 million increase/decrease in
acquired intangible assets would result in an increase/decrease in amortization expense of approximately $71 thousand per fiscal year (assuming a 14-year useful life).

The
unaudited pro forma condensed combined financial information for the three months and nine-months ended December 31, 2003 and 2002, reflect the following
transactions as if they occurred on the beginning of the respected periods presented:



The
unaudited pro forma presentation reflects adjustments to IDT's results of operations to conform to DRS's accounting policies, including revenue recognition on certain acquired
contracts and the capitalization of certain general and administrative costs.

5

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The
unaudited pro forma adjustments related to the Merger are based on a preliminary purchase price allocation. Actual adjustments will be based on analyses of fair values of assets
acquired and liabilities assumed, including acquired contracts, identifiable tangible and intangible assets, pensions and deferred tax assets and liabilities, and estimates of the useful lives of
tangible and amortizable intangible assets, which will be completed after DRS obtains third-party appraisals, performs its own internal assessments and reviews all available data. Differences between
the preliminary and final purchase price allocations could have a significant impact on the accompanying unaudited pro forma condensed combined financial statement information and DRS's future results
of operations and financial position.

The
unaudited pro forma condensed combined financial statement information is presented for illustrative purposes only and is not necessarily indicative of the operating results that
would have been achieved had the Merger, IDT's acquisition of BAE Aerospace Electronics, the issuance of the Notes and common stock, and amending and restating DRS's credit facility been completed as
of the beginning of the periods presented, or of the results of operations that may be attained by DRS in the future.

|                                    |                            | Unaudited
|----------------------------------- | -------------------------- | ---------
|
|
|
|Revenues                            |                            | $        
|Net earnings                        |                            | $        
|Earnings per share of common stock: |                            |          
|                                    | Basic earnings per share   |          
|                                    | Diluted earnings per share |          

The
nine months ended December 31, 2002 includes a charge of $20.7 million in connection with IDT's early retirement and refinancing of its prior credit facility.

3.     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. As further described in footnote 14, "Subsequent Events", the Omnibus Plan was amended on January 22, 2004 to
increase the maximum number of shares available for awards. 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 grant date of the award, 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 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 market value on the date of grant.

6

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On
November 4, 2003, the Company awarded 66,450 shares of restricted common stock to certain employees, as permitted under the Omnibus Plan. The shares cliff vest at the end of a
three-year period from the date of grant. Upon issuance of the restricted shares, unearned compensation of $1.7 million was charged to stockholders' equity for the fair value of the
restricted stock and is being recognized as compensation expense ratably over the three-year period. Compensation expense, net of the related tax effect, for the three and nine months ended
December 31, 2003 was $56 thousand.

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 provisions of SFAS 123, it would have recorded a non-cash expense
for the estimated fair value of the stock options 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
December 31, |        | Nine Months Ended
December 31, |  
|-------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------------------------------- | ------ | ------------------------------ | -
|
|
|Net earnings, as reported                                                                                                        |                     | $                               | 11,633 |                                | $
|Add: Stock-based compensation expense included in reported net earnings, net of related tax effects                              |                     |                                 | 56     |                                |  
|Less: Total stock-based compensation expense determined under fair-value-based method for all awards, net of related tax effects |                     |                                 | (689   | )                              |  
|                                                                                                                                 |                     |                                 |        |                                |  
|Pro forma net earnings                                                                                                           |                     | $                               | 11,000 |                                | $
|                                                                                                                                 |                     |                                 |        |                                |  
|Earnings per share:                                                                                                              |                     |                                 |        |                                |  
|                                                                                                                                 | Basicas reported   |                                 | $      | 0.46                           |  
|                                                                                                                                 |                     |                                 |        |                                |  
|                                                                                                                                 | Basicpro forma     |                                 | $      | 0.44                           |  
|                                                                                                                                 |                     |                                 |        |                                |  
|                                                                                                                                 | Dilutedas reported |                                 | $      | 0.45                           |  
|                                                                                                                                 |                     |                                 |        |                                |  
|                                                                                                                                 | Dilutedpro forma   |                                 | $      | 0.43                           |  
|                                                                                                                                 |                     |                                 |        |                                |  

7

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4.     Inventories

Inventories are summarized as follows:

December 31,
2003

March 31,
2003(in thousands)Work-in-process

$
231,545

$
142,083Raw material and finished goods


24,771


13,139256,316


155,222Less progress payments


(71,983
)

(41,120
)Total

$
184,333

$
114,102


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). G&A and IRAD are allowable, indirect contract costs under U.S. Government
regulations. The Company allocates G&A and IRAD costs to certain contracts, and accounts for them as product costs, not as period expenses.

The
Company recorded costs for internal research and development amounting to $7.5 million and $3.5 million for the three-month periods ended December 31, 2003 and
2002, respectively, and $14.1 million and $10.0 million, respectively, for the nine-month periods then ended.

5.     Goodwill and Intangible Assets

The following presents certain information about the Company's acquired intangible assets as of December 31, 2003 and March 31, 2003. All acquired
intangible assets are being amortized over their estimated useful lives, as indicated below, with no estimated residual values.

|Intangible Assets Subject to
Amortization |                              | Weighted
Average
Amortization
Period |          | Gross
Carrying
Amount |         | Accumulated
Amortization |   | Net Balance
|----------------------------------------- | ---------------------------- | ------------------------------------ | -------- | --------------------- | ------- | ------------------------ | - | -----------
|
|As of December 31, 2003                   |                              |                                      |          |                       |         |                          |   |            
|                                          | Technology-based intangibles |                                      | 20 years |                       | $       | 27,305                   |   | $          
|                                          | Customer-related intangibles |                                      | 15 years |                       |         | 83,990                   |   |            
|                                          |                              |                                      |          |                       |         |                          |   |            
|Total                                     |                              |                                      |          | $                     | 111,295 |                          | $ | (12,983    
|                                          |                              |                                      |          |                       |         |                          |   |            
|As of March 31, 2003                      |                              |                                      |          |                       |         |                          |   |            
|                                          | Technology-based intangibles |                                      | 21 years |                       | $       | 26,955                   |   | $          
|                                          | Customer-related intangibles |                                      | 19 years |                       |         | 27,400                   |   |            
|                                          |                              |                                      |          |                       |         |                          |   |            
|Total                                     |                              |                                      |          | $                     | 54,355  |                          | $ | (9,574     
|                                          |                              |                                      |          |                       |         |                          |   |            

The
aggregate acquired intangible asset amortization expense for the three-month periods ended December 31, 2003 and 2002 was $1.6 million and $0.5 million,
respectively, and for the nine months ended December 31, 2003 and 2002, was $3.4 million and $1.9 million, respectively. The estimated acquired intangible amortization expense,
based on gross carrying amounts at December 31, 2003, is estimated to be $5.2 million for fiscal 2004 and $7.3 million per year for fiscal 2005 through fiscal 2009.

8

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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, 2003 to December 31, 2003.

|                                                                                             |                                 | Electronic
Systems
Group |         | Electro-
Optical
Systems
Group |   | Flight Safety &
Communications
Group |         | Intelligence,
Training &
Test Group |        | Total  |  
|-------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------ | ------- | ------------------------------ | - | ------------------------------------ | ------- | ----------------------------------- | ------ | ------ | -
|
|Balance as of March 31, 2003                                                                 |                                 | $                        | 284,314 |                                | $ | 121,116                              |         | $                                   | 31,433 |        | $
|IDT Merger                                                                                   |                                 |                          |        |                                |   |                                     |         |                                     |       |        |  
|Purchase price allocation adjustments on acquisitions completed in prior years               |                                 |                          | (6,798  | )                              |   | (1,088                               | )       |                                     |       |        |  
|Working capital adjustment on fiscal 2003 acquisition of Power Technology Incorporated (PTI) |                                 |                          | 547     |                                |   |                                     |         |                                     |       |        |  
|Acquisition earn-outPTI                                                                     |                                 |                          | 4,000   |                                |   |                                     |         |                                     |       |        |  
|Foreign currency translation adjustment                                                      |                                 |                          | 1,048   |                                |   |                                     |         |                                     | 2,383  |        |  
|                                                                                             |                                 |                          |         |                                |   |                                      |         |                                     |        |        |  
|                                                                                             | Balance as of December 31, 2003 |                          | $       | 283,111                        |   | $                                    | 120,028 |                                     | $      | 33,816 |  
|                                                                                             |                                 |                          |         |                                |   |                                      |         |                                     |        |        |  

The
purchase price allocation adjustments in the previous table reflect the following:

Amount of
Adjustment(in thousands)Electronic Systems GroupKaman Electromagnetics Development Center

$
(5,197
)(A)Power Technology Incorporated (PTI)


(2,063
)(B)Navy Controls Division of Eaton Corporation


(493
)(C)Paravant Inc.


955
(D)Total

$
(6,798
)Electro-Optical Systems GroupEOS Business of Raytheon Company


(2,431
)(E)DKD, Inc. (Nytech)

$
1,371
(F)Unmanned Aerial Vehicle business of Meggitt Defense Systems


(28
)(G)$
(1,088
)


---

9

---



The $4.0 million acquisition earn-out adjustment represents a contingent purchase price payment or "earnout" for achieving certain milestones
specified in the PTI purchase agreement.

6.     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 Company's accrual for product warranties as of December 31, 2003 and 2002, which is included in
accrued expenses and other current liabilities.

Nine Months Ended
December 31,2003

2002(in thousands)Balance, beginning of period

$
19,365

$
10,319Acquisitions during the period


6,393


8,053Accruals for product warranties issued during the period


3,938


1,854Accruals related to pre-existing product warranties (including changes in estimates)





346Settlements made during the period


(5,901
)

(2,946
)Balance at end of period

$
23,795

$
17,626


10

---

7.     Debt

A summary of debt is as follows:

December 31,
2003

March 31,
2003(in thousands)Senior subordinated notes

$
350,000

$
Term notes


235,410


212,525Other obligations


8,074


12,550593,484


225,075Less:Current installments of long-term debt


5,887


7,717Short-term bank debt


1,180


521Total long-term debt

$
586,417

$
216,837


On
February 6, 2004, the Company entered into an amended and restated credit facility. See footnote 14, "Subsequent Events", for additional information.

Simultaneous
with the closing of the merger with IDT on November 4, 2003, the Company entered into an amended and restated credit facility for up to an aggregate amount of
$411.0 million, replacing DRS's previously existing senior credit facility. The amended and restated credit facility consists of a $175.0 million senior secured revolving line of credit
and a $236.0 million senior secured term loan. The amended and restated credit facility is guaranteed by substantially all of DRS's domestic subsidiaries. In addition, it is secured by liens on
substantially all of the Company's, the Company's subsidiary guarantors' and certain of DRS's other subsidiaries' assets and by a pledge of certain of the Company's subsidiaries' capital stock. The
term loan and the revolving credit facility will mature in seven and five years, respectively, from the closing date of the amended and restated credit facility. The Company drew down the full amount
of the term loan to fund a portion of the Merger, to repay certain of its and IDT's outstanding indebtedness and to pay related fees and expenses. There were no initial borrowings under the revolving
line of credit.

Borrowings
under the amended and restated credit facility bear interest, at the Company's option, at either: a "base rate", as defined in the amended and restated credit agreement, equal
to the higher of 0.50% per annum above the latest prime rate and federal funds rate, or a LIBOR rate, as defined in the amended and restated credit agreement. Revolving credit loans that are base rate
loans bear interest at the base rate plus a spread ranging from 0.50% to 1.25% per annum, depending on the Company's total leverage ratio (TLR) at the time of determination. Revolving credit loans
that are LIBOR rate loans bear interest at LIBOR plus a spread ranging from 1.75% to 2.50% per annum, depending on our TLR. Term loans that are base rate loans bear interest at the base rate plus a
spread ranging from 1.0% to 1.25% per annum, depending on the Company's TLR. Term loans that are LIBOR rate loans bear interest at LIBOR plus a spread ranging from 2.25% to 2.50% per annum, depending
on the Company's TLR. TLR is defined as total debt minus the sum of (A) performance-based letters of credit and (B) so long as there are no outstanding revolving credit loans, an amount
(not to exceed $100.0 million) equal to the amount of cash and cash equivalents of the Company immediately available to repay the obligations thereof, as compared with EBITDA, as defined in the
amended and restated credit agreement. The Company pays commitment fees calculated on the average daily unused portion of its revolving line of credit at a rate of 0.50% per annum, provided that the
amount of outstanding swingline loans, as defined in the credit agreement, shall not be considered usage of the revolving line of credit for the purpose of calculating such commitment fee. The Company

11

---

pays
commissions and issuance fees on its outstanding letters of credit and is obligated to pay or reimburse the issuing lender for such normal and customary costs and expenses incurred or charged by
the issuing lender in issuing, effecting payment under, amending or otherwise administering any letter of credit. Letter of credit commissions are calculated at a rate ranging from 2.25% to 3.00% per
annum, depending on the Company's TLR ratio at the time of issuance, multiplied by the face amount of such letter of credit. Letter of credit issuance fees are charged at 0.125% per annum multiplied
by the face amount of such letter of credit. Both letter of credit commissions and issuance fees are paid quarterly.

The
Company previously had a $240.0 million credit agreement with a syndicate of lenders, with Wachovia Bank, N.A. as the lead lender, consisting of a term loan in the aggregate
principal amount of $140.0 million and a $100.0 million revolving line of credit. Repayment terms, collateral, interest rates and other charges under the previous facility were
substantially the same as those pursuant to the amended and restated credit agreement described above.

There
are certain covenants and restrictions placed on DRS under the amended and restated credit facility, including, but not limited to, a maximum total leverage ratio, a maximum senior
leverage ratio, a minimum fixed charge coverage ratio and restrictions on equity issuances, payment of dividends on our capital stock, the issuance of additional debt, incurrence of liens and capital
expenditures, and a requirement that DRS make mandatory principal prepayments in the manner set forth in the credit agreement on the revolving credit loans and the term loans outstanding with 50% of
the aggregate net cash proceeds from any equity offering if the Company's total leverage ratio, as defined in the credit agreement, exceeds 2.00 to 1.00. The Company was in compliance with all
covenants under the amended and restated credit facility at December 31, 2003.

The
principal amount of revolving credit loans outstanding are due and payable in full on the fifth anniversary of the closing date of the IDT merger. The Company will repay the
aggregate outstanding principal amount of the term loan in consecutive quarterly installments on the last business day of each December, March, June and September, the first of which was paid on
December 31, 2003. From December 31, 2003 through September 30, 2009, each such principal payment will equal $590,000. Beginning with the payment on December 31, 2009
through September 30, 2010, each principal payment will equal approximately $55.5 million.

As
of December 31, 2003, $235.4 million of term loans were outstanding against the Credit Facility. In addition to the term loans, as of December 31, 2003,
$52.1 million was contingently payable under letters of credit (approximately $1.5 million and $11.4 million of the letters of credit outstanding as of December 31, 2003
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). As of December 31, 2003 we had $138.2 million available under our revolving line of credit. As of March 31, 2003, $212.5 million of term loans were outstanding
under the original credit facility. The effective interest rate on the Company's term loans was 3.7% as of December 31, 2003 (4.4% as of March 31, 2003). There were no borrowings under
the Company's revolving line of credit as of December 31, 2003 and March 31, 2003.

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.

Also
in connection with the Merger, on October 30, 2003, the Company issued $350.0 million of 67/8% Senior Subordinated Notes, due November 1, 2013
(the Notes). Interest is payable every six

12

---

months
on May 1 and November 1, commencing May 1, 2004. The net proceeds from the offering of the Notes was $341.2 million, after deducting $8.8 million in
commissions and fees related to the offering. The net proceeds of the offering, together with a portion of the Company's available cash and initial borrowings under its amended and restated credit
facility, were used to fund a portion of the IDT Merger, repay certain of DRS's and IDT's outstanding indebtedness and pay related fees and expenses. The Notes were issued under an indenture with The
Bank of New York. Subject to a number of important 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. See footnote 13, "Guarantor and Non-guarantor Financial Statements" for additional disclosures. The fair value of
the Notes approximates their carrying value at December 31, 2003.

The
Company has a mortgage note payable that is secured by its DRS Tactical Systems facility (DRS TS) located in Palm Bay, Florida, and bears interest at a rate equal to the
one-month LIBOR plus 1.65%. Effective April 1, 2001, Paravant entered into a 15-year interest rate swap with an original notional amount of $3.6 million to
receive interest at a variable rate equal to the one month LIBOR and to pay interest at a fixed rate of 7.85%. The balance of the mortgage as of December 31, 2003 and March 31, 2003 was
$3.2 million and $3.3 million, respectively. Payment of principal and interest will continue through December 1, 2016.

On
October 15, 2002, the Company issued an $8.0 million promissory note, bearing interest at 6% per annum, related to the Nytech acquisition. On October 14, 2003,
the Company made a $5.0 million principal payment along with a $0.5 million payment for accrued interest. The remaining $3.0 million principal payment and related accrued interest
is due on October 15, 2004.

On
June 5, 2003, the Company entered into two interest rate swap agreements, each in the amount of $25.0 million, with Wachovia Bank, N.A. and Fleet Bank (the Banks),
respectively, on its variable rate senior secured term loan facility. 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. The variable interest rate paid by the Banks is based on the three month LIBOR and is determined on the first day of each calculation period. The difference to be paid or
received on these swap agreements, as interest rates change, is recorded as an adjustment to interest expense. 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. The swaps continue to be accounted for as cash flow hedges on a portion of the term loan
outstanding under the amended and restated credit facility.

8.     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 and restricted stock.

13

---

The
following table presents the computations of basic and diluted earnings per share (EPS):

|                                            |                                            | Three Months Ended
December 31,            |        | Nine Months Ended
December 31,
|------------------------------------------- | ------------------------------------------ | ------------------------------------------ | ------ | ------------------------------
|
|
|Basic EPS computation                       |                                            |                                            |        |                               
|                                            | Net earnings                               |                                            | $      | 11,633                        
|                                            |                                            |                                            |        |                               
|                                            | Weighted average common shares outstanding |                                            |        | 25,222                        
|                                            |                                            |                                            |        |                               
|Basic earnings per share                    |                                            | $                                          | 0.46   |                               
|                                            |                                            |                                            |        |                               
|Diluted EPS computation                     |                                            |                                            |        |                               
|                                            | Net earnings                               |                                            | $      | 11,633                        
|                                            |                                            |                                            |        |                               
|                                            | Diluted common shares outstanding:         |                                            |        |                               
|                                            |                                            | Weighted average common shares outstanding |        |                               
|                                            |                                            | Stock options and restricted stock         |        |                               
|                                            |                                            |                                            |        |                               
|Weighted average diluted shares outstanding |                                            |                                            | 25,699 |                               
|                                            |                                            |                                            |        |                               
|Diluted earnings per share                  |                                            | $                                          | 0.45   |                               
|                                            |                                            |                                            |        |                               

At December 31, 2003, there were 1,259,674 options outstanding with weighted average exercise prices of $32.94 that were excluded from the
above calculation because their inclusion would have had an antidilutive effect on EPS.

9.     Comprehensive Earnings

The components of comprehensive earnings for the three- and nine-month periods ended December 31, 2003 and 2002 consisted of the following:

|                              |                                                                   | Three Months Ended
December 31, |        | Nine Months Ended
December 31,
|----------------------------- | ----------------------------------------------------------------- | ------------------------------- | ------ | ------------------------------
|
|
|Net earnings                  |                                                                   | $                               | 11,633 |                               
|Other comprehensive earnings: |                                                                   |                                 |        |                               
|                              | Foreign currency translation adjustments                          |                                 |        | 2,854                         
|                              | Unrealized gains on hedging instruments arising during the period |                                 |        | 329                           
|                              |                                                                   |                                 |        |                               
|Comprehensive earnings        |                                                                   | $                               | 14,816 |                               
|                              |                                                                   |                                 |        |                               

10.   Operating Segments

At December 31, 2003, DRS operates in four principal operating segments on the basis of products and services offered: the Electronic Systems Group (ESG),
the Electro-Optical Systems Group (EOSG), the Flight Safety and Communications Group (FSCG) and the Intelligence, Training & Test Group (ITTG). All other operations are grouped in "Other." As
discussed in footnote 2, "Business Combinations", the ITTG operating segment was created in connection with the IDT Merger on November 4, 2003. During the fourth quarter of fiscal 2003,
DRS Unmanned Technologies, Inc. was combined with DRS's Electro-Optical Systems Group for management purposes, based primarily on operational synergies. DRS Unmanned Technologies had previously
been managed as part of Other. Prior-year balances and results of operations disclosed herein have been restated to give effect to this

14

---

change.
Information about the Company's operating segments as of and for the three- and nine-month periods ended December 31, 2003 and 2002 is as follows:

|                                     |                       | ESG |         | EOSG    |   | FSCG    |      | ITTG |         | Other  |   | Total   |  
|------------------------------------ | --------------------- | --- | ------- | ------- | - | ------- | ---- | ---- | ------- | ------ | - | ------- | -
|
|Three Months Ended December 31, 2003 |                       |     |         |         |   |         |      |      |         |        |   |         |  
|Total revenues                       |                       | $   | 130,902 |         | $ | 78,357  |      | $    | 28,381  |        | $ | 51,763  |  
|                                     | Intersegment revenues |     |         | (7,966  | ) |         | (416 | )    |         | (385   | ) |         | 
|                                     |                       |     |         |         |   |         |      |      |         |        |   |         |  
|External revenues                    |                       | $   | 122,936 |         | $ | 77,941  |      | $    | 27,996  |        | $ | 51,763  |  
|Operating income (loss)              |                       | $   | 11,775  |         | $ | 8,589   |      | $    | 3,504   |        | $ | 4,570   |  
|Total assets                         |                       | $   | 475,985 |         | $ | 285,620 |      | $    | 109,817 |        | $ | 725,077 |  
|Depreciation and amortization        |                       | $   | 1,842   |         | $ | 2,954   |      | $    | 473     |        | $ | 2,913   |  
|Capital expenditures                 |                       | $   | 1,537   |         | $ | 1,872   |      | $    | 176     |        | $ | 1,786   |  
|Three Months Ended December 31, 2002 |                       |     |         |         |   |         |      |      |         |        |   |         |  
|Total revenues                       |                       | $   | 80,356  |         | $ | 62,893  |      | $    | 26,226  |        | $ |        |  
|                                     | Intersegment revenues |     |         | (141    | ) |         | (21  | )    |         | (1,773 | ) |         | 
|                                     |                       |     |         |         |   |         |      |      |         |        |   |         |  
|External revenues                    |                       | $   | 80,215  |         | $ | 62,872  |      | $    | 24,453  |        | $ |        |  
|Operating income (loss)              |                       | $   | 6,485   |         | $ | 7,175   |      | $    | 2,766   |        | $ |        |  
|Total assets                         |                       | $   | 397,326 |         | $ | 281,514 |      | $    | 103,726 |        | $ |        |  
|Depreciation and amortization        |                       | $   | 1,067   |         | $ | 2,427   |      | $    | 518     |        | $ |        |  
|Capital expenditures                 |                       | $   | 937     |         | $ | 1,486   |      | $    | 164     |        | $ |        |  
|Nine Months Ended December 31, 2003  |                       |     |         |         |   |         |      |      |         |        |   |         |  
|Total revenues                       |                       | $   | 324,618 |         | $ | 219,125 |      | $    | 74,096  |        | $ | 51,764  |  
|                                     | Intersegment revenues |     |         | (11,197 | ) |         | (963 | )    |         | (3,369 | ) |         | 
|                                     |                       |     |         |         |   |         |      |      |         |        |   |         |  
|External revenues                    |                       | $   | 313,421 |         | $ | 218,162 |      | $    | 70,727  |        | $ | 51,764  |  
|Operating income (loss)              |                       | $   | 31,046  |         | $ | 23,022  |      | $    | 7,421   |        | $ | 4,570   |  
|Total assets                         |                       | $   | 475,985 |         | $ | 285,620 |      | $    | 109,817 |        | $ | 725,077 |  
|Depreciation and amortization        |                       | $   | 5,202   |         | $ | 8,565   |      | $    | 1,428   |        | $ | 2,913   |  
|Capital expenditures                 |                       | $   | 4,052   |         | $ | 6,412   |      | $    | 414     |        | $ | 1,786   |  
|Nine Months Ended December 31, 2002  |                       |     |         |         |   |         |      |      |         |        |   |         |  
|Total revenues                       |                       | $   | 184,312 |         | $ | 200,643 |      | $    | 78,780  |        | $ |        |  
|                                     | Intersegment revenues |     |         | (223    | ) |         | (219 | )    |         | (4,668 | ) |         | 
|                                     |                       |     |         |         |   |         |      |      |         |        |   |         |  
|External revenues                    |                       | $   | 184,089 |         | $ | 200,424 |      | $    | 74,112  |        | $ |        |  
|Operating income (loss)              |                       | $   | 12,111  |         | $ | 26,844  |      | $    | 7,758   |        | $ |        |  
|Total assets                         |                       | $   | 397,326 |         | $ | 281,514 |      | $    | 103,726 |        | $ |        |  
|Depreciation and amortization        |                       | $   | 2,885   |         | $ | 6,398   |      | $    | 1,687   |        | $ |        |  
|Capital expenditures                 |                       | $   | 1,980   |         | $ | 7,850   |      | $    | 535     |        | $ |        |  

11.   Supplemental Cash Flow Information

Nine Months Ended
December 31,2003

2002(in thousands)Cash paid for:Income Taxes

$
6,664

$
9,465Interest

$
8,656

$
8,156Noncash investing and financing activities:Note receivable from sale of operating units

$


$
3,010Acquisition costs for business combinations, net

$
318

$
5,590Promissory noteNytech acquisition

$


$
8,000


15

---

12.   Contingencies

The Company is engaged in providing products and services under contracts or subcontracts to the U.S. government and, to a lesser degree, under foreign government
contracts, some of which are funded by the U.S. government. All such contracts are subject to extensive legal and regulatory requirements, and from time-to-time are
investigated by U.S. agencies to determine the Company's compliance. Under U.S. government procurement regulations, for example, an indictment of the Company by a federal grand jury could result in
suspension for a period of time from eligibility to receive awards of new contracts; a conviction could result in debarment from contracting with the federal government for a specified term. Since a
substantial amount of the Company's revenues are derived from contracts or subcontracts with the U.S. and foreign governments, future revenues and profits will be dependent upon continued contract
awards, the volume of those awards and the Company's performance and compliance with government regulations.

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 are employed by DRS Electronic Systems, Inc. The plaintiff's 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 the Company. 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 its answer, the Company has denied the plaintiffs' allegations and intends 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. This action is expected
to go to trial in the summer of 2004. DRS believes that it has meritorious defenses and does not believe the action will have a material adverse effect on the Company's financial position, results of
operations or liquidity.

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 by the Company, 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 the Company believes that the mine was operated until approximately 1972. The Company believes 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

16

---

the
site, including the U.S. Government as owner of the land. The NPS has not yet made a demand on the Company, nor, to the Company's 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, the Company retained a technical consultant, who has reviewed the existing
documentation. While it is too soon to determine the ultimate financial implications to the Company, based upon the Company's knowledge of the current facts and circumstances surrounding this matter,
the Company does not believe the total costs to the Company with respect to this matter will be material.

The
Company is a 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 and liquidity.

13.   Guarantor and Non-Guarantor Financial Statements

As further discussed in footnote 7, "Debt", in connection with 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 December 31, 2003 and March 31, 2003, the related
condensed consolidating statements of earnings for each of the three- and nine-months periods ended December 31, 2003 and 2002 and the related condensed consolidating statements of
cash flows for the nine months ended December 31, 2003 and 2002 for:



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

The
Guarantor and Non-guarantor subsidiaries are presented on a combined basis. The principal elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions. Separate financial 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.

17

---



DRS Technologies, Inc. and Subsidiaries  Condensed Consolidating Balance Sheet  as of December 31, 2003  (in thousands)

|                                                  |                                                | Parent                    |         | Guarantor
Subsidiaries |        | Non-Guarantor
Subsidiaries |           | Eliminations |        | Consolidated
|------------------------------------------------- | ---------------------------------------------- | ------------------------- | ------- | ---------------------- | ------ | -------------------------- | --------- | ------------ | ------ | ------------
|Assets                                            |                                                |                           |         |                        |        |                            |           |              |        |             
|Current assets                                    |                                                |                           |         |                        |        |                            |           |              |        |             
|                                                  | Cash and cash equivalents                      |                           | $       | 21,530                 |        | $                          | 5,318     |              | $      | 2,838       
|                                                  | Accounts receivable, net                       |                           |         | 3                      |        |                            | 206,677   |              |        | 33,995      
|                                                  | Inventories, net                               |                           |         |                       |        |                            | 144,189   |              |        | 40,144      
|                                                  | Prepaid expenses and other current assets      |                           |         | 3,874                  |        |                            | 26,474    |              |        | 1,607       
|                                                  |                                                |                           |         |                        |        |                            |           |              |        |             
|                                                  |                                                | Total current assets      |         |                        | 25,407 |                            |           | 382,658      |        |             
|                                                  |                                                |                           |         |                        |        |                            |           |              |        |             
|Property, plant and equipment, net                |                                                |                           | 9,239   |                        |        | 133,799                    |           |              | 6,255  |             
|Acquired intangibles, net                         |                                                |                           |        |                        |        | 98,312                     |           |              |       |             
|Goodwill                                          |                                                |                           |        |                        |        | 844,603                    |           |              | 33,969 |             
|Deferred income taxes and other noncurrent assets |                                                |                           | 26,650  |                        |        | 4,786                      |           |              | 943    |             
|Investment in subsidiaries                        |                                                |                           | 731,378 |                        |        | 36,006                     |           |              |       |             
|Intercompany receivables                          |                                                |                           | 259,867 |                        |        | 81,166                     |           |              | 20,606 |             
|                                                  |                                                |                           |         |                        |        |                            |           |              |        |             
|                                                  | Total assets                                   |                           | $       | 1,052,541              |        | $                          | 1,581,330 |              | $      | 140,357     
|                                                  |                                                |                           |         |                        |        |                            |           |              |        |             
|Liabilities and Stockholders' Equity              |                                                |                           |         |                        |        |                            |           |              |        |             
|Current liabilities                               |                                                |                           |         |                        |        |                            |           |              |        |             
|                                                  | Current installments of long-term debt         |                           | $       | 5,360                  |        | $                          | 527       |              | $      |            
|                                                  | Short-term bank debt                           |                           |         |                       |        |                            |          |              |        | 1,180       
|                                                  | Accounts payable                               |                           |         | 3,818                  |        |                            | 66,631    |              |        | 13,214      
|                                                  | Accrued expenses and other current liabilities |                           |         | 17,034                 |        |                            | 307,173   |              |        | 23,154      
|                                                  |                                                |                           |         |                        |        |                            |           |              |        |             
|                                                  |                                                | Total current liabilities |         |                        | 26,212 |                            |           | 374,331      |        |             
|                                                  |                                                |                           |         |                        |        |                            |           |              |        |             
|Long-term debt, excluding current installments    |                                                |                           | 583,050 |                        |        | 3,367                      |           |              |       |             
|Intercompany payables                             |                                                |                           |        |                        |        | 317,358                    |           |              | 48,752 |             
|Other liabilities                                 |                                                |                           | 15,067  |                        |        | 18,630                     |           |              | 5,351  |             
|                                                  |                                                |                           |         |                        |        |                            |           |              |        |             
|                                                  | Total liabilities                              |                           |         | 624,329                |        |                            | 713,686   |              |        | 91,651      
|                                                  |                                                |                           |         |                        |        |                            |           |              |        |             
|                                                  | Total stockholders' equity                     |                           |         | 428,212                |        |                            | 867,644   |              |        | 48,706      
|                                                  |                                                |                           |         |                        |        |                            |           |              |        |             
|                                                  | Total liabilities and stockholders' equity     |                           | $       | 1,052,541              |        | $                          | 1,581,330 |              | $      | 140,357     
|                                                  |                                                |                           |         |                        |        |                            |           |              |        |             

18

---

DRS Technologies, Inc. and Subsidiaries  Condensed Consolidating Balance Sheet  as of March 31, 2003  (in thousands)

|                                                  |                                                | Parent                    |         | Guarantor
Subsidiaries |        | Non-Guarantor
Subsidiaries |         | Eliminations |        | Consolidated
|------------------------------------------------- | ---------------------------------------------- | ------------------------- | ------- | ---------------------- | ------ | -------------------------- | ------- | ------------ | ------ | ------------
|Assets                                            |                                                |                           |         |                        |        |                            |         |              |        |             
|Current assets                                    |                                                |                           |         |                        |        |                            |         |              |        |             
|                                                  | Cash and cash equivalents                      |                           | $       | 88,114                 |        | $                          | 3,251   |              | $      | 4,573       
|                                                  | Accounts receivable, net                       |                           |         | 3                      |        |                            | 113,933 |              |        | 49,112      
|                                                  | Inventories, net                               |                           |         |                       |        |                            | 90,811  |              |        | 23,338      
|                                                  | Prepaid expenses and other current assets      |                           |         | 3,723                  |        |                            | 10,686  |              |        | 1,802       
|                                                  |                                                |                           |         |                        |        |                            |         |              |        |             
|                                                  |                                                | Total current assets      |         |                        | 91,840 |                            |         | 218,681      |        |             
|                                                  |                                                |                           |         |                        |        |                            |         |              |        |             
|Property, plant and equipment, net                |                                                |                           | 8,056   |                        |        | 73,400                     |         |              | 6,154  |             
|Acquired intangibles, net                         |                                                |                           |        |                        |        | 44,781                     |         |              |       |             
|Goodwill                                          |                                                |                           |        |                        |        | 407,338                    |         |              | 29,525 |             
|Deferred income taxes and other noncurrent assets |                                                |                           | 12,404  |                        |        | 1,141                      |         |              | 817    |             
|Investment in subsidiaries                        |                                                |                           | 357,858 |                        |        | 35,985                     |         |              |       |             
|Intercompany receivables                          |                                                |                           | 103,967 |                        |        | 44,823                     |         |              | 23,801 |             
|                                                  |                                                |                           |         |                        |        |                            |         |              |        |             
|                                                  | Total Assets                                   |                           | $       | 574,125                |        | $                          | 826,149 |              | $      | 139,122     
|                                                  |                                                |                           |         |                        |        |                            |         |              |        |             
|Liabilities and Stockholders' Equity              |                                                |                           |         |                        |        |                            |         |              |        |             
|Current liabilities                               |                                                |                           |         |                        |        |                            |         |              |        |             
|                                                  | Current installments of long-term debt         |                           | $       | 7,150                  |        | $                          | 567     |              | $      |            
|                                                  | Short-term bank debt                           |                           |         |                       |        |                            |        |              |        | 521         
|                                                  | Accounts payable                               |                           |         | 1,182                  |        |                            | 51,562  |              |        | 15,596      
|                                                  | Accrued expenses and other current liabilities |                           |         | 11,462                 |        |                            | 174,921 |              |        | 26,314      
|                                                  |                                                |                           |         |                        |        |                            |         |              |        |             
|                                                  |                                                | Total current liabilities |         |                        | 19,794 |                            |         | 227,050      |        |             
|                                                  |                                                |                           |         |                        |        |                            |         |              |        |             
|Long-term debt, excluding current installments    |                                                |                           | 213,375 |                        |        | 3,462                      |         |              |       |             
|Intercompany payables                             |                                                |                           |        |                        |        | 125,160                    |         |              | 47,355 |             
|Other liabilities                                 |                                                |                           | 16,196  |                        |        | 8,111                      |         |              | 4,316  |             
|                                                  |                                                |                           |         |                        |        |                            |         |              |        |             
|                                                  | Total liabilities                              |                           |         | 249,365                |        |                            | 363,783 |              |        | 94,102      
|                                                  |                                                |                           |         |                        |        |                            |         |              |        |             
|                                                  | Total stockholders' equity                     |                           |         | 324,760                |        |                            | 462,366 |              |        | 45,020      
|                                                  |                                                |                           |         |                        |        |                            |         |              |        |             
|                                                  | Total liabilities and stockholders' equity     |                           | $       | 574,125                |        | $                          | 826,149 |              | $      | 139,122     
|                                                  |                                                |                           |         |                        |        |                            |         |              |        |             

19

---



DRS Technologies, Inc. and Subsidiaries  Condensed Consolidating Statements of Earnings  Three Months Ended December 31, 2003  (in thousands)

|                              |                                                    | Parent |        | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiaries |        | Eliminations |        | Consolidated |  
|----------------------------- | -------------------------------------------------- | ------ | ------ | ---------------------- | - | -------------------------- | ------ | ------------ | ------ | ------------ | -
|Revenues                      |                                                    | $      |       |                        | $ | 233,028                    |        | $            | 61,207 |              | $
|Costs and expenses            |                                                    |        | 15     |                        |   | 207,993                    |        |              | 57,806 |              |  
|                              |                                                    |        |        |                        |   |                            |        |              |        |              |  
|                              | Operating income                                   |        |        | (15                    | ) |                            | 25,035 |              |        | 3,401        |  
|Interest income               |                                                    |        | 72     |                        |   | 1                          |        |              | 12     |              |  
|Interest and related expenses |                                                    |        | 7,429  |                        |   | 52                         |        |              | 32     |              |  
|Other (expense) income, net   |                                                    |        | 63     |                        |   | 184                        |        |              | (296   | )            |  
|Management fees               |                                                    |        | 358    |                        |   | (246                       | )      |              | (112   | )            |  
|Royalties                     |                                                    |        | 501    |                        |   |                           |        |              | (501   | )            |  
|Intercompany interest         |                                                    |        | 1,068  |                        |   | (514                       | )      |              | (300   | )            |  
|                              |                                                    |        |        |                        |   |                            |        |              |        |              |  
|                              | Earnings before minority interest and income taxes |        |        | (5,382                 | ) |                            | 24,408 |              |        | 2,172        |  
|Minority interests            |                                                    |        |       |                        |   |                           |        |              | 537    |              |  
|                              |                                                    |        |        |                        |   |                            |        |              |        |              |  
|                              | Earnings before income taxes                       |        |        | (5,382                 | ) |                            | 24,408 |              |        | 1,635        |  
|Income taxes                  |                                                    |        | (2,329 | )                      |   | 10,510                     |        |              | 706    |              |  
|                              |                                                    |        |        |                        |   |                            |        |              |        |              |  
|                              | Net earnings                                       |        | $      | (3,053                 | ) | $                          | 13,898 |              | $      | 929          |  
|                              |                                                    |        |        |                        |   |                            |        |              |        |              |  

20

---

DRS Technologies, Inc. and Subsidiaries  Condensed Consolidating Statements of Earnings  Three Months Ended December 31, 2002  (in thousands)

|                              |                                                    | Parent |       | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiaries |        | Eliminations |        | Consolidated
|----------------------------- | -------------------------------------------------- | ------ | ----- | ---------------------- | - | -------------------------- | ------ | ------------ | ------ | ------------
|Revenues                      |                                                    | $      |      |                        | $ | 124,272                    |        | $            | 60,248 |             
|Costs and expenses            |                                                    |        | (143  | )                      |   | 111,001                    |        |              | 57,080 |             
|                              |                                                    |        |       |                        |   |                            |        |              |        |             
|                              | Operating income                                   |        |       | 143                    |   |                            | 13,271 |              |        | 3,168       
|Interest income               |                                                    |        | 158   |                        |   |                           |        |              |       |             
|Interest and related expenses |                                                    |        | 2,536 |                        |   | 11                         |        |              | 106    |             
|Other (expense) income, net   |                                                    |        | 43    |                        |   | 7                          |        |              | (36    | )           
|Management fees               |                                                    |        | 247   |                        |   | (279                       | )      |              | 32     |             
|Royalties                     |                                                    |        | 2,188 |                        |   | (1,863                     | )      |              | (325   | )           
|Intercompany interest         |                                                    |        | 1,277 |                        |   | (1,108                     | )      |              | (169   | )           
|                              |                                                    |        |       |                        |   |                            |        |              |        |             
|                              | Earnings before minority interest and income taxes |        |       | 1,520                  |   |                            | 10,017 |              |        | 2,564       
|Minority interests            |                                                    |        |      |                        |   |                           |        |              | 373    |             
|                              |                                                    |        |       |                        |   |                            |        |              |        |             
|                              | Earnings before income taxes                       |        |       | 1,520                  |   |                            | 10,017 |              |        | 2,191       
|Income taxes                  |                                                    |        | 700   |                        |   | 4,607                      |        |              | 1,009  |             
|                              |                                                    |        |       |                        |   |                            |        |              |        |             
|                              | Net earnings                                       |        | $     | 820                    |   | $                          | 5,410  |              | $      | 1,182       
|                              |                                                    |        |       |                        |   |                            |        |              |        |             

21

---



DRS Technologies, Inc. and Subsidiaries  Condensed Consolidating Statements of Earnings  Nine Months Ended December 31, 2003  (in thousands)

|                              |                                                           | Parent |        | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiaries |        | Eliminations |         | Consolidated |  
|----------------------------- | --------------------------------------------------------- | ------ | ------ | ---------------------- | - | -------------------------- | ------ | ------------ | ------- | ------------ | -
|Revenues                      |                                                           | $      |       |                        | $ | 541,819                    |        | $            | 121,770 |              | $
|Costs and expenses            |                                                           |        | 45     |                        |   | 483,354                    |        |              | 114,176 |              |  
|                              |                                                           |        |        |                        |   |                            |        |              |         |              |  
|                              | Operating income                                          |        |        | (45                    | ) |                            | 58,465 |              |         | 7,594        |  
|Interest income               |                                                           |        | 472    |                        |   | 1                          |        |              | 127     |              |  
|Interest and related expenses |                                                           |        | 14,249 |                        |   | 221                        |        |              | 221     |              |  
|Other (expense) income, net   |                                                           |        | 152    |                        |   | 291                        |        |              | (740    | )            |  
|Management fees               |                                                           |        | 904    |                        |   | (740                       | )      |              | (164    | )            |  
|Royalties                     |                                                           |        | 1,083  |                        |   |                           |        |              | (1,083  | )            |  
|Intercompany interest         |                                                           |        | 2,154  |                        |   | (1,245                     | )      |              | (909    | )            |  
|                              |                                                           |        |        |                        |   |                            |        |              |         |              |  
|                              | (Loss) earnings before minority interest and income taxes |        |        | (9,529                 | ) |                            | 56,551 |              |         | 4,604        |  
|Minority interests            |                                                           |        |       |                        |   |                           |        |              | 1,326   |              |  
|                              |                                                           |        |        |                        |   |                            |        |              |         |              |  
|                              | (Loss) earnings before income taxes                       |        |        | (9,529                 | ) |                            | 56,551 |              |         | 3,278        |  
|Income taxes                  |                                                           |        | (4,154 | )                      |   | 24,653                     |        |              | 1,429   |              |  
|                              |                                                           |        |        |                        |   |                            |        |              |         |              |  
|                              | Net (loss) earnings                                       |        | $      | (5,375                 | ) | $                          | 31,898 |              | $       | 1,849        |  
|                              |                                                           |        |        |                        |   |                            |        |              |         |              |  

22

---

DRS Technologies, Inc. and Subsidiaries  Condensed Consolidating Statements of Earnings  Nine Months Ended December 31, 2002  (in thousands)

|                              |                                                    | Parent |       | Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiaries |        | Eliminations |         | Consolidated |  
|----------------------------- | -------------------------------------------------- | ------ | ----- | ---------------------- | - | -------------------------- | ------ | ------------ | ------- | ------------ | -
|Revenues                      |                                                    | $      | 1,349 |                        | $ | 349,130                    |        | $            | 123,353 |              | $
|Costs and expenses            |                                                    |        | 2,096 |                        |   | 309,916                    |        |              | 115,842 |              |  
|                              |                                                    |        |       |                        |   |                            |        |              |         |              |  
|                              | Operating income                                   |        |       | (747                   | ) |                            | 39,214 |              |         | 7,511        |  
|Interest income               |                                                    |        | 841   |                        |   |                           |        |              |        |              |  
|Interest and related expenses |                                                    |        | 7,142 |                        |   | 16                         |        |              | 250     |              |  
|Other (expense) income, net   |                                                    |        | (140  | )                      |   | 32                         |        |              | (268    | )            |  
|Management fees               |                                                    |        | 633   |                        |   | (564                       | )      |              | (69     | )            |  
|Royalties                     |                                                    |        | 5,811 |                        |   | (4,943                     | )      |              | (868    | )            |  
|Intercompany interest         |                                                    |        | 5,613 |                        |   | (4,937                     | )      |              | (676    | )            |  
|                              |                                                    |        |       |                        |   |                            |        |              |         |              |  
|                              | Earnings before minority interest and income taxes |        |       | 4,869                  |   |                            | 28,786 |              |         | 5,380        |  
|Minority interests            |                                                    |        |      |                        |   |                           |        |              | 1,053   |              |  
|                              |                                                    |        |       |                        |   |                            |        |              |         |              |  
|                              | Earnings before income taxes                       |        |       | 4,869                  |   |                            | 28,786 |              |         | 4,327        |  
|Income taxes                  |                                                    |        | 2,240 |                        |   | 13,242                     |        |              | 1,991   |              |  
|                              |                                                    |        |       |                        |   |                            |        |              |         |              |  
|                              | Net earnings                                       |        | $     | 2,629                  |   | $                          | 15,544 |              | $       | 2,336        |  
|                              |                                                    |        |       |                        |   |                            |        |              |         |              |  

23

---



DRS Technologies, Inc. and Subsidiaries  Condensed Consolidating Statements of Cash Flows  Nine Months Ended December 31, 2003  (in thousands)

|                                                       |                                                                  | Parent                                              |         | Guarantor
Subsidiaries |          | Non-Guarantor
Subsidiaries |         | Eliminations |        | Consolidated |       
|------------------------------------------------------ | ---------------------------------------------------------------- | --------------------------------------------------- | ------- | ---------------------- | -------- | -------------------------- | ------- | ------------ | ------ | ------------ | ------
|Net cash (used in) provided by operating activities    |                                                                  | $                                                   | (20,147 | )                      | $        | 55,113                     |         | $            | 3,129  |              | $     
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |        |              |       
|Cash Flows from Investing Activities                   |                                                                  |                                                     |         |                        |          |                            |         |              |        |              |       
|                                                       | Capital expenditures                                             |                                                     |         | (3,207                 | )        |                            | (11,918 | )            |        | (744         | )     
|                                                       | Payments pursuant to business combinations, net of cash acquired |                                                     |         | (243,999               | )        |                            |        |              |        |             |       
|                                                       | Other investing activities                                       |                                                     |         | 325                    |          |                            | 835     |              |        | (2           | )     
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |        |              |       
|                                                       |                                                                  | Net cash used in investing activities               |         |                        | (246,881 | )                          |         | (11,083      | )      |              | (746  
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |        |              |       
|Cash Flows from Financing Activities                   |                                                                  |                                                     |         |                        |          |                            |         |              |        |              |       
|                                                       | Net borrowings of short-term debt                                |                                                     |         |                       |          |                            |        |              |        | 487          |       
|                                                       | Repayments of long-term debt                                     |                                                     |         | (418,891               | )        |                            | (456    | )            |        |             |       
|                                                       | Proceeds from senior subordinated notes                          |                                                     |         | 350,000                |          |                            |        |              |        |             |       
|                                                       | Borrowings of long-term debt                                     |                                                     |         | 236,000                |          |                            | 165     |              |        |             |       
|                                                       | Debt issuance costs                                              |                                                     |         | (14,955                | )        |                            |        |              |        |             |       
|                                                       | Proceeds from stock option exercises                             |                                                     |         | 1,041                  |          |                            |        |              |        |             |       
|                                                       | Borrowings from (repayments to) Parent                           |                                                     |         | 47,129                 |          |                            | (41,672 | )            |        | (5,457       | )     
|                                                       | Other                                                            |                                                     |         | 120                    |          |                            |        |              |        |             |       
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |        |              |       
|                                                       |                                                                  | Net cash provided by (used in) financing activities |         |                        | 200,444  |                            |         | (41,963      | )      |              | (4,970
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |        |              |       
|Effects of exchange rates on cash and cash equivalents |                                                                  |                                                     |        |                        |          |                           |         |              | 852    |              |       
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |        |              |       
|Net (decrease) increase in cash and cash equivalents   |                                                                  |                                                     | (66,584 | )                      |          | 2,067                      |         |              | (1,735 | )            |       
|Cash and cash equivalents, beginning of period         |                                                                  |                                                     | 88,114  |                        |          | 3,251                      |         |              | 4,573  |              |       
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |        |              |       
|                                                       | Cash and cash equivalents, end of period                         |                                                     | $       | 21,530                 |          | $                          | 5,318   |              | $      | 2,838        |       
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |        |              |       

24

---

DRS Technologies, Inc. and Subsidiaries  Condensed Consolidating Statements of Cash Flows  Nine Months Ended December 31, 2002  (in thousands)

|                                                       |                                                                  | Parent                                              |         | Guarantor
Subsidiaries |          | Non-Guarantor
Subsidiaries |         | Eliminations |       | Consolidated |       
|------------------------------------------------------ | ---------------------------------------------------------------- | --------------------------------------------------- | ------- | ---------------------- | -------- | -------------------------- | ------- | ------------ | ----- | ------------ | ------
|Net cash (used in) provided by operating activities    |                                                                  | $                                                   | (15,498 | )                      | $        | 32,633                     |         | $            | 8,255 |              | $     
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |       |              |       
|Cash Flows from Investing Activities                   |                                                                  |                                                     |         |                        |          |                            |         |              |       |              |       
|                                                       | Capital expenditures                                             |                                                     |         | (1,801                 | )        |                            | (10,760 | )            |       | (635         | )     
|                                                       | Payments pursuant to business combinations, net of cash acquired |                                                     |         | (196,412               | )        |                            |        |              |       |             |       
|                                                       | Proceeds from sales of businesses                                |                                                     |         | 7,684                  |          |                            |        |              |       |             |       
|                                                       | Other investing activities                                       |                                                     |         | 89                     |          |                            | (14     | )            |       | 138          |       
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |       |              |       
|                                                       |                                                                  | Net cash used in investing activities               |         |                        | (190,440 | )                          |         | (10,774      | )     |              | (497  
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |       |              |       
|Cash Flows from Financing Activities                   |                                                                  |                                                     |         |                        |          |                            |         |              |       |              |       
|                                                       | Net (payments) borrowings of short- term debt                    |                                                     |         | (54                    | )        |                            |        |              |       | 809          |       
|                                                       | Repayments of long-term debt                                     |                                                     |         | (7,737                 | )        |                            | (12,037 | )            |       | (195         | )     
|                                                       | Borrowings of long-term debt                                     |                                                     |         | 81,500                 |          |                            |        |              |       |             |       
|                                                       | Debt issuance costs                                              |                                                     |         | (2,254                 | )        |                            |        |              |       |             |       
|                                                       | Proceeds from sale of common stock                               |                                                     |         | 145,303                |          |                            |        |              |       |             |       
|                                                       | Proceeds from stock option exercises                             |                                                     |         | 581                    |          |                            |        |              |       |             |       
|                                                       | Borrowings from (repayments to) Parent Company                   |                                                     |         | 22,487                 |          |                            | (14,506 | )            |       | (7,982       | )     
|                                                       | Other                                                            |                                                     |         | (136                   | )        |                            |        |              |       |             |       
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |       |              |       
|                                                       |                                                                  | Net cash provided by (used in) financing activities |         |                        | 239,690  |                            |         | (26,543      | )     |              | (7,368
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |       |              |       
|Effects of exchange rates on cash and cash equivalents |                                                                  |                                                     |        |                        |          |                           |         |              | 539   |              |       
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |       |              |       
|Net increase (decrease) in cash and cash equivalents   |                                                                  |                                                     | 33,752  |                        |          | (4,684                     | )       |              | 929   |              |       
|Cash and cash equivalents, beginning of period         |                                                                  |                                                     | 102,213 |                        |          | 9,112                      |         |              | 6,457 |              |       
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |       |              |       
|                                                       | Cash and cash equivalents, end of period                         |                                                     | $       | 135,965                |          | $                          | 4,428   |              | $     | 7,386        |       
|                                                       |                                                                  |                                                     |         |                        |          |                            |         |              |       |              |       

25

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14.   Subsequent Events

On February 6, 2004, the Company amended its credit facility to reduce the interest rate thereunder with respect to term loans. As of the effective date of
such amendment, term loans that are LIBOR rate loans bear interest at LIBOR plus 1.75% and term loans that are base rate loans bear interest at the base rate plus 0.50%. The credit facility also
permits the Company to borrow up to two additional term loans totaling $100.0 million at any time prior to maturity.

On
January 22, 2004 a special meeting of the Company's stockholders was held, at which the Company's stockholders approved an amendment to its certificate of incorporation to
increase the Company's authorized common stock from 30,000,000 shares to 50,000,000 shares. In addition, the Company's stockholders approved an amendment and restatement of the Company's 1996 Ominibus
Plan to (a) increase the maximum number of shares available for award from 3,875,000 to 5,875,000 and (b) make certain other non-material changes to the Company's plan. The
Company's Board of Directors approved the amendments on November 6, 2003.

15.   Recently Issued Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and
Other Postretirement Benefits", to revise employers' annual and quarterly disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of
those plans required by SFAS No. 87, "Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". This Statement retains the disclosure requirements contained in SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", which it replaces. It requires additional disclosures to those in the original SFAS 132 about the
assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The annual disclosure requirements under this Statement
are effective for DRS's fiscal year ending March 31, 2004, and the quarterly disclosure requirements are effective for DRS's interim periods beginning with the quarter ending June 30,
2004.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity" (SFAS 150). The statement
establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity and requires that such instruments be classified as
liabilities. The statement was adopted by the Company effective July 1, 2003 and it did not have an impact on the Company's consolidated financial position or results of operations.

In
April 2003, FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company adopted this statement for contracts entered into or modified and for hedging relationships designated after June 30, 2003. The adoption of this
statement did not have an impact on the Company's consolidated financial position or results of operations.

26

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In
August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 applies to legal obligations associated with
the retirement of tangible long-lived assets that result from the acquisition, construction, development or normal operation of a long-lived asset, except for certain
obligations of lessees. This statement does not apply to obligations that arise solely from a plan to dispose of a long-lived asset. SFAS 143 requires that estimated asset
retirement costs be measured at their fair values and recognized as assets and depreciated over the useful life of the related asset. Similarly, liabilities for the present value of asset retirement
obligations are to be recognized and accreted each year to their estimated future value until the asset is retired. As required, the Company adopted SFAS 143 on April 1, 2003. The
adoption of SFAS 143 had an immaterial impact on the Company's consolidated financial statements.

27

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

The following is management's discussion and analysis (MD&A) of the consolidated financial condition and results of operations of DRS Technologies, Inc.
and its Subsidiaries (hereinafter, we, us, our, the Company or DRS) as of December 31, 2003, and for the three- and nine-month periods ended December 31, 2003 and 2002. This
discussion should be read in conjunction with the audited consolidated financial statements and related notes contained in our February 2, 2004 filing on Form S-4 with the Securities and
Exchange Commission.

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 the
Company's 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, particularly Integrated Defense Technologies, Inc., which represents our largest and most significant acquisition to date (see "Merger With Integrated
Defense Technologies, Inc." below); the uncertainty of acceptance of new products and successful bidding and re-bidding for new and existing contracts, respectively; the effect of
technological changes or obsolescence relating to our products and services and the effects of government regulation or shifts in the U.S government's domestic and foreign 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.

Overview

DRS Technologies, Inc., headquartered in Parsippany, New Jersey, is a leading supplier of defense electronic products and systems. We provide
high-technology products and services to all branches of the U.S. military, major defense and aerospace prime contractors, government intelligence agencies, international military forces
and certain industrial markets. Incorporated in 1968, we have served the defense industry for 35 years. 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. Our products are deployed on a wide
range of high-profile military platforms, such as DDG-51 Aegis destroyers, M1A2 Abrams Main Battle Tanks, M2A3 Bradley Fighting Vehicles, OH-58D Kiowa Warrior
helicopters, AH-64 Apache helicopters, F/A-18E/F Super Hornet and F-16 Fighting Falcon jet fighters, C-17 Globemaster II and C-130 Hercules
cargo aircraft, Virginia class submarines and on other platforms for military and non-military applications. We also have contracts that support future military platforms, such as the
DD(X) destroyer and the CVN-21 next generation aircraft carrier. We employ approximately 5,700 people worldwide.

Merger With Integrated Defense Technologies, Inc.

On November 4, 2003, we acquired all of the outstanding stock of Integrated Defense Technologies, Inc. (IDT) in a purchase business combination. The
total merger consideration was

28

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$367.4 million
including $261.3 million in cash and 4,323,172 shares of our common stock valued at $24.55 per share, plus merger-related costs of approximately $5.0 million. Upon
closing of the merger we refinanced approximately $200.8 million of IDT's bank debt. The cash consideration for the merger and the IDT bank debt were refinanced with initial borrowings under
our amended and restated credit facility, the issuance of 67/8% senior subordinated notes due 2013 and existing cash on hand. IDT is a developer and provider of mission-critical,
advanced electronics and technology products for the defense and intelligence industries. IDT's systems, subsystems and components are sold to all branches of the U.S. armed services, various
government agencies, major prime defense contractors and international governments.

We
believe IDT's products and technologies complement our program and military platform experience and that IDT is well positioned to leverage the military's near-term force
modernization and emerging transformation initiatives through its complementary programs, depth of engineering talent, commitment to investments in research and development, and breadth of technology.
Many of IDT's products are vital components of systems considered mission critical or mission essential to the operational goals of the U.S. Department of Defense.

We
believe that the merger with IDT provides us with several strategic benefits, including the following:



Simultaneous
with the closing of the merger, we entered into an amended and restated credit facility for up to an aggregate amount of $411.0 million, replacing our previously
existing senior credit facility. The amended and restated credit facility consists of a $175.0 million senior secured revolving line of credit and a $236.0 million senior secured term
loan. We utilized the full amount of the term loan to fund a portion of the merger, to repay certain of our and IDT's outstanding indebtedness, and to pay related fees and expenses. There were no
initial borrowings under our revolving line of credit. See "Liquidity and Capital Resources" below for additional information regarding our amended and restated credit facility.

Also
in connection with the merger, on October 30, 2003, we issued $350.0 million of 67/8% Senior Subordinated Notes, due November 1, 2013 (the
Notes). The net proceeds from the offering of the notes were $341.2 million, after deducting $8.8 million in commissions and fees related to the offering.

Company Organization and Products

At December 31, 2003, we operated in four principal operating segments on the basis of products and services offered. Each operating segment is comprised
of separate and distinct businesses: the Electronic Systems Group, the Electro-Optical Systems Group, the Flight Safety and Communications Group and the Intelligence, Training and Test Group. All
other operations are grouped in Other. The Intelligence, Training and Test Group became our fourth operating segment following our merger with IDT on November 4, 2003.

Our
Electronic Systems Group (ESG) is a leader in high-performance combat display systems, digital information processing systems, power generation, conversion, distribution,
propulsion and

29

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control
systems, and battlefield digitization systems for sea, air and land applications supporting military modernization and transformation initiatives. ESG also produces radar surveillance and
tracking systems, acoustic signal processing systems, flat panels and other computer peripherals, signal intelligence products, ship networks and middleware to promote interoperability and
compatibility with the military's new and existing systems. ESG's products are used on various front-line platforms, such as ships, amphibious operation platforms, surveillance aircraft,
submarines and mobile ground platforms, and our power systems are installed on every combatant ship in the U.S. Navy, including destroyers, aircraft carriers and attack submarines. ESG is a leader in
battlefield digitization programs for the U.S. Army and the British Army. The group also provides technical support services, including worldwide field service, depot-level repair, equipment
installation and integrated logistics for the Navy's fleet, avionics support for U.S. and international helicopter and airlift aircraft, hardware and software system engineering, and electronic
manufacturing, testing and system integration services.

Our
Electro-Optical Systems Group (EOSG) is a leader in second-generation electro-optical infrared sighting, surveillance, targeting and weapons guidance systems, assemblies and
components used in the aerospace and defense industry and is one of only two key suppliers to the U.S. government for advanced focal plane array sensor technology. EOSG product designs are based on
infrared cooled and uncooled sensor system technologies. EOSG designs, manufactures and markets these systems to allow operators to detect, identify and track targets based on their infrared
signatures regardless of the ambient light level. The group's cooled systems, which utilize advanced detectors and cryogenic cooler assemblies, are used on the most critical front-line
ground vehicle, surface ship and weapons system platforms of the U.S. Army, Navy and Marine Corps, including the M1A2 Abrams Main Battle Tanks, M2A3 Bradley Fighting Vehicles, OH-58D Kiowa
Warrior helicopters, AH-64 Apache helicopters, DDG Aegis class destroyers and cruisers, Javelin Missile Systems and the HMMWV Scout vehicles. EOSG's uncooled sighting systems are lighter
weight, less expensive thermal imaging systems used for man-portable weapons, transportable gimbals, head-gear, hand-held devices and vehicle-mounted sights for
enhancement of driver vision. EOSG also produces medium-range Unmanned Aerial Vehicles (UAVs) and seeks to incorporate DRS's core technologies, such as computer display systems, electro-optical and
infrared sensors and targeting systems, high-speed digital cameras, data recording, communications and other intelligence gathering equipment, onto these platforms to support special
military operations, surveillance and targeting missions, payload drops and civil applications.

Our
Flight Safety and Communications Group (FSCG) is a leader in deployable flight incident recorders and emergency locator beacon systems used by military and commercial search and
rescue platforms to locate downed aircraft. FSCG also is a leader in the supply of Link 11 data transmission products supporting coordinated theater warfare and enhanced tactical command and control
operations. FSCG provides tactical data link communication products, secure modems, telephonic products and next-generation secure voice and data communications systems for advanced
digital communications networks. These technologies support the crucial exchange of tactical command and control data with ship, shore and air platforms and have applicability to the Joint Fires
Network to support a network-centric warfare system for real-time intelligence correlation, sensor control, target generation, mission planning and battle damage assessment. The group also
designs and produces fully integrated non-secure Naval ship communication systems, ground radar surveillance systems, infrared search and track systems, aircraft mission recording systems,
aircraft weapons calibration systems and high-speed digital imaging systems for U.S. and international defense, aerospace and commercial customers. FSCG's equipment operates on board a
wide range of U.S., Canadian and other international surface ships, carriers, fixed-wing aircraft, helicopters, ground vehicles, soldier systems and commercial space-based platforms. In
addition, FSCG provides electronic manufacturing services to the defense, aerospace, commercial and space industries.

Our
Intelligence, Training and Test Group (ITTG) is a leading developer and provider of mission-critical, advanced electronics and technology products for the defense and intelligence
industries. ITTG

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systems,
subsystems, and components are sold to all branches of the U.S. armed services, various government agencies, major prime defense contractors and international governments. Many of ITTG's
products are vital components of systems considered mission critical or mission essential to the operational goals of the U.S. Department of Defense. With a diversified base of over 500 products on
approximately 250 programs, ITTG's systems are installed on or support 275 platforms. These platforms include the U.S. Air Force F-16 Fighting Falcon, C-17 Globemaster II,
C-130 Hercules and U.S. Navy F/A 18 Hornet; U.S. Navy DDG Aegis destroyer, LHD-8 Amphibious Assault Ship and Trident submarine; US Army M1A1 Abrams Main Battle Tank, Light
Armored Vehicle, High Mobility Multi-purpose Wheeled Vehicle (HMMWV) and M2A3 Bradley Fighting Vehicle; and the U.S. Army Patriot and U.S. Navy Tomahawk missile systems.

"Other"
includes the activities of DRS Corporate Headquarters, DRS Ahead Technology (for the period it was owned by us during the first quarter of fiscal 2003) and certain
non-operating subsidiaries of the Company. The assets of DRS Ahead Technology were sold on May 27, 2002.

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
March 31, 2003 consolidated financial statements included in our February 2, 2004 Filing on Form S-4 with the Securities and Exchange Commission. 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, long-lived
assets and acquired intangible assets, valuation of deferred tax assets and liabilities, and other management estimates. For additional discussion of our critical accounting policies, see our MD&A in
our filing on Form S-4 with the Securities and Exchange Commission February 2, 2004.

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 quarter, or quarter-to-quarter comparisons of recorded revenues and earnings, may not be indicative of future operating results. The following
comparative analysis should be viewed in this context.

Consolidated Summary

|                              |  | Three Months Ended
December 31, |         | Nine Months Ended
December 31,
|----------------------------- |  | ------------------------------- | ------- | ------------------------------
|
|Revenues                      |  | $                               | 280,636 |                               
|Operating income              |  | $                               | 28,423  |                               
|Interest income               |  | $                               | 85      |                               
|Interest and related expenses |  | $                               | 7,513   |                               
|Earnings before income taxes  |  | $                               | 20,409  |                               
|Income taxes                  |  | $                               | 8,776   |                               
|EBITDA                        |  | $                               | 36,720  |                               

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Three- and Nine-Month Periods Ended December 31, 2003, Compared with the Three- and Nine-Month Periods Ended December 31, 2002

Consolidated revenues and operating income for the three-month period ended December 31, 2003 were $280.6 million and $28.4 million,
respectively, as compared with consolidated revenues and operating income of $167.5 million and $16.6 million, respectively, in the corresponding prior-year period. The
increase in third quarter revenues was primarily driven by our November 4, 2004 merger with IDT (now operating as our ITTG operating segment) and our fiscal 2003 acquisitions of
Paravant Inc. (Paravant), Kaman's Electromagnetics Development Center (now operating as DRS Electric Power Technologies, Inc.DRS EPT), and Power Technology Incorporated (now
operating as DRS Power Technology, Inc.DRS PTI), all of which were acquired in the second half of fiscal 2003. ITTG contributed $51.8 million in revenues during the three
months ended December 31, 2003, while the Paravant, DRS EPT and DRS PTI acquisitions contributed a total of $31.9 million of incremental (i.e., current year quarter over prior-year
quarter) revenues during the same period. Also contributing to the overall growth in revenues were increased shipments of airborne and ground-based electro-optical sighting systems, as well as
increased shipments of combat display workstations. Partially offsetting the overall increase in revenues were decreases from certain rugged computer systems and combat display workstation engineering
services. The overall increase in revenues was the primary driver of our operating income growth. Partially offsetting the increase in operating income were certain program-related charges (see
Operating Segments discussion below). The ITTG group contributed $4.6 million of operating income to the current quarter ended December 31, 2003, while the Paravant, DRS EPT, DRS PTI
acquisitions contributed incremental operating income of $7.1 million to the same period. During the third quarter of fiscal 2003, we sold our DRS Advanced Programs, Inc. (DRS API)
operating unit and recorded a loss of $0.6 million in connection with the sale. The three months ended December 31, 2002 included revenues and an operating loss of $1.8 million
and $0.3 million, respectively, from DRS API.

Consolidated
revenues and operating income for the nine-month period ended December 31, 2003 were $654.1 million and $66.0 million, respectively, as
compared with consolidated revenues and operating income of $460.0 million and $46.0 million, respectively, in the corresponding prior-year period. The increase in
year-to-date revenues was primarily a result of our fiscal 2003 acquisitions and the addition of ITTG. In addition to Paravant, DRS EPT and DRS PTI, during fiscal 2003, we
acquired the Navy Controls Division of Eaton Corporation (now operating as DRS Power & Control Technologies, Inc.DRS PCT) and completed two immaterial acquisitions. Our
fiscal 2003 acquisitions contributed incremental revenues of $130.3 million to the nine-month period ended December 31, 2003, ITTG contributed $51.8 million of
revenues since the merger on November 4, 2003. Also contributing to the overall growth in revenues were increased shipments of airborne and ground-based electro-optical sighting systems, as
well as increased shipments of combat display workstations. Partially offsetting the overall increase in revenues were decreases from combat display workstation engineering services, advanced
electronic manufacturing and integration services, certain maritime-based electro-optical systems and certain rugged computer systems. The overall increase in revenues was the primary driver of our
operating income growth, offset in part by certain program-related charges (see "Operating Segments" discussion below). Our fiscal 2003 acquisitions and the ITTG group contributed incremental
operating income of $22.5 million and $4.6 million, respectively, to the nine months ended December 31, 2003. In addition to a $0.6 million loss recorded in connection with
its sale, the nine months ended December 31, 2002 included revenues and an operating loss of $8.5 million and $1.1 million, respectively, from DRS API.

Interest
income decreased $73 thousand and $0.2 million for the three- and nine-month periods ended December 31, 2003, respectively, as compared with the
corresponding prior-year periods. The decreases in interest income reflect lower average cash and cash equivalents balances and lower interest rates during the fiscal 2004
third-quarter and year-to-date periods, as compared with the corresponding prior-year periods. Interest and related expenses increased
$4.9 million and $7.3 million for the three-

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and
nine-month periods ended December 31, 2003, respectively, as compared with the same periods in fiscal 2003. The increases in interest expense are a result of an increase in our
average borrowings outstanding in fiscal 2004, as well as $0.9 million of fees associated with our subordinated bridge loan commitment to secure financing in the event that we were unable to
successfully consummate the October 30, 2003 issuance of the Notes. The overall increase in our average borrowings was a result of our merger with IDT and our November 27, 2002
acquisition of Paravant. As discussed above, in connection with the IDT merger, we issued $350.0 million of 67/8% Senior Subordinated Notes and increased our term loan
borrowings. Partially offsetting the overall increase in interest expense, that resulted from the increase in our average borrowings outstanding in fiscal 2004, was the benefit of lower weighted
average interest rates on our term loan borrowings, as compared with the same period in the prior-year.

The
provision for income taxes for the quarter and year-to-date periods ended December 31, 2003 reflect effective income tax rates of approximately 43% and
44%, respectively, as compared with 46% for both periods in the prior year. Our effective income tax rate decreased, as compared with the corresponding prior year periods, as the growth of our
operations
have reduced the effect of certain non-deductible expenses. We anticipate that our effective tax rate will approximate 43% for the year ending March 31, 2004.

Earnings
before net interest and related expenses (primarily the amortization of debt issuance costs), income taxes, depreciation and amortization (EBITDA) for the three- and
nine-month periods ended December 31, 2003 was $36.7 million and $84.3 million, respectively, increases of 77.9% and 49.1%, respectively, over the same periods in the
prior year. See "Use of Non-GAAP Financial Measures" below.

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

|                  |  | Three Months Ended
December 31, |         | Three Months
Ended Percent
Changes |   | Nine Months Ended
December 31 |   | Nine Months
Ended Percent
Changes |   
|----------------- |  | ------------------------------- | ------- | ---------------------------------- | - | ----------------------------- | - | --------------------------------- | --
|
|
|ESG               |  |                                 |         |                                    |   |                               |   |                                   |   
|External revenues |  | $                               | 122,936 |                                    | $ | 80,215                        |   | 53.3                              | % 
|Operating income  |  | $                               | 11,775  |                                    | $ | 6,485                         |   | 81.6                              | % 
|Operating margin  |  |                                 | 9.6     | %                                  |   | 8.1                           | % | 18.5                              | % 
|EOSG              |  |                                 |         |                                    |   |                               |   |                                   |   
|External revenues |  | $                               | 77,941  |                                    | $ | 62,872                        |   | 24.0                              | % 
|Operating income  |  | $                               | 8,589   |                                    | $ | 7,175                         |   | 19.7                              | % 
|Operating margin  |  |                                 | 11.0    | %                                  |   | 11.4                          | % | (3.5                              | )%
|FSCG              |  |                                 |         |                                    |   |                               |   |                                   |   
|External revenues |  | $                               | 27,996  |                                    | $ | 24,453                        |   | 14.5                              | % 
|Operating income  |  | $                               | 3,504   |                                    | $ | 2,766                         |   | 26.7                              | % 
|Operating margin  |  |                                 | 12.5    | %                                  |   | 11.3                          | % | 10.6                              | % 
|ITTG              |  |                                 |         |                                    |   |                               |   |                                   |   
|External revenues |  | $                               | 51,763  |                                    |   |                              |   | N/A                               |   
|Operating income  |  | $                               | 4,570   |                                    |   |                              |   | N/A                               |   
|Operating margin  |  |                                 | 8.8     | %                                  |   | N/A                           |   | N/A                               |   
|Other             |  |                                 |         |                                    |   |                               |   |                                   |   
|External revenues |  | $                               |        |                                    | $ |                              |   | N/A                               |   
|Operating (loss)  |  | $                               | (15     | )                                  | $ | 144                           |   | (110.4                            | )%
|Operating margin  |  |                                 | N/A     |                                    |   | N/A                           |   | N/A                               |   

Electronic Systems Group

Revenues increased $42.7 million, or 53.3%, to $122.9 million for the three-month period ended December 31, 2003, as compared with the
corresponding prior-year period. Operating income increased $5.3 million to $11.8 million. The increase in revenues was driven primarily by our fiscal 2003 acquisitions of
Paravant, DRS EPT and DRS PTI. Paravant was acquired on November 27, 2002, and DRS EPT and DRS PTI were acquired subsequent to December 31, 2002. Collectively these acquisitions
contributed $31.9 million in incremental revenues to the quarter ended December 31, 2003. Also favorably impacting fiscal 2004 third quarter revenues were increases from combat display
workstations and Navy nuclear power systems. Partially offsetting the overall increase in revenues were reduced revenues from certain rugged computer systems and combat display workstation engineering
services. Revenues for the three months ended December 31, 2002 included $1.8 million from DRS API, which was sold in the third quarter of fiscal 2003. The increase in operating income
was driven primarily by the fiscal 2003 acquisitions mentioned above, which contributed $7.1 million of incremental operating income to the three months ended December 31, 2003. These
increases were partially offset by the impact of lower revenues from combat display workstation engineering shared services, certain rugged computer systems and fiscal 2004 third quarter charges
totaling $2.2 million. The charges were recorded for program cost growth of $0.9 million on certain radar programs and $1.3 million for various other programs. DRS API recorded an
operating loss of $0.3 million for the three months ended December 31, 2002. ESG also recorded a $0.6 million loss on the sale of DRS API during the third quarter of fiscal 2003.

34

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Revenues
increased $129.3 million, or 70.3%, to $313.4 million for the nine-month period ended December 31, 2003, as compared with the corresponding
prior-year period. Operating income increased $18.9 million to $31.0 million. The increase in revenues was driven primarily by our fiscal 2003 acquisitions of DRS PCT,
Paravant, DRS EPT and DRS PTI. Collectively these acquisitions contributed $127.3 million of incremental revenues to the nine months ended December 31, 2003. Also favorably impacting
revenues were increased sales of combat display workstations. Partially offsetting the overall increase in revenues were decreases from combat display workstation engineering services volume, certain
rugged computer systems and certain aircraft wire harness and cable assemblies. Revenues for the nine months ended December 31, 2002 included $8.5 million from DRS API, which was sold in
the third quarter of fiscal 2003. The increase in operating income was driven primarily by the fiscal 2003 acquisitions mentioned above, which contributed $21.6 million of incremental operating
income. These increases were partially offset by charges totaling $6.6 million. The charges recorded included program cost growth of $3.6 million on certain surface search radar programs
and $3.0 million for various other programs. The nine months ended December 31, 2002 included charges of $2.0 million at ESG's U.K. operating unit. The charges included
$1.7 million for cost growth and inventory write-offs on certain programs and $0.3 million for employee severance. DRS API recorded an operating loss of $1.1 million
for the nine months ended December 31, 2002. ESG also recorded a $0.6 million loss on the sale of DRS API in the nine months ended December 31, 2002.

Electro-Optical Systems Group

Revenues increased $15.1 million, or 24.0%, to $77.9 million for the three-month period ended December 31, 2003, as compared with the
corresponding prior-year period. The increase in revenues was driven by increased shipments of our airborne and ground-based electro-optical sighting and targeting systems and uncooled
infrared targeting systems. Also, our October 15, 2002 acquisition of DKD, Inc. (DRS Nytech) contributed $0.9 in incremental revenues to the quarter ended December 31, 2003.
Partially offsetting the overall increase in revenues were decreased shipments of maritime-based electro-optical systems and commercial laser vision correction systems. Operating income increased
$1.4 million, or 19.7%, to $8.6 million. The increase in fiscal 2004 third quarter operating income, as compared with the corresponding prior-year period, primarily resulted
from the overall increase in revenues and the impact of a $1.2 million net favorable program adjustment due to a change in estimate to complete.

Revenues
increased $17.7 million, or 8.9%, to $218.2 million for the nine-month period ended December 31, 2003, as compared with the corresponding
prior-year period. The increase in revenues was driven by increased shipments of our ground-based and airborne electro-optical sighting and targeting systems and uncooled infrared
targeting systems. Also, our acquisition of DRS Nytech contributed $4.4 million in incremental revenues to the nine months ended December 31, 2003. Partially offsetting the overall
increase in revenues were decreased shipments of certain maritime-based infrared targeting and imaging systems and commercial laser vision correction systems. Operating income decreased
$3.8 million to $23.0 million. The decrease in operating income resulted from unfavorable operating margins on an automated aircraft tracking system program and a $1.0 million net
charge for a thermal target and acquisition system program offset, in part, by the impact of a $1.2 million favorable program adjustment due to a change in estimate to complete as discussed
above. The change in operating income also reflects a $1.9 million favorable program adjustment on an airborne-based infrared targeting and imaging system.

Flight Safety and Communications Group.

Revenues increased $3.5 million, or 14.5%, to $28.0 million for the three-month period ended December 31, 2003, as compared with the
corresponding prior-year period. Operating income increased $0.7 million, or 26.7%, to $3.5 million. The increased revenues are the result of higher sales of certain radar
surveillance systems, certain boresighting systems, portable long range infrared surveillance

35

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systems
and advanced electronic manufacturing and integration services, partially offset by declines in certain surface ship communication systems and high-speed digital imaging systems
used in airborne and commercial applications. The increase in operating income was the result of $1.5 million and $0.6 million in charges in the prior year for cost growth on a mission
data recorder program and reorganization charges in the operating group's Canadian and U.K. operations, respectively, and higher sales in the current quarter.

Revenues
decreased $3.4 million, or 4.6%, to $70.7 million for the nine-month period ended December 31, 2003, as compared with the corresponding prior
year period. Operating income decreased $0.3 million, or 4.3%, to $7.4 million. The primary drivers of the revenue decline are lower sales in advanced electronic manufacturing and
integration services, surface ship communications systems and certain digital tape format mission data recorders. Partially offsetting the overall decrease in revenues were increased revenues from
certain boresighting systems, secure communications equipment and surveillance radar systems. The decrease in operating income was a result of the overall decrease in revenues, and a
$0.6 million charge for employee benefit liabilities in the group's U.K. operating unit. The prior year included $1.5 million and $0.6 million in charges for cost growth on a
mission data recorder program and reorganization charges in the operating group's Canadian and U.K. operations, respectively.

Intelligence, Training and Test Group

Since its acquisition on November 4, 2003 through December 31, 2003, the operational units acquired in connection with IDT now operating as the
Intelligence, Training and Test Group recorded revenues and operating income of $51.8 million and $4.6 million, respectively. The primary revenue and operating income drivers in the
group were radio frequency surveillance equipment used in signal intelligence applications, automated testing products and threat simulation and training equipment.

Other

The variance in operating (loss) in the three and nine months ended December 31, 2003, as compared with the same period in the prior year, was driven by
our sale of substantially all of the assets and liabilities of our DRS Ahead Technology operating unit on May 27, 2002 and the impact of certain non-allocable general and administrative
expenses at DRS corporate. DRS Ahead Technology contributed $1.3 million of revenues and $0.5 million of operating losses to the nine months ended December 31, 2002.

Liquidity and Capital Resources

The following table provides our cash flow data for the nine months ended December 31, 2003 and 2002:

Nine Months Ended December 31,2003

2002(in thousands)Net cash provided by operating activities

$
38,095

$
25,389Net cash used in investing activities

$
(258,710
)
$
(201,711
)Net cash provided by financing activities

$
153,511

$
205,780


Operating ActivitiesFor the nine months ended December 31, 2003, we generated $38.1 million of operating cash
flow, $12.7 million more than the $25.4 million reported in the corresponding prior-year period. Net earnings increased $7.9 million, or 38.4%, over the
prior-year period due mainly to the contribution of our fiscal 2003 acquisitions and the merger with IDT. Adjustments to reconcile net earnings to cash flows from operating activities
increased $10.5 million over the corresponding prior-year period. Depreciation and amortization primarily increased as a result of our fiscal 2003

36

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acquisitions,
and the merger with IDT as well as increased investments made in our facilities and equipment to upgrade our existing infrastructure.

Amortization
of deferred debt issuance costs increased over the prior-year period related to fees that we incurred to increase our credit facility in both the current quarter
as well as the third quarter of fiscal 2003 and for fees that we incurred to issue the Notes. These fees are amortized over the life of the credit facility and are recorded as a component of interest
expense. Non-cash activity in our inventory and accounts receivable reserve accounts increased in the first nine months of fiscal 2004, as compared with fiscal 2003.

Changes
in working capital accounts net of effects from business combinations and divestitures used $15.3 million in cash, as compared with the $9.7 million used in the
corresponding prior-year period. The main drivers of the use in cash consisted of the following:



Free
cash flow (net cash provided by operating activities less capital expenditures) was $22.2 million and $12.2 million for the nine months ended December 31, 2003
and 2002, respectively. See Use of Non-GAAP Financial Measures below.

Investing ActivitiesWe paid $15.9 million and $13.2 million for capital asset expenditures during the nine
months ended December 31, 2003 and 2002, respectively. Capital asset expenditures for fiscal 2004 are forecasted to be approximately $25.0 million.

The
following table summarizes cash outflows during the nine months ended December 31, 2003 related to certain fiscal 2002 and 2003 business combinations, as well as cash outflows
associated with our acquisition of Integrated Defense Technologies, Inc.:

|Business Combinations                       |  | Paid to Sellers,
Net of Cash
Acquired |         | Earn-Out
Payments |   | Working
Capital
Adjustment |  | Acquisition
Related Payments |     | Total
|------------------------------------------- |  | ------------------------------------- | ------- | ----------------- | - | -------------------------- |  | ---------------------------- | --- | -----
|
|SES Business of the Boeing Company          |  | $                                     |        |                   | $ |                           |  | $                            |    |      
|Navy Controls Division of Eaton Corporation |  |                                       |        |                   |   |                           |  |                              |    |      
|DKD, Inc (Nytech)                           |  |                                       |        |                   |   |                           |  |                              |    |      
|Paravant Inc.                               |  |                                       |        |                   |   |                           |  |                              |    |      
|Kaman Electromagnetics Development Center   |  |                                       |        |                   |   |                           |  |                              |    |      
|Power Technology Incorporated               |  |                                       |        |                   |   | 4,000                      |  |                              | 547 |      
|Integrated Defense Technologies, Inc.       |  |                                       | 233,810 |                   |   |                           |  |                              |    |      
|                                            |  |                                       |         |                   |   |                            |  |                              |     |      
|Totals                                      |  | $                                     | 233,810 |                   | $ | 4,000                      |  | $                            | 547 |      
|                                            |  |                                       |         |                   |   |                            |  |                              |     |      

37

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Financing ActivitiesFor the nine months ended December 31, 2003, net financing activities provided
approximately $153.5, million as detailed below:

Nine Months Ended
December 31, 2003(in thousands)Sources of CashSenior subordinated notes

$
350,000Amended and restated credit facilityterm loan


236,000Stock option exercises


1,041Other


772Total


587,813Uses of CashRepayment of original term loan


(211,450
)Scheduled payments on original term loan


(1,664
)Repayment of IDT term loan


(200,776
)Scheduled payment on Nytech note


(5,000
)Other payments on debt


(457
)Debt issuance costs


(14,955
)Total


(434,302
)Net Cash Provided by Financing Activities

$
153,511


Simultaneous
with the closing of the merger with IDT on November 4, 2003, we entered into an amended and restated senior credit facility with Wachovia Bank, N. A. as the
Administrative Agent for up to an aggregate amount of $411.0 million, replacing our previously existing senior credit facility. The amended and restated credit facility consists of a
$175.0 million senior secured revolving line of credit and a $236.0 million senior secured term loan (the Credit Facility). The amended and restated credit facility is guaranteed by
substantially all of our domestic subsidiaries. In addition, it is secured by liens on substantially all of the DRS's subsidiary guarantors' and certain of DRS's other subsidiaries' assets and by a
pledge of certain of our subsidiaries' capital stock. The term loan and the revolving credit facility will mature in seven and five years, respectively, from the closing date of the amended and
restated credit facility. We drew down the full amount of the term loan to fund a portion of the IDT
merger, to repay certain of our and IDT's outstanding indebtedness and to pay related fees and expenses. There were no initial borrowings under the revolving line of credit.

On
February 6, 2004, we amended our Credit Facility to reduce the interest rate thereunder with respect to the term loans (the Amended Credit Facility). As of the effective date
of such amendment, term loans that are LIBOR rate loans bear interest at LIBOR plus 1.75% and term loans that are base rate loans bear interest at the base rate plus 0.50%. The credit facility also
permits us to borrow up to two additional term loans totaling $100 million at any time prior to maturity.

Borrowings
under the Amended Credit Facility bear interest, at our option, at either: a "base rate", as defined in the amended and restated credit agreement, equal to the higher of 0.50%
per annum above the latest prime rate and federal funds rate, or a LIBOR rate, as defined in the amended and restated credit agreement. Revolving credit loans that are base rate loans bear interest at
the base rate plus a spread ranging from 0.50% to 1.25% per annum, depending on the our total leverage ratio (TLR) at the time of determination. Revolving credit loans that are LIBOR rate loans bear
interest at LIBOR plus a spread ranging from 1.75% to 2.50% per annum, depending on our TLR. Term loans that are base rate loans bear interest at the base rate plus 0.5% per annum, depending on the
our TLR. Term loans that are LIBOR rate loans bear interest at LIBOR plus 1.75% per annum, depending on the our TLR. TLR is defined as total debt minus the sum of (A) performance-based letters
of

38

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credit
and (B) so long as there are no outstanding revolving credit loans, an amount (not to exceed $100.0 million) equal to the amount of cash and cash equivalents of DRS immediately
available to repay the obligations thereof, as compared with EBITDA, as defined in the amended and restated credit agreement. We pay commitment fees calculated on the average daily unused portion of
our revolving line of credit at a rate of 0.50% per annum, provided that the amount of outstanding swingline loans, as defined in the credit agreement, shall not be considered usage of the revolving
line of credit for the purpose of calculating such commitment fee. We pay commissions and issuance fees on our outstanding letters of credit and are obligated to pay or reimburse the issuing lender
for such normal and customary costs and expenses incurred or charged by the issuing lender in issuing, effecting payment under, amending or otherwise administering any letter of credit. Letter of
credit commissions are calculated at a rate ranging from 2.25% to 3.00% per annum, depending on the Company's TLR ratio at the time of issuance, multiplied by the face amount of such letter of credit.
Letter of credit issuance fees are charged at 0.125% per annum multiplied by the face amount of such letter of credit. Both letter of credit commissions and issuance fees are paid quarterly. There are
certain covenants and restrictions placed on us under the amended and restated credit facility, including, but not limited to, a maximum total leverage ratio, a maximum senior leverage ratio, a
minimum fixed charge coverage ratio and restrictions on equity issuances, payment of dividends on our capital stock, the issuance of additional debt, incurrence of liens and capital expenditures, and
a requirement that we make mandatory principal prepayments in the manner set forth in the credit agreement on the revolving credit loans and the term loans outstanding with 50% of the aggregate net
cash proceeds from any equity offering if our total leverage ratio, as defined in the credit agreement, exceeds 2.00 to 1.00.

The
principal amount of revolving credit loans outstanding are due and payable in full on the fifth anniversary of the closing date of the IDT merger. We will repay the aggregate
outstanding principal
amount of the term loan in consecutive quarterly installments on the last business day of each December, March, June and September, the first of which was paid on December 31, 2003. From
December 31, 2003 through September 30, 2009, each such principal payment will equal $590,000. Beginning with the payment on December 31, 2009 through September 30, 2010,
each principal payment will equal approximately $55.5 million.

As
of December 31, 2003, $235.4 million of term loans were outstanding against the Credit Facility. In addition to the term loans, $46.7 million was contingently
payable under letters of credit (approximately $1.5 million and $8.5 million of the letters of credit outstanding as of December 31, 2003 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). As of December 31, 2003 we had
$138.2 million available under our revolving line of credit. As of March 31, 2003, $212.5 million of term loans were outstanding under the original credit facility. The effective
interest rate on our term loans was 3.7% as of December 31, 2003 (4.4% as of March 31, 2003). There were no borrowings under our revolving line of credit as of December 31, 2003
and March 31, 2003.

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.

Also
in connection with the IDT merger, on October 30, 2003, we issued $350.0 million of 67/8% Senior Subordinated Notes, due November 1, 2013 (the
Notes). Interest is payable every six months on May 1 and November 1, commencing May 1, 2004. The net proceeds from the offering of the Notes was $341.2 million, after
deducting $8.8 million in commissions and fees related to the offering. The net proceeds of the offering, together with a portion of our available cash and initial borrowings under our amended
and restated credit facility, were used to fund a portion of the IDT merger, repay certain of our and IDT's outstanding indebtedness and pay related fees and expenses. The Notes were issued under an
indenture with The Bank of New York. Subject to a number of important exceptions, the

39

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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 our current and future wholly-owned, domestic subsidiaries. The foreign subsidiaries and certain domestic subsidiaries of DRS do not guarantee the Notes.

We
have a mortgage note payable that is secured by our DRS Tactical Systems facility (DRS TS) located in Palm Bay, Florida, which bears interest at a rate equal to the
one-month LIBOR plus 1.65%. Effective April 1, 2001, Paravant entered into a 15-year interest rate swap with an original notional amount of $3.6 million to
receive interest at a variable rate equal to the one month LIBOR and to pay interest at a fixed rate of 7.85%. The balance of the mortgage as of
December 31, 2003 and March 31, 2003 was $3.2 million and $3.3 million, respectively. Payment of principal and interest will continue through December 1, 2016.

On
October 15, 2002, we issued an $8.0 million promissory note, bearing interest at 6% per annum, related to the Nytech acquisition (Nytech Note). On October 14,
2003, we made a $5.0 million principal payment along with a $0.5 million payment for accrued interest. The remaining $3.0 million principal payment and related accrued interest is
due on October 15, 2004.

On
June 5, 2003, we entered into two interest rate swap agreements, each in the amount of $25.0 million, with Wachovia Bank, N.A. and Fleet Bank (the Banks), respectively,
on our variable rate senior secured term loan facility. 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, DRS will pay or receive the difference between the variable interest rate payable by the Banks and the fixed 2.59% interest rate payable by DRS. The
variable interest rate paid by the Banks is based on the three month LIBOR and is determined on the first day of each calculation period. The difference to be paid or received on these swap
agreements, as interest rates change, is recorded as an adjustment to interest expense. 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. The swaps are continuing to be accounted for as cash flow hedges subsequent to the February 6, 2004 amending
and restating of our credit facility.

Based
upon our anticipated level of future operations, we believe that our existing cash and cash equivalents balances and our cash 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 continue to
generate cash flow at current levels or that currently anticipated improvements will be achieved. 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.

40

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The table below presents our contractual obligations at December 31, 2003, reflecting our current obligations based on our amended and restated credit
facility and the issuance of the Notes.

|                              |  | As of December 31, 2003
|----------------------------- |  | -----------------------
|
|
|
|Long-term debt obligations    |  | $                      
|Operating lease commitments   |  |                        
|                              |  |                        
|Total contractual obligations |  | $                      
|                              |  |                        

The
table below presents our contingent obligations at December 31, 2003.

|                                                        |  | As of December 31, 2003
|------------------------------------------------------- |  | -----------------------
|
|
|
|Outstanding letters of credit under our credit facility |  | $                      
|Other outstanding letters of credit                     |  |                        
|Acquisition earnouts (A)                                |  |                        
|                                                        |  |                        
|                                                        |  | $                      
|                                                        |  |                        

---



Funded backlog represents products or services that our customers have committed by contract to purchase from us. Due to the general nature of defense procurement
and contracting, the operating cycle for our military business typically has been long-term. Military backlog currently consists of various production and engineering development contracts
with varying delivery schedules and project timetables. Our backlog also includes a significant amount of commercial off-the-shelf (COTS)-based systems for the military, which
favors shorter delivery times. Accordingly, revenues for a particular period, or period-to-period comparisons of reported revenues and related backlog positions, may not be
indicative of future results. Our backlog at December 31, 2003 and 2002 was $1.3 billion and $844.0 million, respectively. The backlog at March 31, 2003 was
$593.3 million. We booked $769.7 million and $503.9 million in new orders during the nine months ended December 31, 2003 and 2002, respectively.

Our
backlog is subject to fluctuations and is not necessarily indicative of future sales. Moreover, cancellations of purchase orders or reductions of product quantities in existing
contracts could substantially and materially reduce our backlog and, consequently, future revenues. Our failure to replace canceled or reduced backlog would have an adverse impact on future revenues.

41

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In December 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and
Other Postretirement Benefits",to revise employers' annual and quarterly disclosures about pension plans and other postretirement benefit plans. It
does not change the measurement or recognition of those plans required by SFAS No. 87, "Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits", and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". This Statement retains
the disclosure requirements contained in SFAS No. 132, which it replaces. It requires additional disclosures
to those in the original about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The annual disclosure
requirements under this Statement are effective for our fiscal year ending March 31, 2004, and the quarterly disclosure requirements are effective for our interim periods beginning with the
quarter ending June 30, 2004.

In
May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 150, "Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity".
The statement establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity and requires that such instruments be
classified as liabilities. The statement was adopted by us effective July 1, 2003 and it did not have an impact on our consolidated financial position or results of operations.

In
April 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." We adopted this statement for contracts entered into or modified and for hedging relationships designated after June 30, 2003. The adoption of this statement did not
have an impact on our consolidated financial position or results of operations.



Certain 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 Statements of Earnings, Balance Sheets or Statements of Cash Flows of the Company. As required by

42

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the
SEC's Regulation G, a reconciliation of EBITDA (earnings before interest, taxes, depreciation and amortization) and "free cash flow" with the most directly comparable GAAP measure follows:

|                                                                                              |                                           | Three Months Ended
December 31, |        | Nine Months Ended
December 31, |  
|--------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------- | ------ | ------------------------------ | -
|
|
|Net earnings                                                                                  |                                           | $                               | 11,633 |                                | $
|Income taxes                                                                                  |                                           |                                 | 8,776  |                                |  
|Interest income                                                                               |                                           |                                 | (85    | )                              |  
|Interest and related expenses                                                                 |                                           |                                 | 7,513  |                                |  
|Depreciation and amortization                                                                 |                                           |                                 | 8,883  |                                |  
|                                                                                              |                                           |                                 |        |                                |  
|                                                                                              | EBITDA (A)                                |                                 |        | 36,720                         |  
|Income taxes                                                                                  |                                           |                                 | (8,776 | )                              |  
|Interest income                                                                               |                                           |                                 | 85     |                                |  
|Interest and related expenses                                                                 |                                           |                                 | (7,513 | )                              |  
|Deferred income taxes                                                                         |                                           |                                 | 138    |                                |  
|Changes in assets and liabilities, net of effects from business combinations and divestitures |                                           |                                 | (9,639 | )                              |  
|Other, net                                                                                    |                                           |                                 | 2,801  |                                |  
|                                                                                              |                                           |                                 |        |                                |  
|                                                                                              | Net cash provided by operating activities |                                 |        | 13,816                         |  
|Capital expenditures                                                                          |                                           |                                 | (6,757 | )                              |  
|                                                                                              |                                           |                                 |        |                                |  
|Free cash flow (B)                                                                            |                                           | $                               | 7,059  |                                | $
|                                                                                              |                                           |                                 |        |                                |  

---

43

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Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Market Risk

See Part II, Item 7A, "Qualitative and Quantitative Disclosures About Market Risk," of the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 2003 for a discussion of the Company's exposure to market risk. Significant changes to those risks subsequent to March 31, 2003 are discussed below.

Interest Rate Risk

Simultaneous with the closing of the acquisition of Integrated Defense Technologies, Inc., on November 4, 2003 we entered into an amended and
restated credit facility for up to an aggregate amount of $411.0 million, replacing our previously existing senior credit facility. The amended and restated credit facility consists of a
$175.0 million senior secured revolving line of credit and a $236.0 million senior secured term loan. There were no initial borrowings under our revolving line of credit. Borrowings
under the amended and restated credit facility bear interest at variable rates. A 1% increase/decrease in the weighted average prevailing interest rates on our variable rate debt outstanding as of
December 31, 2003 would result in an increase/decrease in interest expense of approximately $1.8 million and $0.6 million for the nine- and three-month periods ended
December 31, 2003, respectively. The fair value of the Company's borrowings under the amended and restated credit facility approximates their carrying values. On February 6, 2004 the
Company amended its credit facility to reduce the interest rate thereunder with respect to the term loans.

Also
in connection with the IDT acquisition, on October 30, 2003, the Company issued $350.0 million of 67/8% Senior Subordinated Notes, due
November 1, 2013. The interest rates on the Senior Subordinated Notes are fixed. The fair value of the Company's various debt instruments approximates their carrying value at
December 31, 2003.

Derivative Financial Instruments

On June 5, 2003, we entered into two interest rate swap agreements with Wachovia Bank, N.A. and Fleet Bank (the Banks), respectively, each in the amount of
$25.0 million, on our variable rate senior secured term loans. These swap agreements effectively convert the variable interest rate to a fixed interest rate on a total of $50.0 million
of the principal amount outstanding under the term loan. 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. The variable interest rate paid by the Banks is based on the three month LIBOR and is determined on the first day of each calculation period. The difference to
be paid or received on these swap agreements, as interest rates change, is recorded as an adjustment to interest expense. We continue to account for the swaps as cash flow hedges on a portion of the
term loan outstanding under the amended and restated credit facility.

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 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company's disclosure controls and procedures are effective 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 fiscal quarter to which this report relates that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.

44

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

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 are employed by DRS Electronic Systems, Inc. The plaintiff's claims against us 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 we 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.
This action is expected to go to trial in the summer of 2004. We believe we have meritorious defenses and do not believe the action will have a material adverse effect on our earnings, financial
condition or liquidity.

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 us, 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 (PRP),
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. While it is too soon to determine the ultimate financial implications to us, based upon our knowledge of the current facts and circumstances surrounding this matter, we do not
believe the total costs to us with respect to this matter will be material.

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.

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Item 6.    Exhibits and Reports on Form 8K

Exhibits
(a)

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1        |  | First Amendment to Credit Agreement dated February 6, 2004, by and among the Company, as Borrower and certain subsidiaries of the Borrower, the Lenders, who are or may become party to the agreement, as Lenders, Wachovia Bank, National
Association, as Administrative Agent for the Lenders, Bear Stearns Corporate Lending Inc., as Syndication Agent for the Lenders, and Fleet National Bank, as Documentation Agent for the Lenders.
|12.1        |  | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                                                           
|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 December 31, 2003.

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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: February 17, 2004 |  | By:                             

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