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

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FORM 10-K

|ý                                                             | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended March 31, 2008                     
|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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GRAPHIC

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

|Delaware(State or other jurisdiction of incorporation or organization)                    |  | 13-2632319(I.R.S. Employer Identification Number)
|----------------------------------------------------------------------------------------- |  | -------------------------------------------------
|5 Sylvan Way, Parsippany, New Jersey(Address of principal executive offices)              |  | 07054(Zip Code)                                  
|(973) 898-1500(Telephone No.)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $.01 par value

New York Stock Exchange


Securities
registered pursuant to Section 12(g) of the Act: None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ý    No o

Indicate by check mark if the registrant in not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

|Large accelerated filer ý |  | Accelerated filer o |  | Non-accelerated filer o (Do not check if a smaller reporting company) |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------

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

The market value of shares of common stock held by non-affiliates as of the last business day of the registrant's most recently completed second fiscal
quarter was $2,253.1 million. The number of shares of common stock outstanding as of May 23, 2008 was 41,428,176.

DOCUMENTS INCORPORATED BY REFERENCE

None



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Table of Contents

PagePART IItem 1.

Business

1Item 1A.

Risk Factors

11Item 1B.

Unresolved Staff Comments

21Item 2.

Properties

22Item 3.

Legal Proceedings

25Item 4.

Submission of Matters to a Vote of Security Holders

28PART IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

29Item 6.

Selected Financial Data

31Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

33Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

68Item 8.

Financial Statements and Supplementary Data

71Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

139Item 9A.

Controls and Procedures

139Item 9B.

Other Information

143PART IIIItem 10.

Directors, Executive Officers and Corporate Governance

144Item 11.

Executive Compensation

149Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

172Item 13.

Certain Relationships and Related Transactions and Director Independence

174Item 14.

Principal Accountant Fees and Services

175PART IVItem 15.

Exhibits, Financial Statement Schedules

177Signatures

178


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EXPLANATORY NOTERESTATEMENT OF FINANCIAL INFORMATION

In February 2008, we received a comment letter from the staff of the Securities and Exchange Commission (SEC) on our fiscal 2007 Form 10-K
(filed on May 30, 2007) and our fiscal 2008 second quarter Form 10-Q (filed on November 9, 2007). In the initial comment letter, and in other subsequent written and
telephonic communications with the SEC, information was requested regarding the timing of a $36.8 million pretax charge that was recorded in our fiscal 2008 first quarter ended June 30,
2007 for the impact of a redesign on our Thermal Weapon Sight II (TWS II) program.

In
March 2007, we stopped production on the TWS II line due to intermittent failures. After several weeks of analysis, we identified the root causes of the failures, and in May 2007 we
released a redesign that we believed would address them. The charge reflects our revised estimate of the excess of the total estimated costs to fulfill the scope of work of the TWS II contract, over
the total TWS II contract value. The total estimated costs to complete the contract reflect all direct costs (primarily labor and material), overhead and allowable general and administrative
expenses. The most significant component of the charge was a result of the write-off of certain TWS II on-hand component parts that would no longer be utilized in the
new TWS II design. The charge also reflects the estimated future cost of the redesign and cost growth that was unrelated to the redesign.

Following
discussions with the staff of the SEC and review of the judgments and estimates we made relating to the charge, we concluded that the $36.8 million charge should have
been recorded in our fiscal 2007 fourth quarter ended March 31, 2007.

As
a result of foregoing, we are restating our previously filed consolidated financial statements and selected financial data for the year ended March 31, 2007, inclusive of our
fourth quarter ended March 31, 2007 and our previously issued quarterly consolidated financial statements for the three month period ended June 30, 2007. Accordingly, our previously
issued consolidated financial statements for these periods should no longer be relied upon.

For
additional information and a detailed discussion of the restatement, see Note 2,Restatement of previously issued consolidated financial
statements, to the accompanying
consolidated financial statements, "Restatement of Financial Information" within Item 6, Selected Financial Data, and "Restatement of Previously Issued Consolidated Financial Statements" within
Item 7,Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 1.    Business

References in this Annual Report on Form 10-K to "DRS Technologies," "DRS," "the Company," "we," "our" and "us" refer to DRS
Technologies, Inc., its wholly-owned subsidiaries and its controlling interests.

Recent Events

On May 12, 2008, Finmeccanica, S.p.A. (Finmeccanica) and the Company announced that they signed a definitive merger agreement under which
Finmeccanica will acquire 100% of DRS stock for $81.00 per share in cash. The merger agreement provides for, among other things, and subject to the terms and conditions set forth in the merger
agreement, the merger of a subsidiary of Finmeccanica with and into the Company, with the Company as the surviving corporation and becoming a wholly-owned subsidiary of Finmeccanica.

The
transaction is subject to approval by the stockholders of DRS, the receipt of regulatory approvals and other closing conditions, including review by U.S. antitrust authorities, the

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Committee
on Foreign Investment in the United States (CFIUS) and the Defense Security Service (DSS). The transaction is expected to close in the fourth quarter of 2008.

The
foregoing description of the merger agreement and other references to the merger agreement in this Form 10-K do not purport to be complete and are qualified in their entirety
by reference to the full text of the merger agreement, a copy of which is filed with the SEC, and the terms of which are incorporated herein by reference.

General

DRS is a leading supplier of defense electronic products, systems and military support services. We provide high-technology products and services to
all branches of the U.S. military, major aerospace and defense prime contractors, government intelligence agencies, international military forces and industrial markets. We focus on several key areas
of importance to the U.S. Department of Defense (DoD), such as command and control, intelligence, surveillance, reconnaissance, power management, battlefield digitization, advanced communications and
networks, military vehicle diagnostics, troop sustainment and technical support. Incorporated in 1968, we have served the defense industry for 39 years. We are a leading provider of thermal
imaging devices, combat display workstations, electronic sensor systems, power systems, rugged computer systems, air combat training systems, mission recorders, deployable flight incident recorders,
environmental and telecommunication systems, aircraft loaders, military trailers and shelters, and integrated logistics support services. 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, F-15 Eagle tactical fighters, C-17 Globemaster II
and C-130 Hercules cargo aircraft, Ohio, Los Angeles and Virginia class submarines, and on several other platforms for military and non-military applications. We have contracts
that support future military platforms, such as the DDG-1000 Zumwalt destroyer, CVN-78 next-generation aircraft carrier and Future Combat System. We provide
sustainment products that support military forces, such as environmental control systems, power generators, water and fuel distribution systems, chemical/biological decontamination systems and heavy
equipment transport systems. We also provide support services to the military, including security and asset protection system services, telecommunication and information technology services, training
and logistics support services for all branches of the U.S. armed forces and certain foreign militaries, homeland security forces, and selected government and intelligence agencies.

Available Information

The address of our principal executive office is 5 Sylvan Way, Parsippany, New Jersey 07054, and our telephone number is (973) 898-1500. Our
web address iswww.drs.com.We are subject to the informational requirements of the U.S. Securities Exchange Act of 1934, as amended (Exchange Act) and,
in accordance therewith, file reports and other information with the SEC. Such reports and other information can be inspected and copied at the Public Reference Room of the SEC, located at
100 F Street N.E., Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Room of the SEC at prescribed rates. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. Such material also may be accessed electronically by means of the SEC's home page on the Internet at www.sec.gov.

We
provide free of charge on our web site atwww.drs.com, under the "Investor Info" link, followed by the "SEC Filings" link, our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports filed or furnished pursuant

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to
Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we file such material with, or furnish it to, the SEC.

The
corporate governance information on our web site includes our Code of Ethics and Code of Business Conduct for all employees of DRS, including senior financial personnel and our Board
of Directors. In addition, amendments to and waivers granted to our directors and executive officers under our Code of Ethics, if any, will be posted in this area of our web site. These corporate
governance documents can be accessed by visiting our web site and clicking on the "Corporate Info" link followed by the "Ethics Program" link. You can request a copy of our Code of Ethics and Code of
Business Conduct at no cost by contacting Investor Relations at (973) 898-1500.

Company Organization

On October 1, 2007, the ESSIBuy operating unit, an operating unit of the Technical Services Segment, was consolidated into an operating unit of the
Sustainment Systems Segment to achieve certain operating synergies. The balance sheet and operating results of ESSIBuy were reclassified for the period from April 1, 2007 through
September 30, 2007. The results in the prior-year were not reclassified, as they were considered immaterial to both segments.

In
October, 2006, we implemented a new organizational operating structure that realigned our three previously existing operating segmentsthe Command, Control,
Communications, Computers & Intelligence Group, the Surveillance & Reconnaissance Group and the Sustainment Systems & Services Groupinto four operating segments. The
four operating segments are the Command, Control, Communications, Computers & Intelligence (C4I) Segment, the Reconnaissance, Surveillance & Target Acquisition (RSTA) Segment, the
Sustainment Systems Segment (SS) and the Technical Services (TS) Segment. All other operations, primarily our Corporate Headquarters, are grouped in "Other." All amounts presented by segment reflect
the current operating structure.

Financial
information on our reportable business segments is presented in Note 16 of our Consolidated Financial Statements, which are included in this
Form 10-K. See Item 8 "Financial Statements and Supplementary Data." Additional financial data and commentary on the results of operations for the operating segments are
included in Management's Discussion
and Analysis of Financial Condition and Results of Operations, which also is included in this Form 10-K. See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations."



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

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



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



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

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

Business Strategy

Our goal is to continually improve our position as a leading supplier of defense electronics products, systems and services. Our strategies to achieve our
objectives include:



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Customers

We sell a significant portion of our products to agencies of the U.S. government, primarily the DoD, to international government agencies and to prime contractors
and their subcontractors. Approximately 93%, 90% and 87% of total consolidated revenues for fiscal 2008, 2007 and 2006, respectively, were derived directly or indirectly from defense contracts for end
use by the U.S. government and its agencies. Export sales accounted for approximately 5%, 8% and 10% of total consolidated revenues in the fiscal years ended March 31, 2008, 2007 and 2006,
respectively.

Backlog

"Backlog" refers to the aggregate revenues on a specified date remaining to be earned under contracts held by us, including U.S. government contracts, to the
extent the funded amounts under such a contract have been appropriated by Congress and allotted to the contract by the procuring government agency. Our backlog does not include the value of
unexercised options that may be exercised in the future on multi-year contracts, nor does it include the value of additional purchase orders that we may receive under indefinite
quantity-type contracts or basic ordering agreements. Backlog includes all firm orders for commercial/industrial products. Fluctuations in backlog generally relate to the timing and

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amount
of defense contract awards. The following table sets forth our backlog by major customer-type at the dates indicated.

March 31,2008

2007

2006(in thousands)U.S. government

$
3,327,697

$
2,789,388

$
2,101,446Foreign governments


208,807


213,397


240,9763,536,504


3,002,785


2,342,422Commercial/Industrial products


70,652


35,079


53,640$
3,607,156

$
3,037,864

$
2,396,062


We
expect to record as revenues approximately 72% of our funded backlog as of March 31, 2008 during fiscal 2009. However, there can be no assurance that our entire funded backlog
will become revenues in future periods.

Research and Development

We conduct research and development to maintain and advance our technology base. Our research and development efforts are funded by both internal sources and
customer-funded development contracts.

We
recorded revenues for customer-funded research and development of approximately $109.3 million, $110.4 million and $106.1 million for fiscal 2008, 2007 and 2006,
respectively. Such customer-funded activities are primarily the result of contracts directly or indirectly with the U.S. government. We also invest in internal research and development. Expenditures
for internal research and development amounted to approximately $66.1 million, $50.9 million and $47.6 million for fiscal 2008, 2007 and 2006, respectively.

Contracts

A significant portion of our revenue is derived from long-term programs and from programs for which we are the incumbent supplier or have been the
sole or dual supplier for many years. A large percentage of our revenue is derived from programs that are in the production phase.

We
have a diverse business mix with limited dependence on any single contract. The Rapid Response contract represented approximately 12% and 11% of our revenue, respectively, for the
years ended March 31, 2008 and 2007. No single contract represented more than 10% of revenues for the year ended March 31, 2006.

The
percentages of revenues during fiscal 2008, 2007 and 2006 attributable to our contracts by contract type were as follows:

March 31,2008

2007

2006Fixed-price

76
%
76
%
83
%Cost-type/time-and-materials

24
%
24
%
17
%


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Our contracts are normally for production, services or development. Production contracts are typically the fixed-price type, development contracts are typically the
cost-type, and service contracts are typically time and materials. We believe continued predominance of fixed-price contracts is reflective of the significant portion of production
contracts in our U.S. government contract portfolio. Fixed-price contracts may provide for a fixed price or they may be fixed-price-incentive-fee contracts. Under the fixed-price
contracts, we agree to perform for an agreed-upon price. Accordingly, we derive benefits from cost savings, but bear the risk of cost overruns. Under the
fixed-price-incentive-fee contracts, if actual costs incurred in the performance of the contracts are less than estimated costs for the contracts, the savings are apportioned between the
customer and us. If actual costs under such a contract exceed estimated costs, however, excess costs are apportioned between the customer and us, up to a ceiling. We bear all costs that exceed the
ceiling, if any.

Cost-plus-type
contracts typically provide for reimbursement of allowable costs incurred plus a fee (profit). Under
cost-plus-fixed-fee contracts, we are reimbursed for allowable costs and receive a fixed fee, which is negotiated and specified in the contract. Such fees have
statutory limits. Unlike fixed-price contracts in which we are committed to deliver without regard to cost, cost-plus contracts normally obligate us to use our best efforts to accomplish
the scope of work within a specified time and a stated contract dollar limitation. In addition, U.S. government procurement regulations mandate lower profits for cost-type contracts
because of our reduced risk. Under cost-plus-incentive-fee contracts, an additional incentive fee awarded may be based on cost or performance. When the incentive is
based on cost, the contract specifies that we are reimbursed for allowable incurred costs plus a fee adjusted by a formula based on the ratio of total allowable costs to target cost. Target cost,
target fee, minimum and maximum fee, and adjustment formulae are agreed upon when the contract is negotiated. In the case of performance-based incentives, we are reimbursed for allowable incurred
costs plus an incentive, contingent upon meeting or surpassing stated performance targets. The contract provides for increases in the fee to the extent that such targets are surpassed and for
decreases to the extent that such targets are not met. In some instances, cost-plus-incentive-fee contracts also may include a combination of both cost and
performance incentives. Under cost-plus-fixed-fee contracts, we are reimbursed for costs and receive a fixed fee, which is negotiated and specified in the contract.
Such fees have statutory limits. Time-and-material-type contracts provide for reimbursement of labor hours expended at a contractual fixed labor rate per hour, plus
the actual costs of material and other direct non-labor costs. The fixed labor rates on time-and-material-type contracts include amounts for the cost of
direct labor, indirect contract costs and profit.

We
negotiate for, and generally receive, progress payments from our customers of between 75-90% of allowable costs incurred on the previously described contracts. Included in
our reported revenues are certain amounts, which we have not billed to customers. These amounts consist of costs and related profits, if any, in excess of progress payments for contracts on which
revenues are recognized on a cost-to-cost percentage-of-completion basis.

Under
accounting principles generally accepted in the United States of America, contract costs, including allowable general and administrative expenses on certain government contracts,
are charged to work-in-progress inventory and are written off to costs and expenses as revenues are recognized. The Federal Acquisition Regulations (FAR), incorporated by
reference in U.S. government contracts, provide that internal research and development costs are allowable general and administrative expenses. To the extent that general and administrative expenses
are included in inventory, research and development costs also are included. Unallowable costs, pursuant to the FAR, are excluded from costs accumulated on U.S. government contracts.

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Our
defense contracts and subcontracts that require the submission of cost or pricing data are subject to audit, various profit and cost controls, and standard provisions for termination
at the convenience of the customer. The Defense Contract Audit Agency (DCAA) performs these audits on behalf of the U.S. government. The DCAA has the right to perform audits on our incurred costs on
cost-type or price redeterminable-type contracts on a yearly basis. Approval of an incurred cost submission can take from one to three years from the date of the submission of the contract
cost.

Under
the Truth in Negotiations Act of 1962 (Negotiations Act), the U.S. government has the right for three years after final payment on certain negotiated contracts, subcontracts and
modifications to determine whether DRS furnished the U.S. government with complete, accurate and current cost or pricing data as defined by the Negotiations Act. If DRS fails to satisfy this
requirement, the U.S. government has the right to adjust a contract or subcontract price by the amount of any overstatement, as defined by the Negotiations Act.

U.S.
government contracts are, by their terms, subject to termination by the U.S. government for either convenience or default by the contractor. Fixed-price contracts provide for
payment upon termination for items delivered to and accepted by the U.S. government and, if the termination is for convenience, for payment of fair compensation of work performed plus the costs of
settling and paying claims by terminated subcontractors, other settlement expenses and a reasonable profit on the costs incurred. Cost-plus contracts provide that, upon termination, the
contractor is entitled to reimbursement of its allowable costs and, if the
termination is for convenience, a total fee proportionate to the percentage of the work completed under the contract. If a contract termination is for default, however, the contractor is paid an
amount agreed upon for completed and partially completed products and services accepted by the U.S. government. In these circumstances, the U.S. government is not liable for excess costs incurred by
us in procuring undelivered items from another source.

In
addition to the right of the U.S. government to terminate U.S. government contracts, such contracts are conditioned upon the continuing availability of Congressional appropriations.
Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract performance may take many years. Consequently, at the outset of a major
program, the contract usually is funded partially, and additional monies normally are committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal
years.

Competition

Our products are sold in markets in which several of our competitors are substantially larger than we are, devote substantially greater resources to research and
development, and, generally, have greater financial resources. We face a variety of competitors, including BAE Systems PLC, Raytheon Company and L-3 Communications
Holdings, Inc., among others. Certain competitors are also our customers and suppliers. The extent of competition for any single project generally varies according to the complexity of the
product and the dollar value of the anticipated award. We believe that we compete on the basis of:



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Our
future success will depend in large part upon our ability to improve existing product lines and to develop new products and technologies in the same or related fields.

In
the military sector, we compete with large and mid-tier defense contractors on the basis of product performance, cost, overall value, delivery schedule and reputation.
Since a number of consolidations and mergers of defense suppliers has occurred, the number of participants in the defense industry has decreased in recent years. We expect this consolidation trend to
continue. As the industry consolidates, the large defense contractors are narrowing their supplier base, awarding increasing portions of projects to strategic mid- and
lower-tier suppliers, and, in the process, are becoming oriented more toward systems integration and assembly. We believe that we have benefited from this defense industry trend.

In
addition to the military sector, we compete with a large number of suppliers to commercial and industrial customers on the basis of both performance and price.

Patents and Licenses

We have patents on certain of our commercial and data recording products, semiconductor devices, rugged computer-related items, and electro-optical and infrared
focal plane array products, in addition to other products. We and our subsidiaries have certain registered trademarks, none of which are considered material to our current operations. We believe our
patent position and intellectual property portfolio in the aggregate are valuable to our operations. We do not believe that the conduct of our business as a whole is materially dependent on any single
patent, trademark or copyright.

When
we work on U.S. government contracts, the U.S. government may have contractual rights to data for our "core" technologies, source codes and other developments associated with such
government contracts. Records of our data rights are maintained in order to claim these rights as our proprietary technology, but it may not always be possible to delineate our proprietary
developments from those developed under U.S. government contracts. The protection of our data from use by other U.S. government contractors is subject to negotiation from time to time between us and
the U.S. government. The extent of the government's data rights in any particular product generally depends upon whether the product was developed under a government contract and the degree of
government funding for the development of such product.

Manufacturing and Supplies

Our manufacturing processes for most of our products include the assembly of purchased components and testing of products at various stages in the assembly
process. Purchased components include integrated circuits, circuit boards, sheet metal fabricated into cabinets, resistors, capacitors, semiconductors, silicon wafers and other conductive materials,
and insulated wire and cables. In addition, many of our products use machine castings and housings, motors, and recording and reproducing media.

The
manufacturing process for certain of our optic products includes the grinding, polishing and coating of various optical materials and the machining of metal components. Although
materials and purchased components generally are available from a number of different suppliers, several suppliers are our sole source of certain components. If a supplier should cease to deliver such
components, other sources probably would be available; however, added cost and manufacturing delays might result. We have not experienced significant production delays attributable to supply
shortages, but occasionally we experience quality and other related problems with respect to certain components, such as semiconductors and

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connectors.
In addition, with respect to our optical products, certain materials, such as germanium, zinc sulfide and cobalt, may not always be readily available.

International Operations and Export Sales

We currently sell several of our products and services internationally, such as to Canada, the United Kingdom, Israel, Spain and Australia, as well as other
countries. International sales of our U.S. products and services are subject to export licenses granted on a case-by-case basis by the U.S. Department of State and Department
of Commerce. In addition, the U.S. government prohibits or restricts the export of some of our products. Our international contracts generally are payable in U.S. dollars. Export sales accounted for
approximately 5%, 8% and 10% of total revenues in the fiscal years ended March 31, 2008, 2007 and 2006, respectively.

There
are two principal contracting methods used by DRS for export sales: Direct Foreign Sales (DFS) and the U.S. government's Foreign Military Sales (FMS). In a DFS transaction, the
contractor sells directly to the foreign country and assumes all the risks in the transaction. In an FMS transaction, the sale is funded by, contracted by and made to the U.S. government, which then
sells the product to the foreign country.

We
currently operate in Canada through our C4I Segment and Sustainment Systems Segment and in the United Kingdom through our C4I Segment.

Our
international operations involve additional risks for us, such as exposure to currency fluctuations, future investment obligations and changes in international economic and political
environments. In addition, international transactions frequently involve increased financial and legal risks arising from stringent contractual terms and conditions and widely different legal systems,
customs and practices in foreign countries.

Seasonality

No material portion of our business is considered to be seasonal. Various factors can affect the distribution of our revenue between accounting periods, including
the timing of government awards, the availability of government funding, product deliveries and customer acceptance.

Environmental Matters

Our operations include the use, generation and disposal of hazardous materials. We are subject to various U.S. federal, state, local and foreign laws and
regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes,
the clean up of contaminated sites and the maintenance of a safe workplace. Except as described under Item 3, Legal Proceedings, we believe that we have been and are in material compliance with
environmental laws and regulations and that we have no liabilities under environmental requirements that would be expected to have a material adverse effect on our business, results of operations,
financial condition or liquidity. It is possible, however, that the ultimate resolution of the matters discussed in Item 3, "Legal Proceedings," could result in a material adverse effect on the
Company's results of operations for a particular reporting period.

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Employees

As of March 31, 2008, we had approximately 10,200 employees, approximately 9,800 of whom are located in the United States. There is a continuing demand for
qualified technical personnel, and we believe that our future growth and success will depend upon our ability to attract, train and retain such personnel. Approximately 65 of our employees at DRS
Power & Control Technologies, Inc. are represented by a labor union and are covered by a collective bargaining agreement through March 2009. Two DRS Power & Control Technologies
employees are represented by a separate labor union and are covered by a collective bargaining agreement through September 2009. Approximately 180 employees at DRS Test & Energy
Management, Inc. are represented by a union and are covered by a collective bargaining agreement that expires in May 2009. Approximately 350 of our employees at DRS Sustainment
Systems, Inc. are covered under a collective bargaining agreement that expires in May 2013. We believe that our relations with our employees generally are good.

Item 1A.    Risk Factors

Our financial position, results of operations and cash flows are subject to various risks, many of which are not exclusively within our control that may cause
actual performance to differ materially from historical or projected future performance. Information in this Form 10-K should be considered carefully by investors in light of the
risk factors described below.

Our merger agreement with Finmeccanica may be terminated prior to completion of the merger in certain circumstances. Any such termination could have a significant effect on the
market price of our stock, including the likelihood that in such event, the price that could be received by our holders of common stock in the open market would be less than the per share cash price
to be paid in the merger.

Should the proposed Merger with Finmeccanica not be completed, the effect of the resulting public announcement of termination of the Merger Agreement on the
market price of our common stock could be significant. In that regard, the market price could be affected by many factors, including:



In
addition, if the proposed Merger were not completed:



11

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Other
risks associated with the proposed Merger with Finmeccanica include the following



Our revenues depend on our ability to maintain our level of government business. The loss of our contracts with domestic and non-U.S. government agencies could
adversely affect our revenues.

We derive the substantial majority of our revenues from contracts or subcontracts with domestic and non-U.S. government agencies. A significant
reduction in the purchase of our products by these agencies would have a material adverse effect our business. For the fiscal years ended March 31, 2008, 2007 and 2006, approximately 93%, 90%
and 87%, respectively, of our revenues were derived directly or indirectly from defense-industry contracts with the U.S. government and its agencies. In addition, for the fiscal years ended
March 31, 2008, 2007 and 2006, approximately 5%, 7% and 9% of our revenues were derived directly or indirectly from sales to foreign governments, respectively. Therefore, the development of our
business in the future will depend upon the continued willingness of the U.S. government and its prime contractors to commit substantial resources to defense programs and, in particular, upon the
continued purchase of our products, and other products which incorporate our products, by the U.S. government. Changes in military strategy and planning may affect future procurement priorities and
existing programs in a manner adverse to the Company's business. In particular, the current funding demands on the U.S. government, combined with a potential reduction of forces in Iraq, may lead to
lower levels of government defense spending.

The
risk that governmental purchases of our products may decline stems from the nature of our business with the U.S. government, in which the U.S. government may:



12

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In
addition, as a defense business, we are subject to the following risks in connection with government contracts:



Our revenues will be adversely affected if we fail to receive renewal or follow-on contracts.

Renewal and follow-on contracts are important because our contracts are for fixed terms. These terms vary from shorter than one year to over five
years, particularly for contracts with options. The typical term of our contracts with the U.S. government is between one and three years. The loss of revenues from our possible failure to obtain
renewal or follow-on contracts may be significant because our U.S. government contracts account for a substantial portion of our revenues.

Our operating results may fluctuate.

Our results of operations fluctuate as a result of a number of factors, many of which are beyond our control. These factors include:



Failure to anticipate technical problems, estimate costs accurately or control costs during performance of a fixed-price contract may reduce our profit or cause a loss.

We provide our services primarily through two types of contracts: fixed-price and cost-type contracts. Approximately 76%, 76% and 83% of our total
revenues for the fiscal years ended March 31, 2008, 2007 and 2006, respectively, were derived from fixed-price contracts, which require us to perform services under a contract at a stipulated
price. We
derived approximately 24%, 24% and 17% of our revenues for the fiscal years ended March 31, 2008, 2007 and 2006, respectively, from cost-type, including
time-and-material-type, contracts by which we are reimbursed for incurred costs and receive a fee that, depending on the contract, is either dependent on cost
savings and/or performance or is a fixed fee, which is negotiated but limited by statutes.

13

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

We may experience production delays if suppliers fail to deliver materials to us.

Our manufacturing process for certain products consists primarily of the assembly of purchased components and testing of the product at various stages in the
assembly process.

Although
we can obtain materials and purchase components for these products from a number of different suppliers, several suppliers are our sole source of certain components. If a
supplier should cease to deliver such components, we believe that we would probably find other sources; however, this could result in added cost and manufacturing delays. We have not experienced
significant production delays attributable to supply shortages, but we occasionally experience procurement problems with respect to certain components, such as semiconductors and connectors. In
addition, with respect to our electro-optical products, certain materials, such as germanium, zinc sulfide and cobalt, may not always be readily available.

Our backlog is subject to reduction and cancellation, which could negatively impact our revenues and results of operations.

Backlog represents products or services that our customers have committed by contract to purchase from us. Our total funded backlog as of March 31, 2008
was approximately $3.6 billion. Backlog is subject to fluctuations and is not necessarily indicative of future sales. As described above, the U.S. government may unilaterally modify or cancel
its contracts. Accordingly, most of our backlog can be cancelled or reduced at the option of the US. government. Our failure to replace canceled or reduced backlog could negatively impact our revenues
and results of operations.

Our international operations expose us to risks of losses.

Approximately 5%, 7% and 9% of our revenues for the fiscal years ended March 31, 2008, 2007 and 2006, respectively, were derived from sales to foreign
governments. We are exploring the possibility of expansion into additional international markets. We cannot assure you that we will maintain significant operations internationally or that any such
operations will be successful. Any international operations we establish will be subject to risks similar to those affecting our U.S. operations and our current operations in Canada and the United
Kingdom, in addition to a number of other risks, including:



14

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As
noted above, the sale of certain of our products outside the United States is highly regulated. Our inability to obtain the requisite licenses, meet registration standards or comply
with applicable government export regulations may affect our ability to export products or to generate revenues from the sale of such products outside the United States, which could have a material
adverse effect on our business, financial condition and results of operations. Compliance with government regulations also may subject us to substantial fees, costs and delays. The absence of
comparable restrictions on competitors in other countries may adversely affect our competitive position.

We operate in highly competitive markets.

The markets in which we compete are highly competitive and are subject to rapid technological change. A potential inability to improve existing product lines and
develop new products and technologies could have a material adverse effect on our business. In addition, our competitors could introduce new products with greater capabilities, which could have a
material adverse effect on our business.

There
are many competitors in the markets in which we sell our products. Some of these competitors are substantially larger than we are, devote substantially greater resources to
research and development, and generally have greater financial and other resources. Consequently, these competitors may be better positioned to take advantage of economies of scale and develop new
technologies. A number of these competitors are also our suppliers and customers.

We
compete with many large and mid-tier defense contractors on the basis of performance, cost, overall value, delivery and reputation. Additionally, some customers, including
the DoD, are increasingly purchasing "off the shelf" components from commercial suppliers in lieu of using traditional defense contractors to design and manufacture such items. Further, the industry
has experienced substantial consolidation, increasing the market share of certain companies and enabling them to enhance their competitive position.

We are dependent in part upon our relationships and alliances with industry participants in order to generate revenue.

We rely on the strength of our relationships with other industry participants to form strategic alliances. Some of our industry partners assist us in the
development of some of our products through teaming arrangements. If any of our existing relationships with our industry partners were impaired or terminated, we could experience significant delays in
the development of new products ourselves, and we would incur additional development costs. We would need to fund these costs internally or identify new industry partners.

Some
of our likely industry partners are also potential competitors, which may impair the viability of new or continued strategic relationships. While we must compete effectively in the
marketplace, our future alliances may depend on our industry partners' perception of us. Our ability to win new and/or follow-on contracts may be dependent upon our relationships within
the defense industry.

15

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The Company may not be able to obtain patents or other intellectual property protections necessary to secure its proprietary technology.

We seek to protect the competitive benefits we derive from our patents, proprietary information and other intellectual property. However, we do not have the right
to prohibit the U.S. government from using certain technologies developed by us or to prohibit third party
companies, including our competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government has the right to royalty-free use of
technologies that we have developed under U.S. government contracts. We are free to commercially exploit those government-funded technologies and may assert our intellectual property rights to seek to
block other non-government users thereof, but we cannot assure you that we successfully could do so.

While
the Company enters into confidentiality and non-disclosure agreements with its employees, consultants, partners, customers and others to attempt to limit access to and
distribution of proprietary and confidential information, it is possible that:



We have entered, and expect to continue to enter, into joint venture, teaming and other arrangements, and these activities involve risks and uncertainties.

We have entered, and expect to continue to enter, into joint venture, teaming and other arrangements. These activities involve risks and uncertainties, including
the risk of the joint venture or applicable entity failing to satisfy its obligations, which may result in certain liabilities to us from guarantees and other commitments, the challenges in achieving
strategic objectives and expected benefits of the business arrangement, the risk of conflicts arising between us and our partners and the difficulty of managing and resolving such conflicts and the
business arrangements generally.

We are subject to environmental laws and regulations, and our ongoing operations may expose us to environmental liabilities.

Our operations, like those of other companies engaged in similar businesses, are subject to federal, state, foreign and local environmental and health and safety
laws and regulations. As a result, we have been involved from time to time in administrative or legal proceedings relating to environmental matters. We cannot assure you that the aggregate amount of
future clean-up costs and other environmental liabilities will not be material. We could be subject to potentially significant fines or penalties, including criminal sanctions, if we fail
to comply with these requirements. We have made and will continue to make capital and other expenditures in order to comply with these laws and regulations. However, the requirements of these laws and
regulations are complex, change frequently and could become more stringent in the future. We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or
future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist. Also, in the future, contamination may be found to exist at our current or former
facilities or at off-site locations to which we or certain companies that we have acquired or previously owned may have sent waste, including the

16

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Orphan
Mine site in the Grand Canyon National Park, Arizona, which is currently subject to a government investigation. We could be held liable for such contamination. The remediation of such
contamination, or the enactment of more stringent laws or regulations or more strict interpretation of existing laws and regulations, may require us to make additional expenditures, and could decrease
the amount of free cash flow available to us for other purposes, including capital expenditures, research and development and other investments and could have a material adverse effect on our
business, financial condition, results of operations and future prospects.

We are involved in a number of legal proceedings, each of which could have a material adverse affect on our business. We cannot predict the outcome of litigation and other
contingencies with certainty.

Various legal lawsuits, claims and demands are pending against us and certain of our subsidiaries. Although we believe that we have meritorious defenses to the
claims made in the litigation matters in which we have been named a party and intend to contest each lawsuit vigorously, no assurances can be given that the results of these matters will be favorable
to us. An adverse resolution or outcome of any of these lawsuits, claims or demands could have a negative impact on our financial condition, results of operations and liquidity.

Our
business may be adversely affected by the outcome of these legal proceedings and other contingencies that cannot be predicted with certainty. As required by GAAP, we estimate
material loss contingencies and establish liabilities based on our assessment of contingencies where liability is deemed probable and reasonably estimable in light of the facts and circumstances known
to us at a particular point in time. Subsequent developments in legal proceedings may affect our assessment and estimates of the loss contingency recorded as a liability or as a reserve against assets
in our financial statements. It is possible that the ultimate resolution of those matters could result in a material adverse effect on our results of operations and/or cash flows from operating
activities in a particular reporting period. For a description of our current legal proceedings, see Item 3. "Legal Proceedings."

A failure to attract and retain technical and other key personnel could reduce our revenues and our operational effectiveness.

There is a continuing demand for qualified technical and other key personnel, and we believe that our future growth and success will depend upon our ability to
attract, train and retain such personnel. Competition for personnel in the military industry is intense, and there is a limited number of persons with knowledge of and experience in this industry.
Although we currently experience relatively low rates of turnover for our technical personnel the rate of turnover may increase in the future. An inability to attract or maintain a sufficient number
of technical and other key personnel could have a material adverse effect on our contract performance or on our ability to capitalize on market opportunities.

As a U.S. government contractor, we are subject to a number of procurement rules, regulations, and procedures, including routine audits.

Government contractors must comply with specific procurement regulations and other requirements and are subject to routine audits and investigations by U.S.
government agencies, such as the DCAA. These agencies review a contractor's performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. Any costs
found to be allocated improperly to a specific contract will not be reimbursed or must be refunded if already reimbursed. If we fail to comply with procurement regulations or other requirements, or if
an audit otherwise uncovers improper or illegal activities, we may be subject to civil

17

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and/or
criminal penalties and/or administrative sanctions, which may include termination or modification of contracts, forfeiture of profits, suspension of payments, fines and suspension or
prohibition from doing business with the U.S. government. In addition, we could suffer serious reputational harm if allegations of impropriety are made against us.

Our operations involve rapidly evolving products and technological change.

The rapid change of technology is a key feature of the market for the majority of our defense applications. To succeed, we will need to design, develop,
manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. Historically, our technology has been developed through
customer-sponsored research and development, as well as from internally funded research and development. We cannot guarantee that we will continue to maintain comparable levels of research and
development. In the past, we have allocated substantial funds to capital expenditures, and we intend to continue to do so in the future. Even so, we cannot assure you that we successfully will
identify new opportunities and continue to have the needed financial resources to develop new products in a timely or cost-effective manner. At the same time, products and technologies
developed by others may render our products and systems obsolete or non-competitive.

Business disruptions could seriously affect our future sales and financial condition or increase our costs and expenses.

Our business may be impacted by disruptions including, but not limited to, threats to physical security, information technology attacks or failures, damaging
weather or other acts of nature and pandemics or other public health crises. Such disruptions could affect our internal operations or services provided to customers, and could impact our sales,
increase our expenses or adversely affect our reputation or out stock price.

Our level of indebtedness could limit cash flow available for our operations and could adversely affect our ability to service our debt or obtain additional financing, if
necessary. We may incur substantial additional indebtedness in the future.

Our total debt outstanding as of March 31, 2008 was approximately $1.6 billion. Our level of indebtedness could restrict our operations and make it
more difficult for us to satisfy our obligations. For example, our levels of indebtedness could, among other things:



In
addition, the indentures governing the Senior Notes and the Senior Subordinated Notes, our amended and restated senior secured credit facility and the terms of the agreements
governing our other outstanding indebtedness contain financial and other restrictive covenants

18

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that
will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if
not cured or waived, could result in the acceleration of all of our debts.

Despite current indebtedness levels, we and our subsidiaries still may be able to incur substantially more debt. This could further exacerbate the risks associated with our
substantial leverage.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indentures governing our notes do not fully
prohibit us or our subsidiaries from doing so, and any restrictions potentially may be waived by our lenders to permit additional borrowing beyond that which is permitted under our current
arrangements. Our
amended and restated senior secured credit facility permits additional borrowing under such facility.

Our ability to service our debt and meet our cash requirements depends on many factors, some of which are beyond our control.

Although there can be no assurances, we believe that the level of borrowings available to us, combined with cash provided by our operations, will be sufficient to
provide for our cash requirements for the foreseeable future. However, our ability to satisfy our obligations will depend on our future operating performance and financial results, which will be
subject, in part, to factors beyond our control, including interest rates and general economic, financial and business conditions. If we are unable to generate sufficient cash flow to service our
debt, we may be required to:



If
we are required to take any of these actions, it could have a material adverse effect on our business, financial condition, results of operations and liquidity. In addition, we cannot
assure you that we would be able to take any of these actions, that these actions would enable us to continue to satisfy our capital requirements or that these actions would be permitted under the
terms of our various debt instruments, including our amended and restated senior secured credit facility and the indentures governing our notes.

The covenants in our amended and restated senior secured credit facility and the indentures governing our notes impose restrictions that may limit our ability and the ability
of most of our subsidiaries to take certain actions.

The covenants in our amended and restated senior secured credit facility and the indentures governing our notes restrict our ability and the ability of our
restricted subsidiaries to, among other things:



19

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Our
amended and restated senior secured credit facility contains other covenants customary for credit facilities of this nature, including requiring us to meet specified financial ratios
and financial tests. Our ability to borrow under our amended and restated senior secured credit facility will depend upon satisfaction of these covenants. Events beyond our control could affect our
ability to meet those covenants.

If
we are unable to meet the terms of our financial covenants, or if we breach any of these covenants, a default could occur under one or more of these agreements. A default, if not
waived by our lenders, could result in the acceleration of our outstanding indebtedness and cause our debt to become immediately due and payable. If acceleration occurs, we would not be able to repay
our debt, and it is unlikely that we would be able to borrow sufficient funds to refinance our debt. Even if new financing were made available to us, it may not be on terms acceptable to us.

Some of our debt, including borrowings under our amended and restated senior secured credit facility, is based on variable rates of interest, which could result in higher
interest expenses in the event of an increase in interest rates.

As of March 31, 2008, approximately 8% of our total debt is exposed to fluctuations in variable interest rates. This increases our exposure to fluctuations
in market interest rates. If we borrow additional amounts under the revolving portion of our amended and restated senior secured credit facility, the interest rates on those borrowings may vary
depending on the prime rate, federal funds rate or LIBOR. If these interest rates rise, the interest rate on our variable rate debt also may increase. Therefore, an increase in these interest rates
may increase our interest
payment obligations and have a negative effect on our cash flow, results of operations and financial position.

We may not be successful in implementing our growth strategy if we are unable to identify, acquire and finance suitable acquisition targets.

Finding and consummating acquisitions is an important component of our growth strategy. Our continued ability to grow by acquisition is dependent upon the
availability of acquisition candidates at reasonable prices and our ability to obtain any required acquisition financing on acceptable terms. Larger companies with significantly greater resources
compete against us for acquisitions. We may need to use significant amounts of cash, issue additional equity securities and/or incur additional debt in connection with future acquisitions, each of
which could have a material adverse effect on our business and/or a dilutive effect on returns to existing stockholders. Based on our current level of indebtedness and other factors, which may or may
not be within our control, there can be no assurance that we will be able to procure the

20

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necessary
funds to effectuate our acquisition strategy on commercially reasonable terms, or at all. In addition, as our revenue growth has been attributable historically in large part to our
successful acquisition strategy, failure to identify, consummate or integrate suitable acquisitions could lead to a reduced rate of revenue growth, operating income and net earnings in the future.

We use estimates in accounting for our pension plan and changes in our estimates could adversely affect our results of operations.

The process of determining our pension plan expense or income involves significant judgment, particularly with respect to our long-term return pension
assets and discount rate assumptions. If our discount rate assumption or long-term return on assets (ROA) (which is used to determine the funded status of our pension plans) is decreased
due to changes in our assumptions or other reasons, our pension plan funded status and expense could increase which would negatively impact our results of operations. In addition, if our actual return
on assets differs from our long-term ROA assumption, our pension plan funded status and pension expense would be impacted.

Goodwill and other intangible assets represent a significant portion of our assets and any impairment of these assets could negatively impact our results of operations.

At March 31, 2008, we had goodwill and other intangible assets of approximately $2.8 billion, net of accumulated amortization, which represented
approximately 65% of our total assets. Our goodwill is subject to an impairment test on an annual basis and is also tested whenever events and circumstances indicate that goodwill may be impaired. Any
excess goodwill resulting from the impairment test must be written off in the period of determination. Intangible assets (other than goodwill) are generally amortized over the useful life of such
assets. In addition, from time to time, we may acquire or make an investment in a business which will require us to record goodwill based on the purchase price and the value of the acquired assets. We
may subsequently experience unforeseen issues with such business which adversely affect the anticipated returns of the business or value of the intangible assets and trigger an evaluation of the
recoverability of the recorded goodwill and intangible assets for such business. Future determinations of significant write-offs of goodwill or intangible assets as a result of an
impairment test or any accelerated amortization of other intangible assets could have a negative impact on our results of operations and financial condition.

Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our profitability.

Our business operates in many locations under government jurisdictions that impose income taxes. Changes in domestic or foreign income tax laws and regulations,
or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain revenues or the deductibility of certain expenses, thereby affecting our
income tax expense and profitability. In addition, audits by income tax authorities could result in unanticipated increases in our income tax expense.

Item 1B.    Unresolved Staff Comments

None

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Item 2.    Properties

The table below provides information about our significant leased and owned facilities and properties.

We
lease the following significant properties:

|Location                 |  | Activities                                               |  | Operating
Segment |  | Approximate
Square Footage |  | Lease
Expiration
|------------------------ |  | -------------------------------------------------------- |  | ----------------- |  | -------------------------- |  | ----------------
|Parsippany, New Jersey   |  | New Jersey Corporate Headquarters                        |  | Corporate         |  | 50,800                     |  | 12/31/2013      
|Arlington, Virginia      |  | Washington Corporate Headquarters                        |  | Corporate         |  | 23,000                     |  | 01/31/2012      
|Huntsville, Alabama      |  | Administrative, Manufacturing and Warehouse              |  | C4I               |  | 215,500                    |  | 06/30/2013      
|Madison, Alabama         |  | Warehouse                                                |  | C4I               |  | 22,500                     |  | 08/31/2008      
|Sunnyvale, California    |  | Engineering, Manufacturing and Research                  |  | C4I               |  | 17,200                     |  | 06/30/2011      
|Ottawa, Ontario, Canada  |  | Administrative and Engineering                           |  | C4I               |  | 63,100                     |  | 06/30/2011      
|Danbury, Connecticut     |  | Administrative, Engineering and Manufacturing            |  | C4I               |  | 15,800                     |  | 06/30/2008      
|Melbourne, Florida       |  | Administrative, Marketing, Engineering and Manufacturing |  | C4I               |  | 105,400                    |  | 01/31/2016      
|Bethesda, Maryland       |  | Administrative and Marketing                             |  | C4I               |  | 19,200                     |  | 06/30/2013      
|Columbia, Maryland       |  | Administrative and Engineering                           |  | C4I               |  | 10,300                     |  | 03/31/2013      
|Gaithersburg, Maryland   |  | Administrative, Engineering and Product Development      |  | C4I               |  | 49,600                     |  | 06/30/2011      
|Fitchburg, Massachusetts |  | Administrative, Engineering and Manufacturing            |  | C4I               |  | 72,600                     |  | 07/31/2011      
|Fitchburg, Massachusetts |  | Administrative and Manufacturing                         |  | C4I               |  | 22,000                     |  | 05/31/2020      
|Merrimack, New Hampshire |  | Administrative and Marketing                             |  | C4I               |  | 62,700                     |  | 04/14/2010      
|Oakland. New Jersey      |  | Administrative, Engineering and Manufacturing            |  | C4I               |  | 35,400                     |  | 08/31/2010      
|Oakland, New Jersey      |  | Administrative, Engineering and Manufacturing            |  | C4I               |  | 25,900                     |  | 08/31/2010      
|Buffalo, New York        |  | Administrative, Engineering and Research                 |  | C4I               |  | 98,100                     |  | 03/31/2010      
|Dayton, Ohio             |  | Engineering, Manufacturing and Field Service             |  | C4I               |  | 20,500                     |  | 09/30/2008      

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|Dayton, Ohio                    |  | Engineering, Manufacturing and Field Service                       |  | C4I  |  | 16,100  |  | 09/30/2009
|------------------------------- |  | ------------------------------------------------------------------ |  | ---- |  | ------- |  | ----------
|Johnstown, Pennsylvania         |  | Warehouse                                                          |  | C4I  |  | 49,200  |  | 02/31/2013
|Johnstown, Pennsylvania         |  | Administrative and Manufacturing                                   |  | C4I  |  | 129,700 |  | 05/31/2010
|Wyndmoor, Pennsylvania          |  | Administrative and Manufacturing                                   |  | C4I  |  | 92,000  |  | 03/31/2009
|Mineral Wells, Texas            |  | Administrative, Engineering, Manufacturing and Product Development |  | C4I  |  | 42,000  |  | 04/30/2012
|Farnham, Surrey, United Kingdom |  | Administrative, Engineering and Manufacturing                      |  | C4I  |  | 26,000  |  | 12/24/2014
|Prescott Valley, Arizona        |  | Research, Development, Production and Administrative               |  | RSTA |  | 11,900  |  | 12/13/2009
|Cypress, California             |  | Administrative, Engineering and Manufacturing                      |  | RSTA |  | 91,500  |  | 02/28/2016
|Irvine, California              |  | Administrative, Engineering and Manufacturing                      |  | RSTA |  | 40,100  |  | 05/31/2009
|City of Palm Bay, Florida       |  | Warehouse                                                          |  | RSTA |  | 24,400  |  | 10/31/2008
|Melbourne, Florida              |  | Administrative, Engineering and Manufacturing                      |  | RSTA |  | 141,400 |  | 05/31/2010
|Palm Bay, Florida               |  | Administrative, Engineering and Manufacturing                      |  | RSTA |  | 93,400  |  | 11/30/2010
|Dallas, Texas                   |  | Administrative and Engineering                                     |  | RSTA |  | 15,800  |  | 04/30/2012
|Dallas, Texas                   |  | Administrative, Engineering and Manufacturing                      |  | RSTA |  | 77,800  |  | 07/10/2012
|Dallas, Texas                   |  | Administrative, Engineering and Manufacturing                      |  | RSTA |  | 48,400  |  | 07/10/2012
|Bridgeport, Connecticut         |  | Warehouse and Manufacturing                                        |  | SS   |  | 37,800  |  | 09/30/2008
|Melbourne, Florida              |  | Administrative and Manufacturing                                   |  | SS   |  | 15,400  |  | 04/30/2009
|St. Louis, Missouri             |  | Warehouse                                                          |  | SS   |  | 13,500  |  | 09/30/2008
|Cincinnati, Ohio                |  | Administrative, Manufacturing and Warehouse                        |  | SS   |  | 18,900  |  | 07/31/2008
|Cincinnati, Ohio                |  | Administrative and Manufacturing                                   |  | SS   |  | 11,700  |  | 08/31/2013
|Cincinnati, Ohio                |  | Administrative and Manufacturing                                   |  | SS   |  | 95,200  |  | 05/31/2017

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|Chantilly, Virginia      |  | Administrative and Manufacturing                              |  | SS |  | 15,900 |  | 09/30/2009
|------------------------ |  | ------------------------------------------------------------- |  | -- |  | ------ |  | ----------
|Calverton, Maryland      |  | Administrative                                                |  | TS |  | 14,400 |  | 08/31/2009
|Troy, Michigan           |  | Administrative                                                |  | TS |  | 19,600 |  | 11/30/2009
|Tinton Falls, New Jersey |  | Administrative and Manufacturing                              |  | TS |  | 14,900 |  | 12/14/2011
|Fairborn, Ohio           |  | Administrative                                                |  | TS |  | 11,700 |  | 08/31/2009
|Willoughby, Ohio         |  | Administrative                                                |  | TS |  | 11,500 |  | 05/31/2008
|Chesapeake, Virginia     |  | Administrative                                                |  | TS |  | 19,600 |  | 04/30/2009
|Herndon, Virginia        |  | Administrative, Engineering, Engineering Support and Research |  | TS |  | 55,000 |  | 09/30/2012
|Sterling, Virginia       |  | Administrative                                                |  | TS |  | 25,700 |  | 04/30/2009

We
own the following significant properties:

|Location                        |  | Activities                                                                        |  | Operating Segment |  | Approximate
Square Footage
|------------------------------- |  | --------------------------------------------------------------------------------- |  | ----------------- |  | --------------------------
|Carleton Place, Ontario, Canada |  | Administrative and Manufacturing                                                  |  | C4I               |  | 128,500                   
|Danbury, Connecticut            |  | Administrative, Engineering and Manufacturing                                     |  | C4I               |  | 74,700                    
|Ft. Walton Beach, Florida       |  | Engineering, Manufacturing and Research                                           |  | C4I               |  | 72,000                    
|Ft. Walton Beach, Florida       |  | Engineering, Manufacturing and Research                                           |  | C4I               |  | 52,900                    
|Ft. Walton Beach, Florida       |  | Engineering, Manufacturing and Research                                           |  | C4I               |  | 31,500                    
|Ft. Walton Beach, Florida       |  | Engineering, Manufacturing and Research                                           |  | C4I               |  | 93,600                    
|Ft. Walton Beach, Florida       |  | Engineering, Manufacturing and Research                                           |  | C4I               |  | 10,200                    
|Largo, Florida                  |  | Administrative and Manufacturing                                                  |  | C4I               |  | 120,000                   
|Gaithersburg, Maryland          |  | Engineering, Manufacturing and Research                                           |  | C4I               |  | 150,400                   
|Hudson, Massachusetts           |  | Administrative, Engineering, Product Development and Manufacturing                |  | C4I               |  | 54,000                    
|Milwaukee, Wisconsin            |  | Administrative, Engineering, Field Service, Product Development and Manufacturing |  | C4I               |  | 615,000                   
|Palm Bay, Florida               |  | Administrative, Engineering and Manufacturing                                     |  | RSTA              |  | 57,200                    
|Bedford, Nova Scotia, Canada    |  | Manufacturing and Administrative                                                  |  | SS                |  | 40,000                    
|Bridgeport, Connecticut         |  | Manufacturing and Administrative                                                  |  | SS                |  | 134,700                   
|Florence, Kentucky              |  | Manufacturing and Administrative                                                  |  | SS                |  | 264,900                   

24

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|High Ridge, Missouri           |  | Manufacturing and Administrative |  | SS |  | 214,000
|------------------------------ |  | -------------------------------- |  | -- |  | -------
|St. Louis, Missouri            |  | Subassembly/Administrative       |  | SS |  | 263,600
|West Plains, Missouri          |  | Manufacturing and Administrative |  | SS |  | 391,000
|Cincinnati, Ohio               |  | Manufacturing and Administrative |  | SS |  | 27,000 
|Warner Robins, Georgia         |  | Administrative                   |  | TS |  | 11,000 
|Polson, Montana                |  | Manufacturing                    |  | TS |  | 20,000 
|Elizabeth City, North Carolina |  | Hangar                           |  | TS |  | 80,000 

We
believe that all of our facilities are in good condition, adequate for our intended use and sufficient for our immediate needs. It is not certain whether we will negotiate new leases
as existing leases expire. Such determinations will be made as existing leases approach expiration and will be based on an assessment of our requirements at that time. Further, we believe that we can
obtain additional space, if necessary, based on prior experience and current real estate market conditions.

The
Company has a mortgage note payable that is secured by a lien on its facility in Palm Bay, Florida.

Item 3.    Legal Proceedings

Various legal actions, claims, assessments and other contingencies, including certain matters described below, are pending against us and certain of our
subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters ultimately could be decided, resolved or settled adversely. We have recorded accruals
totaling $3.0 million at March 31, 2008 and 2007, for losses related to those matters that we consider to be probable and that can be reasonably estimated (certain legal and
environmental matters are discussed in detail below). Although at March 31, 2008, the precise amount of liability that may result from those matters for which we have recorded accruals is not
ascertainable, we believe that any amounts exceeding our recorded accruals should not materially affect our financial condition or liquidity. It is possible, however, that the ultimate resolution of
those matters could result in a
material adverse effect on our results of operations and/or cash flows from operating activities for a particular reporting period.

Some
environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (also known as CERCLA or the Superfund law) and similar state statutes,
can impose liability upon former owners or operators for the entire cost of investigating and remediating contaminated sites regardless of the lawfulness of the original activities that led to the
contamination. In July 2000, prior to its acquisition by Integrated Defense Technologies, Tech-Sym Corporation, an indirect subsidiary of the Company, 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. The Orphan Mine, which was
operated by an alleged predecessor to Tech Sym between 1956 and 1967, is the subject of an NPS investigation regarding the presence of residual radioactive materials and contamination. Following
Tech-Sym's response to the Request for Information, the NPS directed Tech Sym and another alleged former owner/operator to perform an Engineering Evaluation and Cost Analysis (EE/CA) of
the site. Tech Sym made a good faith offer to conduct the EE/CA, but the NPS rejected this offer and may perform the EE/CA itself, or negotiate directly with another potentially responsible party for
the performance

25

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of
the EE/CA. Following completion of the EE/CA, the NPS may direct one or more of the potentially responsible parties to perform any remediation that may be required by CERCLA. We believe that we
have legitimate defenses to Tech-Sym's potential liability and that there are other potentially responsible parties for the environmental conditions at the site, including the U.S.
government as owner, operator and arranger at the site. The potential liability associated with this matter can change substantially, due to such factors as additional information on the nature or
extent of contamination, methods of remediation that might be recommended or required, changes in the apportionment of costs among the responsible parties and other actions by governmental agencies or
private parties.

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

In
December 2004, ESSI was notified by the Enforcement Division of the SEC of the issuance of a formal order directing a private investigation and was notified that the SEC had issued
subpoenas to various individuals associated with ESSI to produce certain documents. The SEC staff also requested that ESSI produce certain documents in connection with the investigation. The subpoenas
related to trading in ESSI stock around ESSI's earnings releases in 2003 and to the adequacy of certain disclosures made by ESSI regarding related-party transactions in 2002 and 2003 involving
insurance policies placed by ESSI through an insurance brokerage firm in which an ESSI director was a principal at the time of the transactions. In February 2007, the SEC filed a civil injunctive
action in the United States District Court for the Eastern District of Missouri, Eastern Division, against a former director, officer and consultant of ESSI, alleging that he had violated the federal
securities laws by "tipping" his financial advisor and close
friend by sharing material, nonpublic information regarding ESSI's financial condition shortly before certain 2003 earnings announcements. That action is scheduled for trial on December 15,
2008.

On
or about September 23, 2005, the SEC staff advised ESSI's counsel that it had issued a subpoena directed to ESSI and expanded its investigation to include ESSI's disclosure of
a November 2004 stop work order relating to ESSI's Deployable Power Generation and Distribution Systems (DPGDS) program for the U.S. Air Force and relating to trading in ESSI stock by certain
individuals associated with ESSI. In connection with the foregoing SEC investigation, ESSI and certain of its directors and officers have provided information and/or testimony to the SEC. ESSI has
received no additional subpoenas or requests for information from the SEC on these subject matters since May 2006.

In
January 2006, ESSI was informed that the Office of the U.S. Attorney for the Eastern District of Missouri was initiating an investigation into ESSI's disclosure of the DPGDS
stop-work order and into trading in ESSI stock by ESSI insiders, which preceded such disclosure. The U.S. Attorney's office advised ESSI that although it considered ESSI to be a subject of
its investigation, ESSI was not a target. In connection with this investigation, the U.S. Attorney's office issued ESSI a subpoena requesting specified information, which ESSI has furnished. ESSI has
received no additional subpoenas or requests for information from the U.S. Attorney's office on these subject matters since May 2006.

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

In
February 2007, the SEC filed civil injunctive actions in the United States District Court for the Eastern District of Missouri, Eastern Division, alleging that ESSI's former Chief
Financial

26

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

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

In
March 2007, ESSI's former Chief Financial Officer was indicted by the grand jury of the United States District Court for the Eastern District of Missouri relating to the backdating of
the timing of stock options at ESSI prior to the time ESSI was acquired by DRS. In July 2007, ESSI's former Chairman of the Board and Chief Executive Officer and his son (who was also a member of
ESSI's Board of Directors and Compensation Committee) were each indicted on similar charges. The July 2007 superseding indictment charges these former ESSI officers and directors with twelve counts of
fraud based on allegations that they backdated stock options on at least eight occasions between 1996 and 2002. The presiding judge has scheduled the criminal trial against these individuals to
commence on September 2, 2008.

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

We
are committed to full cooperation with regard to the foregoing investigations and proceedings. We are unable to determine at this time the impact, if any, these matters could have on
us.

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

In
August 2007, a shareholder derivative complaint was filed in the United States District Court for the Eastern District of Missouri against ESSI's former Chairman of the Board and
Chief Executive Officer, his son (who was also a member of ESSI's Board of Directors and Compensation Committee), ESSI's former Chief Financial Officer and ESSI's former Controller relating to the
alleged backdating of stock options prior to ESSI's acquisition by DRS. The complaint also contains claims against us as a nominal defendant and against each of the current members of our Board of
Directors relating to the alleged backdating of ESSI stock

27

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options
and the ESSI acquisition. We believe the claims made against us and our current Directors are without merit. The U.S. Attorney's office has moved to intervene and stay the case pending
resolution of the related criminal charges against the individual ESSI defendants. DRS and the DRS Board of Directors have moved to dismiss the case on substantive and jurisdictional grounds. Those
motions are pending.

In
January 2008, we received an inquiry from the Australian Competition and Consumer Commission (ACCC) related to one of our subsidiaries, DRS Training & Control
Systems, Inc. The ACCC has requested documents and information regarding allegations of possible anticompetitive activity in violation of the Australian Trade Practices Act. In April 2008, we
provided the documents and information requested by the ACCC. We have commenced an internal investigation involving this matter, but are currently unable to determine the timing or the impact, if any,
that the matter may have on us.

In
May 2008, we were notified that the NYSE Regulation Inc.'s Market Trading Analysis Department (the NYSE) and the SEC had each commenced independent inquiries regarding trading
in DRS securities prior to the public announcement that Finmeccanica S.p.A. and the Company had entered into a definitive merger agreement pursuant to which Finmeccanica had agreed to acquire the
Company for $81.00 per share in cash subject to the terms thereof. In each case, we were asked to provide certain documents and information. We were advised by the SEC that its informal inquiry should
not be construed as an indication by the SEC or its staff that any violations of law have occurred or as an adverse reflection upon any person or security. Similarly, the NYSE advised us that it was
engaged in a fact gathering process and that no inference of impropriety should be inferred.

In
May, 2008, a plaintiff filed a putative class action lawsuit against us and each of our directors in the Superior Court of the State of New Jersey, challenging our proposed
transaction with Finmeccanica, S.p.A. The complaint, captionedScheidt v. DRS Technologies, Inc., et al,alleges, among other things, that
the proposed transaction arises out of a flawed process, that the individual defendants are engaged in self-dealing in connection with the transaction, and that our stockholders will be divested of a
large portion of our assets for inadequate consideration if the transaction is consummated. The complaint asserts a claim for breach of fiduciary duties against the individual defendants and a claim
for aiding and abetting breaches of fiduciary duty against the Company. The plaintiff seeks, among other things, an order enjoining the defendants from consummating the transaction and directing the
individual defendants to exercise their fiduciary duties to obtain a transaction that is in the best interests
of our stockholders. We believe that the claims asserted by the plaintiff are wholly without merit and intend to defend vigorously against the action.

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

None

28

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

On May 14, 2008, we announced that, our Board of Directors declared a quarterly cash dividend of $0.03 per share on our common stock. The dividend is
payable on June 30, 2008 to stockholders of record as of the close of business on June 13, 2008. Our credit facility allows the payment of dividends or other distributions on our common
stock, subject to certain restrictions. Any future declaration of dividends will be subject to the discretion of our Board of Directors. The timing, amount and form of any future dividends will
depend, among other things, on our results of operations, financial condition, cash requirements, plans for expansion, limitations imposed by our amended and restated credit agreement and indentures
governing our notes and other factors deemed relevant by our Board of Directors.

The
following table shows the high and low sale prices per share of our common stock and dividends paid during fiscal 2008 and 2007, as reported on the NYSE.

Fiscal 2008Fiscal Year Ended March 31, 2008

Dividends
PaidHigh

LowFirst Quarter

$
58.20

$
48.41

$
0.03Second Quarter

$
58.47

$
44.11

$
0.03Third Quarter

$
61.33

$
53.15

$
0.03Fourth Quarter

$
59.27

$
48.04

$
0.03


|
|

Fiscal 2007Fiscal Year Ended March 31, 2007

Dividends
PaidHigh

LowFirst Quarter

$
59.50

$
45.27

$
0.03Second Quarter

$
48.72

$
35.83

$
0.03Third Quarter

$
53.18

$
43.14

$
0.03Fourth Quarter

$
56.50

$
51.02

$
0.03


The
closing sale price of our common stock, as reported by the NYSE on May 23, 2008, was $78.47 per share. As of that date, there were approximately 1,250 registered holders of
record of our common stock.

We
did not repurchase any equity securities during the period covered by this report.

Stock Performance Graph

Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on DRS common stock against the total return of
the NYSE Market Index and the S&P 1500 Aerospace & Defense Index (the Peer Group). A listing of the companies included in the Peer Group is available through publications from
Standard & Poor's and other licensed providers.

29

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COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN  AMONG DRS TECHNOLOGIES, INC.,  NYSE MARKET INDEX AND S&P AEROSPACE & DEFENSE

GRAPHIC

ASSUMES $100 INVESTED ON APRIL 1, 2003  ASSUMES DIVIDEND REINVESTED  FISCAL YEAR ENDING MARCH 31, 2008

|                             |  | Fiscal Years Ended March 31,
|---------------------------- |  | ----------------------------
|
|
|DRS Technologies, Inc.       |  | $                           
|S&P 1500 Aerospace & Defense |  |                             
|NYSE Market Index            |  |                             

30

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Item 6.    Selected Financial Data

Restatement of Financial Information

We have restated our previously reported consolidated financial statements for the year ended March 31, 2007. The restatement adjustment resulted in a
cumulative net decrease to stockholders' equity of $23.5 million as of March 31, 2007 and a decrease in previously reported net income of $23.5 million for the year ended
March 31, 2007.

In
the following table, we provide our selected historical consolidated financial and operating data as of and for the fiscal years indicated. The selected summary of earnings data,
earnings per share data from continuing operations and certain of the other data for the years ended March 31, 2008, 2007 and 2006 and the selected balance sheet data as of March 31,
2008 and 2007 presented below are derived from our audited consolidated financial statements included elsewhere in Item 8 of this Form 10-K. The selected summary of earnings
data, earnings per share data from continuing operations and certain of the other data for the years ended March 31, 2005 and 2004 and selected balance sheet data as of March 31, 2006,
2005 and 2004 presented below are derived from our consolidated financial statements, which are not included in this Form 10-K.

When
you read this selected historical financial data, it is important that you also read along with it our historical consolidated financial statements and related notes included in
this Form 10-K, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Form 10-K.

|                                                              |                                                                                    | Years Ended March 31,(1) |  
|------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------ | -
|
|
|Summary of Earnings Data                                      |                                                                                    |                          |  
|                                                              | Revenues                                                                           |                          | $
|                                                              | Operating income(2)                                                                |                          | $
|                                                              | Earnings from continuing operations before income taxes(2)                         |                          | $
|                                                              | Earnings from continuing operations(2)                                             |                          | $
|                                                              | Net earnings(2)                                                                    |                          | $
|Earnings Per-Share Data from Continuing Operations(2),(3),(4) |                                                                                    |                          |  
|                                                              | Basic earnings per share                                                           |                          | $
|                                                              | Diluted earnings per share                                                         |                          | $
|Balance Sheet Data (at period end)                            |                                                                                    |                          |  
|                                                              | Working capital                                                                    |                          | $
|                                                              | Net property, plant and equipment                                                  |                          | $
|                                                              | Total assets                                                                       |                          | $
|                                                              | Long-term debt, excluding current installments                                     |                          | $
|                                                              | Total stockholders' equity                                                         |                          | $
|Financial Ratios and Supplemental Information                 |                                                                                    |                          |  
|                                                              | Net cash flows provided by operating activities of continuing operations           |                          | $
|                                                              | Net cash flows used in investing activities of continuing operations               |                          | $
|                                                              | Net cash flows provided by (used in) financing activities of continuing operations |                          | $
|                                                              | Capital expenditures                                                               |                          | $
|                                                              | Depreciation and amortization                                                      |                          | $
|                                                              | Internal research and development                                                  |                          | $
|                                                              | Interest and related expenses                                                      |                          | $
|                                                              | EBITDA(5)                                                                          |                          | $
|                                                              | Free cash flow(6)                                                                  |                          | $
|                                                              | Cash dividends declared per common share                                           |                          | $

---

31

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32

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

We begin Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) of DRS Technologies, Inc. and its wholly-owned
subsidiaries and controlling interests (hereinafter, we, us, our, the Company or DRS) with a company overview, followed by defense industry considerations and a summary of our overall business
strategy, to provide context for understanding our business and a summary of our acquisitions. This is followed by a discussion of the critical accounting estimates that we believe are important to
understanding the assumptions and judgments incorporated in our reported financial results, which we discuss under "Results of Operations." We then provide an analysis of cash flow, and discuss our
financial commitments under "Liquidity and Financial Resources" and "Contractual Obligations."

This
MD&A should be read in conjunction with the other sections of this Annual Report on Form 10-K, including our Consolidated Financial Statements.

Restatement of Previously Issued Consolidated Financial Statement

In
February 2008, we received a comment letter from the staff of the U.S. Securities and Exchange Commission (SEC) on our fiscal 2007 Form 10-K (filed on
May 30, 2007) and our fiscal 2008 second quarter Form 10-Q (filed on November 9, 2007). In the initial comment letter, and in other subsequent written and telephonic
communications with the SEC, information was requested regarding the timing of a $36.8 million pretax charge that was recorded in our fiscal 2008 first quarter ended June 30, 2007 for
the impact of a redesign on our Thermal Weapon Sight II (TWS II) program.

In
March 2007, we stopped production on the TWS II line due to intermittent failures. After several weeks of analysis, we identified the root causes of the failures, and in May 2007 we
released a redesign that we believed would address them. The charge reflects our revised estimate of the excess of the total estimated costs to fulfill the scope of work of the TWS II contract, over
the total TWS II contract value. The total estimated costs to complete the contract reflect all direct costs (primarily labor and material), overhead and allowable general and administrative expenses.
The most significant component of the charge was a result of the write-off of certain TWS II on-hand component parts that would no longer be utilized in the new TWS II design.
The charge also reflects the estimated future cost of the redesign and cost growth that was unrelated to the redesign.

Following
discussions with the staff of the SEC and review of the judgments and estimates we made relating to the charge, we concluded that the $36.8 million charge should have
been recorded in our fiscal 2007 fourth quarter ended March 31, 2007. All amounts impacted by the restatement that are presented in the MD&A have been restated to reflect the
$36.8 million charge in the appropriate period.

As
a result of foregoing, we are restating our previously filed consolidated financial statements and selected financial data for the year ended March 31, 2007, inclusive of our
fourth quarter ended March 31, 2007 and our previously issued quarterly consolidated financial statements for the three month period ended June 30, 2007. Accordingly, our previously
issued consolidated financial statements for these periods should no longer be relied upon.

For
additional information and a detailed discussion of the restatement, see Note 2,Restatement of Previously Issued Consolidated Financial
Statements, to the accompanying consolidated financial statements.

33

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Forward-Looking Statements

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

Company Overview

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

On
May 12, 2008, DRS announced that it had signed a definitive merger agreement with Finmeccanica S.p.A. (Finmeccanica) under which Finmeccanica will acquire 100% of DRS stock for
$81.00 per share in cash (the Merger). The transaction is subject to approval by the stockholders of DRS, the receipt of regulatory approvals and other closing conditions, including review by U.S.
Antitrust Authorities, the Committee on Foreign Investment in the United States (CFIUS) and the Defense Security Service (DSS). The transaction is expected to close by the fourth quarter of 2008. We
anticipate that significant Merger related expenses will be incurred by us and charged to operations until the close of the transaction.

On
October 1, 2007, ESSIBuy, an operating unit of the Technical Services Segment, was consolidated into an operating unit of the Sustainment Systems Segment to achieve certain
operating synergies. The balance sheet and operating results of ESSIBuy were reclassified for the period from April 1, 2007 through September 30, 2007. The results in the prior year were
not reclassified, as they were considered immaterial to both segments.

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

34

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The
C4I Segment is comprised of the following business areas: Command, Control & Communications (C3), which includes naval display systems, ship communications systems, radar
systems, technical support, electronic manufacturing and system integration services, secure voice and data communications, air combat training, electronic warfare and ship network systems; Power
Systems, which includes naval and industrial power generation, conversion, propulsion, distribution and control systems; Intelligence Technologies, which includes signals intelligence, communications
intelligence, data collection, processing and dissemination equipment, high-speed digital data and imaging systems, and mission and flight recorders; Tactical Systems, which includes
battle management tactical computer systems, peripherals, electronic test diagnostics and vehicle electronics; and Homeland Security, which includes integration of traditional security infrastructures
into a single, comprehensive border security suite for the Department of Homeland Security.

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

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

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

The
substantial majority of the our revenue is generated pursuant to written contractual arrangements to design, develop, manufacture and/or modify complex products and to provide
related engineering, technical and other services according to the specifications of the buyers (customers). Our primary "end-use" customer is the DoD. For the year ended March 31,
2008, sales directly to the DoD and indirect sales to the DoD through its prime contractors and subcontractors generated $3.1 billion, or 93%, of our consolidated revenues.
Our other customers include foreign governments, commercial and industrial customers and other U.S. federal, state and local government agencies.

Defense Industry Considerations and Business Strategy

The United States' engagement in the Global War on Terror, in addition to the need to modernize U.S. military forces, has driven steady DoD funding increases
since 2001. In particular, procurement and research and development (R&D) budgets, also known as investment accounts, provide a significant component of our revenues. These budget lines continue to
realize sustained increases, demonstrating administration and Congressional support. DoD funding has increased at a compound annual growth rate of 6.8% from government fiscal year (GFY) 2001 through
2008, while procurement and R&D spending has grown nearly 8% annually during that period.

For
GFY 2008 excluding supplementals, Congress appropriated $480 billion for the Department of Defense, including approximately $175 billion for procurement and R&D. For
the GFY 2009, the President has requested that Congress appropriate $515 billion for the DoD, a 7.5% increase over the 2008 funding. This includes $184 billion for procurement and R&D,
an increase of 5% over GFY 2008, representing more than one-third of the total 2009 budget request.

35

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During
this period of war, defense budgets have included the President's budget submission, as well as supplemental funds requested over the course of the fiscal year to meet the needs
of the warfighter. For GFY 2008, the administration requested approximately $189 billion in supplemental funding, including approximately $75 billion, or 40%, for additional investment
spending. Congress has appropriated $87 billion of that request and will consider the remaining $102 billion in GFY 2008. If this second supplemental is approved, defense funding for GFY
2008 will total approximately $670 billion, a 116% increase over 2001 levels. While these supplemental funding requests have increased total defense spending levels, some military service
accounts are under pressure as the services move funds among accounts to cover current war needs. In addition, supplemental appropriations do not include the level of program detail typically provided
in general defense appropriations. These two factors have made it increasingly difficult to forecast the timing and amount of the impact of supplemental funding on our programs.

We
expect the defense budget top line to remain well-funded for the near-term, driven by the need to continue to support the operations in Iraq and
Afghanistan. As the landscape will continue to evolve during this dynamic period, we expect near-term defense funding to be driven primarily by the following:



However,
projected defense spending is uncertain due to numerous factors, including those noted above. For more information on the risks and uncertainties that could impact the U.S.
government's demand for our products and services, see Item 1A "Risk Factors" of this Form 10-K.



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

The
DoD Operations and Maintenance (O&M) Account, which includes funding for training, services and other logistical support functions, is of significant importance to the defense

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industry
and to DRS, particularly to our Technical Services and Sustainment Systems segments. O&M in the DoD baseline budget has grown at an annual rate of 6% since GFY 2001. The GYF 2008 level
of $164 billion is $18 billion, or 12%, more than the GFY 2007 level. The number of active duty ground forces deployed in Iraq surged last calendar year by approximately 92,000 troops,
which will likely increase O&M funding requirements in the near future.

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

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

Acquisitions

The following summarizes the acquisitions we completed during the past three fiscal years, which significantly affect the comparability of the
period-to-period results presented in this discussion and analysis. The acquisitions discussed below have been accounted for using the purchase method of accounting.
Accordingly, the results of operations of the acquired businesses are included in our reported operating results from their respective effective dates of acquisition. We selectively target acquisition
candidates that complement or expand our product lines, services or technical capabilities. We continue to seek acquisition opportunities consistent with our overall business strategy.

Fiscal 2006 AcquisitionsOn January 31, 2006, we completed our acquisition of Engineered Support Systems, Inc.
(ESSI). The purchase price was $43.00 per share of ESSI common stock, which was comprised of $30.10 in cash and a fraction of a share of DRS common stock valued at $12.90. Total consideration for the
acquisition was $1.93 billion. In addition to the purchase price, we assumed $78.5 million of ESSI's debt at closing and recorded $27.1 million of acquisition-related costs,
including professional fees. Upon closing of the acquisition, we repaid ESSI's credit facility in the amount of $76.3 million. We financed the cash portion of the acquisition by utilizing cash
and cash equivalents on hand, revolving credit borrowings, $275.0 million in term debt and $900.0 million of new debt securities, including $350.0 million aggregate principal
amount of 65/8% senior notes due 2016, $250.0 million aggregate principal amount of 75/8% senior subordinated notes due 2018 and $300.0 million aggregate
principal amount of 2.0% convertible senior notes due 2026.

ESSI,
formerly headquartered in St. Louis, Missouri, is a supplier of integrated military electronics, support equipment and technical services focused on advanced sustainment and
logistics support solutions for all branches of the U.S. armed services, major prime defense

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contractors,
certain international militaries, homeland security forces and selected government and intelligence agencies. ESSI also produces specialized equipment and systems for commercial and
industrial applications. We believe the addition of ESSI has contributed a significant base of systems, products and services focused on military force sustainment, technical and logistics support,
integrated military electronics and field support equipment. The entities acquired in the ESSI acquisition are managed in our Sustainment Systems and Technical Services Segments.

On
June 27, 2005, we acquired WalkAbout Computer Systems, Inc. (WalkAbout) in a stock purchase transaction for approximately $13.8 million in cash, with additional
consideration payable of up to $5.0 million upon achievement of certain revenue targets for a period of two and a half years, which ended on December 31, 2007. We accrued
$0.2 million, $0.4 million and $0.2 million of additional consideration during fiscal 2008, 2007 and 2006, respectively, as a result of achieving certain revenue targets. In
addition to the purchase price, we recorded approximately $0.2 million for acquisition-related costs, including professional fees.

WalkAbout,
formerly located in West Palm Beach, Florida, is a manufacturer of several lines of rugged, mobile tablet PCs, serving industrial, municipal, military and government markets.
We believe that the acquisition of WalkAbout has enhanced our position in the tactical computer systems business by broadening our product offerings. WalkAbout is managed as part of our C4I Segment.

On
April 15, 2005, we acquired Codem Systems, Inc. (Codem) in a stock purchase transaction for approximately $31.6 million in cash, with additional consideration
payable of up to $5.0 million upon achievement of certain annual bookings targets for a period of three years, which ended on April 15, 2008. We accrued $2.6 million,
$1.0 million and $0.3 million of additional consideration in fiscal 2008, 2007 and 2006, respectively, as a result of achieving certain bookings targets. In addition to the purchase
price, we recorded approximately $0.3 million for acquisition-related costs, including professional fees.

Codem,
located in Merrimack, New Hampshire, is a provider of signals intelligence (SIGINT) systems, network interface modules and high-performance antenna control systems.
Management believes that the addition of Codem has enhanced our existing intelligence product base. Codem is managed as part of our C4I Segment.

Critical Accounting Policies

The following is not intended to be a comprehensive list of all of our accounting policies. Our significant accounting policies are more fully described in
Note 1 to the Consolidated Financial Statements. In many cases, the accounting treatment of a particular transaction is dictated by accounting principles generally accepted in the United States
of America, with no need for management's judgment in their application. Other areas require management's judgment to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and costs and expenses during the reporting period. Ultimately, actual amounts may differ from these estimates. We believe that critical accounting
estimates have the following attributes: (1) they require management to make assumptions about matters that are uncertain at the time of the estimate; and (2) different estimates we
reasonably could have used, or changes in the estimates that are reasonably likely to occur, that would have a material effect on our consolidated financial condition or results of operations. We
believe the following critical accounting policies contain the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

Management EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements and

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the
reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates made by management involve the percentage of completion and total estimated costs at
completion on contracts, recoverability of goodwill and long-lived and intangible assets, the valuation of deferred tax assets and liabilities, the valuation of unrecognized tax benefits,
the valuation of assets acquired and liabilities assumed in purchase business combinations, the valuation of pensions and other postretirement benefits, and the recognition of share-based compensation
costs, as discussed below. We also make estimates regarding the recoverability of assets, including accounts receivable and inventories, and liabilities for litigation and contingencies. Actual
results could differ from these estimates.

Revenue Recognition on Contracts and Contract Estimates

The
substantial majority of our revenue is generated pursuant to written contractual arrangements to design, develop, manufacture and/or modify complex products, and to provide related
engineering, technical and other services according to the specifications of the buyers (customers). These contracts may be fixed price, cost-reimbursable, or time and material. These
contract types are accounted for in accordance with American Institute of Certified Public Accountants Statement of Position 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts" (SOP 81-1). Cost-reimbursable type contracts also are specifically covered by Accounting
Research Bulletin No. 43, Chapter 11, Section A, "Government Contracts, Cost-Plus-Fixed Fee Contracts" (ARB 43).

Revenues
and profits on fixed-price contracts are recognized using percentage-of-completion methods of accounting. Revenues and profits on fixed-price production contracts, whose units
are produced and delivered in a continuous or sequential process, are recorded as units are delivered (the "units-of-delivery method"). Revenues and profits on other fixed-price contracts with
significant engineering as well as production requirements are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (the "cost-to-cost
method"). Under the percentage-of-completion method of accounting, a single estimated total profit margin is used to recognize profit for each contract or profit center over its entire period of
performance, which can exceed one year.

Accounting
for revenues and profits on a fixed-price contract requires the preparation of estimates of (1) the total contract revenue, (2) the total costs at completion,
which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract's statement of work, and (3) the measurement of progress towards
completion. The estimated profit or loss at completion on a contract is equal to the difference between the total contract revenue and the total estimated cost at completion. Under the
units-of-delivery method, sales on a fixed-price type contract are recorded as the units are delivered during the period based on their contractual selling prices. Under the
cost-to-cost method, revenue on a fixed-price type contract are recorded at amounts equal to the ratio of actual cumulative costs incurred, divided by total estimated costs at
completion, multiplied by (i) the total contract revenue, less (ii) the cumulative revenue recognized in prior periods. The profit recorded on a contract in any period using either the
units-of-delivery method or cost-to-cost method is equal to (i) the current estimated total profit margin multiplied by the cumulative revenue
recognized, less (ii) the amount of cumulative profit previously recorded for the contract. In the case of a contract for which the total estimated contract costs (including overhead and
general and administrative expenses) exceed the total revenues, a loss arises, and a provision for the entire loss is recorded in the period that it becomes evident. The unrecoverable costs on a loss
contract that are expected to be incurred in future periods are recorded as a component of other current liabilities entitled "Loss accrual for future costs on uncompleted contracts."

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Revenue
and profits on cost-reimbursable type contracts are recognized as allowable costs are incurred on the contract, at an amount equal to the allowable costs plus the
estimated profit on those costs. The estimated profit on a cost-reimbursable contract is fixed or variable, based on the contractual fee arrangement. Incentive and award fees on these
contracts are recorded as revenue when the conditions under which they are earned are reasonably assured of being met and reasonably can be estimated. Revenue and profits on
time-and-material type contracts are recognized on the basis of direct labor hours expended multiplied by the contractual fixed rate per hour, plus the actual costs of material
and other direct non-labor costs. On a time-and-material-type contract, the fixed hourly rates include amounts for the cost of direct labor, indirect
contract costs and profit.

We
review cost performance and estimates to complete at least quarterly and in many cases more frequently. Adjustments to original estimates for a contract's revenue, estimated costs at
completion and estimated profit or loss often are required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required
under the contract may not change, or if contract modifications occur. Accounting for design, development and production contracts requires judgment relative to assessing risks, estimating contract
revenue and costs, and making assumptions for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total revenue and cost at completion is complex and
subject to many variables. Contract costs include material, labor and subcontracting costs, as well as an allocation of indirect costs. We make assumptions regarding the future impacts of efficiency
initiatives and cost reduction efforts, labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the contract (to
estimate increases in wages and prices for materials), and performance by our subcontractors. For contract change
orders, claims or similar items, we apply judgment in estimating the amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably
estimated and realization is considered probable. Because of the significance of the judgments and estimation processes described above, it is likely that materially different amounts could be
recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect future period financial
performance.

The
impact of revisions in profit estimates for all types of contracts is recognized on a cumulative catch-up basis in the period in which the revisions are made. Incentives
or penalties and awards applicable to performance on contracts are considered in estimating revenues and profit rates, and are recorded when there is sufficient information to assess anticipated
contract performance. Incentive provisions, which increase or decrease earnings based solely on a single significant event, are not recognized until the event occurs.

We
record contract-related assets and liabilities acquired in business combinations at their fair value by considering the remaining contract amounts to be billed and collected, our
estimate to complete (including general and administrative expenses for government contracts) and a profit allowance on the remaining contract amount to be billed and collected. Facts and
circumstances specific to an acquired contract dictate the profit allowance, if any, established at acquisition (certain contracts, including those in a loss position at the date of acquisition, may
be adjusted to break-even by recording a reserve for anticipated costs at acquisition). Certain factors influencing the profit allowance, if any, on an acquired contract include: contract
type, margins earned on similar contracts, the original bid of the acquired entity and the life-cycle and related risk profile of the contract. Revisions to cost estimates subsequent to
the date of acquisition may be recorded as an adjustment to goodwill or earnings, depending on the nature and timing of the revision.

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Contracts that include multiple deliverables that are not within the scope of SOP 81-1 are accounted for under the provisions of Emerging Issues Task Force Issue
No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." Accordingly, for applicable arrangements, revenue recognition includes the proper identification of
separate units of accounting and the allocation of revenue across all elements based on relative fair values.

Revenues
on arrangements that are not within the scope of SOP 81-1 or ARB 43 typically are recognized in accordance with the Securities and Exchange Commission (SEC)
Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition in Financial Statements." Revenues are recognized when there is persuasive evidence of an arrangement, delivery has occurred or
services have been performed, the selling price to the buyer is fixed or determinable, and collectibility is reasonably assured.

Goodwill and Acquired Intangible AssetsWe allocate the cost of our acquired businesses (commonly referred to as the
purchase-price allocation) to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. As part of the purchase-price allocations for our acquired
businesses, identifiable intangible assets are recognized as assets apart from goodwill if they arise from contractual or other legal rights or if they are capable of being separated or divided from
the acquired business and sold, transferred, licensed, rented or exchanged, unless the intangible asset is comprised of the assembled workforce of the acquired business.

Generally,
the substantial majority of the intangible assets from the businesses that we acquire are derived from the intellectual capital of the management, administrative, scientific,
engineering and technical employees of the acquired businesses. The success of our businesses is primarily dependent on the management, contracting, engineering and technical skills and knowledge of
our employees, rather than productive capital (machinery and equipment). Generally, patents, trademarks and licenses are not material to our acquired businesses. Therefore, the substantial majority of
the intangible assets for our acquired businesses is recognized as goodwill.

The
values assigned to acquired identifiable intangible assets for customer and contract-related and technology-based identifiable assets are determined as of the date of acquisition,
based on estimates and judgments regarding expectations of the estimated future after-tax cash flows from those assets over their lives, including the probability of expected future
contract renewals and sales, all of which are discounted to present value. The value assigned to
goodwill equals the amount of the purchase price of the business acquired in excess of the sum of the amounts assigned to identifiable acquired assets, both tangible and intangible, less liabilities
assumed.

We
assess the recoverability of our long-lived assets and acquired identifiable intangible assets with finite useful lives whenever events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. Factors we consider important which could trigger an impairment review include:



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If
we identify the existence of one or more of the above indicators, we would determine if the asset (or asset group) is impaired by comparing its expected future net undiscounted cash
flows with its carrying value. If the expected future net undiscounted cash flows are less than the carrying value of the asset, we would record an impairment loss based on the difference between the
asset's estimated fair value and its carrying value. The determination of the future net undiscounted cash flows and the fair value of an asset involves estimates and assumptions regarding future
operating results, all of which are impacted by economic conditions related to the industries in which those assets operate. Inaccurate estimates could have a material effect on our results of
operations and financial position. At March 31, 2008, we had identifiable acquired intangible assets with finite useful lives of $167.8 million, net of accumulated amortization.

Goodwill
is tested for impairment at a level of reporting referred to as a "reporting unit." We have identified five reporting units for impairment testing purposes at March 31,
2008. The annual goodwill impairment test is typically performed after completion of our annual financial operating plan, which occurs in the fourth quarter of our fiscal year. We completed our fiscal
2008 and 2007 impairment assessment with no adjustment to the carrying value of our goodwill.

The
annual goodwill impairment assessment involves estimating the fair values of each of our reporting units and comparing such fair values with the reporting unit's respective carrying
value. If the carrying value of the reporting unit exceeds its fair value, additional steps are followed to recognize a potential goodwill impairment loss. Fair value is estimated based upon two
methodologies: a market approach and an income approach. The market approach includes applying valuation multiples to each reporting unit's projected earnings before net interest and taxes (EBIT), and
earnings before net interest, taxes, depreciation and amortization (EBITDA). The income approach discounts future net cash flows to their present value at a rate that reflects both the current return
requirements of the market and the risks inherent in the reporting unit. The results of the two approaches are averaged and compared with the carrying value of the reporting units. Estimating the fair
value of the reporting units requires significant estimates and assumptions by management, as the calculation is dependent on estimates of our future revenues, EBIT, EBITDA and cash flows, and the
appropriate discount rate to be applied, all of which are impacted by economic conditions related to the industries in which we operate, as well as conditions in the U.S. capital markets.

The
most significant assumptions used in the income approach, regarding the estimated fair values of our reporting units in connection with goodwill valuation assessments, are:
(1) multi-year cash flow projections for each of our reporting units, (2) a discount rate including the estimated risk-free rate of return, and (3) the
expected long-term growth rate (beyond 5 years) of our businesses. The discount rate represents the estimated weighted average cost of capital (WACC). The WACC represents the
estimated required rate of return on DRS's total market capitalization. It is comprised of (1) an estimated required rate of return on equity, based on publicly traded companies with business
characteristics comparable to DRS, including a risk-free rate of return and an equity-risk premium, and (2) the current after-tax market rate of return on
DRS's debt, each weighted by the relative market value percentages of DRS's equity and debt. In valuing our reporting units in fiscal 2008, we used a weighted average discount rate of approximately
9.0%. Changes in our assumptions would affect the estimated fair values of our five reporting units and could result in a goodwill impairment charge in a future period. Based upon the results of our
most recent goodwill impairment test, a decrease of approximately 5% in the estimated fair value of each of the reporting units would not result in a goodwill impairment charge for any of our
reporting units. Our ESSI-related reporting units currently are sensitive to a decrease in their fair value, as the

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purchase
price for ESSI was at fair value on January 31, 2006, with no significant change in industry valuations or discounted cash flows since the acquisition. For the fiscal 2008 impairment
test, the fair value of each of our other reporting units exceeded their carrying value by a significant amount. An impairment charge to goodwill could have a material adverse effect on our financial
condition and results of operations. At March 31, 2008, we had goodwill of $2.6 billion.

Pension Plan and Postretirement Benefit Plan ObligationsThe obligations for our pension plans and postretirement benefit
plans and the related annual costs of employee benefits are calculated based on several long-term assumptions, including discount rates for employee benefit liabilities, rates of return on
plan assets, expected annual rates of salary increases for employee participants in the case of pension plans, and expected annual increases in the costs of medical and other healthcare benefits in
the case of postretirement benefit obligations. These long-term assumptions are subject to revision based on changes in interest rates, financial market conditions, expected versus actual
returns on plan assets, participant mortality rates and other actuarial assumptions, including future rates of salary increases, benefit formulas and levels, and rates of increase in the costs of
benefits. Changes in the assumptions, if significant, can materially affect the amount of annual net periodic benefit costs recognized in our results of operations from one year to the next, the
liabilities for the pension plans and postretirement benefit plans, changes to stockholders' equity through accumulated other comprehensive earnings, and our annual cash requirements to fund these
plans.

The
fiscal 2008 discount rate assumptions used to determine the pension and postretirement benefit obligations were based on a hypothetical double-A yield curve represented
by a series of annualized individual discount rates. The current year's discount rates were selected using a method that matches projected payouts from the plans with a zero-coupon
double-A bond yield curve. This yield curve was
constructed from the underlying bond price and yield data collected as of the plan's measurement date and is represented by a series of annualized, individual discount rates with durations ranging
from six months to thirty years. These individual discount rates are then converted into a single equivalent discount rate.

Our
benefit obligation and annual net periodic expense is significantly affected by the discount rate assumption we use. For example, a reduction to the discount rate of 25 basis points
would have increased our benefit obligation at March 31, 2008 by approximately $8.2 million and our net periodic expense for fiscal 2008 by approximately $0.4 million. Conversely,
an increase to the discount rate of 25 basis points would have decreased our benefit obligation at March 31, 2008 by approximately $7.9 million and our net periodic expense for fiscal
2008 by approximately $0.4 million.

Share-Based CompensationAs of April 1, 2006, we adopted the provisions of SFAS No. 123 (revised 2004),
"Share-Based Payment" (SFAS 123R), as interpreted by SEC Staff Accounting Bulletin No. 107, which requires that the cost resulting from all share-based payment transactions be recognized
in the financial statements at their fair values. We adopted SFAS 123R using the modified prospective application method under which the provisions of SFAS 123R apply to new awards and
to awards modified, repurchased or cancelled after the adoption date. Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based
on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating our stock
price volatility and employee stock option exercise behaviors. Our expected volatility is based upon the historical volatility of our stock. The expected life of share-based awards is based on
observed historical exercise patterns for different groups of employees and directors. As share-based compensation expense recognized in the consolidated statements of earnings is based on awards
ultimately

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expected
to vest, the amount of expense has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.

Income TaxesThe Company's effective tax rate is based on pre-tax earnings, statutory tax rates and tax planning
opportunities available in various jurisdictions in which we operate. An estimated effective tax rate for a year is applied to the Company's quarterly operating results. In the event that there is a
significant unusual or one-time item recognized, or expected to be recognized, in our quarterly operating results, the tax attributable to that item would be separately calculated and
recorded simultaneously with the unusual or one-time item. DRS treats the resolution of prior-year tax matters to be such items. Significant judgment is required in determining our annual
effective tax rate and in evaluating our tax positions.

The
recognition and measurement of a tax position is based on management's best judgment given the facts and circumstances available as of the balance sheet date. In accordance with FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109," (FIN 48) which DRS adopted on April 1, 2007, we
evaluate our tax positions to determine whether the benefits of the tax position are more likely than not of being sustained upon audit based solely on the technical merits of the position. For tax
positions that are more likely than not of being sustained upon examination, the Company recognizes the largest amount of the benefit that has a greater than 50% probability of being realized upon
effective settlement in the financial statements. For tax positions that do not meet the more likely than not threshold, the Company does not record any benefit associated with the position in the
financial statements. If the more likely than not threshold is not met during the period in which a tax position is taken, we may subsequently recognize a benefit if certain conditions are met during
our continual evaluation of our tax positions. We continually evaluate our tax positions and will adjust such amounts in light of changing facts and circumstances, including but not limited to
emerging case law, tax legislation, rulings by relevant tax authorities, expiration of statute of limitations and the progress of ongoing tax audits. Our liabilities for unrecognized tax benefits,
including related penalties, are presented in the consolidated balance sheets within accrued expenses and other current liabilities for items that are reasonably possible to be realized within twelve
months of the balance sheet date, with the remaining balance included in other liabilities. Interest associated with our unrecognized tax benefits is recorded as interest expense and is included
within accrued expenses and other current liabilities.

The
Internal Revenue Code and United States Treasury Regulations require some items to be included in the tax returns in a different period than the period required in accordance with
Generally Accepted Accounting Principles (GAAP), resulting in temporary differences. These temporary differences create deferred tax assets and liabilities being recorded for financial statement
purposes. Deferred tax assets generally represent items that will result in a future tax deduction or credit which has already been recorded for financial statement purposes. DRS establishes a
valuation allowance against our deferred tax assets when it is more likely than not that they will not be realized. Conversely, deferred tax liabilities are the result of having taken a deduction on
the tax return, but not yet recognizing the impact of the deduction for financial statement purposes.

At
March 31, 2008, we had net deferred tax assets of $20.2 million, including $19.1 million of loss and tax credit carryforwards, which are subject to various
limitations and will expire if unused within their respective carryforward periods. As of March 31, 2008, we provided a $4.1 million valuation allowance associated with the loss
carryforwards and certain other temporary differences that are included in our net deferred tax assets. Deferred taxes are determined separately for each of our tax paying entities in each tax
jurisdiction. Future realization of deferred tax assets

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ultimately
depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback and carryforward periods available
under the tax law. At March 31, 2008, we believe we will realize our recorded net deferred tax assets. A change in the ability of our operations to continue to generate future taxable income
could affect our ability to realize the future tax deductions underlying our net deferred tax assets and require us to increase our valuation allowance against our deferred tax assets. Such changes,
if significant, could have a material impact on our effective tax rate, results of operations and financial position in any given period.

Other Management EstimatesA substantial majority of our revenues and, consequently, our outstanding accounts receivables,
are directly or indirectly related to the U.S. government. Therefore, our risk of not collecting amounts due us is minimal. We generally require letters of credit or deposit payments prior to the
commencement of work or obtain progress payments upon the achievement of certain milestones from our commercial customers. In addition, our revenues are supported by contractual arrangements
specifying the timing and amounts of payments. Consequently, we historically have experienced and expect to continue to experience a minimal amount of uncollectible accounts receivable. Changes in the
underlying financial condition of our customers or changes in the industry in which we operate necessitating revisions to our standard contractual terms and conditions could have an impact on our
results of operations and cash flows in the future.

Our
inventory consists of work in process (including general and administrative costs on certain contracts), raw materials and finished goods, including subassemblies principally for use
in our products. We continually evaluate the adequacy of our reserves on our raw materials and finished goods inventory by reviewing historical rates of scrap, on-hand quantities, as
compared with historical and projected usage levels, and other anticipated contractual requirements.

We
record a liability pertaining to pending litigation or contingencies based on our best estimate of potential loss, if any, or at the minimum end of the range of loss in circumstances
where a range of loss reasonably can be estimated. Because of uncertainties surrounding the nature of litigation and other contingencies, and the cost to us, if any, we continually revise our
estimated losses as additional facts become known.

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Results of Operations

Our operating cycle is long-term and involves various types of production contracts and varying production delivery schedules. Accordingly, operating
results of a particular year, or year-to-year comparisons of recorded revenues and earnings, may not be indicative of future operating results.

Members
of our senior management team regularly review key performance metrics and the status of operating initiatives within our business. These key performance indicators are primarily
revenues, operating income and bookings. We review this information on a monthly basis through operating segment reviews, which include, among other operating issues, discussions related to
significant programs, proposed investments in new business opportunities or property, plant and equipment, and integration and cost reduction efforts. The following table presents a summary comparison
of the key performance metrics, other significant financial metrics and significant liquidity metrics monitored by our senior management.

|                                    |                             | Years Ended March 31, |           | Percent Changes |          
|----------------------------------- | --------------------------- | --------------------- | --------- | --------------- | ---------
|
|
|Key performance metrics             |                             |                       |           |                 |          
|Revenues:                           |                             |                       |           |                 |          
|                                    | Products                    |                       | $         | 2,472,561       |          
|                                    | Services                    |                       | $         | 822,823         |          
|                                    |                             |                       |           |                 |          
|                                    |                             | Total revenue         |           | $               | 3,295,384
|Costs and expenses:                 |                             |                       |           |                 |          
|                                    | Cost and expensesProducts  |                       | $         | 2,179,014       |          
|                                    |                             | % of product revenues |           |                 | 88.1     
|                                    | Cost and expensesServices  |                       | $         | 755,994         |          
|                                    |                             | % of service revenues |           |                 | 91.9     
|Total costs and expenses            |                             | $                     | 2,935,008 |                 | $        
|                                    |                             |                       |           |                 |          
|Operating income                    |                             | $                     | 360,376   |                 | $        
|                                    | Operating income percentage |                       |           | 10.9            | %        
|Bookings                            |                             | $                     | 3,862,030 |                 | $        
|Other significant financial metrics |                             |                       |           |                 |          
|Interest and related expenses       |                             | $                     | 110,423   |                 | $        
|Income taxes                        |                             | $                     | 83,755    |                 | $        
|Significant liquidity metrics(A)    |                             |                       |           |                 |          
|Free cash flow                      |                             | $                     | 140,147   |                 | $        
|EBITDA                              |                             | $                     | 436,080   |                 | $        

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Fiscal Year Ended March 31, 2008, Compared with Fiscal Year Ended March 31, 2007

Revenues

Consolidated revenue increased $474.3 million, or 16.8%, to $3.3 billion for the fiscal year ended March 31, 2008, as compared with the prior
fiscal year. The increase in revenue was

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comprised
of an increase of $387.8 million and $86.5 million for product and service revenues, respectively.

RevenuesProducts

Revenue from our products (e.g., hardware, components, systems) increased $387.8 million, or 18.6%, to $2,472.6 million for the fiscal year
ended March 31, 2008, as compared with prior fiscal year. The increase was primarily driven by greater shipments of driver vision enhancement equipment and components for ground-based vehicles,
certain rugged computer systems, thermal imaging systems and subsystems for a long-range surveillance system, and ground-based target acquisition and missile control subsystems. Revenues
from driver vision enhancement equipment and components increased significantly as a result of elevated priority placed on the program by the customer to assist in increasing combat vehicle drivers'
vision capability, survivability and mobility, which resulted in increased funding and accelerated delivery schedules. Rugged computer systems revenue increased due to increased funding and
accelerated customer delivery requirements to supply troops in theatre. In addition, supplemental funding was received to support target acquisition systems for certain ground-based vehicles, which
resulted in increased revenue on both the thermal imaging systems and subsystems for a long-range surveillance system, and ground-based target acquisition and missile control subsystem
programs.

Partially
offsetting overall higher product revenues were lower shipments of rugged computer systems sold in the international market and commercial vehicle armor kits, as a result of
contracts being substantially completed during the first half of the 2008 fiscal year, as well as decreased production revenues on a precision targeting system program, that was delayed due to
customer-initiated design changes. Production resumed during the fourth quarter of fiscal 2008.

RevenuesServices

Revenue from services increased $86.5 million, or 11.7%, to $822.8 million for the fiscal year ended March 31, 2008, as compared with the
prior fiscal year. The primary drivers of the increase are demand for equipment and services under the Rapid Response and satellite-based communication network programs.

Revenues
from the Rapid Response program increased significantly during fiscal 2008 as a result of continued operational demand in Iraq and Afghanistan. The increased revenue from the
satellite-based communication network program is a result of the commencement of program operations in the current fiscal year to support deployed personnel.

Partially
offsetting the increase in service revenue were decreased revenues for certain security services for various government installations due to a delay in anticipated funding for
a specific program and the substantial completion of another security service program in which no additional funding has been awarded to date.

Costs and expenses/Operating income

The majority of our business is comprised of thousands of individually unique contracts to design and/or produce defense electronics (components and systems) and
to provide other sustainment, logistics management and communications services to the military. In general, we do not manufacture large homogenous product lines.

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Costs
and expenses include contract costs, consisting of direct costs (labor, material, etc), indirect overhead, allowable general and administrative expenses, as defined below,
including internal research and development and bid-and-proposal costs (on certain contracts) and non-allocable costs, such as unallowable general and administrative expenses, as defined
below, and amortization of intangible assets.

The
Company bifurcates its total general and administrative (G&A) costs into "allowable" and "unallowable" cost pools, as the terms are defined in the U.S. Federal Acquisition
Regulations (FAR) procurement regulations. The Company accounts for allowable G&A costs allocated to its government contractor operating units that design, develop and produce complex defense
electronic components and systems for specifically identified contracts as contract costs because such costs are generally reimbursable indirect contract costs pursuant to the terms of the contracts.
The Company expenses such allowable G&A costs as a component of costs and expenses when the revenues related to those contracts are recognized. The Company's government contractor operating units
allocate allowable G&A costs to their contracts using an indirect overhead rate which is generally based upon allowable G&A costs as a percentage of a total cost (direct labor, manufacturing overhead,
raw materials and other direct costs) input base.

Consolidated
costs and expenses increased $384.6 million, or 15.1%, to $2.9 billion for the fiscal year ended March 31, 2008, as compared with the prior fiscal year.
The increased costs are attributed to a $298.8 million increase in product related expenses and a $85.9 million increase in service-related expenses.

Costs and expensesProducts

Product costs and expenses increased $298.8 million, or 15.9%, for fiscal 2008, as compared to the prior fiscal year, while decreasing 210 basis points as
a percentage of product revenues over the same period. The increase in costs and expenses is attributed to significant revenue growth during the period, as noted above. The decrease in cost and
expenses as a percentage of product revenues is attributed to a $40.3 million charge on the Thermal Weapon Sights (TWS) II program recorded during the prior fiscal year and a significant
portion of the curtailment gain recorded on certain pension and postretirement plans during the second quarter of fiscal 2008 (see "Operating Segments" discussion for additional information). In
addition, favorable margins were realized on certain rugged computer systems, driver vision enhancement equipment and components, power generation and distribution equipment, and certain commercial
nuclear control panel programs. The increased profitability on certain rugged computer systems is a result of production efficiencies on the existing delivery order, which is, nearing completion. The
driver vision enhancement equipment and component programs favorable results are attributed to increased volume resulting in additional material, production and overhead rate efficiencies. Power
generation and distribution equipment and commercial nuclear control panel programs realized increased profitability as a result of favorable program risk adjustments, as the programs were
substantially completed during fiscal 2008.

Partially
offsetting the increases in profitability were significant cost growth realized on various mobile environmental system programs as a result of rework and redesign efforts to
meet contractual specifications, anticipated cost growth on the development of certain switchboard programs and additional cost growth on the TWS II program, which reflects equitable consideration to
the customer for schedule extension and costs to repair/upgrade certain
previously fielded units. Cost and expenses for products generally range between 88% to 90% of revenues.

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Costs and expensesServices

Costs and expensesservices increased $85.9 million, or 12.8% during, fiscal 2008, as compared with the prior fiscal year, while increasing 90
basis points as a percentage of service revenues over the same period. The increase in costs and expenses was driven by the increase in revenues for the period. The increase in costs and expenses as a
percentage of service revenues was attributed to cost over-runs associated with a program to provide technical manuals for armored vehicles as a result of a change in scope, offset in part
by an increase in profit on a satellite-based communication network program due to higher-than-anticipated volume, and a portion of the curtailment gain recorded on certain pension and postretirement
plans during the second quarter of fiscal 2008 (see "Operating Segments" discussion for additional information).

Operating income

We consider operating income to be an important measure for evaluating our operating performance and, as is typical in the industry, define operating income as
revenues less related costs and expenses of producing the revenues, including allowable general and administrative expenses, and non-allocable costs, as defined above. Operating income is
discussed in detail for each of the business segments in which we operate, and the segment operating income is one of the key metrics used by management to internally manage its operations.
Consolidated operating income increased $89.6 million, or 33.1%, to $360.4 million, as compared with the prior fiscal year. In addition, operating income as a percentage of revenues
increased 130 basis points, which is attributed to the cost/revenue relationships detailed above. See "Operating Segments" discussion for additional information.

Bookings

We define bookings as the value of contract awards received from the U.S. government for which the U.S. government has appropriated funds, plus the value of
contract awards and
orders received from customers other than the U.S. government. Bookings for the fiscal year ended March 31, 2008 increased $372.9 million, as compared with the prior fiscal year, to
$3.9 billion. The primary drivers of the increase were strong demand for driver vision enhancement equipment and components for ground-based vehicles from our C4I and RSTA segments, rugged
computer systems and certain sonar systems from our C4I Segment, mast mounted sights and ground-based target acquisition and missile control subsystems from our RSTA Segment, and service-related
bookings on the Rapid Response and satellite-based communication network programs at our Technical Services Segment. Partially offsetting the higher overall bookings were lower bookings for TWS II and
thermal imaging systems and subsystems for long-range surveillance systems from our RSTA Segment.

Interest and related expenses

Interest and related expenses decreased $9.5 million for the year ended March 31, 2008, as compared with the prior fiscal year, to
$110.4 million. Lower interest and related expenses were primarily the result of a decrease in our average borrowings outstanding for the year ended March 31, 2008, as compared with the
corresponding periods in the prior year. We had no borrowings outstanding under our revolving credit facility at March 31, 2008 and March 31, 2007. In addition, we prepaid, at our
discretion, approximately $150.0 million of our outstanding term loan during fiscal 2008. With the adoption of FIN 48 on April 1, 2007, we began recording the interest associated
with our unrecognized tax benefits as a component of

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interest
expense. For the year ended March 31, 2008, we recorded $0.5 million of interest expense associated with unrecognized tax benefits.

Income taxes

The effective income tax rate for fiscal 2008 was 33.6%, compared with 31.1% for last fiscal year. The higher fiscal 2008 tax rate was due to the recording of
$11.6 million in discrete cumulative tax benefits in the prior year, primarily related to a multiyear redetermination of our Extraterritorial Income (ETI) exclusion, as compared with the
recording of $6.7 million in discrete cumulative tax benefits in fiscal 2008 primarily related to the reversal of valuation allowances for certain jurisdictions. The higher tax rate also
reflected the expiration of the Research and Development Credit effective December 31, 2007, as well as other individually insignificant items. The increase in the tax rate discussed above were
partially offset by a decrease in the rate due to the statutory increase in the benefit from the Domestic Manufacturing Deduction enacted as part of the American Jobs Creation Act of 2004 (the Jobs
Act) in October 2004, which contains many provisions affecting our income taxes. The Jobs Act contains a provision that eliminated the benefits of the ETI exclusion for export sales subsequent to 2006
and phases in a new tax deduction for income from qualified domestic
production activities over a transition period that began in 2005. We anticipate that our effective tax rate for fiscal 2009 will approximate 36.5% to 37% inclusive of the anticipated outcome of
federal, state and foreign audits that will likely be concluded during the year.

Fiscal Year Ended March 31, 2007, Compared with Fiscal Year Ended March 31, 2006

Revenues and Operating IncomeConsolidated revenues and operating income for the year ended March 31, 2007 increased
$1.1 billion and $78.0 million, respectively, to $2.8 billion and $270.7 million, respectively, as compared with the prior fiscal year. The primary driver of the overall
increase in revenues was our fiscal 2006 acquisition of ESSI, which contributed incremental (fiscal 2007 over corresponding prior fiscal year) revenues of $914.0 million. Also contributing to
the increase in revenues were increased shipments of target acquisition and missile control subsystems, TWS II, driver vision enhancement equipment for ground-based vehicles and chassis modernization
kits, and increased engineering and development revenue from a naval infrared search and track program. Partially offsetting the overall increase in revenues were lower volume from airborne
electro-optical sighting systems products and services, decreased shipments of combat display workstations and the cancellation of a test range support program. Also, we had lower shipments of secure
voice systems compared with the prior year.

The
growth in operating income for the year ended March 31, 2007, as compared with the corresponding prior fiscal year, was due primarily to the overall increase in revenues from
our ESSI acquisition, which contributed incremental operating income of $93.4 million, higher revenues from ground based target acquisition and missile control subsystems and strong margins
from our power systems business.

Partially
offsetting the overall increase in operating income, as compared with the prior fiscal year, was the impact of a $40.3 million pretax charge on the TWS II program. In
March 2007, we stopped production on the TWS II line due to intermittent failures. After several weeks of analysis, we identified the root causes of the failures, and in May 2007 we released a
redesign that we believed would address them. The charge reflects our revised estimate of the excess of the total estimated costs to fulfill the scope of work of the TWS II contract, over the total
TWS II contract value. The total estimated costs to complete the contract reflect all direct costs (primarily labor and material), overhead and allowable general and administrative

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expenses,
accumulated in accordance with Statement of Position No. 81-1. The most significant component of the charge was a result of the write-off of certain TWS II
on-hand component parts that would no longer be utilized in the new TWS II design. The charge also reflects the estimated future cost of the redesign and cost growth that was unrelated to
the redesign. In addition to the unfavorable impact of the TWS II charge, we also realized net lower margins from our intelligence businesses and certain rugged computer systems, which were under new
contracts in fiscal 2007. During fiscal 2007, we also recorded $3.7 million of severance-related costs related to the new organizational operating structure announced October 2, 2006.
See "Operating Segments" discussion below for additional information.

As
described in Note 1.Q. to our Consolidated Financial Statements, we adopted SFAS 123R, effective April 1, 2006, using the modified prospective method. For the
year ended March 31, 2007, we recorded total share-based costs related to stock options and non-vested stock of $11.1 million, that was charged to operating income. At
March 31, 2007, there was $8.0 million of unrecognized compensation costs related to stock options, which are expected to be recognized over a weighted average remaining period of
2.1 years. As of March 31, 2007, total unrecognized compensation costs related to non-vested stock awards was $11.7 million, which are expected to be recognized over a
weighted average remaining period of 2.0 years.

As
a result of applying SFAS 123R, our earnings before income taxes for the fiscal year ended March 31, 2007 were $6.3 million lower and net earnings during the same
fiscal year were $3.9 million lower than if we had continued to account for share-based compensation under Accounting Principles Bulletin (APB) Opinion No. 25.

Basic
earnings per share for the fiscal year ended March 31, 2007 would have been $2.70 per share and diluted earnings per share would have been $2.63 per share if we had
not adopted SFAS 123R. For the fiscal year ended March 31, 2007, we reported basic earnings per share of $2.60 and diluted earnings per share of $2.54.

BookingsBookings for the year ended March 31, 2007 increased $1.3 billion, versus the prior year, to
$3.5 billion. The primary drivers of the increase were our ESSI acquisition, which contributed incremental bookings of $1.1 billion, as well as strong bookings associated with our
uncooled thermal weapon sights and ground-based target acquisition and missile control subsystems, both in our RSTA Segment, and strong bookings for rugged computers in our C4I Segment.

Interest and Related ExpensesInterest and related expenses increased $55.7 million for the year ended
March 31, 2007, as compared with the prior year, to $119.9 million. The increase in interest and related expenses was primarily the result of an increase in our average borrowings
outstanding, due to the full-year impact of borrowings for the ESSI acquisition. In connection with our acquisition of ESSI, our average borrowings increased due to our January 31, 2006
issuance of $350.0 million of 65/8% senior notes, $250.0 million of 75/8% senior subordinated notes and $300.0 million of 2% convertible senior notes
and the February 8, 2006 exercise of an overallotment option for an additional $45.0 million of 2% convertible senior notes. In addition, since the acquisition, we have utilized our
revolving line of credit to meet certain working capital needs (see "Liquidity and Capital Resources" below). At March 31, 2007, we had no borrowings outstanding under our revolving credit
facility. At March 31, 2006, we had $40.0 million outstanding under our revolving credit facility.

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Income taxesThe effective income tax rate for fiscal 2007 was 31.1%, compared with 39.0% for fiscal 2006. The lower fiscal
2007 tax rate was due to the recording of $11.6 million in discrete cumulative tax benefits throughout the year, primarily related to a multiyear redetermination of our Extra-Territorial Income
(ETI) exclusion. The lower tax rate also reflected the reinstatement of the Research and Development Credit as part of the Tax Relief and Health Care Act of 2006, a reduction in certain state income
tax expense resulting from our internal integration and operational realignment announced in October 2006, as well as other individually insignificant items. The U.S. enacted the American Jobs
Creation Act of 2004 (the Jobs Act) in October 2004 which contains many provisions affecting our income taxes. The Jobs Act contains a provision that eliminated the benefits of the ETI exclusion for
export sales subsequent to 2006 and phases in a new tax deduction for income from qualified domestic production activities over a transition period that began in 2005.

Operating Segments

|                            |  | Years Ended March 31, |           | Percent Changes |  
|--------------------------- |  | --------------------- | --------- | --------------- | -
|
|
|C4I Segment                 |  |                       |           |                 |  
|Revenues*                   |  | $                     | 1,335,112 |                 | $
|Operating income            |  | $                     | 151,142   |                 | $
|Operating margin            |  |                       | 11.3      | %               |  
|RSTA Segment                |  |                       |           |                 |  
|Revenues*                   |  | $                     | 781,665   |                 | $
|Operating income            |  | $                     | 85,361    |                 | $
|Operating margin            |  |                       | 10.9      | %               |  
|Sustainment Systems Segment |  |                       |           |                 |  
|Revenues*                   |  | $                     | 495,255   |                 | $
|Operating income            |  | $                     | 71,955    |                 | $
|Operating margin            |  |                       | 14.5      | %               |  
|Technical Services Segment  |  |                       |           |                 |  
|Revenues*                   |  | $                     | 683,352   |                 | $
|Operating income            |  | $                     | 52,647    |                 | $
|Operating margin            |  |                       | 7.7       | %               |  
|Other                       |  |                       |           |                 |  
|Revenues*                   |  | $                     |          |                 | $
|Operating (loss) income     |  | $                     | (729      | )               | $
|Operating margin            |  |                       | n/m       |                 |  

---

n/mnot
meaningful

C4I Segment

Revenues

Revenues increased $195.7 million, or 17.2%, to $1.3 billion for the fiscal year ended March 31, 2008, as compared with the corresponding
prior-year period. The increase in revenue

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was
primarily attributable to increased shipments of components for driver vision enhancement systems for ground-based vehicles, certain rugged computer systems, and replacement video display modules.

The
revenue from driver vision enhancement equipment increased significantly as a result of elevated priority placed on the program by the customer to assist in increasing combat vehicle
drivers' vision capability, survivability and mobility, which resulted in incremental customer funding and accelerated delivery schedules. Rugged computer systems revenue increased over the prior year
due to increased funding and accelerated customer delivery requirements to supply troops in theatre. In addition, replacement video display module revenue increased over the prior year as the program
was initiated, began full rate production and was completed during fiscal 2008, with no similar product revenue in the prior year.

Partially
offsetting overall higher revenues were lower shipments of rugged computer systems sold in the international market and a decrease in engineering and development for certain
power conversion equipment, both as a result of contract completions during fiscal 2008.

Operating income

Operating income increased $21.1 million, or 16.2%, to $151.1 million, as compared with the corresponding period in the prior year. The increase in
operating income is attributed primarily to the increase in revenue. Operating margin decreased 10 basis points to 11.3% largely due to cost growth on certain unmanned aerial vehicle programs and on
the development of certain switchboard programs. Partially offsetting the overall lower operating margin was increased profitability on a commercial nuclear control panel program due to the favorable
resolution of certain previously identified program risks, increased revenue on the higher margin video display program and increased profitability generated by production efficiencies on a rugged
computer program that is nearing completion of deliveries under existing delivery order pricing. The majority of fiscal 2009 shipments of these rugged computers will be under new delivery order
pricing that, in the near term, is not expected to be as favorable.

RSTA Segment

Revenues

Revenues increased $182.1 million, or 30.4%, to $781.7 million for the fiscal year ended March 31, 2008, as compared with the prior fiscal
year. The increase in revenue was primarily attributable to greater shipments of driver vision enhancement equipment for ground-based vehicles, thermal imaging systems and subsystems for a
long-range surveillance system, and ground-based target acquisition and missile control subsystems. Partially offsetting the overall increase in revenue was lower volume from the rapidly
deployable thermal imaging systems.

Revenues
from driver vision enhancement equipment increased significantly as a result of elevated priority placed on the program by the customer to assist in increasing combat vehicle
drivers' vision capability, survivability and mobility, which resulted in increased funding and accelerated delivery schedules. In addition, supplemental funding was received to support target
acquisition for certain ground-based vehicles resulting in increased revenue on both the thermal imaging systems and subsystems for long-range surveillance systems, and ground-based target
acquisition and missile control subsystems. Partially offsetting the increases were lower volume from the rapidly deployable thermal imaging systems due to decreased demand.

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Operating Income

Operating income increased $53.5 million, or 168.2%, to $85.4 million resulting in an increase in operating margin of 560 basis points for the
fiscal year ended March 31, 2008, as compared with the corresponding prior-year period. The increase was driven primarily by a charge on the TWS II program recorded in the
fourth quarter of the prior fiscal year of $40.3 million. A significant increase in overall revenues, favorable margins for certain ground vehicle electro-optical systems, such as driver vision
enhancement equipment and thermal imaging systems and subsystems, also contributed to the margin improvement year over year. The favorable margins on ground vehicle electro-optical systems was
attributed to increased volume in fiscal 2008, resulting in operating and purchasing efficiencies. Although we anticipate continuing our favorable performance in ground vehicle electro-optical
systems, we may not experience the same level of operating and purchasing efficiencies in fiscal 2009 that we did in 2008. In the prior fiscal year we recorded a $2.0 million severance-related
charge related to the organizational operating structure change implemented in the third quarter of fiscal 2007. Partially offsetting overall increased profitability was additional cost growth on the
TWS II program of $6.6 million, which reflected equitable consideration to the customer for schedule extension and costs to repair/upgrade certain previously fielded units. We believe at this
time, based upon all available information, that the remaining TWS II contract revenue will at least continue to break-even until we have completed all contract requirements in our fiscal
2010 year. However, given the complexity of the technology, the stringent performance requirements for the units produced and the volume at which we are required to produce them, there can be
no guarantee that we will not incur additional losses in the future, although we do not anticipate that such losses, if any, would be significant. The TWS II program continues to progress through the
production phase with all three sights variants (Light, Medium, and Heavy) back in production.

Sustainment Systems Segment

Revenue

Revenues increased $94.5 million, or 23.6%, to $495.3 million for the fiscal year ended March 31, 2008, as compared with the prior fiscal
year. The primary drivers of the increase in revenue
were increased shipments of tactical quiet generator sets, higher demand for replacement environmental control systems for missile launch and alert facilities, and heavy mobile ammunition trailers for
the U.S. Army. Partially offsetting overall higher revenue were lower shipments of a precision targeting system.

The
revenue on the tactical quiet generator sets increased substantially from the prior fiscal year as a result of production efficiencies established enabling a higher rate of
deliveries throughout the year. Replacement environmental control systems for missile launch and alert facilities revenue increased, as the program ramped up to full rate production in the current
fiscal year. Revenues for heavy mobile ammunition trailers for the U.S. Army increased due to a higher rate of deliveries resulting from incremental customer funding which enabled the production line
to run continuously.

The
increase in revenues was partially offset in part by decreased production revenues on a precision targeting system program that was delayed due to customer-initiated design changes.
Production resumed during the fourth quarter of fiscal 2008.

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Operating Income

Operating income increased $12.6 million, or 21.3%, to $72.0 million, as compared with the prior fiscal year. The increase was due primarily to
increased revenues and $12.1 million of curtailment gains recorded on certain pension and postretirement plans.

Despite
the increase in revenues and the curtailment gains, profitability decreased 30 basis points from the prior fiscal year. The decreased profitability is attributed primarily to
significant cost growth on various mobile environmental system programs, as a result of rework and redesign efforts to meet contractual requirements. Further, the prior fiscal year includes a
cumulative profit adjustment to bring margins in line with management expectations on a certain heavy equipment transporter program to reflect expected efficiencies associated with incremental
customer orders. The decreased profitability was offset in part by increased margins on a certain refrigerated container system and on transportable consolidated automatic support system equipment as
previously identified program risks were mitigated by management during fiscal 2008. In addition, we recorded $1.2 million in the prior year for a severance-related charge in advance of a new
organizational operating structure implemented in the third quarter of fiscal 2007.

Technical Services Segment

Revenue

Revenues increased $2.1 million, or 0.3%, to $683.4 million for the fiscal year ended March 31, 2008, as compared with the prior fiscal year
period. Programs with significant year over year increases were on the Rapid Response program and a satellite-based communication network program. Largely offsetting the revenue increases were
decreases in certain security services for various government installations, commercial vehicle armor kits and mobile power generation and distribution equipment programs.

Revenues
from the Rapid Response program increased significantly during fiscal 2008 as a result of operational demand in Iraq and Afghanistan. The increased revenue from the
satellite-based communication network program was a result of the commencement of program operations in fiscal 2008 to support deployed personnel.

Partially
offsetting the increase in revenue were decreased revenues for certain security services for various government installations due to a delay in anticipated funding for a
specific program and the substantial completion of another security service program in which no additional funding has been awarded to date. Revenue for commercial vehicle armor kits also decreased as
the contract was completed during fiscal 2008. In addition, mobile power generation and distribution equipment revenue decreased due to lower volume, as the program was substantially completed as of
March 31, 2008.

Operating Income

Operating income increased $3.5 million, or 7.1%, to $52.6 million resulting in an increase in operating margin of 50 basis points from the 7.2%
earned in the prior fiscal year. The increased profitability was attributed primarily to increased margins on certain power generation and distribution equipment and a certain satellite-based
communication network program. The power generation and distribution equipment margins increased due to a favorable program adjustment in the fourth quarter of fiscal 2008. Satellite-based
communication network service margins increased over the corresponding prior fiscal year, as the segment began providing customer communication services in the fourth quarter of fiscal
2008. These increases were partially offset by cost over-runs associated with a program to provide technical manuals for armored vehicles as a result of a change in scope.

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Other

The operating loss in Other consisted of certain non-allocable general and administrative expenses at DRS corporate. The decrease, as compared with
the prior fiscal year, was a result of a prior-year $1.3 million gain realized on the collection of a note receivable that management previously had written-off.

Fiscal Year Ended March 31, 2007, Compared with Fiscal Year Ended March 31, 2006

C4I SegmentRevenues increased $16.4 million, or 1.5%, to $1.1 billion for the year ended March 31,
2007, as compared with the prior fiscal year. Operating income increased $4.1 million, or 3.3%, to $130.0 million. The key drivers of the increase in revenues were increased shipments of
chassis modernization kits, higher engineering and development revenue from a naval infrared search and track program, increased shipments of reactor monitoring equipment and power conversion
equipment, as well as higher revenues from tactical intelligence and targeting equipment, and a cable assembly program. Partially offsetting overall higher revenues were decreased shipments of combat
display workstations, the cancellation of a test range support program and the April 1, 2006 transfer of the DRS Technical Services, Inc. operating unit to the Technical Services
Segment, as described in Note 4 to our Consolidated Financial Statements included herein.

The
increase in operating income for the year ended March 31, 2007, as compared with the prior fiscal year, was driven primarily by improved margins in the power systems business,
offset, in part, by lower margins from C4I's intelligence business and from certain rugged computer systems, which were performed under a new contract in fiscal 2007.

RSTA SegmentRevenues increased $155.2 million, or 34.9%, to $599.6 million for the year ended March 31,
2007, as compared with the prior fiscal year. Operating income decreased
$22.6 million, or 41.6%, to $31.8 million. The increase in revenues was primarily attributable to increased shipments of ground-based target acquisition and missile control subsystems,
TWS II, driver vision enhancement equipment for ground-based vehicles, thermal imaging systems and subsystems for a long-range surveillance system. Partially offsetting the overall
increase in revenues were lower volumes from airborne electro-optical sighting systems products and services, and laser aimers and illuminators.

The
decrease in operating income for the fiscal year ended March 31, 2007, as compared with the prior fiscal year, was largely due to a $40.3 million operating charge
recorded in the fourth quarter of fiscal 2007 on TWS II program. The operating charge primarily reflects the cost of new material following recent design modifications, coupled with the
write-off of existing inventory that could no longer be utilized on the program and $2.0 million in severance-related costs related to the new organizational operating structure
announced October 2, 2006. Partially offsetting the lower operating income was an increase in volume from ground-based target acquisition and missile control subsystems. Resolution of the
TWS II program issues occurred in the first half of fiscal 2008, with shipments resuming in the second quarter.

Sustainment Systems SegmentFor the year ended March 31, 2007, the Sustainment Systems Segment, which was acquired in
connection with the ESSI acquisition on January 31, 2006, recorded revenues of $400.8 million, $331.4 million of which were incremental, compared with the prior year, which
included only two months of operations. The primary revenue and operating income drivers were higher demand for a heavy equipment transport refurbishment program for the U.S. Army, tactical quiet
generator sets and battlefield digital command, control and communication systems.

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Operating
income for the year ended March 31, 2007 was $59.3 million, $51.1 million greater than the prior year. Operating income was driven by the
full-year effect of the programs highlighted above, offset, in part by $1.2 million in severance-related costs associated with the new organizational operating structure announced
October 2, 2006.

Technical Services SegmentFor the year ended March 31, 2007, the Technical Services Segment, which was acquired in
connection with the ESSI acquisition on January 31, 2006, recorded revenues $681.3 million, $582.7 million of which were incremental, compared with the prior year, which included
only two months of operations. The primary revenue and operating income drivers in the segment were higher demand for equipment and services provided under the Rapid Response (R2) contract, defense
satellite transmission services, mobile power generation and distribution equipment for the U.S. Air Force and commercial vehicle armor kits.

Operating
income for the year ended March 31, 2007 was $49.2 million, $42.3 million greater than the prior year. Operating income was driven by the
full-year effect of the programs highlighted above, offset, in part, by $0.5 million in severance-related costs associated with the new organizational operating structure announced
October 2, 2006. Typical margins on contracts within this segment are from 5% to 8%.

OtherOther consisted of certain non-allocable general and administrative expenses at DRS Corporate,
offset by a $1.3 million gain on the collection of a note receivable that previously had been written off.

Liquidity and Capital Resources

Cash and cash equivalents, internally generated cash flow from operations and other available financing resources are expected to be sufficient to meet
anticipated operating, capital expenditure and debt service requirements, and expected dividend payments during the next 12 months. There can be no assurance, however, that our business will
continue to generate cash flow at current levels or that anticipated operational 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 pay
interest on or 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 are subject to general economic, political, financial, competitive, legislative and regulatory factors that are beyond our control.

Cash flowsThe following table provides our cash flow data for the fiscal years ended March 31, 2008, 2007 and 2006:

Years Ended March 31,2008

2007

2006(in thousands)Net cash provided by operating activities

$
211,461

$
195,235

$
157,062Net cash used in investing activities

$
(76,841
)
$
(69,918
)
$
(1,467,396
)Net cash (used in) provided by financing activities

$
(144,347
)
$
(31,001
)
$
1,004,222


Operating ActivitiesDuring the fiscal year ended March 31, 2008, we generated $211.5 million of operating cash
flow, $16.3 million more than the $195.2 million of operating cash flow generated in the prior fiscal year. Net earnings increased $62.2 million to $165.8 million.
Non-cash adjustments to reconcile net earnings to cash flows from operating

57

---



activities
increased $11.6 million over the prior fiscal year, driven primarily by an increase in deferred income taxes of $17.8 million, offset in part by non-cash pension
curtailment gains of $12.1 million.

Cash
used resulting from changes in assets and liabilities, net of effects from business combinations, was $60.5 million in the 2008 fiscal year. Inventories increased
$104.6 million during the period primarily driven by the TWS II program, as we continued to procure new material following design modifications made in the fourth quarter of the prior fiscal
year. The remaining increase in inventory consisted primarily of costs incurred on the driver vision enhancement program to satisfy future customer demands and increased rugged computer inventory, as
a result of supplier-related delays impacting deliveries for the period. Accounts receivable increased $38.6 million, as a result of increased sales during the fourth quarter, as compared with
the prior year, driven primarily by increases in both the driver vision enhancement and rugged computer programs sales. Prepaid expenses and other current assets increased $13.1 million
primarily consisting of cash advances made to vendors on our driver vision enhancement, SIRIUS and ALFS programs offset, in part, by the liquidation of certain other vendor advances related to the
company's LRAS3 program. The pension and postretirement benefit liability decreased $9.5 million, as payments exceeded pension expense for the period. Accrued expenses and other current
liabilities decreased $7.7 million, mainly due to the liquidation of certain contract-related reserves, offset in part by an increase in warranty accruals for certain infrared sighting and
targeting systems, driver vision enhancement and Apache helicopter programs. These increases in working capital were offset, in part, by increases in accounts payable and customer advances of
$55.4 million and $54.6 million, respectively. Accounts payable increased to procure materials and services required to sustain the company's increased sales volume in addition to timing
of payments made to our vendors. Customer advances increased due to payments received on the LRAS3, driver vision enhancement and Mast Mounted Sights programs, as a result of increased orders during
the period.

Investing activitiesThe following table summarizes the cash flow impact of our business combinations for the fiscal years
ended March 31, 2008, 2007 and 2006:

|Fiscal 2008                                      |  | Date of Original
Transaction |  | Paid to Sellers,
Net of Cash Acquired |           | Earn-Out
Payments |   | Working
Capital
Adjustment |  | Acquisition-
Related
Payments |       | Total
|------------------------------------------------ |  | ---------------------------- |  | ------------------------------------- | --------- | ----------------- | - | -------------------------- |  | ----------------------------- | ----- | -----
|
|Walkabout                                        |  | 6/27/2005                    |  | $                                     |          |                   | $ | 562                        |  | $                             |      |      
|Power Technology, Inc.                           |  | 2/14/2003                    |  |                                       |          |                   |   | 2,000                      |  |                               |      |      
|Night Vision Equipment Co. (NVEC)                |  | 12/14/2004                   |  |                                       |          |                   |   | 3,406                      |  |                               |      |      
|                                                 |  |                              |  |                                       |           |                   |   |                            |  |                               |       |      
|Total payments pursuant to business combinations |  |                              |  | $                                     |          |                   | $ | 5,968                      |  | $                             |      |      
|                                                 |  |                              |  |                                       |           |                   |   |                            |  |                               |       |      
|Fiscal 2007                                      |  |                              |  |                                       |           |                   |   |                            |  |                               |       |      
|ESSI                                             |  | 1/31/2006                    |  | $                                     |          |                   | $ |                           |  | $                             |      |      
|Codem                                            |  | 4/15/2005                    |  |                                       |          |                   |   | 1,153                      |  |                               |      |      
|Night Vision Equipment Co.
(NVEC)                |  | 12/14/2004                   |  |                                       |          |                   |   | 6,627                      |  |                               |      |      
|DKD, Inc. (Nytech)                               |  | 10/15/2002                   |  |                                       |          |                   |   | 7,140                      |  |                               |      |      
|                                                 |  |                              |  |                                       |           |                   |   |                            |  |                               |       |      
|Total payments pursuant to business combinations |  |                              |  | $                                     |          |                   | $ | 14,920                     |  | $                             |      |      
|                                                 |  |                              |  |                                       |           |                   |   |                            |  |                               |       |      
|Fiscal 2006                                      |  |                              |  |                                       |           |                   |   |                            |  |                               |       |      
|ESSI                                             |  | 1/31/2006                    |  | $                                     | 1,343,338 |                   | $ |                           |  | $                             |      |      
|Codem                                            |  | 4/15/2005                    |  |                                       | 29,200    |                   |   |                           |  |                               | 2,363 |      
|Walkabout                                        |  | 6/27/2005                    |  |                                       | 10,663    |                   |   |                           |  |                               | 3,065 |      
|DKD, Inc (Nytech)                                |  | 10/15/2002                   |  |                                       |          |                   |   | 6,742                      |  |                               |      |      
|Night Vision Equipment Co. (NVEC)                |  | 12/14/2004                   |  |                                       |          |                   |   | 4,564                      |  |                               |      |      
|                                                 |  |                              |  |                                       |           |                   |   |                            |  |                               |       |      
|Total payments pursuant to business combinations |  |                              |  | $                                     | 1,383,201 |                   | $ | 11,306                     |  | $                             | 5,428 |      
|                                                 |  |                              |  |                                       |           |                   |   |                            |  |                               |       |      

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

We
paid $71.3 million for capital improvements made primarily to our manufacturing facilities and equipment during fiscal 2008, as compared with $55.9 million for fiscal
2007. We expect capital expenditures of approximately $100 million to $110 million in fiscal 2009, as we continue to upgrade our facilities, as well as manufacturing and engineering
capabilities.

Financing ActivitiesThe following table summarizes the cash flow impact of our financing activities for the fiscal years
ended March 31, 2008, 2007 and 2006:

|                                                    |                                                                   | Years Ended March 31, |         
|--------------------------------------------------- | ----------------------------------------------------------------- | --------------------- | --------
|
|
|Sources of Cash                                     |                                                                   |                       |         
|                                                    | Proceeds from senior subordinated notes                           |                       | $       
|                                                    | Term loans                                                        |                       |         
|                                                    | Borrowings from revolving line of credit                          |                       |         
|                                                    | Stock option exercises                                            |                       |         
|                                                    | Excess tax benefit realized from share-based payment arrangements |                       |         
|                                                    | Investment from third party in joint venture                      |                       |         
|                                                    | Borrowings of other debt                                          |                       |         
|                                                    | Other                                                             |                       |         
|                                                    |                                                                   |                       |         
|                                                    |                                                                   | Total                 |         
|Uses of Cash                                        |                                                                   |                       |         
|                                                    | Discretionary payments of DRS term loans                          |                       |         
|                                                    | Scheduled payments of DRS term loan                               |                       |         
|                                                    | Repayments on revolving line of credit                            |                       |         
|                                                    | Payments on ESSI short-term debt                                  |                       |         
|                                                    | Payments on other debt                                            |                       |         
|                                                    | Dividends                                                         |                       |         
|                                                    | Return of advanced interest on senior subordinated notes          |                       |         
|                                                    | Debt and bond issuance costs                                      |                       |         
|                                                    |                                                                   |                       |         
|                                                    |                                                                   | Total                 |         
|                                                    |                                                                   |                       |         
|Net Cash (used in) Provided by Financing Activities |                                                                   | $                     | (144,347
|                                                    |                                                                   |                       |         

Simultaneously
with the closing of our acquisition of ESSI on January 31, 2006, we entered into an amended and restated credit facility for up to an aggregate amount of
$675.0 million with a syndicate of lenders (the Credit Facility), replacing DRS's previously existing credit facility. The Credit Facility consists of a $400.0 million senior secured
revolving line of credit and a

59

---



$275.0 million
senior secured term loan. We are permitted, on no more than two occasions, to increase the aggregate amount of the Credit Facility by up to $250.0 million, subject to
certain restrictions. Any increase in the aggregate amount of the Credit Facility may be borrowed in the form of either additional term loans or available amounts under the revolving line of credit.
The Credit Facility is guaranteed by substantially all of DRS's domestic subsidiaries. In addition, it is collateralized by liens on substantially all of the assets of our subsidiary guarantors' and
certain of DRS's other subsidiaries' assets and by a pledge of a portion of certain of our non-guarantor subsidiaries' capital stock. The term loan and the revolving line of credit mature
on January 31, 2013 and 2012, respectively.

Revolving
line of credit and term loan borrowings under the Credit Facility generally bear interest at our option at either: 1) a base rate, which is defined as the higher of
(a) the prime rate or (b) the federal funds rate plus 0.50%, plus the applicable margin; or 2) the LIBOR rate plus the applicable margin. Revolving credit loans that are base rate
loans bear interest at the base rate plus a margin ranging from 0.00% to 0.50% per annum, depending on our total leverage ratio (TLR), as the term is defined in the credit agreement, at the time of
determination. Revolving credit loans that are LIBOR rate loans bear interest at LIBOR plus a
margin ranging from 1.00% to 1.75% per annum, depending on our TLR. Term loans that are base rate loans bear interest at the base rate plus 0.25%, and term loans that are LIBOR rate loans bear
interest at LIBOR plus 1.50%.

We
pay commitment fees calculated on the average daily unused portion of our revolving line of credit at a rate ranging from 0.375% and 0.50% per annum, depending on our TLR. 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
1.00% to 1.75% per annum, depending on our 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 DRS under the Credit Facility, including, but not limited to, quarterly financial covenants, which commenced with the quarter ended
June 30, 2006, specifying maximum total leverage ratio, maximum senior leverage ratio, and minimum fixed-charge coverage ratio and restrictions or limitations on acquisitions and investments,
equity issuances, sales of assets, dividends we may declare and pay on our common stock, issuance of additional debt or modifications of existing debt, incurrence of liens and capital expenditures.

The
principal amount of any outstanding revolving credit loans is due and payable in full on January 31, 2012. We are required to repay the aggregate outstanding principal amount
of the initial term loan borrowings ($275.0 million) in consecutive quarterly installments on the last business day of each December, March, June and September, which commenced June 30,
2006. From June 30, 2006 through March 31, 2012, each such principal payment is $0.7 million. The remaining quarterly principal payments are $64.6 million and
$43.8 million on June 30, 2012 and September 30, 2012, respectively, adjusted for any optional payments.

At
March 31, 2008 and 2007 there were no outstanding revolving line of credit borrowings against the Credit Facility. As of March 31, 2008, $119.5 million of term
loans were outstanding against the Credit Facility. The weighted average interest rate on our term loan borrowings was 4.4% as of March 31, 2008 (6.9% as of March 31, 2007). During
fiscal 2008 we prepaid, at our discretion, $150.0 million of the outstanding term loan and as a result recognized a

60

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$0.4 million
charge to interest and related expenses resulting from the write-off of debt issuance costs.

From
time to time, we enter into standby letters-of-credit and bank guarantee agreements with financial institutions and customers, primarily relating to the
guarantee of its future performance on certain contracts to provide products and services and to secure advance payments from its customers. As of March 31, 2008, $32.8 million was
contingently payable under letters of credit and bank guarantees (including $0.3 million of letters of credit and bank guarantees obtained outside the Credit Facility). At March 31,
2008, we had $367.5 million of availability under our revolving line of credit.

On
March 29, 2006, DRS Technologies Canada Company (DRS Canada) established a five-year senior secured term loan (Canadian loan) for approximately $9.9 million
(C$11.5 million), maturing on April 1, 2011, payable in Canadian dollars. The proceeds of the loan were utilized to allow repatriation of certain amounts from Canada to the U.S., which
were subject to more favorable tax treatment under the Jobs Act (for further information see Note 11 in our consolidated financial statements.) The Canadian loan bears interest at our option at
either: (i) prime rate or (ii) LIBOR rate plus 1.75%. The weighted average interest rate on the term loan was 5.25% as of March 31, 2008 (6.0% at March 31, 2007). DRS
Canada is required to repay aggregate outstanding principal of C$575.0 thousand on the first business day of every January, April, July and October, which commenced July 1, 2006. The
term debt under the agreement ranks senior in priority of payment to all subordinated debt of DRS Canada and the Company. The debt is collateralized by the assets of DRS Canada and guaranteed by DRS
Technologies, Inc. We are subject to the same financial covenants under the Canadian loan, as under the Credit Facility described above, and DRS Canada is subject to other
non-financial covenants that are similar to those described in the Credit Facility. The carrying value of the Canadian Term Loan increased $1.0 million during the year ended
March 31, 2008, as a result of the strengthening of the Canadian dollar, compared with the U.S. dollar during that period.

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

The
January 2006 Notes and the Convertible Notes are unsecured. The 75/8% senior subordinated notes rank behind the Credit Facility, the 65/8% senior notes
and the Convertible Notes, and are pari passu with the 67/8% senior subordinated notes.

The
January 2006 Notes pay interest semi-annually in arrears on February 1 and August 1, which commenced August 1, 2006. The net proceeds of the offering
of the January 2006 Notes were $588.0 million after deducting $12.0 million in commissions and fees related to the offerings. The January 2006 Notes were issued under indentures with The
Bank of New York. Subject to a number of exceptions, the indentures restrict our ability and the ability of our subsidiaries to incur more debt, pay dividends and make distributions, make certain
investments, repurchase stock, create liens, enter into transactions with affiliates, enter into sale lease-back transactions, merge or consolidate, and transfer or sell assets. The
January 2006 Notes are unconditionally guaranteed, jointly and severally, by certain of DRS's existing and

61

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future
domestic subsidiaries. See Note 17, "Guarantor and Non-guarantor Financial Statements," for additional disclosures.

At
any time prior to February 1, 2009, we may, on any one or more occasions, redeem up to 35% of the aggregate principal amount of the 65/8% senior notes and
75/8% senior subordinated notes with the net cash proceeds of one or more equity offerings at a redemption price of 106.625% and 107.625%, respectively, of the principal amount, plus
accrued and unpaid interest, if any, subject to certain restrictions.

At
any time prior to February 1, 2011, we may redeem the 65/8% senior notes and 75/8% senior subordinated notes for cash at our option, in whole or
in part, at a redemption price equal to the greater of (1) 100% of the principal amount of the January 2006 Notes being redeemed and (2) the sum of (a) the present values of
103.313% of the principal amount of the 65/8% senior notes and 103.813% of the principal amount of the 75/8% senior subordinated notes being redeemed and (b) the
scheduled payments of interest on the respective January 2006 Notes, discounted to the date of redemption, together with accrued and unpaid interest, if any.

On
or after February 1, 2011, DRS may redeem, at its option, all or a part of the January 2006 Notes at the redemption prices (expressed as percentages of principal amount) set
forth below plus accrued and unpaid interest, if any:

Year

65/8% Senior Notes

75/8% Senior Subordinated Notes2011

103.313
%
103.813
%2012

102.209
%
102.542
%2013

101.105
%
101.271
%2014 and thereafter

100.000
%
100.000
%


In
certain instances of a change in control, we must offer to repurchase all or part of the January 2006 Notes at a redemption price equal to 101% of the principal amount.

The
net proceeds of the offering of the Convertible Notes, including the over-allotment, were $337.2 million after deducting $7.8 million in commissions and
fees related to the offering. Certain of our existing and future wholly-owned domestic subsidiaries fully and unconditionally guarantee our payment obligations under the Convertible Notes, jointly and
severally, on a senior unsecured basis. The Convertible Notes will mature on February 1, 2026, unless earlier converted, redeemed or repurchased. The Convertible Notes pay interest
semi-annually in arrears on February 1 and August 1, which commenced August 1, 2006.

Commencing
with the six-month period beginning on February 1, 2011, we will pay contingent interest to the holders of the Convertible Notes during any
six-month period from February 1 to July 31, and from August 1 to January 31, if the market price of a Convertible Note for each of the days in the five
trading-day period ending on the third trading day immediately preceding an interest payment date equals 120% or more of the principal amount of the Convertible Note. The amount of any
contingent interest payable will equal 0.50% per annum of the average market price of a convertible note for the five trading-day period. The contingent interest feature of the Convertible
Notes represents an embedded derivative instrument. The value of the contingent interest feature was zero at the date of the issuance of the Convertible Notes and at March 31, 2008
and 2007. The amount recorded for the embedded derivative will be adjusted periodically through interest expense for material changes in the fair value of the contingent interest feature.

Upon
conversion of a Convertible Note, we will deliver cash in an amount equal to the lesser of (a) the principal amount of the notes surrendered for conversion and (b) the
conversion value (the applicable conversion rate multiplied by the average of the closing prices

62

---



of
DRS common stock for a defined 20-day period), and if the conversion value is greater than the principal amount, an amount of DRS common stock equal to such excess. The initial
conversion value is based on a conversion rate of 16.7504 shares per $1,000 principal amount of Convertible Notes (representing a conversion price of $59.70 per share of DRS common stock), subject to
adjustment under certain circumstances.

We
evaluated the accounting for the conversion feature in accordance with EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to and
Potentially Settled in, a Company's Own Stock," and related issues, at the date of issuance of the Convertible Notes and determined that the conversion feature should be classified as equity, and,
therefore, it does not need to be accounted for separately from the Convertible Notes. We update our analysis of the accounting for the conversion feature as circumstances warrant. Effective
April 1, 2009, upon adoption of FSP APB 14-1, the Company will be required to bifurcate the conversion feature. Changes in the fair value of the conversion feature will be charged or credited
to interest expense in each period.

The
shares of DRS common stock that may be issued, if any, upon conversion of the Convertible Notes may be registered or unregistered shares. At the date of issuance, the underlying
shares of DRS common stock have been registered through an automatically effective registration statement filed with the SEC. We are obligated to use our reasonable best efforts to maintain such
registration for two years or pay "additional interest" ranging from 0.25% to 1.00% per annum on the principal of the Convertible Notes.

On
or prior to February 1, 2010, the Convertible Notes may be converted by the holder only under the following circumstances:



After
February 1, 2010, the Convertible Notes may be converted by the holder into cash and shares, if any, of DRS's common stock, only under the following circumstances:



63

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We
may redeem the Convertible Notes, in whole or in part, for cash, with proper notice at any time on or after February 1, 2009 and prior to February 4, 2011, if the sale
price of DRS's common stock has exceeded 130% of the conversion price for at least 20 trading days in any consecutive 30-day trading period ending on the trading day prior to providing
notice of redemption, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed plus any accrued and unpaid interest (including contingent interest and
additional interest, if any) up to but not including the redemption date and a "make-whole" premium. The make-whole premium is payable only in cash equal to the present value
of all remaining scheduled payments of interest on the Convertible Notes to be redeemed through February 2011.

We
may, at any time after February 4, 2011, redeem the Convertible Notes, in whole or in part, for cash at a redemption price equal to 100% of the principal amount of the
Convertible Notes to be redeemed plus any accrued and unpaid interest (including contingent interest and additional interest, if any) up to but not including the redemption date.

Holders
have the right to require us to purchase all or a portion of their Convertible Notes for cash on February 1, 2011, February 1, 2016 and February 1, 2021 at a
purchase price equal to 100% of the principal amount of the Convertible Notes plus accrued and unpaid interest (including additional interest, if any) up to but not including the purchase date.

On
October 30, 2003, we issued $350.0 million aggregate principal amount of 67/8% senior subordinated notes,
due November 1, 2013 (the October 2003 Notes). Interest, which is payable every six months on May 1 and November 1, commenced on May 1, 2004. The net proceeds from the
offering of the October 2003 Notes were $341.2 million, after deducting $8.8 million in commissions and fees related to the offering. The net proceeds of the October 2003 Notes, together
with a portion of our available cash and initial borrowings under the then existing credit facility, were used to fund the Integrated Defense Technologies Inc. (IDT) acquisition, repay certain
of DRS's and IDT's outstanding indebtedness, and pay related fees and expenses. The October 2003 Notes were issued under an indenture with The Bank of New York. Subject to a number of exceptions, the
indenture restricts our ability and the ability of our subsidiaries to incur more debt, pay dividends and make distributions, make certain investments, repurchase stock, create liens, enter into
transactions with affiliates, enter into sale lease-back transactions, merge or consolidate, and transfer or sell assets. The October 2003 Notes are unconditionally guaranteed, jointly and
severally, by DRS's current and future wholly-owned domestic subsidiaries. The foreign subsidiaries and certain domestic subsidiaries of DRS do not guarantee the October 2003 Notes. See
Note 17, "Guarantor and Non-guarantor Financial Statements," for additional disclosures. We are subject to liquidating damages (ranging from 0.25% to 1.00% of the outstanding
principal) if we fail to maintain an effective registration statement for the 67/8% senior subordinated notes.

On
December 23, 2004, we issued an additional $200.0 million aggregate principal amount of 67/8% senior subordinated notes, due November 2013 (December 2004
Notes). The December 2004 Notes were offered as additional debt securities under our indenture with the Bank of New York with identical terms and the same guarantors as the October 2003 Notes. The
December 2004 Notes were priced at 105% of the principal amount, reflecting an effective interest rate of approximately 6.13%. The net proceeds of the offering were approximately $208.3 million
(including $2.0 million of advanced interest on the new notes that had accrued from November 1, 2004 to December 23, 2004), after deducting $3.7 million in commissions and
other costs related to the debt issuance.

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On
or after November 1, 2008, DRS may redeem, at its option, all or part of the 67/8% senior subordinated notes at the redemption prices (expressed as percentages
of principal amount) set forth below, plus accrued and unpaid interest and liquidating damages.

Year

Percentage2008

103.438
%2009

102.292
%2010

101.146
%2011 and thereafter

100.000
%


At
March 31, 2008, other obligations consisted of a mortgage on our Palm Bay, Florida facility of $2.4 million (Palm Bay Mortgage), $0.8 million for certain notes
payable to the former owners of DRS Mobile Environmental Systems Co. (DRS MSC Note Payable), and $1.6 million of debt at our DRS Pivotal Power operating unit. At March 31, 2007,
other obligations consisted of the Palm Bay Mortgage of $2.6 million, $0.8 million for the DRS MSC Note Payable, and $1.6 million of debt at our DRS Pivotal Power operating unit.

The
aggregate maturities at March 31, 2008 of long-term debt for fiscal 2009, 2010, 2011, 2012 and 2013 are $5.4 million, $5.4 million,
$5.3 million, $3.7 million and $108.9 million per year, respectively, and $1,498.0 million thereafter.

EquityDuring fiscal 2008, 2007 and 2006, we paid quarterly cash dividends of $0.03 per share. On May 15, 2008, we
announced that the Board of Directors declared a $0.03 per common share cash dividend, payable on June 30, 2008 to stockholders of record as of June 13, 2008.

Free Cash FlowFree cash flow represents net cash provided by operating activities of continuing operations less capital
expenditures. Free cash flow for the fiscal year ended March 31, 2008 was $140.1 million, or $0.8 million greater than free cash flow of $139.3 million for fiscal 2007.
Free cash flow for the fiscal year ended March 31, 2007 was $139.3 million, or $25.4 million greater than free cash flow of $113.9 million for fiscal 2006. See "Use of
Non-GAAP Financial Measures" below for additional discussion and information.

EBITDAEarnings from continuing operations before net interest and related expenses (primarily the amortization and
write-off of debt premium and issuance costs), income taxes, depreciation and amortization (EBITDA) for the year ended March 31, 2008 were $436.1 million, or
$90.5 million greater than $345.6 million for fiscal 2007. EBITDA for the year ended March 31, 2007 were $345.6 million, or $106.2 million greater than
$239.4 million for fiscal 2006. See "Use of Non-GAAP Financial Measures" below for additional discussion and information.

Off-Balance Sheet Financing ArrangementsWe have $345.0 million of 2% convertible senior Notes with a
conversion price of $59.70 per share. Upon conversion, we would satisfy our obligation to convert the notes by delivering to the holders cash for the principal amount of the notes and stock for the
value of the note in excess of $59.70 per share, as defined in the Convertible Notes indenture. We believe the number of shares to be issued upon conversion does not pose a reasonable likelihood of
potential significant dilution over the next twelve months. For further information on our Convertible Notes, see Note 9 to our Consolidated Financial Statements.

In
addition, we have 2.2 million stock options outstanding to purchase DRS common stock at a weighted average exercise price of $36.54 per share and 0.6 million of
non-vested stock awards outstanding at March 31, 2008 that represent additional potential dilution.

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

65

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Contractual ObligationsOur contractual obligations and commitments are set forth in the table below:

|                                       |  |   |           | Payments Due by Period
|-------------------------------------- |  | - | --------- | ----------------------
|
|
|Long-term debt(A)                      |  | $ | 1,626,529 |                       
|Interest payments on long-term debt(B) |  |   | 748,116   |                       
|Operating lease commitments            |  |   | 122,851   |                       
|Acquisition earn-outs(C)               |  |   | 2,971     |                       
|Purchase obligations(D)                |  |   | 75,988    |                       
|                                       |  |   |           |                       
|Total contractual obligations          |  | $ | 2,576,455 |                       
|                                       |  |   |           |                       

---

As
of March 31, 2008, we had $29.2 million of unrecognized tax benefits which could decrease by $6.0 million to $12.0 million in the next
twelve months (see Note 11 to our Consolidated
Financial Statements). As specific payments cannot be reasonably estimated, the related balances have not been reflected in the "Payments Due by Period" section of the table above.

We
enter into standby letter-of-credit agreements and bank guarantee agreements with financial institutions and customers primarily relating to the guarantee of
our future performance on certain contracts to provide products and services and to secure advance payments we have received from certain international customers. At March 31, 2008, we had
contingent liabilities on outstanding letters of credit as follows:

Contingent Payments Due by PeriodTotal

Within 1
Year

1-3 Years

After 3
Years(in thousands)Standby letters of credit

$
32,588

$
30,815

$
1,773

$
Bank guarantees

$
164

$
164

$


$



BacklogFunded backlog represents products or services that our customers have committed by contract to purchase from us. Due
to the general nature of defense procurement

66

---



and
contracting, the operating cycle for our military business typically has been long term. Military backlog currently consists of various production and engineering development contracts with
varying delivery schedules and project timetables. Our backlog also includes certain commercial off-the-shelf (COTS)-based systems for the military, which have shorter delivery
times. Accordingly, revenues for a particular year, or year-to-year comparisons of reported revenues and related backlog positions, may not be indicative of future results.

Backlog
at March 31, 2008 was $3.6 billion, as compared with $3.0 billion at March 31, 2007. We booked $3.9 billion in new orders in fiscal 2008. The
increase in backlog was due to the net effect of bookings. Approximately 72% of backlog, as of March 31, 2008, is expected to result in revenues during fiscal 2009.

Internal Research and DevelopmentIn addition to customer-funded research and development, we also engage in internal
research and development. These expenditures reflect our continued investment in new technology and diversification of our products. Expenditures for internal research and development in fiscal 2008,
2007 and 2006 were $66.1 million, $50.9 million and $47.6 million, respectively.

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

|                                                                                              |                                           | Years Ended March 31, |         
|--------------------------------------------------------------------------------------------- | ----------------------------------------- | --------------------- | --------
|
|
|Net earnings                                                                                  |                                           | $                     | 165,769 
|Income taxes                                                                                  |                                           |                       | 83,755  
|Interest income                                                                               |                                           |                       | (2,058  
|Interest and related expenses                                                                 |                                           |                       | 110,423 
|Depreciation and amortization                                                                 |                                           |                       | 78,191  
|                                                                                              |                                           |                       |         
|                                                                                              | EBITDA(A)                                 |                       |         
|Income taxes                                                                                  |                                           |                       | (83,755 
|Interest income                                                                               |                                           |                       | 2,058   
|Interest and related expenses                                                                 |                                           |                       | (110,423
|Deferred income taxes                                                                         |                                           |                       | 17,205  
|Changes in assets and liabilities, net of effects from business combinations and divestitures |                                           |                       | (60,507 
|Other, net                                                                                    |                                           |                       | 10,803  
|                                                                                              |                                           |                       |         
|                                                                                              | Net cash provided by operating activities |                       |         
|Capital expenditures                                                                          |                                           |                       | (71,314 
|                                                                                              |                                           |                       |         
|                                                                                              | Free cash flow (B)                        |                       | $       
|                                                                                              |                                           |                       |         

---

67

---





OTHER MATTERS

New Accounting Pronouncements

New accounting pronouncements have been issued by the Financial Accounting Standards Board, which are not effective until after March 31, 2008. For further
discussion of new accounting standards, see Note 1.V. to our Consolidated Financial Statements in Part II, Item 8.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

Market RiskIn the normal course of business, we are exposed to market risks relating to fluctuations in interest rates and
foreign currency exchange rates.

Interest Rate RiskSimultaneously with the closing of our acquisition of ESSI on January 31, 2006, the Company entered
into an amended and restated senior secured credit facility (Credit Facility) for up to an aggregate amount of $675.0 million, replacing the Company's then existing credit facility. The Credit
Facility consists of (i) a seven-year term loan facility in an aggregate principal amount equal to $275.0 million, with principal repayable in quarterly installments for the
first five years at a rate of 1.00% per year and the balance to be repaid in equal quarterly installments beginning six years following the completion of the acquisition, and (ii) a
six-year revolving credit facility in an aggregate principal amount of $400.0 million, to be repaid in full on the sixth anniversary of the closing date of the Credit

68

---



Facility.
Borrowings under the Credit Facility generally bear interest as either: 1) base rate loans, which are defined as the higher of (a) the prime rate or (b) the federal
funds rate plus 0.50%, plus the applicable margin; or 2) LIBOR rate loans plus the applicable margin. Revolving credit loans that are base rate loans bear interest at the base rate plus a
margin ranging from 0.00% to 0.50% per annum, depending on the Company's total leverage ratio (TLR), as the term is defined in the credit agreement, at the time of determination. Revolving credit
loans that are LIBOR rate loans bear interest at LIBOR plus a margin ranging from 1.00% to 1.75% per annum, depending on the Company's TLR. Term loans that are base rate loans bear interest at the
base rate plus 0.25%, and term loans that are LIBOR rate loans bear interest at LIBOR plus 1.50%.

On
March 29, 2006, DRS Technologies Canada Company (DRS Canada) entered into a five-year senior secured term loan for approximately $9.9 million
(C$11.5 million) maturing on April 1, 2011. The term loan bears interest at our option at either: 1) prime rate or (ii) LIBOR rate plus 1.75%. We are required to repay
aggregate outstanding principal of approximately C$575.0 thousand on the first business day of every January, April, July and October, which commenced July 1, 2006.

A
0.5% increase/decrease in the weighted average interest rate on our variable rate debt outstanding at March 31, 2008 would result in an incremental increase/decrease in annual
interest expense of approximately $0.6 million. The carrying values of the Company's borrowings under the amended and restated credit facility and Canadian term loan approximate their fair
values at March 31, 2008.

Simultaneously
with the closing of our acquisition of ESSI, we also issued $900.0 million of new debt securities, including $350.0 million aggregate principal amount of
65/8% senior notes due 2016, $250.0 million aggregate principal amount of 75/8% senior subordinated notes due 2018 and $300.0 million aggregate principal
amount of 2.0% convertible senior notes due 2026. On February 8, 2006, we sold an additional $45.0 million of convertible senior notes pursuant to an over-allotment option
exercised by the initial purchasers of the convertible senior notes. The interest rates on our senior notes, convertible senior notes and senior subordinated notes are fixed. Assuming other factors
are held constant, an increase in interest rates generally results in a decrease in the fair value of fixed-rate convertible debt, but does not impact the carrying value, and an increase
in our stock price generally results in an increase in the fair value of convertible debt, but does not impact the carrying value.

In
connection with our IDT acquisition, on October 30, 2003 we issued $350.0 million of 67/8% senior subordinated notes due 2013. On December 23,
2004, we issued an additional $200.0 million aggregate principal amount of 67/8% senior subordinated notes due 2013. The additional notes were offered as additional debt
securities under the indenture with identical terms as the existing notes. The interest rate on these notes is fixed.

The
market-based fair value of our notes are as follows:

|                          |  | March 31,
|------------------------- |  | ---------
|
|
|
|Senior Notes              |  | $        
|Senior Subordinated Notes |  | $        
|Convertible Senior Notes  |  | $        

The
convertible senior notes contain a contingent interest feature which represents an embedded derivative instrument, as it is based on DRS's stock price. The value of the

69

---



contingent
interest was zero at March 31, 2008 and 2007. The amount recorded for the embedded derivative will be adjusted periodically through interest expense for material changes in its fair
value.

Foreign Currency Exchange RiskWe operate and conduct business in foreign countries and, as a result, are exposed to
fluctuations in foreign currency exchange rates. More specifically, our stockholders' equity is impacted by the conversion of the net assets of foreign subsidiaries for which the functional currency
is not the U.S. dollar for U.S. reporting purposes. Our exposure to foreign currency exchange risk related to our foreign operations is not material to our results of operations, cash flows or
financial position. The Company has in the past and may in the future enter into foreign currency forward contracts designated as cash flow hedges in
order to mitigate the risk associated with foreign currency. At March 31, 2008, the Company did not have any open foreign currency forward contracts.

70

---





Item 8.    Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  AND FINANCIAL STATEMENT SCHEDULE

|                                                                                                                             |  | Page
|---------------------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting Firm                                                                      |  | 72  
|Consolidated Balance Sheets as of March 31, 2008 and 2007                                                                    |  | 73  
|Consolidated Statements of Earnings for the Years Ended March 31, 2008, 2007
and 2006                                        |  | 74  
|Consolidated Statements of Stockholders' Equity and Comprehensive Earnings for the Years Ended March 31, 2008, 2007 and 2006 |  | 75  
|Consolidated Statements of Cash Flows for the Years Ended March 31, 2008, 2007 and 2006                                      |  | 76  
|Notes to Consolidated Financial Statements                                                                                   |  | 77  
|Financial Statement ScheduleSchedule IIValuation and Qualifying Accounts for the Years Ended March 31, 2008, 2007 and 2006 |  | 139 

71

---





Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders
DRS Technologies, Inc.:

We
have audited the accompanying consolidated balance sheets of DRS Technologies, Inc. and subsidiaries as of March 31, 2008 and 2007, and the related consolidated
statements of earnings, stockholders' equity and comprehensive earnings, and cash flows for each of the years in the three-year period ended March 31, 2008. In connection with our
audits of the consolidated financial statements, we also have audited financial statement schedule II. These consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DRS Technologies, Inc. and subsidiaries
as of March 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2008, in conformity
with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As
discussed in Notes 1(R) and 11 to the consolidated financial statements, the Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes-an Interpretation of FASB Statement No. 109," effective April 1, 2007. Also, as discussed in Notes 1(Q) and 12 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, "Share-Based Payment," effective April 1, 2006. Further, as discussed in Note 13 to the
consolidated financial statements, the Company adopted SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements
No. 87, 88, 106 and 132R," at the end of the fiscal year 2007.

As
discussed in Note 2, the Company restated its consolidated financial statements as of and for the year ended March 31, 2007.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), DRS Technologies, Inc. and subsidiaries' internal control
over financial reporting as of March 31, 2008, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated May 30, 2008 expressed an adverse opinion on the effectiveness of the Company's internal control over financial reporting.

|                                                 |  | 
|------------------------------------------------ |  | 
|/s/ KPMG LLPShort Hills, New Jersey
May 30, 2008 |  | 

72

---





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

|                                                  |                                                                                                                                                                                    | March 31,                 
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------
|
|Assets                                            |                                                                                                                                                                                    |                           
|Current assets                                    |                                                                                                                                                                                    |                           
|                                                  | Cash and cash equivalents                                                                                                                                                          |                           
|                                                  | Accounts receivable, net                                                                                                                                                           |                           
|                                                  | Inventories, net                                                                                                                                                                   |                           
|                                                  | Prepaid expenses, deferred income taxes and other current assets                                                                                                                   |                           
|                                                  |                                                                                                                                                                                    |                           
|                                                  |                                                                                                                                                                                    | Total current assets      
|Property, plant and equipment, net                |                                                                                                                                                                                    |                           
|Acquired intangible assets, net                   |                                                                                                                                                                                    |                           
|Goodwill                                          |                                                                                                                                                                                    |                           
|Deferred income taxes and other noncurrent assets |                                                                                                                                                                                    |                           
|                                                  |                                                                                                                                                                                    |                           
|                                                  | Total assets                                                                                                                                                                       |                           
|                                                  |                                                                                                                                                                                    |                           
|Liabilities and Stockholders' Equity              |                                                                                                                                                                                    |                           
|Current liabilities                               |                                                                                                                                                                                    |                           
|                                                  | Current installments of long-term debt                                                                                                                                             |                           
|                                                  | Accounts payable                                                                                                                                                                   |                           
|                                                  | Accrued expenses and other current liabilities                                                                                                                                     |                           
|                                                  |                                                                                                                                                                                    |                           
|                                                  |                                                                                                                                                                                    | Total current liabilities 
|Long-term debt, excluding current installments    |                                                                                                                                                                                    |                           
|Other liabilities                                 |                                                                                                                                                                                    |                           
|                                                  |                                                                                                                                                                                    |                           
|                                                  |                                                                                                                                                                                    | Total liabilities         
|                                                  |                                                                                                                                                                                    |                           
|Commitments and contingencies                     |                                                                                                                                                                                    |                           
|Stockholders' equity                              |                                                                                                                                                                                    |                           
|                                                  | Preferred stock, $10 par value. Authorized 2,000,000 shares; none issued at March 31, 2008 and 2007                                                                                |                           
|                                                  | Common stock, $.01 par value per share. Authorized 100,000,000 shares at March 31, 2008 and 2007; 41,373,509 and 40,673,944 shares issued at March 31, 2008 and 2007, respectively |                           
|                                                  | Additional paid-in capital                                                                                                                                                         |                           
|                                                  | Retained earnings                                                                                                                                                                  |                           
|                                                  | Accumulated other comprehensive earnings                                                                                                                                           |                           
|                                                  |                                                                                                                                                                                    |                           
|                                                  |                                                                                                                                                                                    | Total stockholders' equity
|                                                  |                                                                                                                                                                                    |                           
|                                                  | Total liabilities and stockholders' equity                                                                                                                                         |                           
|                                                  |                                                                                                                                                                                    |                           

See
accompanying Notes to Consolidated Financial Statements.

73

---





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

|                                        |                                                            | Year Ended March 31,
|--------------------------------------- | ---------------------------------------------------------- | --------------------
|
|Revenues:                               |                                                            |                     
|Products                                |                                                            | $                   
|Services                                |                                                            |                     
|                                        |                                                            |                     
|                                        | Total revenues                                             |                     
|Costs and expenses:                     |                                                            |                     
|Products                                |                                                            |                     
|Services                                |                                                            |                     
|                                        |                                                            |                     
|                                        | Total costs and expenses                                   |                     
|                                        |                                                            |                     
|                                        | Operating income                                           |                     
|Interest income                         |                                                            |                     
|Interest and related expenses           |                                                            |                     
|Other expense, net                      |                                                            |                     
|                                        |                                                            |                     
|                                        | Earnings before non-controlling interests and income taxes |                     
|Non-controlling interests               |                                                            |                     
|                                        |                                                            |                     
|                                        | Earnings before income taxes                               |                     
|Income taxes                            |                                                            |                     
|                                        |                                                            |                     
|                                        | Net earnings                                               |                     
|                                        |                                                            |                     
|Net earnings per share of common stock: |                                                            |                     
|                                        | Basic earnings per share                                   |                     
|                                        | Diluted earnings per share                                 |                     
|Dividends per common share              |                                                            | $                   

See
accompanying Notes to Consolidated Financial Statements.

74

---





DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Earnings
(in thousands, except share data)

|                                                                             |                                                                                               | Common Stock |   |   |     |   |   | Accumulated
Other
Comprehensive
Earnings (Losses) |   |   |         |         |  
|---------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------ | - | - | --- | - | - | ------------------------------------------------- | - | - | ------- | ------- | -
|
|
|Balances at March 31, 2005                                                   |                                                                                               | 27,472,495   |   | $ | 275 |   | $ | 467,027                                           |   | $ | 199,924 |         | $
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|                                                                             | Net earnings                                                                                  |              |  |   |     |  |   |                                                   |  |   |         | 81,494  |  
|                                                                             | Reclassification adjustment for gain on hedging instrument, net of $751 of income tax benefit |              |  |   |     |  |   |                                                   |  |   |         |        |  
|                                                                             | Unrealized gains on hedging instruments, net of $10 of income tax                             |              |  |   |     |  |   |                                                   |  |   |         |        |  
|                                                                             | Minimum pension liability, net of $1,142 of income tax benefit                                |              |  |   |     |  |   |                                                   |  |   |         |        |  
|                                                                             | Foreign currency translation adjustments                                                      |              |  |   |     |  |   |                                                   |  |   |         |        |  
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|Total comprehensive earnings                                                 |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|Dividends declared                                                           |                                                                                               |             |   |   |    |   |   |                                                  |   |   | (3,712  | )       |  
|Issuance of shares to purchase Engineered Support Systems, Inc.              |                                                                                               | 11,727,566   |   |   | 117 |   |   | 587,143                                           |   |   |        |         |  
|Stock options exercised                                                      |                                                                                               | 563,620      |   |   | 5   |   |   | 12,535                                            |   |   |        |         |  
|Income tax benefit from stock options exercised                              |                                                                                               |             |   |   |    |   |   | 5,540                                             |   |   |        |         |  
|Restricted stock grants                                                      |                                                                                               | 166,880      |   |   | 2   |   |   | 8,694                                             |   |   |        |         |  
|Restricted stock cancellations                                               |                                                                                               | (18,020      | ) |   |    |   |   | (640                                              | ) |   |        |         |  
|Compensation relating to restricted stock                                    |                                                                                               |             |   |   |    |   |   |                                                  |   |   |        |         |  
|Other                                                                        |                                                                                               |             |   |   |    |   |   | (3,513                                            | ) |   |        |         |  
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|Balances at March 31, 2006                                                   |                                                                                               | 39,912,541   |   | $ | 399 |   | $ | 1,076,786                                         |   | $ | 277,706 |         | $
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|Adjustment for the adoption of SFAS 123R                                     |                                                                                               |             |   |   |    |   |   | (7,196                                            | ) |   |        |         |  
|                                                                             | Net earnings (Restated)                                                                       |              |  |   |     |  |   |                                                   |  |   |         | 103,572 |  
|                                                                             | Unrealized losses on hedging instruments, net of $10 of income tax benefit                    |              |  |   |     |  |   |                                                   |  |   |         |        |  
|                                                                             | Minimum pension liability, net of $1,209 of income tax benefit                                |              |  |   |     |  |   |                                                   |  |   |         |        |  
|                                                                             | Foreign currency translation adjustments                                                      |              |  |   |     |  |   |                                                   |  |   |         |        |  
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|Total comprehensive earnings (Restated)                                      |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|Adjustment for the adoption of SFAS 158, net of $3,418 of income tax benefit |                                                                                               |             |   |   |    |   |   |                                                  |   |   |        |         |  
|Dividends declared                                                           |                                                                                               |             |   |   |    |   |   |                                                  |   |   | (4,973  | )       |  
|Issuance of shares to purchase Engineered Support Systems, Inc.              |                                                                                               |             |   |   |    |   |   | (78                                               | ) |   |        |         |  
|Stock options exercised                                                      |                                                                                               | 575,152      |   |   | 6   |   |   | 12,862                                            |   |   |        |         |  
|Income tax benefit from stock options exercised                              |                                                                                               |             |   |   |    |   |   | 4,880                                             |   |   |        |         |  
|Restricted stock grants                                                      |                                                                                               | 247,906      |   |   | 2   |   |   | (2                                                | ) |   |        |         |  
|Restricted stock cancellations                                               |                                                                                               | (61,655      | ) |   |    |   |   |                                                  |   |   |        |         |  
|Share-based compensation                                                     |                                                                                               |             |   |   |    |   |   | 11,114                                            |   |   |        |         |  
|Other                                                                        |                                                                                               |             |   |   |    |   |   | 1,625                                             |   |   |        |         |  
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|Balances at March 31, 2007 (Restated)                                        |                                                                                               | 40,673,944   |   | $ | 407 |   | $ | 1,099,991                                         |   | $ | 376,305 |         | $
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|                                                                             | Net earnings                                                                                  |              |  |   |     |  |   |                                                   |  |   |         | 165,769 |  
|                                                                             | Pension liability adjustment, net of $5,573 of income tax                                     |              |  |   |     |  |   |                                                   |  |   |         |        |  
|                                                                             | Foreign currency translation adjustments                                                      |              |  |   |     |  |   |                                                   |  |   |         |        |  
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|Total comprehensive earnings                                                 |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|Dividends declared                                                           |                                                                                               |             |   |   |    |   |   |                                                  |   |   | (4,944  | )       |  
|Stock options exercised                                                      |                                                                                               | 466,742      |   |   | 5   |   |   | 10,558                                            |   |   |        |         |  
|Income tax benefit from stock options exercised                              |                                                                                               |             |   |   |    |   |   | 4,055                                             |   |   |        |         |  
|Restricted stock grants                                                      |                                                                                               | 277,520      |   |   | 2   |   |   | (2                                                | ) |   |        |         |  
|Restricted stock cancellations                                               |                                                                                               | (44,697      | ) |   |    |   |   |                                                  |   |   |        |         |  
|Share-based compensation                                                     |                                                                                               |             |   |   |    |   |   | 12,494                                            |   |   |        |         |  
|Other                                                                        |                                                                                               |             |   |   |    |   |   | 2,828                                             |   |   |        |         |  
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  
|Balances at March 31, 2008                                                   |                                                                                               | 41,373,509   |   | $ | 414 |   | $ | 1,129,924                                         |   | $ | 537,130 |         | $
|                                                                             |                                                                                               |              |   |   |     |   |   |                                                   |   |   |         |         |  

See accompanying Notes to Consolidated Financial Statements.

75

---





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

|                                                                                               |                                                                       | Year Ended March 31, |         
|---------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | -------------------- | --------
|
|Cash Flows from Operating Activities                                                           |                                                                       |                      |         
|Net Earnings                                                                                   |                                                                       | $                    | 165,769 
|Adjustments to reconcile net earnings to cash flows from operating activities:                 |                                                                       |                      |         
|                                                                                               | Depreciation and amortization                                         |                      |         
|                                                                                               | Share-based compensation                                              |                      |         
|                                                                                               | Deferred income taxes                                                 |                      |         
|                                                                                               | Inventory reserve and provision for doubtful accounts                 |                      |         
|                                                                                               | Amortization and write-off of deferred financing fees                 |                      |         
|                                                                                               | Curtailment gain                                                      |                      |         
|                                                                                               | Other, net                                                            |                      |         
|Changes in assets and liabilities, net of effects from business combinations and divestitures: |                                                                       |                      |         
|                                                                                               | Increase in accounts receivable                                       |                      |         
|                                                                                               | Increase in inventories                                               |                      |         
|                                                                                               | (Increase) decrease in prepaid expenses and other current assets      |                      |         
|                                                                                               | Increase in accounts payable                                          |                      |         
|                                                                                               | (Decrease) increase in accrued expenses and other current liabilities |                      |         
|                                                                                               | Increase in customer advances                                         |                      |         
|                                                                                               | (Decrease) increase in pension and postretirement liability           |                      |         
|                                                                                               | Other, net                                                            |                      |         
|                                                                                               |                                                                       |                      |         
|Net cash provided by operating activities                                                      |                                                                       |                      | 211,461 
|Cash Flows from Investing Activities                                                           |                                                                       |                      |         
|                                                                                               | Capital expenditures                                                  |                      |         
|                                                                                               | Payments pursuant to business combinations, net of cash acquired      |                      |         
|                                                                                               | Other, net                                                            |                      |         
|                                                                                               |                                                                       |                      |         
|Net cash used in investing activities                                                          |                                                                       |                      | (76,841 
|Cash Flows from Financing Activities                                                           |                                                                       |                      |         
|Net proceeds from acquisition-related debt                                                     |                                                                       |                      |         
|                                                                                               | Borrowings on revolving line of credit                                |                      |         
|                                                                                               | Repayments of revolving line of credit                                |                      |         
|                                                                                               | Borrowings of long-term debt                                          |                      |         
|                                                                                               | Return of advanced interest on senior subordinated notes              |                      |         
|                                                                                               | Debt issuance costs                                                   |                      |         
|                                                                                               | Repayments of long-term debt                                          |                      |         
|                                                                                               | Excess tax benefit realized from share-based payment arrangement      |                      |         
|                                                                                               | Dividends paid                                                        |                      |         
|                                                                                               | Proceeds from exercise of stock options                               |                      |         
|                                                                                               | Other                                                                 |                      |         
|                                                                                               |                                                                       |                      |         
|Net cash (used in) provided by financing activities                                            |                                                                       |                      | (144,347
|Effect of exchange rates on cash and cash equivalents                                          |                                                                       |                      | 145     
|                                                                                               |                                                                       |                      |         
|Net (decrease) increase in cash and cash equivalents                                           |                                                                       |                      | (9,582  
|Cash and cash equivalents, beginning of year                                                   |                                                                       |                      | 95,833  
|                                                                                               |                                                                       |                      |         
|Cash and cash equivalents, end of year                                                         |                                                                       | $                    | 86,251  
|                                                                                               |                                                                       |                      |         

See accompanying Notes to Consolidated Financial Statements.

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES        Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

A.    OrganizationDRS Technologies, Inc., its wholly-owned subsidiaries and its controlling interests
(hereinafter, DRS or the Company) is a leading supplier of defense electronics products, systems and military support services. The Company provides high-technology products and services
to all branches of the U.S. military, major aerospace and defense prime contractors, government intelligence agencies, international military forces and industrial markets. The Company focuses on
several key areas of importance to the U.S. Department of Defense (DoD), such as command and control, intelligence, surveillance, reconnaissance, power management, battlefield digitization, advanced
communications and networks, military vehicle diagnostics, troop sustainment and technical support. Incorporated in 1968, the Company has served the defense industry for over 39 years. The
Company is a provider of thermal imaging devices, combat display workstations, electronic sensor systems, power systems, rugged computer systems, air combat training systems, mission recorders,
deployable flight incident recorders, environmental and telecommunication systems, aircraft loaders, military trailers and
shelters, and integrated logistics support services. The Company's 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, F-15 Eagle tactical fighters, C-17 Globemaster II and C-130 Hercules cargo aircraft, Ohio, Los Angeles and Virginia
class submarines, and on several other platforms for military and non-military applications. The Company has contracts that support future military platforms, such as the
DDG-1000 Zumwalt destroyer, CVN-78 next-generation aircraft carrier and Future Combat System. The Company provides sustainment products that support military
forces, such as environmental control systems, power generators, water and fuel distribution systems, chemical/biological decontamination systems and heavy equipment transport systems. The Company
also provides support services to the military, including security and asset protection system services, telecommunication and information technology services, training and logistics support services
for all branches of the U.S. armed forces and certain foreign militaries, homeland security forces, and selected government and intelligence agencies.

On
May 12, 2008, DRS announced that it had signed a definitive merger agreement with Finmeccanica, S.p.A. (Finmeccanica) under which Finmeccanica will, subject to certain
conditions set forth in the merger agreement, acquire 100% of DRS stock for $81.00 per share in cash. (See note 19, Subsequent Event).

On
October 1, 2007, the ESSIBuy operating unit, an operating unit of the Technical Services Segment, was consolidated into an operating unit of the Sustainment Systems Segment to
achieve certain operating synergies. The balance sheet and operating results of ESSIBuy were reclassified for the period from April 1, 2007 through September 30, 2007. The results in the
prior-year were not reclassified, as they were considered immaterial to both segments.

B.    Variable Interest EntitiesThe Company evaluates its relationship with other entities to identify whether
they are variable interest entities, as defined by Financial Accounting Standards Board (FASB) Interpretation No. 46 (revised), "Consolidation of Variable Interest Entities" (FIN 46R),
and assesses whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that entity is included in the Company's
Consolidated Financial Statements in accordance with FIN 46R.

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

During
fiscal 2005, the Company entered into a joint venture agreement with a third party to manufacture and market high-performance, lightweight motors, generators and
drive electronics to the industrial market. The joint venture has not had significant activities since its inception. The joint venture is considered a variable interest entity because it is a
development stage enterprise, and its equity is not sufficient to finance its activities without additional subordinated financial support.

During
fiscal 2008, the Company entered into a joint venture agreement with a third party to develop and manufacture certain image intensification and long-wave infrared sensors. The
joint venture is still in its early stages of development and has not had significant activities since its inception. The joint venture is considered a variable interest entity because it is a
development stage enterprise, and its equity is not sufficient to finance its activities without additional subordinated financial support.

Based
upon a review of the provisions of FIN 46R, the structure of the agreements and activities of the entities described above, the Company determined that it is not the primary
beneficiary of the joint ventures at March 31, 2008 and 2007. If the facts and circumstances change in the future, the Company could determine that it has become the primary beneficiary, which
would require DRS to consolidate the fair value of the assets, liabilities and noncontrolling interest of the joint venture(s). The Company currently accounts for its ownership interest in the joint
ventures under the equity method of accounting. The Company's investment in the joint ventures was immaterial as of March 31, 2008 and 2007.

C.    Basis of Presentation and Use of EstimatesThe consolidated financial statements include the accounts of DRS
Technologies, Inc., its wholly-owned subsidiaries and its controlling interests. All intercompany transactions and balances have been eliminated in consolidation.

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The most significant of these estimates and assumptions relate to the recognition of contract revenues and estimated costs to complete contracts in process,
valuation of inventories reported at lower of cost or market, recoverability of reported amounts of goodwill, long-lived assets and intangible assets, valuation of pensions and other
postretirement benefits, the valuation of assets acquired and liabilities assumed in purchase business combinations, the valuation of deferred tax assets and liabilities, the valuation of unrecognized
tax benefits and the recognition of share-based compensation costs. Actual results could differ from these estimates.

D.    ClassificationsUnbilled receivables, inventories, accrual for future costs on uncompleted contracts and
accrual for future costs related to acquired contracts are primarily attributable to long-term contracts or programs in progress for which the related operating cycles may be longer than
one year. In accordance with industry practice, these items are included in current assets and liabilities.

Certain
amounts for prior years have been reclassified to conform with the fiscal 2008 presentation.

E.    Translation of Foreign Currency Financial Statements and Foreign Currency TransactionsSignificant
transactions in foreign currencies are translated into U.S. dollars at the approximate

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

prevailing
rate at the time of the transaction. Foreign exchange transaction gains and losses in fiscal 2008, 2007 and 2006 are immaterial to the Company's results of operations. The operations of the
Company's foreign subsidiaries are translated from the local (functional) currencies into U.S. dollars using weighted average rates of exchange during each monthly period. The rates of exchange at
each balance sheet date are used for translating certain balance sheet accounts, and gains or losses resulting from these translation adjustments are included in the accompanying Consolidated Balance
Sheets as a component of accumulated other comprehensive earnings. The Company has accumulated exchange gains resulting from the translation of foreign subsidiaries financial statements of
$14.1 million and $9.8 million as of March 31, 2008 and 2007, respectively.

F.    Cash and Cash EquivalentsThe Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

G.    ReceivablesReceivables consist of amounts billed and currently due from customers, and unbilled costs and
accrued profits primarily related to revenues on contracts that have been recognized for accounting purposes, but not yet billed to customers, net of progress payments and advance payments, and net of
allowance for uncollectible accounts.

H.    InventoriesInventoried contract costs (i.e., work in process) represent incurred costs on contracts
in process that have not yet been recognized as costs and expenses because the related revenues, which are primarily recorded using the units-of-delivery
percentage-of-completion method, have not been recognized. As discussed below in Note 6 "Inventories," the Company's inventoried contract costs for certain government
contracts and contracts with prime contractors or subcontractors of the government include direct and indirect costs and allocated general and administrative (G&A) costs, independent research and
development costs and bid and proposal costs.

Pursuant
to contract provisions, agencies of the U.S. government and certain other customers have title to, or a security interest in, inventories related to certain contracts as a
result of progress payments and advance payments. Accordingly, such progress payments and advances are reflected as an offset, first against the related unbilled receivables, then against the related
inventory balances. To the extent that customer advances exceed related unbilled receivables and inventory levels, such excess advances are classified as current liabilities.

Inventories
other than inventoried contract costs are stated at the lower of cost, primarily using the average cost method, or market.

The
Company records contract-related assets and liabilities acquired in business combinations at their fair value by considering the remaining contract amounts to be billed and
collected, DRS's estimate to complete (including general and administrative expenses for government-related contracts) and a profit allowance on the remaining contract amount to be billed and
collected. Facts and circumstances specific to an acquired contract dictate the profit allowance, if any, established at acquisition (certain contracts, including those in a loss position at the date
of acquisition, may be adjusted to break-even by recording a reserve for anticipated costs at acquisition). Certain factors influencing the profit allowance, if any, on an acquired
contract include: contract type, margins earned on similar contracts, the original bid of the acquired entity and the life-cycle and related risk profile of the contract. Revisions to cost
estimates subsequent to the date of acquisition may be recorded as an adjustment to goodwill or earnings, depending on the nature and timing of the revision.

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Notes to Consolidated Financial Statements (Continued)

The
Company may, from time to time, incur costs in anticipation of a specific contract that is still being negotiated with the customer. If it is probable that the Company will be
awarded the specific anticipated contract, the precontract costs (excluding any start-up costs, which are expensed as incurred) would be capitalized into inventory. Capitalized precontract
costs at March 31, 2008 were $3.2 million and were immaterial at March 31, 2007.

I.    Property, Plant and EquipmentProperty, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated on the straight-line method. The ranges of estimated useful lives are: office furnishings, laboratory, production, computer and other equipment,
3-10 years; building and building improvements, 15-40 years; and leasehold improvements, over the shorter of the estimated useful lives of the improvements or the
remaining life of the lease. When property, plant and equipment are retired or otherwise disposed of, the net book value of the asset is removed from the Consolidated Balance Sheet, and the net gain
or loss is included in the determination of net earnings. Maintenance and repairs are charged to operations as incurred; renewals and betterments are capitalized.

J.    Software CapitalizationInternally used software, whether purchased or developed, is capitalized and
amortized using the straight-line method over an estimated useful
life of three to eight years. Capitalized software costs are included in computer equipment and software. In accordance with American Institute of Certified Public Accountants (AICPA) Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," (SOP 98-1), the Company capitalizes certain costs associated with
internal-use software, such as the payroll costs of employees devoting time to the projects and external direct costs for materials and services. Costs associated with
internal-use software are expensed during the design phase until the point at which the project has reached the development stage. Subsequent additions, modifications or upgrades to
internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed
in the period in which they are incurred. The capitalization of software requires judgment in determining when a project has reached the development stage and the period over which the Company expects
to benefit from the use of that software. The Company capitalized $9.8 million, $11.8 million and $3.8 million of internal-use software for the years ended
March 31, 2008, 2007 and 2006, respectively. Depreciation expense for capitalized software was $5.0 million, $3.7 million and $3.4 million in fiscal 2008, 2007 and 2006,
respectively.

The
Company's software development costs for computer software products to be sold, leased or marketed that are incurred after establishing technological feasibility for the computer
software products are capitalized as other non-current assets and amortized on a product by product basis using the amount that is the greater of the straight-line method over the useful
life or the ratio of current revenues to total estimated revenues in accordance with Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to
Be Sold, Leased or Otherwise Marketed." The Company capitalized software development costs of $0.5 million and $2.4 million for the years ended March 31, 2008 and 2007,
respectively. Amortization expense for capitalized software development costs was $0.5 million in fiscal 2008.

K.    Bond Premium and Debt Issuance CostsBond premium and debt issuance costs are amortized as a component of
interest expense over the term of the related debt using the effective interest method. The nature and extent of subsequent modifications to the Company's

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

term
loans and lines of credit affect whether debt issuance costs are expensed or capitalized. If the Company prepays its term loans or portions thereof, the debt issuance costs associated with such
term loans are written-off in proportion to the decrease in term loan borrowings, as compared with the total borrowings outstanding prior to the prepayment.

L.    GoodwillThe Company annually reviews goodwill for impairment by "reporting unit" or whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. A reporting unit is an operating segment or a component of an operating segment. A component of an operating segment
is a reporting unit if the component constitutes a business for which discrete financial information is available and is reviewed. Two or more components of an operating segment may be aggregated and
deemed a single reporting unit if the components have similar economic characteristics. Based upon the
aggregation criteria the Company concluded it had five reporting units at March 31, 2008 and 2007.

The
annual impairment test is typically performed after completion of the Company's annual financial operating plan, which occurs in the fourth quarter of its fiscal year. The annual
goodwill impairment assessment involves estimating the fair values of the Company's reporting units and comparing such fair values with the reporting unit's respective carrying value. If the carrying
value of the reporting unit exceeds its fair value, additional steps are followed to recognize a potential goodwill impairment loss. Calculating the fair value of a reporting unit requires significant
estimates and assumptions by management. Fair values are estimated based upon the two methodologies, a market approach and an income approach. The market approach includes applying valuation multiples
to each reporting unit's projected earnings before net interest and taxes (EBIT), and earnings before net interest, taxes, depreciation and amortization (EBITDA). The income approach discounts future
net cash flows to their present value at a rate that reflects both the current return requirements of the market and the risks inherent in the reporting unit. The results of the two approaches are
averaged and compared with the carrying value of each respective reporting unit. The Company completed the impairment tests in the fourth quarter of fiscal 2008 and 2007 with no adjustment to the
carrying value of goodwill.

M.    Long-Lived Assets and Acquired Identifiable Intangible AssetsIdentifiable intangible assets
represent assets acquired as part of the Company's business acquisitions and include customer- and program/contract-related and technology-based intangibles. The values assigned to acquired
identifiable intangible assets are determined, as of the date of acquisition, based on estimates and judgments regarding expectations for the estimated future after-tax cash flows from
those assets over their lives, including the probability of expected future contract renewals and revenues, all of which are discounted to present value.

The
Company assesses the recoverability of the carrying value of its long-lived assets and acquired intangible assets with finite useful lives whenever events or changes in
circumstances indicate that the carrying amount of the assets or asset group may not be recoverable. If there are any indicators of impairment present, the Company would then evaluate the
recoverability of the potentially impaired long-lived assets and acquired identifiable intangible assets based upon the expectations of undiscounted net cash flows from such assets. If the
sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset or asset group, a loss would be recognized for the difference between the fair value and the

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

carrying
amount of the assets. Assets to be disposed of, including those of discontinued operations, are reported at the lower of the carrying amount or fair value, less the costs to sell.

N.    Derivative Financial InstrumentsThe Company does not use derivative financial instruments for trading
purposes. The Company utilizes some variable rate debt to fund its operations and
sustain its growth. Such variable rate borrowings expose the Company to interest rate risk and the related impact that changes in interest rates can have on the Company's earnings and on its cash
flows. The Company also operates and conducts business in foreign countries and, as a result, is exposed to movements in foreign currency exchange rates. More specifically, the Company's net equity is
impacted by the conversion of the net assets of foreign subsidiaries for which the functional currency is not the U.S. dollar for U.S. reporting purposes. In an effort to limit interest expense, cash
flow exposure and foreign currency exposure, the Company has in the past and may in the future enter into various derivative instruments that meet the criteria, including the related hedge
documentation, to be accounted for as cash flow hedges. Derivative financial instruments also include embedded derivatives. The embedded derivatives related to the issuance of the Company's 2%
convertible notes are recorded at fair value with changes reflected in the statement of earnings (See Note 9, "Debt," for additional information).

All
derivative instruments are carried on the Consolidated Balance Sheet as either assets or liabilities at fair value. The classification of gains and losses resulting from changes in
the fair values of derivatives is dependent on the intended use of the derivative and its resultant designation.

The
Company's derivative and hedging activity in fiscal years 2008 and 2007 was immaterial. As of March 31, 2008 and 2007, with the exception of the embedded derivative discussed
above, the Company did not have any other derivative instruments outstanding.

O.    Revenue RecognitionThe substantial majority of the Company's direct and indirect revenues from the U.S.
government and certain of the Company's revenues from foreign governments are earned pursuant to written contractual arrangements to design, develop, manufacture and/or modify complex products and to
provide related engineering and technical or other services according to the specifications of the buyers (customers). These contracts are generally fixed-price, cost-reimbursable, or time
and material. These contract types are accounted for in accordance with SOP 81-1. Cost-reimbursable type contracts also are specifically covered by the provisions of
Accounting Research Bulletin No. 43, Chapter 11, Section A, "Government Contracts, Cost-Plus Fixed-Fee Contracts" (ARB 43).

Revenues
and profits on fixed-price contracts are recognized using the percentage-of-completion method of accounting. Revenues and profits on fixed-price
production contracts, whose units are produced and delivered in a continuous or sequential process, are recorded as units are delivered (the "units-of-delivery method").
Revenues and profits on other fixed-price contracts with significant engineering as well as production requirements are recorded based on the ratio of total actual incurred costs to date to the total
estimated costs for each contract ("cost-to-cost method"). Under the percentage-of-completion method of accounting, a single estimated total profit
margin is used to recognize profit for each contract over its entire period of performance, which can exceed one year.

Accounting
for the revenues and profits on a fixed-price contract, requires the preparation of estimates of (1) the total costs at completion, which are equal to the sum of the
actual

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

incurred
costs to date on the contract and the estimated costs to complete the contract's statement of work, and (2) the measurement of progress towards completion. The estimated profit or loss
at completion on a contract is equal to the difference between the total contract revenue and the total estimated cost at completion. Under the units-of-delivery method,
revenues on a fixed-price type contract are recorded as the units are delivered during the period based on their contractual selling prices. Under the cost-to-cost method,
revenues on a fixed-price type contract are recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs at completion, multiplied by (i) the
total contract revenue, less (ii) the cumulative revenues recognized in prior periods. The profit recorded on a contract in any period using either the units-of-delivery
method or cost-to-cost method is equal to (i) the current estimated total profit margin multiplied by the cumulative revenues recognized, less (ii) the amount of
cumulative profit previously recorded for the contract. In the case of a contract for which the total estimated contract costs (including overhead and general and administrative expenses) exceed the
total contract revenues, a loss arises, and a provision for the entire loss is recorded in the period that it becomes evident. The unrecoverable costs on a loss contract that are expected to be
incurred in future periods are recorded as a component of other current liabilities.

Revenue
and profits on cost-reimbursable type contracts are recognized as allowable costs are incurred on the contract, at an amount equal to the allowable costs plus the
estimated profit on those costs. The estimated profit on a cost-reimbursable contract may be fixed or variable based on the contractual fee arrangement. Incentive and award fees on these
contracts are recorded as revenue when the conditions under which they are earned are reasonably assured of being met and can be reasonably estimated. Revenue and profits on
time-and-material type contracts are recognized on the basis of direct labor hours expended multiplied by the contractual fixed rate per hour, plus the actual costs of material
and other direct non-labor costs. On a time-and-material type contract, the fixed hourly rates include amounts for the cost of direct labor, indirect contract costs
and profit.

The
Company reviews cost performance and estimates to complete on its contracts at least quarterly and in many cases more frequently. Adjustments to original estimates for a contract's
revenue, estimated costs at completion and estimated profit or loss often are required as work progresses under a contract, as experience is gained and as more information is obtained, even though the
scope of work required under the contract may not change, or if contract modifications occur. The impact of revisions in profit estimates for all types of contracts is recognized on a cumulative
catch-up basis in the period in which the revisions are made. Amounts representing contract change orders or claims are included in revenue only when they can be estimated reliably and
their realization is probable, and are determined on a percentage-of-completion basis measured by the cost-to-cost method. Incentives or penalties and
awards applicable to performance on contracts are considered in estimating revenues and profit rates, and are
recorded when there is sufficient information to assess anticipated contract performance. Incentive provisions, which increase or decrease earnings based solely on a single significant event, are not
recognized until the event occurs.

Contracts
that include multiple deliverables that are not within the scope of SOP 81-1 are accounted for under the provisions of Emerging Issues Task Force Issue
No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables" (EITF 00-21). Accordingly, for applicable arrangements, revenue recognition includes
the proper identification of separate units of accounting and the allocation of revenue across all elements based on relative fair values.

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Revenues
on arrangements that are not within the scope of SOP 81-1 or ARB 43 typically are recognized in accordance with the Securities and Exchange Commission (SEC)
Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition in Financial Statements". Revenues are recognized when there is persuasive evidence of an arrangement, delivery has occurred or
services have been performed, the selling price to the buyer is fixed or determinable, and collectibility is reasonably assured.

Included
in revenues for fiscal years 2008, 2007 and 2006 were $109.3 million, $110.4 million and $106.1 million, respectively, of customer-sponsored research and
development, which principally are accounted for under the cost-reimbursement method.

Approximately
93%, 90% and 87% of total consolidated revenues for fiscal years 2008, 2007 and 2006, respectively, were derived directly or indirectly from defense contracts for end use
by the U.S. government and its agencies. Direct Foreign Sales, which are sales to foreign governments, accounted for approximately 5%, 7% and 9% of total consolidated revenues in the fiscal years
ended March 31, 2008, 2007 and 2006, respectively. One contract accounted for approximately 12% and 11% of revenues, respectively, for the fiscal years ended March 31, 2008 and 2007.
There were no contracts that were greater than 10% of revenues during the fiscal year ended March 31, 2006.

P.    Pension and Other Postretirement BenefitsThe obligations for the Company's pension plans and postretirement
benefit plans and the related annual costs of employee benefits are calculated based on several long-term assumptions, including discount rates for employee benefit liabilities, rates of
return on plan assets, expected annual rates for salary increases for employee participants in the case of pension plans, and expected annual increases in the costs of medical and other health care
benefits in the case of postretirement benefit obligations. These long-term assumptions are subject to revision based on changes
in interest rates, financial market conditions, expected versus actual returns on plan assets, participant mortality rates and other actuarial assumptions, including future rates of salary increases,
benefit formulas and levels, and rates of increase in the costs of benefits. Changes in the assumptions, if significant, can materially affect the amount of annual net periodic benefit costs
recognized in the Company's results of operations from one year to the next, the liabilities for the pension plans and postretirement benefit plans, and the Company's annual cash requirements to fund
these plans. See Note 13, "PensionsOther Employee Benefits," for further information on the Company's pension and postretirement plans.

Q.    Share-Based CompensationIn December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" (SFAS 123R). SFAS 123R replaces SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), and supercedes Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). SFAS 123R addresses the accounting for transactions in which an enterprise receives employee services in exchange
for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such
equity instruments. SFAS 123R requires companies to recognize compensation cost in an amount equal to the fair value of share-based awards expected to vest.

On
April 1, 2006, DRS adopted SFAS 123R, as interpreted by SEC Staff Accounting Bulletin No. 107, using the modified prospective method. Under this method, the
Company is required to record compensation cost for the unvested portion of previously granted awards that were outstanding as of April 1, 2006. Results for prior periods have not been
restated.

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Prior
to April 1, 2006, the Company applied the intrinsic-value-based method of accounting prescribed by APB No. 25 and its related interpretations. Compensation expense
for stock options granted to an employee or director was recognized in earnings based on the excess, if any, of the quoted market price of DRS common stock at the date of grant, or other measurement
date, over the amount an employee or director must pay to acquire the common stock. When the exercise price of the option granted to an employee or director equaled or exceeded the quoted market price
of DRS common stock at the date of grant, the Company did not recognize compensation expense. Compensation cost for restricted stock and restricted stock units (collectively "non-vested
stock") was recorded based on the closing market value on the last trading day of DRS common stock prior to the date of grant, and forfeitures were accounted for as they occurred. Compensation cost
for non-vested stock was charged to unamortized stock compensation in stockholders' equity and amortized to expense over the requisite vesting periods. The "pro forma" effects on net
earnings and earnings per share, as if compensation costs had been recognized based on the fair value-based method at the date of grant for stock options awarded consistent with the provisions of SFAS
No. 123 for the year ended March 31, 2006, is included in Note 12.

R.    Income TaxesThe Company accounts for income taxes in accordance with the
asset-and-liability method. The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings
in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences
become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

On
April 1, 2007 the Company adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109(Fin 48). FIN 48 prescribes recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. Fin 48 requires that the Company determine whether the benefits of tax positions are more likely than not
of being sustained upon audit based solely on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon examination, the Company recognizes the
largest amount of the benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority having full knowledge of all relevant information. For tax positions
that are not more likely than not of being sustained upon examination, the Company does not recognize any portion of the benefit in the financial statements.

85

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

|                        |                                            | Years Ended March 31,                     
|----------------------- | ------------------------------------------ | ------------------------------------------
|
|
|Basic EPS Computation   |                                            |                                           
|                        | Net earnings                               |                                           
|                        |                                            |                                           
|                        | Weighted average common shares outstanding |                                           
|                        |                                            |                                           
|                        | Basic earnings per share                   |                                           
|Diluted EPS Computation |                                            |                                           
|                        | Net earnings                               |                                           
|                        |                                            |                                           
|                        | Diluted common shares outstanding          |                                           
|                        |                                            | Weighted average common shares outstanding
|                        |                                            | Stock options and restricted stock        
|                        |                                            |                                           
|                        | Diluted common shares outstanding          |                                           
|                        |                                            |                                           
|                        | Diluted earnings per share                 |                                           

At
March 31, 2008 and 2006, there were 398,843 and 22,500 options, respectively, to acquire DRS common stock outstanding, respectively, that are excluded from the above
calculation because their inclusion would have had an antidilutive effect on EPS in their respective fiscal years. At March 31, 2007, all outstanding options are included in the diluted EPS
calculation.

For
the years ended March 31, 2008, 2007 and 2006, DRS's 2% Convertible Senior Notes due 2026 had no impact on diluted EPS because the average stock price during such periods was
below $59.70 per share. See Note 9, "Debt," for further information on the Convertible Notes.

T.    Fair Value of Financial InstrumentsCash and cash equivalents, accounts receivable, accounts payable, and
accrued expenses and other current liabilities, reported in the Consolidated Balance Sheets equal or approximate their fair values. The fair value of the Company's revolving credit facility and term
loans approximate their recorded value, based on the variable interest rates of the facility and currently available terms and conditions for similar debt at March 31, 2008 and 2007.
Long-term debt is reflected on the Consolidated Balance Sheets at amortized cost. Below is a summary of carrying value and fair value of the Company's

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

notes.
Fair values are determined through information obtained from third parties using the latest available market data.

|                          |  | March 31,
|------------------------- |  | ---------
|
|
|
|Senior Notes              |  | $        
|Senior Subordinated Notes |  | $        
|Convertible Senior Notes  |  | $        

U.    Product WarrantiesProduct warranty costs generally 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 otherwise may be modified as specific product performance issues are identified and resolved. The
table below presents the changes in the Company's accrual for product warranties for the years ended March 31, 2008, 2007 and 2006, which are included in accrued expenses and other current
liabilities:

March 31,2008

2007

2006(in thousands)Balance at beginning of year

$
31,180

$
29,829

$
21,839Acquisitions during the period





932


10,730Accruals for product warranties issued during the period


31,352


18,835


9,235Settlements made during the period


(18,614
)

(18,501
)

(12,011
)Other


(305
)

85


36Balance at the end of year

$
43,613

$
31,180

$
29,829


V.    New Accounting PronouncementsIn September of 2006, the FASB issued SFAS No. 157, "Fair Value
Measurement" (SFAS 157.) SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about
fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously
concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some
entities, the application of this statement will change current practice. This statement is effective beginning April 1, 2008 except for nonfinancial assets and liabilities measured at fair
value on a non-recurring basis which will be effective April 1, 2009 for DRS and are not expected to have a material impact on the Company's consolidated financial statements.

In
December 2006, the FASB issued FASB Staff Position on Emerging Issues Task Force (EITF) No. 00-19-2, "Accounting for Registration Payment Arrangements"
(FSP EITF 00-19-2). FSP EITF 00-19-2 provides that the contingent obligation to make future payments or otherwise transfer consideration
under a registration payment arrangement should be recognized

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

separately
and measured in accordance with SFAS No. 5, "Accounting for Contingencies," which provides that loss contingencies should be recognized as liabilities if they are probable and
reasonably estimable. Subsequent to the adoption of FSP EITF 00-19-2, any changes in the carrying amount of the contingent liability will result in a gain or loss that
will be recognized in the consolidated statement of earnings in the period the changes occur. The guidance in FSP EITF 00-19-2 became effective for the Company on
April 1, 2007. The adoption of EITF 00-19-2 did not have a material impact on the Company's consolidated financial statements.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement
No. 115" (SFAS 159). SFAS 159 permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective for DRS beginning April 1, 2008. The Company did not elect the fair
value option permitted by SFAS 159 upon adoption.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" (SFAS 141R). SFAS 141R significantly changes the way companies account for
business combinations and generally will require more assets acquired and liabilities assumed to be measured at their acquisition-date fair value. Under SFAS 141R, legal fees and
other transaction-related costs are expensed as incurred and are no longer included in goodwill as a cost of acquiring the business. SFAS 141R also requires, among other things, acquirers to
estimate the acquisition date fair value of any contingent consideration and to recognize any subsequent changes in the fair value of contingent consideration in earnings. In addition, restructuring
costs the acquirer expected, but was not obligated to incur, will be recognized separately from the business acquisition. This statement is effective beginning April 1, 2009 for DRS. The
Company is currently evaluating the impact of this statement on its consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" an Amendment of ARB 51 (SFAS 160). SFAS 160 amends
ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The statement requires consolidated net income to be
reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure on the face of the consolidated statement of income of the
amounts of consolidated net income attributable to the parent and to the noncontrolling interest. In addition, this statement establishes a single method of accounting for changes in a parent's
ownership interest in a subsidiary that do not result in deconsolidation and requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. This statement is
effective beginning April 1, 2009 for DRS. The Company is currently evaluating the impact of this statement on its consolidated financial statements.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" (FAS 161),
which requires enhanced disclosures about a company's derivative and hedging activities. FAS 161 will be effective as of April 1, 2009 for DRS. The Company currently is evaluating the
impact of the adoption of the enhanced disclosures required by FAS 161.

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

On
May 9, 2008, the FASB issued FASB Staff Position (FSP) Accounting Principles Board (APB) Opinion No. 14-1, "Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" (FSB APB 14-1). The FSP will require cash settled convertible debt to be separated into debt and equity
components at issuance and a value to be assigned to each. The value assigned to the debt component will be the estimated fair value, as of the issuance date, of a similar bond without the conversion
feature. The difference between the bond cash proceeds and this estimated fair value will be recorded as a debt discount and amortized to interest expense over the life of the bond. FSP
APB 14-1 will become effective for the Company April 1, 2009, and will require retrospective application. The Company is currently assessing the impact the adoption of the
FSP will have on the Company's future results of operations, which is expected to be material.

2. Restatement of Previously Issued Consolidated Financial Statements

In
February 2008, the Company received a comment letter from the staff of the SEC on its fiscal 2007 Form 10-K (filed on May 30, 2007) and its fiscal 2008
second quarter Form 10-Q (filed on November 9, 2007). In the initial comment letter, and in other subsequent written and telephonic communications with the SEC, information
was requested regarding the timing of a $36.8 million pretax charge that was recorded in the Company's fiscal 2008 first quarter ended June 30, 2007 for the impact of a redesign on the
Company's Thermal Weapon Sight II (TWS II) program. Following discussions with the staff of the SEC and review of the judgments and estimates the Company made relating to the charge, the
Company concluded that the $36.8 million charge should have been recorded in the Company's fiscal 2007 fourth quarter ended March 31, 2007.

As
a result of foregoing, the Company is restating its previously filed consolidated financial statements for the year ended March 31, 2007, inclusive of the Company's fourth
quarter ended March 31, 2007 and the previously issued quarterly consolidated financial statements for the three month period ended June 30, 2007. Accordingly, the Company's previously
issued consolidated financial statements for these periods should no longer be relied upon.

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

The
following tables set forth the effects of the restatement adjustment on the March 31, 2007 consolidated balance sheet and the consolidated statement of earnings for the year
ended March 31, 2007.

|                            |                                                                  | March 31, 2007
|--------------------------- | ---------------------------------------------------------------- | --------------
|
|
|Consolidated Balance Sheet: |                                                                  |               
|                            | Inventory, net                                                   |               
|                            | Prepaid expenses, deferred income taxes and other current assets |               
|                            | Total current assets                                             |               
|                            | Total assets                                                     |               
|                            | Accrued expenses and other current liabilities                   |               
|                            | Total current liabilities                                        |               
|                            | Total liabilities                                                |               
|                            | Total stockholders' equity                                       |               
|                            | Total liabilities and stockholders' equity                       |               

|
|

|                                    |                                                            | Year Ended March 31, 2007
|----------------------------------- | ---------------------------------------------------------- | -------------------------
|
|
|Consolidated Statement of Earnings: |                                                            |                          
|                                    | Costs and expensesProducts                                |                          
|                                    | Total costs and expenses                                   |                          
|                                    | Operating income                                           |                          
|                                    | Earnings before non-controlling interests and income taxes |                          
|                                    | Earnings before income taxes                               |                          
|                                    | Income taxes                                               |                          
|                                    | Net earnings                                               |                          
|                                    | Basic earnings per share                                   |                          
|                                    | Diluted earnings per share                                 |                          

The
restatement adjustment did not affect the reported amounts of net cash provided by operating activities, net cash used in investing activities, and net cash used in financing
activities for the year ended March 31, 2007.

As
a result of the adjustment discussed above, modifications were required to previously filed footnotes: Notes 1, 6, 8, 11, 16, 17 and 18.

3. Acquisitions

All of the Company's acquisitions have been accounted for as purchase business combinations and are included in the Company's results of operations from their
respective acquisition dates. The Company considered a variety of factors, including appraisals, valuations and other discounted cash flow approaches in determining the fair value of assets acquired
and liabilities assumed. Any additional payments of contingent consideration (e.g., earn-outs)

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

are
payable in cash and will be recorded as additional goodwill when the contingencies for such payments have been satisfied (also see Note 14, "Commitments and Contingencies").



On January 31, 2006, the Company completed its acquisition of all of the outstanding common stock and options to acquire the common stock of ESSI. In the
transaction, a wholly-owned subsidiary of DRS was merged with and into ESSI (the Acquisition), forming the Sustainment Systems Segment and substantially all of the Technical Services Segment. The
purchase price was $43.00 per share of ESSI common stock, which was comprised of $30.10 in cash and a fraction of a share of DRS common stock valued at $12.90. Total consideration for the acquisition
consisted of $1.34 billion in cash and 11.7 million shares of DRS common stock, or an aggregate value of $1.93 billion. In addition to the purchase price, the Company assumed
$78.5 million in debt and recorded $27.0 million of acquisition-related costs, including professional fees. The stock component of the consideration was valued at $50.08 per share, using
the average price of DRS common stock on the measurement date (January 27, 2006, the date the number of shares was known) and two days before and after the measurement date. Upon closing of the
Acquisition, the Company repaid ESSI's credit facility in the amount of $76.3 million. The Company financed the cash portion of the acquisition by utilizing cash and cash equivalents on hand,
revolving credit borrowings, $275.0 million in term debt and $900.0 million of new debt securities, including $350 million aggregate principal amount of 65/8%
senior notes due 2016, $250 million aggregate principal amount of 75/8% senior subordinated
notes due 2018 and $300.0 million aggregate principal amount of 2.0% convertible senior notes due 2026. See Note 9, "Debt," for a description of the amended and restated credit facility
and the new debt securities.

ESSI,
formerly headquartered in St. Louis, Missouri, is a supplier of integrated military electronics, support equipment and technical services focused on advanced sustainment and
logistics support solutions for all branches of the U.S. armed services, major prime defense contractors, certain international militaries, homeland security forces and selected government and
intelligence agencies. ESSI also produces specialized equipment and systems for commercial and industrial applications. The addition of ESSI has provided for a larger, more competitive and more
diversified company through the contribution of a significant base of systems, products and services focused on military force sustainment, technical and logistics support, integrated military
electronics and field support equipment.

The
Company finalized its purchase price allocation in fiscal 2007 and recorded $0.4 million net increase to goodwill, as compared with the preliminary purchase price allocation
at March 31, 2006. Goodwill of $1.0 billion and $0.7 billion was allocated to the Company's Sustainment Systems and Technical Services Segments, respectively, of which
approximately $282.6 million is expected to be deductible for tax purposes. The assets acquired also include $133.4 million in customer and contract-related intangibles with weighted
average useful lives of 6.9 years.



On June 27, 2005, the Company acquired WalkAbout Computer Systems, Inc. (WalkAbout) in a stock purchase transaction for $13.8 million in
cash, with additional consideration payable of up to $5.0 million upon achievement of certain revenue targets for a period of two and a

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

half
years (i.e., earn-out). In addition to the purchase price, the Company paid $0.2 million for acquisition-related costs, including professional fees.

WalkAbout,
formerly located in West Palm Beach, Florida, is a manufacturer of several lines of rugged, mobile tablet PCs, serving industrial, municipal, military and government markets.
Management believes that the acquisition of WalkAbout has enhanced the Company's position in the tactical computer systems business by broadening the Company's product offerings. WalkAbout is managed
as a part of the C4I Segment.

The
Company recorded a total of $9.4 million of goodwill (including a total of $0.8 million of earn-out adjustments recorded in fiscal 2008, 2007 and 2006), all
of which has been allocated to the C4I Segment. Of the total goodwill recorded, $2.3 million is expected to be deductible for tax purposes. The WalkAbout earnout period ended
December 31, 2007. The Company recorded $1.3 million of customer- and contract-related intangibles that have weighted-average useful lives of 5 years.



On April 15, 2005, the Company acquired Codem Systems, Inc. (Codem) in a stock purchase transaction for $31.6 million in cash, with
additional consideration payable of up to $5.0 million upon achievement of certain annual bookings targets for a period of three years. In addition to the purchase price, the Company paid
$0.3 million for acquisition-related costs, including professional fees.

Codem,
located in Merrimack, New Hampshire, is a provider of signals intelligence (SIGINT) systems, network interface modules and high-performance antenna control systems.
Management believes that the addition of Codem has enhanced the Company's existing intelligence product base. Codem is managed as a part of the Company's C4I Segment.

The
Company recorded a total of $29.4 million of goodwill (including a total of $3.8 million of earn-out adjustments recorded in fiscal 2008, 2007 and 2006),
all of which has been allocated to the C4I Segment. None of Codem's goodwill is expected to be deductible for tax purposes. The earn-out period ended April 14, 2008. The Company recorded
$1.9 million and $4.2 million of technology-based and customer- and program/contract-related intangibles, respectively, both of which have weighted-average useful lives of
9 years.

4. Goodwill and Intangible Assets

GoodwillIn accordance with SFAS No. 141, "Business Combinations" (SFAS 141), the Company allocates the cost of
business acquisitions to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition (commonly referred to as the purchase-price allocation). As part of
the purchase-price allocations for our business acquisitions, identifiable intangible assets are recognized as assets apart from goodwill if they arise from contractual or other legal rights, or if
they are capable of being separated or divided from the acquired business and sold, transferred, licensed, rented or exchanged. However, in accordance with SFAS 141, the Company does not
recognize any intangible assets apart from goodwill for the assembled workforces of its business acquisitions. At March 31, 2008, the Company had approximately 10,200 employees, and the
substantial majority of the sales generated by the Company's businesses are from the productive labor efforts of its employees, as compared with selling manufactured products or
right-to-use technology. Generally, the largest intangible asset of the businesses that the Company acquires is the value

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

of
the businesses' assembled workforce, which includes the human capital of the management, administrative, marketing and business development, scientific, engineering and technical employees of the
acquired businesses. The success of the Company's business, including its ability to retain existing business and to successfully compete for and win new business, is primarily dependent on the
management, marketing and business development, contracting, engineering and technical skills and knowledge of our employees, rather than on productive capital (plant and equipment, technology and
intellectual property). Generally, patents, trademarks and licenses are not material for our acquired businesses. Furthermore, our U.S. government contracts generally permit other companies to use our
patents in most domestic work performed by such other companies for the U.S. government. Therefore, because intangible assets for assembled workforces are part of goodwill in accordance with
paragraph 39 of SFAS 141, the substantial majority of the intangible assets associated with the businesses DRS acquired is recognized as goodwill.

The
table below reconciles the change in the carrying amount of goodwill by operating segment for the period from March 31, 2006 to March 31, 2008:

|                                              |  | C4I |         | RSTA |   | Sustainment
Systems |  | Technical
Services |           | Total |  
|--------------------------------------------- |  | --- | ------- | ---- | - | ------------------- |  | ------------------ | --------- | ----- | -
|
|Balance as of March 31, 2006                  |  | $   | 658,453 |      | $ | 168,586             |  | $                  | 1,045,502 |       | $
|ESSI acquisition                              |  |     |        |      |   |                    |  |                    | (5,111    | )     |  
|Codem acquisition earn-out                    |  |     | 1,005   |      |   |                    |  |                    |          |       |  
|WalkAbout acquisition earn-out                |  |     | 398     |      |   |                    |  |                    |          |       |  
|Night Vision Equipment earn-out               |  |     |        |      |   | 6,627               |  |                    |          |       |  
|Transfer of operating unit (A)                |  |     | (4,929  | )    |   |                    |  |                    |          |       |  
|Other adjustments                             |  |     | (1,921  | )    |   | 1,163               |  |                    |          |       |  
|Foreign currency translation adjustment       |  |     | 1,440   |      |   |                    |  |                    | 214       |       |  
|                                              |  |     |         |      |   |                     |  |                    |           |       |  
|Balance as of March 31, 2007                  |  | $   | 654,446 |      | $ | 176,376             |  | $                  | 1,040,605 |       | $
|ESSI acquisition (B)                          |  |     |        |      |   |                    |  |                    | (2,503    | )     |  
|Codem acquisition earn-out                    |  |     | 2,638   |      |   |                    |  |                    |          |       |  
|Power Technologies, Inc. acquisition earn-out |  |     | 2,000   |      |   |                    |  |                    |          |       |  
|WalkAbout acquisition earn-out                |  |     | 239     |      |   |                    |  |                    |          |       |  
|Night Vision Equipment earn-out               |  |     |        |      |   | 3,738               |  |                    |          |       |  
|Transfer of operating unit (C)                |  |     |        |      |   |                    |  |                    | 12,118    |       |  
|Other adjustments                             |  |     | (441    | )    |   |                    |  |                    |          |       |  
|Foreign currency translation adjustment       |  |     | 2,649   |      |   |                    |  |                    | 855       |       |  
|                                              |  |     |         |      |   |                     |  |                    |           |       |  
|Balance as of March 31, 2008                  |  | $   | 661,531 |      | $ | 180,114             |  | $                  | 1,051,075 |       | $
|                                              |  |     |         |      |   |                     |  |                    |           |       |  

---

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Identifiable Intangible AssetsThe most significant identifiable intangible assets that are separately
recognized in accordance with SFAS 141 for the Company's business acquisitions are customer relationships and program backlog and related contracts. The fair value of intangible assets
typically is determined, as of the date of acquisition, based on estimates and judgments regarding expectations for the estimated future after-tax earnings and cash flows (including cash
flows for working capital) arising from backlog and follow-on sales to the customer over their estimated lives, including the probability of expected future contract renewals and sales,
less a contributory assets charge, all of which is discounted to present value.

The
following disclosure presents certain information regarding the Company's acquired intangible assets as of March 31, 2008 and 2007. All acquired intangible assets are being
amortized over their estimated useful lives, as indicated below, with no estimated residual values.

|Acquired Intangible Assets |                                                   | Weighted
Average
Amortization
Period |          | Gross
Carrying
Amount |         | Accumulated
Amortization |   | Net
Balance
|-------------------------- | ------------------------------------------------- | ------------------------------------ | -------- | --------------------- | ------- | ------------------------ | - | -----------
|
|As of March 31, 2008       |                                                   |                                      |          |                       |         |                          |   |            
|                           | Technology-based intangibles                      |                                      | 18 years |                       | $       | 47,879                   |   | $          
|                           | Customer and program/contract-related intangibles |                                      | 11 years |                       |         | 214,536                  |   |            
|                           |                                                   |                                      |          |                       |         |                          |   |            
|Total                      |                                                   |                                      |          | $                     | 262,415 |                          | $ | (94,641    
|                           |                                                   |                                      |          |                       |         |                          |   |            
|As of March 31, 2007       |                                                   |                                      |          |                       |         |                          |   |            
|                           | Technology-based intangibles                      |                                      | 18 years |                       | $       | 47,859                   |   | $          
|                           | Customer and program/contract-related intangibles |                                      | 11 years |                       |         | 214,439                  |   |            
|                           |                                                   |                                      |          |                       |         |                          |   |            
|Total                      |                                                   |                                      |          | $                     | 262,298 |                          | $ | (65,314    
|                           |                                                   |                                      |          |                       |         |                          |   |            

The aggregate acquired intangible asset amortization expense for the fiscal years ended March 31, 2008, 2007 and 2006 was
$29.2 million, $31.4 million and $12.4 million, respectively. The estimated acquired intangible asset annual amortization expense is expected to be approximately
$29.2 million for fiscal year 2009, $28.3 million for fiscal year 2010, $27.5 million for fiscal year 2011, $14.0 million for fiscal year 2012 and $13.6 million for
fiscal year 2013.

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

5. Accounts Receivable

Unbilled receivables represent revenues for which billings have not been presented to customers as of the end of the fiscal year, including retentions arising
from contractual provisions. At March 31, 2008 and 2007, retentions amounted to $10.1 million and $7.6 million, respectively. Approximately $6.0 million of March 31,
2008 retentions are anticipated to be collected beyond one year. The component elements of accounts receivable, net of allowances for doubtful accounts of $2.8 million and $1.7 million,
at March 31, 2008 and 2007, respectively, are as follows:

|                                 |                      | March 31,
|-------------------------------- | -------------------- | ---------
|
|
|U.S. Government contracts:       |                      |          
|                                 | Billed receivables   |          
|                                 | Unbilled receivables |          
|                                 |                      |          
|                                 |                      |          
|                                 |                      |          
|Other defense-related contracts: |                      |          
|                                 | Billed receivables   |          
|                                 | Unbilled receivables |          
|                                 |                      |          
|                                 |                      |          
|                                 |                      |          
|Other trade receivables          |                      |          
|                                 |                      |          
|                                 | Total                |          
|                                 |                      |          

6. Inventories

Inventories are summarized as follows:

|                                                      |       | March 31,
|----------------------------------------------------- | ----- | ---------
|
|
|Work-in-process                                       |       | $        
|General and administrative costs                      |       |          
|Raw material and finished goods                       |       |          
|                                                      |       |          
|                                                      |       |          
|Less: Progress payments and certain customer
advances |       |          
|Inventory reserve                                     |       |          
|                                                      |       |          
|                                                      | Total |          
|                                                      |       |          

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 (IRAD) costs and bid and proposal (B&P) costs. G&A, IRAD and B&P are allowable, indirect contract costs under U.S. government regulations. The Company allocates these costs to government
contracts and accounts for them as product costs, not as period expenses, at the majority of the Company's operating units.

95

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Total
expenditures for internal research and development amounted to approximately $66.1 million, $50.9 million and $47.6 million for fiscal 2008, 2007 and 2006,
respectively.

The
Company bifurcates its total G&A costs into "allowable" and "unallowable" cost pools, as the terms are defined in the U.S. Federal Acquisition Regulations (FAR) procurement
regulations. The Company accounts for allowable G&A costs allocated to its government contractor operating units that design, develop and produce complex defense electronic components and systems for
specifically identified contracts as contract costs because such costs are generally reimbursable indirect contract costs pursuant to the terms of the contracts. The Company expenses such allowable
G&A costs as a component of costs and expenses when the revenues related to those contracts are recognized.

The
Company's government contractor operating units allocate allowable G&A costs to contracts using an indirect overhead rate, which generally is based upon allowable G&A costs as a
percentage of a total cost (direct labor, manufacturing overhead, raw material and other direct costs) input base.

The
Company believes that accounting for allowable G&A costs as contract costs is consistent with industry practice and supported by authoritative accounting literature as outlined in
the American Institute of Certified Public Accountants (AICPA) Statement of Position 81-1, Accounting for Performance of Contruction-Type and Certain
Production-Type Contracts (SOP 81-1), the AICPA Audit and Accounting Guide, Audits of Federal Government Contractors, and Chapter 4 of Accounting and Research
Bulletin (ARB) 43, Restatement and Revision of Accounting Research Bulletins.

The
Company expenses "unallowable" G&A costs allocable to its government contractor operating units as they are incurred (i.e., period expense) because unallowable costs, as
defined in the FAR, are not reimbursable under government contracts. All G&A costs allocated to the Company's non-government contractor operating units are expensed as incurred.

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

|                                          |                                              | Years Ended March 31,
|----------------------------------------- | -------------------------------------------- | ---------------------
|
|
|Balance in inventory at beginning of year |                                              | $                    
|                                          | Add: Acquired costs                          |                      
|                                          | Incurred costs                               |                      
|                                          | Less: Amounts included in costs and expenses |                      
|                                          |                                              |                      
|Balance in inventory at end of year       |                                              | $                    
|                                          |                                              |                      

General
and administrative expenses related to the Company's lines of business that are not primarily contracted with the U.S. government amounted to $170.7 million,
$159.8 million and $68.8 million for fiscal 2008, 2007 and 2006, respectively.

96

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

During
the fourth quarter of fiscal 2007, the Company recorded a $40.3 million charge to operations for an anticipated loss on the Thermal Weapon Sight II (TWS II) program.
The charge reflects the Company's revised estimate of the excess of the total estimated costs to fulfill the scope of work of the TWS II contract, over the total TWS II contract value. The total
estimated costs to complete the contract reflect all direct costs (primarily labor and material), overhead and allowable general and administrative expenses, accumulated in accordance with
SOP No. 81-1. The most significant component of the charge was a result of the estimated cost of new material following recent design modifications, as well as the
write-off of certain inventory. As a result of the design changes, the Company also transferred $30.0 million of saleable product and components from the TWS II program (transferred
inventory) to inventory during the fourth quarter of fiscal 2007, which is valued at the lower of cost or market as of March 31, 2008 and 2007. The Company believes that the transferred
inventory will be sold primarily through international distribution channels. The sale of certain products outside of the United States is highly regulated and any inability to obtain the requisite
licenses or comply with applicable government export regulations may
affect the Company's ability to export the transferred inventory. If the Company is precluded from selling the transferred inventory to certain international customers and/or is unable to generate
sufficient domestic revenues, the value of the transferred inventory may be required to be written down or written off in a future period. Such a write-down or write-off could
be material to the results of operations in any one period. During the second half of fiscal 2008, the Company received orders for $8.5 million of thermal weapon sights of which
$5.2 million has been delivered and shipped out of transferred inventory. As of March 31, 2008, approximately $21.3 million of transferred inventory and components remained with
the Company.

7. Property, Plant and Equipment

Property, plant and equipment are summarized as follows:

|                                               |       | March 31,
|---------------------------------------------- | ----- | ---------
|
|
|Land                                           |       | $        
|Machinery and equipment                        |       |          
|Computer equipment and software                |       |          
|Buildings and improvements                     |       |          
|Leasehold improvements                         |       |          
|Office furnishings, equipment and other        |       |          
|                                               |       |          
|                                               |       |          
|Less accumulated depreciation and amortization |       |          
|                                               |       |          
|                                               | Total |          
|                                               |       |          

Annual
depreciation of property, plant and equipment amounted to $49.0 million, $45.2 million and $36.6 million in fiscal 2008, 2007 and 2006, respectively.

97

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

8. Accrued Expenses and Other Current Liabilities

The component elements of accrued expenses and other current liabilities are as follows:

|                                                        |       | March 31,
|------------------------------------------------------- | ----- | ---------
|
|
|Accruals for future costs related to acquired contracts |       | $        
|Customer advances                                       |       |          
|Payroll, other compensation and related expenses        |       |          
|Accrued interest                                        |       |          
|Accrued product warranty (Note 1.U.)                    |       |          
|Income taxes payable                                    |       |          
|Loss accrual for future costs on uncompleted
contracts  |       |          
|Other                                                   |       |          
|                                                        |       |          
|                                                        | Total |          
|                                                        |       |          

Components
in "Other" at March 31, 2008 and 2007 include litigation and contingency related-accruals (see Note 14), short-term pension liabilities (see
Note 13) and accrued acquisition earn-outs (see Note 3).

9. Debt

A summary of debt is as follows:

|                                                            |                          | March 31,
|----------------------------------------------------------- | ------------------------ | ---------
|
|
|Credit Facility:                                            |                          |          
|                                                            | Revolving line of credit |          
|                                                            | Term loan                |          
|Canadian Term Loan                                          |                          |          
|65/8% Senior Notes due 2016                                 |                          |          
|75/8% Senior Subordinated Notes due 2018                    |                          |          
|67/8% Senior Subordinated Notes due 2013                    |                          |          
|2.0% Convertible Senior Notes due 2026                      |                          |          
|Unamortized bond premium on 67/8% Senior Subordinated Notes |                          |          
|Other obligations                                           |                          |          
|                                                            |                          |          
|                                                            |                          |          
|Less:                                                       |                          |          
|Current installments of long-term debt                      |                          |          
|                                                            |                          |          
|                                                            | Total long-term debt     |          
|                                                            |                          |          

Credit FacilitySimultaneously with the closing of the Company's acquisition of ESSI, on January 31, 2006 the Company
entered into an amended and restated credit facility for up to an aggregate amount of $675.0 million with a syndicate of lenders (the Credit Facility), replacing DRS's previously existing
credit facility. The Credit Facility consists of a $400.0 million

98

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

senior
secured revolving line of credit and a $275.0 million senior secured term loan. The Company is permitted, on no more than two occasions, to increase the aggregate amount of the Credit
Facility by up to $250.0 million, subject to certain restrictions. Any increase in the aggregate amount of the Credit Facility may be borrowed in the form of either additional term loans or
available amounts under the revolving line of credit. The Credit Facility is guaranteed by substantially all of DRS's domestic subsidiaries. In addition, it is collateralized by liens on substantially
all of the assets of the Company's subsidiary guarantors' and certain of DRS's other subsidiaries' assets and by a pledge of a portion of certain of the Company's non-guarantor
subsidiaries' capital stock. The term loan and the revolving line of credit mature on January 31, 2013 and 2012, respectively.

Revolving
line of credit and term loan borrowings under the Credit Facility generally bear interest at the Company's option at either: 1) a base rate, which is defined as the
higher of (a) the prime rate or (b) the federal funds rate plus 0.50%, plus the applicable margin; or 2) the LIBOR rate plus the applicable margin. Revolving credit loans that are
base rate loans bear interest at the base rate plus a margin ranging from 0.00% to 0.50% per annum, depending on the Company's total leverage ratio (TLR), as the term is defined in the credit
agreement, at the time of determination. Revolving credit loans that are LIBOR rate loans bear interest at LIBOR plus a margin ranging from 1.00% to 1.75% per annum, depending on the Company's TLR.
Term loans that are base rate loans bear interest at the base rate plus 0.25%, and term loans that are LIBOR rate loans bear interest at LIBOR plus 1.50%.

The
Company pays commitment fees calculated on the average daily unused portion of its revolving line of credit at a rate ranging from 0.375% and 0.50% per annum, depending on the
Company's TLR. The Company 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 1.00% to 1.75% 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 DRS under the Credit Facility, including, but not limited to, quarterly financial covenants, which commenced with the quarter ended
June 30, 2006, specifying maximum total leverage ratio, maximum senior leverage ratio, and minimum fixed-charge coverage ratio and restrictions or limitations on acquisitions and investments,
equity issuances, sales of assets, dividends the Company may declare and pay on its common stock, issuance of additional debt or modifications of existing debt, incurrence of liens and capital
expenditures.

The
principal amount of any outstanding revolving credit loans is due and payable in full on January 31, 2012. The Company is required to repay the aggregate outstanding principal
amount of the initial term loan borrowings ($275.0 million) in consecutive quarterly installments on the last business day of each December, March, June and September, which commenced
June 30, 2006. From June 30, 2006 through March 31, 2012, each such principal payment is $0.7 million. The remaining quarterly principal payments are $64.6 million
and $43.8 million on June 30, 2012 and September 30, 2012, respectively, adjusted for any optional payments.

99

---



DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

At
March 31, 2008 and 2007, there were no outstanding revolving line of credit borrowings against the Credit Facility. As of March 31, 2008, $119.5 million of term
loans were outstanding against the Credit Facility. The weighted average interest rate on the Company's term loan borrowings was 4.4% as of March 31, 2008 (6.9% as of March 31, 2007).
During fiscal 2008 the Company prepaid, at its discretion, $150.0 million of the outstanding term loan and as a result recognized a $0.4 million charge to interest and related expenses
resulting from the write-off of debit issuance costs.

From
time to time, the Company enters into standby letters-of-credit and bank guarantee agreements with financial institutions and customers, primarily relating
to the guarantee of its future performance on certain contracts to provide products and services and to secure advance payments from its customers. As of March 31, 2008, $32.8 million
was contingently payable under letters of credit and bank guarantees (including $0.3 million of letters of credit and bank guarantees obtained outside the Credit Facility). At March 31,
2008, the Company had $367.5 million of availability under its revolving line of credit.

Canadian LoanOn March 29, 2006, DRS Technologies Canada Company (DRS Canada) established a five-year
senior secured term loan (Canadian loan) for approximately $9.9 million (C$11.5 million), maturing on April 1, 2011, payable in Canadian dollars. The proceeds of the loan were
utilized to allow repatriation of certain amounts from Canada to the U.S., which were subject to more favorable tax treatment under the Jobs Act (for further information see Note 11.) The
Canadian loan bears interest at the Company's option at either: (i) prime rate or (ii) LIBOR rate plus 1.75%. The weighted average interest rate on the term loan was 5.25% as of
March 31, 2008 (6.0% at March 31, 2007). DRS Canada is required to repay aggregate outstanding principal of C$575.0 thousand on the first business day of every January, April,
July and October, which commenced July 1, 2006. The term debt under the agreement ranks senior in priority of payment to all subordinated debt of DRS Canada and the Company. The debt is
collateralized by the assets of DRS Canada and guaranteed by DRS Technologies, Inc. The Company is subject to the same financial covenants under the Canadian loan, as it is under the Credit
Facility described above, and DRS Canada is subject to other non-financial covenants that are similar to those described in the Credit Facility. The carrying value of the Canadian Term
Loan increased $1.0 million during the year ended March 31, 2008, as a result of the strengthening of the Canadian dollar compared with the U.S. dollar during that period.

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

The
January 2006 Notes and the Convertible Notes are unsecured. The 75/8% senior subordinated notes rank behind the Credit Facility, the 65/8% senior notes
and the Convertible Notes, and are pari passu with the 67/8% senior subordinated notes.

100

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

January 2006 NotesThe January 2006 Notes pay interest semi-annually in arrears on February 1 and
August 1, which commenced August 1, 2006. The net proceeds of the offering of the January 2006 Notes were $588.0 million after deducting $12.0 million in commissions and
fees related to the offerings. The January 2006 Notes were issued under indentures with The Bank of New York. Subject to a number of exceptions, the indentures restrict 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 January 2006 Notes are unconditionally guaranteed, jointly and severally, by certain of DRS's existing and
future domestic subsidiaries. See Note 17, "Guarantor and Non-guarantor Financial Statements," for additional disclosures.

At
any time prior to February 1, 2009, the Company may, on any one or more occasions, redeem up to 35% of the aggregate principal amount of the 65/8% senior notes
and 75/8% senior subordinated notes with the net cash proceeds of one or more equity offerings at a redemption price of 106.625% and 107.625%, respectively, of the principal amount,
plus accrued and unpaid interest, if any, subject to certain restrictions.

At
any time prior to February 1, 2011, the Company may redeem the 65/8% senior notes and 75/8% senior subordinated notes for cash at the Company's
option, in whole or in part, at a redemption price equal to the greater of (1) 100% of the principal amount of the January 2006 Notes being redeemed and (2) the sum of (a) the
present values of 103.313% of the principal amount of the 65/8% senior notes and 103.813% of the principal amount of the 75/8% senior subordinated notes being redeemed
and (b) the scheduled payments of interest on the respective January 2006 Notes, discounted to the date of redemption, together with accrued and unpaid interest, if any.

On
or after February 1, 2011, DRS may redeem, at its option, all or a part of the January 2006 Notes at the redemption prices (expressed as percentages of principal amount) set
forth below plus accrued and unpaid interest, if any:

Year

65/8% Senior
Notes

75/8% Senior
Subordinated
Notes2011

103.313
%
103.813
%2012

102.209
%
102.542
%2013

101.105
%
101.271
%2014 and thereafter

100.000
%
100.000
%


In
certain instances of a change in control, the Company must offer to repurchase all or part of the January 2006 Notes at a redemption price equal to 101% of the principal amount.

Convertible NotesThe net proceeds of the offering of the Convertible Notes, including the over-allotment, were
$337.2 million after deducting $7.8 million in commissions and fees related to the offering. Certain of the Company's existing and future wholly-owned domestic subsidiaries fully and
unconditionally guarantee the Company's payment obligations under the Convertible Notes, jointly and severally, on a senior unsecured basis. The Convertible Notes will mature on February 1,
2026, unless earlier converted, redeemed or repurchased. The Convertible Notes pay interest semi-annually in arrears on February 1 and August 1, which commenced
August 1, 2006.

101

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Commencing
with the six-month period beginning on February 1, 2011, the Company will pay contingent interest to the holders of the Convertible Notes during any
six-month period from February 1 to July 31, and from August 1 to January 31, if the market price of a Convertible Note for each of the days in the five
trading-day period ending on the third trading day immediately preceding an interest payment date equals 120% or more of the principal amount of the Convertible Note. The amount of any
contingent interest payable will equal 0.50% per annum of the average market price of a convertible note for the five trading-day period. The contingent interest feature of the Convertible
Notes represents an embedded derivative instrument. The value of the contingent interest feature was zero at the date of the issuance of the Convertible Notes and at March 31, 2008 and 2007.
The amount recorded for the embedded derivative will be adjusted periodically through interest expense for material changes in the fair value of the contingent interest feature.

Upon
conversion of a Convertible Note, the Company will deliver cash in an amount equal to the lesser of (a) the principal amount of the notes surrendered for conversion and
(b) the conversion value (the applicable conversion rate multiplied by the average of the closing prices of DRS common stock for a defined 20-day period), and if the conversion
value is greater than the principal amount, an amount of DRS common stock equal to such excess. The initial conversion value is based on a conversion rate of 16.7504 shares per $1,000 principal amount
of Convertible Notes (representing a conversion price of $59.70 per share of DRS common stock), subject to adjustment under certain circumstances.

The
Company evaluated the accounting for the conversion feature in accordance with EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to
and Potentially Settled in, a Company's Own Stock," and related issues, at the date of issuance of the Convertible Notes and determined that the conversion feature should be classified as equity, and,
therefore, it does not need to be accounted for separately from the Convertible Notes. The Company updates its analysis of the accounting for the conversion feature as circumstances warrant. Effective
April 1, 2009, upon adoption of FSP APB 14-1, the Company will be required to bifurcate the conversion feature. Changes in the fair value of the conversion feature will be charged or credited
to interest expense in each period.

The
shares of DRS common stock that may be issued, if any, upon conversion of the Convertible Notes may be registered or unregistered shares. At the date of issuance, the underlying
shares of DRS common stock have been registered through an automatically effective registration statement filed with the Securities and Exchange Commission. The Company is obligated to use its
reasonable best efforts to maintain such registration for two years or pay "additional interest" ranging from 0.25% to 1.00% per annum on the principal of the Convertible Notes.

On
or prior to February 1, 2010, the Convertible Notes may be converted by the holder only under the following circumstances:



102

---



DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)



After
February 1, 2010, the Convertible Notes may be converted by the holder into cash and shares, if any, of DRS's common stock, only under the following circumstances:



The
Company may redeem the Convertible Notes, in whole or in part, for cash with proper notice at any time on or after February 1, 2009 and prior to February 4, 2011, if
the sale price of DRS's common stock has exceeded 130% of the conversion price for at least 20 trading days in any consecutive 30-day trading period ending on the trading day prior to
providing notice of redemption, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed plus any accrued and unpaid interest (including contingent interest
and additional interest, if any) up to but not including the redemption date and a "make-whole" premium. The make-whole premium is payable only in cash equal to the present
value of all remaining scheduled payments of interest on the Convertible Notes to be redeemed through February 2011.

The
Company may, at any time after February 4, 2011, redeem the Convertible Notes, in whole or in part, for cash at a redemption price equal to 100% of the principal amount of the
Convertible Notes to be redeemed plus any accrued and unpaid interest (including contingent interest and additional interest, if any) up to but not including the redemption date.

Holders
have the right to require the Company to purchase all or a portion of their Convertible Notes for cash on February 1, 2011, February 1, 2016 and February 1,
2021 at a purchase price equal to 100% of the principal amount of the Convertible Notes plus accrued and unpaid interest (including additional interest, if any) up to but not including the purchase
date.

67/8 Senior Subordinated NotesOn October 30, 2003, the Company issued $350.0 million aggregate
principal amount of 67/8% senior subordinated notes, due November 1, 2013 (the October 2003 Notes). Interest, which is payable
every six months on May 1 and November 1, commenced on May 1, 2004. The net proceeds from the offering of the October 2003 Notes were $341.2 million, after deducting
$8.8 million in commissions and fees related to the offering. The net proceeds of the October 2003 Notes, together with a portion of the

103

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Company's
available cash and initial borrowings under the then existing credit facility, were used to fund the Integrated Defense Technologies Inc., (IDT) acquisition, repay certain of DRS's
and IDT's outstanding indebtedness, and pay related fees and expenses. The October 2003 Notes were issued under an indenture with The Bank of New York. Subject to a number of exceptions, the indenture
restricts 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 October 2003 Notes are unconditionally guaranteed, jointly and
severally, by DRS's current and future wholly-owned domestic subsidiaries. The foreign subsidiaries and certain domestic subsidiaries of DRS do not guarantee the October 2003 Notes. See
Note 17, "Guarantor and Non-guarantor Financial Statements," for additional disclosures. The Company is subject to liquidating damages (ranging from 0.25% to 1.00% of the
outstanding principal) if the Company fails to maintain an effective registration statement for the 67/8% senior subordinated notes.

On
December 23, 2004, the Company issued an additional $200.0 million aggregate principal amount of 67/8% Senior Subordinated Notes, due November 2013
(December 2004 Notes). The December 2004 Notes were offered as additional debt securities under the Company's indenture with the Bank of New York with identical terms and the same guarantors as the
October 2003 Notes. The December 2004 Notes were priced at 105% of the principal amount, reflecting an effective interest rate of approximately 6.13%. The net proceeds of the offering were
approximately $208.3 million (including $2.0 million of advanced interest on the new notes that had accrued from November 1, 2004 to December 23, 2004), after deducting
$3.7 million in commissions and other costs related to the debt issuance.

On
or after November 1, 2008, DRS may redeem, at its option, all or part of the 67/8% senior subordinated notes at the redemption prices (expressed as percentages
of principal amount) set forth below, plus accrued and unpaid interest and liquidating damages.

Year

Percentage2008

103.438
%2009

102.292
%2010

101.146
%2011 and thereafter

100.000
%


OtherAt March 31, 2008, other obligations consisted of a mortgage on the Company's Palm Bay, Florida facility of
$2.4 million (Palm Bay Mortgage), $0.8 million for certain notes payable to the former owners of DRS Mobile Environmental Systems Co. (DRS MSC Note Payable) and $1.6 mllion
of debt at the Company's DRS Pivotal Power operating unit. At March 31, 2007, other obligations consisted of the Palm Bay Mortgage of $2.6 million, $0.8 million for the DRS MSC
Note Payable and $1.6 mllion of debt at our DRS Pivotal Power operating unit.

The
aggregate maturities at March 31, 2008 of long-term debt for fiscal 2009, 2010, 2011, 2012 and 2013 are $5.4 million, $5.4 million,
$5.3 million, $3.7 million and $108.9 million per year, respectively, and $1,498.0 million thereafter.

104

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

10. Supplemental Cash Flow Information

|                                                                                    |                    | Years Ended March 31, |      
|----------------------------------------------------------------------------------- | ------------------ | --------------------- | -----
|
|
|Supplemental disclosure of cash flow information:                                   |                    |                       |      
|                                                                                    | Cash paid for:     |                       |      
|                                                                                    | Interest           |                       | $    
|                                                                                    | Income taxes paid  |                       | $    
|                                                                                    | Income tax refunds |                       | $    
|Supplemental disclosure of significant non-cash investing and financing activities: |                    |                       |      
|Acquisition earn-outNight Vision Systems, Inc.                                     |                    | $                     | 332  
|Acquisition earn-outCodem Systems, Inc.                                            |                    | $                     | 2,638
|Acquisition earn-outWalkabout Computer Systems, Inc.                               |                    | $                     |     
|Acquisition earn-outNytech                                                         |                    | $                     |     
|Acquisition costs for business combinations                                         |                    | $                     |     
|Common stock issued in ESSI acquisition                                             |                    | $                     |     
|Contribution of fixed assets to joint venture                                       |                    | $                     | 429  
|Fixed assets vouchered but not paid                                                 |                    | $                     | 7,864

---

11. Income Taxes

Earnings before income taxes consist of the following:

Years Ended March 31,2008

2007
(Restated)

2006(in thousands)Earnings before income taxes:Domestic earnings

$
237,439

$
141,750

$
124,837Foreign earnings


12,085


8,570


8,651Total

$
249,524

$
150,320

$
133,488


Income
taxes consist of the following:

Years Ended March 31,2008

2007
(Restated)

2006(in thousands)Income tax expense (benefit):Current:Federal

$
58,445

$
40,565

$
24,897State


7,104


6,080


8,963Foreign


1,001


700


2,680$
66,550

$
47,345

$
36,540


105

---



DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Deferred:Federal

$
19,267

$
(3,689
)
$
13,067State


675


2,872


2,790Foreign


(2,737
)

220


(403
)17,205


(597
)

15,454Total

$
83,755

$
46,748

$
51,994


Deferred
income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured
by tax laws. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2008 and 2007 are as follows:

March 31,2008

2007
(Restated)(in thousands)Deferred tax assets:Acquired federal net operating loss carryforwards

$
5,913

$
6,623State net operating loss carryforwards


7,933


6,555Foreign net operating loss carryforwards


3,364


3,882Capital loss carryforwards





4,381Tax credit carryforwards


1,910


1,930Costs accrued on uncompleted contracts


30,626


35,670Inventory capitalization


15,224


13,925Allowance for doubtful accounts


1,198


823Deferred compensation


29,613


41,572Accrued liabilities


37,823


33,243Other


5,823


5,398Total gross deferred tax assets


139,427


154,002Less valuation allowance


(4,141
)

(15,813
)Deferred tax assets


135,286


138,189Deferred tax liabilities:Depreciation and amortization


19,387


16,542Long-term contract costs


5,304


10,049Goodwill


35,910


27,630Intangibles


34,309


35,468Federal impact of state benefits


2,776


2,111Contingent convertible debt


16,599


7,693Other


771


1,027Deferred tax liabilities


115,056


100,520Net deferred tax assets

$
20,230

$
37,669


106

---



DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

A
valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company has established a valuation allowance
for a portion of its federal, state and foreign deferred tax assets at March 31, 2008 and 2007, due to the uncertainty of future earnings of certain subsidiaries of the Company and the status
of applicable statutory regulations that could limit or preclude utilization of these benefits in future periods. During the fiscal year ended March 31, 2008, the valuation allowance decreased
as a result of the expiration of an unused capital loss carryforwards, as well as the recognition of an improved outlook for some of our operating units. During the fiscal year ended March 31,
2007, the valuation allowance was substantially unchanged due to offsetting changes primarily attributable to a reduction in state tax rates and a change in estimates related to our realizability of
deferred tax assets associated with state net operating loss carryforwards for ESSI. Based upon the level of historical taxable income and projections for future taxable income over the periods in
which the Company's deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing
valuation allowances, at March 31, 2008 and 2007.

As
of March 31, 2008, the Consolidated Balance Sheet includes current deferred tax assets of $58.1 million and non-current deferred tax assets and (liabilities)
of $4.2 million and $(42.1) million, respectively. As of March 31, 2007, the Consolidated Balance Sheet includes current deferred tax assets and (liabilities) of $82.7 and
$(0.1) million and non-current deferred tax assets and (liabilities) of $1.6 million and $(46.5) million, respectively.

The
loss carryforwards available at March 31, 2008 include $16.9 million of U.S. federal net operating loss carry forwards and a $111.4 million of state net
operating loss carryforwards, which expire between fiscal years 2009 and 2028, and $12.0 million of foreign losses, of which the majority will carryforward indefinitely. All of the Company's
remaining U.S. federal net operating loss carryforwards as of March 31, 2008 were acquired in connection with the NAI Technologies (in 1999) and WalkAbout acquisitions, and approximately
$16.9 million, $6.6 million and $10.4 million of its remaining state net operating loss carryforwards were acquired in connection with the IDT, WalkAbout and ESSI acquisitions,
respectively. Future utilization of these acquired net operating loss carryforwards may result in an adjustment to goodwill to the extent it reduces any related valuation allowance. The annual
utilization of the NAI and WalkAbout federal net operating losses carryforwards are subject to limitation under Section 382 of the Internal Revenue Code.

On
April 1, 2007 the Company adopted the provisions of FIN 48. As a result of the implementation of FIN 48, the Company recognized a $0.9 million decrease in
the existing liability for unrecognized tax benefits with an increase in accrued interest payable of $5.8 million, offset by an increase in deferred tax assets of $4.9 million.

As
of April 1, 2007, after the implementation of FIN 48, the Company's liability for unrecognized tax benefits was $42.5 million, excluding liabilities for interest.
If the Company were to recognize these benefits, the income tax provision would reflect a favorable impact of $5.3 million. In addition, at April 1, 2007, the liability for accrued
interest relating to unrecognized tax benefits totaled $5.8 million. As of March 31, 2008, the Company's Consolidated Balance Sheet reflects a liability for unrecognized tax benefits of
$29.2 million. The decrease between April 1, 2007 and March 31, 2008 was primarily due to the reduction in unrecognized tax benefits associated with the settlement of the ESSI
audit with the Internal Revenue Service (IRS) discussed below, partially offset by increases in unrecognized tax benefits

107

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

associated
with current year operations as well as additional liabilities for unrecognized tax benefits associated with our ongoing U.S., state and foreign audits.

A
Reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance as of April 1, 2007

$
42,462Additions related to prior year positions


2,369Reductions for tax positions of prior years


Additions related to current year positions


2,620Changes resulting from settlements with taxing authorities


(18,055
)Reductions due to expiration of statute of limitations


(242
)Balance as of March 31, 2008

$
29,154


It
is likely that the Company will conclude its fiscal 2002 through 2004 federal audit cycle, as well certain foreign and state audits, during the next twelve months which could
result in a decrease in its unrecognized tax benefits of between $6.0 and $12.0 million. Such examinations could result in challenges to tax positions taken and, accordingly, the Company may
record
adjustments to provisions based on the outcomes of such matters. After considering the amounts accrued as of March 31, 2008, the Company believes that the conclusion of the audits during the
next twelve months will not have a material adverse impact on its results of operations, financial position or cash flows. The Company further believes that it has made adequate provisions for all
significant income tax uncertainties.

As
of March 31, 2008, a summary of the tax years that remain subject to examination in the Company's major tax jurisdictions are:

United StatesFederal

March 31, 2002 and forwardUnited StatesStates

March 31, 2002 and forwardGermany

December 31, 2002 and forwardUnited Kingdom

December 31, 2003 and forwardCanada

December 31, 2001 and forwardCanadaProvinces

December 31, 2001 and forward


During
the second quarter of fiscal 2006, the Internal Revenue Service concluded its examination of the Company's federal tax returns for the years ended March 31, 1999 through
March 31, 2001. As a result of the outcome of the audit, the Company recorded a tax benefit of approximately $3.0 million in fiscal 2006. During the second quarter of fiscal 2008, the
IRS concluded its examination of ESSI for the periods ended October 31, 2004, October 31, 2005 and January 31, 2006 (see note 14).

The
Company is currently under examination by the Internal Revenue Service for the years ended March 31, 2002 through March 31, 2004 and received a revenue agents report
during the first quarter of 2009. The Company anticipates that this audit will be resolved during the first or second quarter of fiscal 2009.

The
U.S. enacted the American Jobs Creation Act of 2004 (the Jobs Act) in October 2004, which contains many provisions affecting corporate taxation. The Jobs Act contains a provision
that eliminates the benefits of the Extraterritorial income (ETI) exclusion for export sales subsequent to 2006 and phases in a new tax deduction for income from qualified domestic

108

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

production
activities over a transition period that began in 2005. In response to the Jobs Act, the FASB issued FASB Staff Position 109-1, "Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" (FSP 109-1). FSP No. 109-1
clarifies how to apply SFAS No. 109 to the new law's tax deduction for income attributable to "domestic production activities." The fully phased-in tax deduction is up to 9% of the
lesser of taxable income or "qualified production activities income," as defined by the Jobs Act. The FSP requires that the deduction be accounted for as a special deduction in the period earned, not
as a tax-rate reduction. As a result, the Company recognized a reduction in its fiscal years 2008, 2007 and 2006 provision for income taxes for the domestic production activities in the
quarterly periods in which the Company was eligible for the deduction.

The
Jobs Act also created a temporary incentive for U.S. multinational corporations to repatriate accumulated income earned outside of the United States as of December 31, 2002.
In accordance with the Jobs Act, the Company repatriated $14.0 million during the fourth quarter of fiscal 2006. The Company recorded an income tax charge of $1.4 million, net of the 85%
dividends-received deduction in 2006 related to the repatriation, approximately $0.7 million of which was paid in 2006 through withholding of tax, and $0.7 million was paid during the
first quarter of fiscal 2007. Consistent with FSP No. FAS 109-2 and APB No. 23, the Company has not provided for income taxes on its residual international unrepatriated
earnings because all such earnings are expected to be indefinitely reinvested.

We
classify interest on tax deficiencies as interest expense; we include penalties associated with income taxes in our provision for income taxes. For the year ended March 31,
2008, $0.5 million of interest expense was recognized in the statement of earnings.

A
reconciliation of the expected U.S. federal income tax rate to the actual (effective) income tax rate is as follows:

Years Ended March 31,2008

2007
(Restated)

2006Expected U.S. federal income tax expense

35.0
%
35.0
%
35.0
%Difference between U.S. and foreign tax rates

(1.0
)%
(0.6
)%

%State income tax rate, net of federal income tax benefit

2.7
%
3.6
%
4.8
%Nondeductible expenses

0.9
%
1.2
%
1.4
%Change in valuation allowance

(2.4
)%
0.2
%
0.9
%Settlement of IRS audit


%

%
(2.2
)%Extraterritorial income exclusion


%
(6.5
)%

%Other

(1.6
)%
(1.8
)%
(0.9
)%Total

33.6
%
31.1
%
39.0
%


109

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

12. Common Stock and Share-Based Compensation Plans

Common Stock

During fiscal years 2006, 2007 and 2008, the Board of Directors declared the following quarterly cash dividends:

|Record Date        |  | Cash Dividends Per Share |      | Date Paid
|------------------ |  | ------------------------ | ---- | ---------
|June 15, 2005      |  | $                        | 0.03 |          
|September 15, 2005 |  | $                        | 0.03 |          
|December 15, 2005  |  | $                        | 0.03 |          
|March 15, 2006     |  | $                        | 0.03 |          
|June 15, 2006      |  | $                        | 0.03 |          
|September 15, 2006 |  | $                        | 0.03 |          
|December 15, 2006  |  | $                        | 0.03 |          
|March 15, 2007     |  | $                        | 0.03 |          
|June 15, 2007      |  | $                        | 0.03 |          
|September 14, 2007 |  | $                        | 0.03 |          
|December 14, 2007  |  | $                        | 0.03 |          
|March 14, 2008     |  | $                        | 0.03 |          

On
May 14, 2008, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.03 per share on the Company's common stock. The
dividend is payable on June 30, 2008 to stockholders of record as of the close of business on June 13, 2008.

On
January 30, 2006, 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 50,000,000 shares to 100,000,000 shares.

On
January 31, 2006, the Company issued 11,727,566 shares of DRS common stock in connection with the Company's acquisition of ESSI (see Note 3).

As
of March 31, 2008 and 2007, the authorized capital of the Company also included 2.0 million shares of preferred stock with a par value of $10 per share (no shares
issued). The terms of the preferred stock were not set at March 31, 2008.

Stock Compensation PlansWith the adoption of SFAS 123R on April 1, 2006 (see Note 1.Q.), unamortized
stock compensation relating to previous grants of non-vested stock of $7.2 million was netted against additional paid-in capital, and forfeitures of
non-vested stock are estimated at the date of grant and adjusted as circumstances warrant. Additionally, prior to the adoption of SFAS 123R, the Company presented all tax benefits
resulting from the exercise of stock options as operating cash flows in the Consolidated Statements of Cash Flows. SFAS 123R requires excess tax benefits (i.e., the tax benefit
recognized upon exercise of stock options in excess of the benefit recognized as compensation cost for those options) to be classified as financing cash flows in the Consolidated Statements of Cash
Flows. Pursuant to SFAS 123R, tax benefits resulting from the exercise of stock options, which have been presented as operating cash flows prior to the adoption of SFAS 123R, are not
reclassified to financing activities, but rather continue to be presented as operating cash flows.

110

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Compensation expense for all stock-based awards granted after April 1, 2006 and for all restricted stock and restricted stock unit awards granted before
April 1, 2006 is recognized on a straight-line basis over the requisite service period for the entire award based upon the grant date fair value. Compensation expense for all stock
option awards granted prior to, but not vested as of April 1, 2006, is recognized on a straight-line basis over the requisite service period for each remaining vesting portion of
the award.

The
adoption of SFAS 123R resulted in a non-cash credit to Other expense, net, for the cumulative effect of a change in accounting principle of $0.2 million
related to the recognition of estimated forfeitures on non-vested stock, which was recorded during the first quarter of fiscal 2007. The cumulative effect credit is immaterial for purposes
of separate presentation on the Consolidated Statement of Earnings.

For
fiscal years ended March 31, 2008, 2007 and 2006, the Company recorded total share-based costs related to stock options and non-vested stock of
$14.0 million, $11.1 million and $2.9 million, respectively. Such amounts were recognized in the consolidated financial statements as follows:

|                                                                                 |  | Years Ended March 31, |       
|-------------------------------------------------------------------------------- |  | --------------------- | ------
|
|
|Total cost of share-based payment plans                                          |  | $                     | 14,041
|Amounts capitalized in inventory                                                 |  |                       | (8,525
|Amounts charged against earnings for amounts previously capitalized in inventory |  |                       | 6,978 
|                                                                                 |  |                       |       
|Amounts charged against earnings before income tax benefit                       |  | $                     | 12,494
|                                                                                 |  |                       |       

The
table below compares the "as reported" net earnings and earnings per share amounts to the pro forma amounts 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 No.123 for fiscal year 2006. For purposes of determining the pro forma effects of SFAS No. 123, the
estimated fair value of options granted was calculated using the Black-Scholes option pricing valuation model. For purposes of the pro forma table below, forfeitures were accounted for as they
occurred, and no amount of stock option expense was capitalized into inventory or other assets, but instead was considered a period expense.

|                                                                                                                   |                     | Year Ended
March 31,
2006 |       
|------------------------------------------------------------------------------------------------------------------ | ------------------- | ------------------------- | ------
|Net earnings, as reported                                                                                          |                     | $                         | 81,494
|Add: Stock-based compensation expense included in reported net earnings, net of taxes                              |                     |                           | 1,744 
|Less: Total stock-based compensation expense determined under fair-value-based method for all awards, net of taxes |                     |                           | (9,466
|                                                                                                                   |                     |                           |       
|Pro forma net earnings                                                                                             |                     | $                         | 73,772
|                                                                                                                   |                     |                           |       
|Earnings per share:                                                                                                |                     |                           |       
|                                                                                                                   | Basicas reported   |                           | $     
|                                                                                                                   |                     |                           |       
|                                                                                                                   | Basicpro forma     |                           | $     
|                                                                                                                   |                     |                           |       
|                                                                                                                   | Dilutedas reported |                           | $     
|                                                                                                                   |                     |                           |       
|                                                                                                                   | Dilutedpro forma   |                           | $     
|                                                                                                                   |                     |                           |       

111

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Share-based Compensation PlansOn August 7, 1996, the stockholders approved the 1996 Omnibus Plan
(1996 Plan). Under the terms of the Omnibus Plan, which expired on June 16, 2006, options could be granted to key employees, directors and consultants of the Company. The number of shares of
DRS common stock authorized for issuance under the 1996 Plan initially was 500,000, which ultimately was increased, with stockholder approval, to 5,875,000 shares of DRS common stock. Awards
under the 1996 Plan were at the discretion of the Compensation Committee of the Board of Directors (the Compensation Committee) and could be made in the form of incentive stock options, nonqualified
stock options, stock appreciation rights, non-vested stock and non-vested stock units, phantom stock, stock bonuses and other awards. The Company historically has utilized
newly issued shares of DRS common stock to satisfy its equity-based compensation awards.

On
August 3, 2006, the stockholders approved the 2006 Omnibus Plan (2006 Plan), which has similar terms to that of the 1996 Plan. The 2006 Plan provides for the issuance of up to
4,000,000 shares of DRS common stock for awards, provided that each share issued under the
2006 Plan pursuant to a Full Value Award (Restricted Stock and Restricted Stock Units) shall reduce the share limit by 2 shares for every share actually issued.

Stock OptionsUnless the Compensation Committee expressly provides otherwise, options granted under
both the 1996 Plan and the 2006 Plan have a contractual term of ten years and generally are not exercisable prior to one year after the date of grant, with 25% of the options granted exercisable on
each of the first four anniversaries of the date of grant. On July 6, 2005, the Company granted 209,500 stock options that fully vested on March 31, 2006. In accordance with the
July 6, 2005 stock option grant, recipients are required to hold any shares acquired upon exercise of the options prior to March 31, 2008 (net of any shares sold or withheld to pay the
exercise price and any applicable statutory minimum federal, state and local tax requirements) for a period of one year following the date of exercise. The Compensation Committee's decision to modify
the Company's traditional vesting terms for the July 6, 2005 stock option grant was made pursuant to an evaluation of the Company's overall incentive compensation strategy. As a part of the
evaluation, the Compensation Committee considered the amount of compensation expense that would otherwise have been recognized in the Company's results of operations in future periods under
SFAS 123R. The July 6, 2005 stock option grant had a $4.8 million impact on the Company's fiscal 2006 pro forma pre-tax compensation expense.

During
fiscal 1999, the Compensation Committee issued options to purchase 250,000 shares of DRS common stock with vesting terms similar to awards issued under the 1996 Plan at
exercise prices in excess of the market price on the date of grant. During the fiscal years ended March 31, 2008 and 2007, 180,000 and 70,000 of these options were exercised, respectively.

The
stock options exercised during fiscal 2000 included 50,000 shares that are being held by the Company in "book entry" form. Book entry shares are not considered issued or
outstanding and are excluded from the tables below. However, these shares are included in the Company's diluted earnings per share calculations for the fiscal years ended March 31, 2008, 2007
and 2006.

112

---



DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

The
following table summarizes information regarding the Company's stock option activity and amounts as of and for the fiscal years ended March 31, 2008, 2007 and 2006.

|                                           |           | 2008      |          | 2007 |       | 2006 
|------------------------------------------ | --------- | --------- | -------- | ---- | ----- | -----
|
|Outstanding at April 1                     |           | 2,394,314 |          | $    | 32.04 |      
|                                           | Granted   |           | 249,469  |      | $     | 53.67
|                                           | Exercised |           | (466,742 | )    | $     | 22.73
|                                           | Cancelled |           | (24,623  | )    | $     | 33.97
|                                           |           |           |          |      |       |      
|Outstanding at March 31                    |           | 2,152,418 |          | $    | 36.54 |      
|                                           |           |           |          |      |       |      
|Vested and expected to vest at March 31(1) |           | 2,140,126 |          | $    | 36.47 |      
|                                           |           |           |          |      |       |      
|Exercisable at March 31                    |           | 1,643,028 |          | $    | 32.81 |      
|                                           |           |           |          |      |       |      

---

The aggregate intrinsic values, disclosed in the table above, represent the difference between DRS's closing stock price on the last trading day
of the fourth quarter (March 31, 2008) and the exercise price, multiplied by the number of in-the-money stock options for each category.

The
total intrinsic values of stock options exercised, based on the difference between DRS's stock price at the time of exercise and the related exercise price during the fiscal years
ended March 31, 2008, 2007 and 2006 was $15.2 million, $16.1 million and $15.4 million, respectively. Total compensation cost related to stock options was
$5.5 million and $6.3 million for the fiscal years ended March 31, 2008 and 2007, respectively. At March 31, 2008, unrecognized compensation costs related to stock options
was $7.3 million ($4.7 million after income taxes), which is expected to be recognized over a weighted average remaining period of 1.3 years.

113

---



DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Information
regarding all options outstanding at March 31, 2008 follows:

|                |  | Options Outstanding |  | Options Exercisable
|--------------- |  | ------------------- |  | -------------------
|
|$7.00$27.00    |  | 340,581             |  | $                  
|$27.01$32.00   |  | 259,780             |  | $                  
|$32.01$33.00   |  | 275,300             |  | $                  
|$33.01$37.00   |  | 218,864             |  | $                  
|$37.01$44.00   |  | 410,800             |  | $                  
|$44.01$51.00   |  | 402,624             |  | $                  
|$51.01 and over |  | 244,469             |  | $                  
|                |  |                     |  |                    
|Total           |  | 2,152,418           |  |                    
|                |  |                     |  |                    

Cash
received from stock option exercises for the years ended March 31, 2008, 2007 and 2006 was $10.6 million, $12.9 million and $12.5 million, respectively.
The actual tax benefit realized for the tax deductions from stock option exercises totaled $6.0 million, $5.6 million and $5.5 million for the years ended March 31, 2008,
2007 and 2006, respectively.

Stock Option Fair Value Estimation AssumptionsThe Company estimates the fair value of its stock options at the date of grant
using the Black-Scholes option-pricing valuation model. The Company's valuation model is impacted by DRS's stock price, as well as weighted average assumptions for a number of subjective variables
described below.



114

---



DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)



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

|                                               |  | Years Ended March 31, |      
|---------------------------------------------- |  | --------------------- | -----
|
|Expected holding period (in years)             |  |                       | 5.50 
|Expected volatility                            |  |                       | 33.61
|Expected dividend yield                        |  |                       | 0.22 
|Risk-free interest rate                        |  |                       | 4.93 
|Weighted-average fair value of options granted |  | $                     | 20.99

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

Compensation
cost for non-vested stock for the fiscal years ended March 31, 2008, 2007 and 2006 was $8.5 million, $4.8 million and $2.9 million,
respectively. As of March 31, 2008, total unrecognized compensation costs related to non-vested stock awards was $16.5 million, and that amount is expected to be recognized
over a weighted average remaining period of 1.9 years.

The
following table details the activity in non-vested stock awards for the fiscal year ended March 31, 2008.

|                                    |                     | Year Ended March 31, 2008
|----------------------------------- | ------------------- | -------------------------
|
|NonvestedBalance at March 31, 2007 |                     | 362,396                  
|                                    | Granted             |                          
|                                    | Vested              |                          
|                                    | Forfeited/cancelled |                          
|                                    |                     |                          
|NonvestedBalance at March 31, 2008 |                     | 602,875                  
|                                    |                     |                          

13. Pensions and Other Employee Benefits

The Company maintains multiple pension plans, both contributory and non-contributory, covering employees at certain locations. Eligibility for
participation in the plans vary, and benefits generally are based on the participant's compensation and years of service, as defined in the respective plan. The Company's funding policy generally is
to contribute in accordance with cost accounting standards that affect government contractors, subject to the Internal Revenue Code and regulations thereunder. Plan assets are invested primarily in
U.S. government and U.S. government-sponsored entity instruments, stocks, bonds and real estate.

115

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

13. Pensions and Other Employee Benefits (Continued)

The
Company also provides postretirement medical benefits for certain retired employees and dependents at certain locations. Participants are eligible for these benefits when they retire
from active service and meet the eligibility requirements for the Company's pension plans. The Company's contractual arrangements with the U.S. government provide for the recovery of contributions to
a Voluntary Employees' Beneficiary Association (VEBA) trust and, for non-funded plans, recovery of claims on a pay-as-you-go basis, subject to the
Internal Revenue Code and regulations thereunder, with the retiree generally paying a portion of the costs through contributions, deductibles and coinsurance provisions.

The
Company also maintains certain non-contributory and unfunded supplemental retirement plans. Eligibility for participation in the supplemental retirement plans is limited
and benefits generally are based on the participant's compensation and/or years of service.

In
September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87,
88, 106 and 132R" (SFAS 158), which requires the recognition of the overfunded or underfunded status of defined benefit pension and other postretirement benefit plans as an asset or liability
on the Company's Consolidated Balance Sheet. SFAS 158 requires recognition of the actuarial gains or losses and prior service costs or credits that have not yet been included in net periodic
benefit cost as a component of accumulated other comprehensive earnings, net of tax. The Company adopted the recognition and disclosure provisions of SFAS 158, effective at the end of its
fiscal year ended March 31, 2007. The additional minimum pension liability and related intangible assets have been derecognized upon the adoption of SFAS 158. The requirement to measure
plan assets and benefit obligations as of the date of the employer's fiscal year-end balance sheet is effective for DRS in the fiscal year beginning April 1, 2008.

On
June 29, 2007, the Company approved and adopted an amendment to one of its defined benefit pension plans to cease the accrual of future benefits effective September 30,
2007. All retirement benefits earned by employees enrolled in the plan as of September 30, 2007 are fully preserved. Such employees' ongoing service with the Company will continue to be
credited for vesting purposes. The amendment of the defined benefit pension plan was accounted for as a plan curtailment, and, as a result, the Company recorded a gain of $11.7 million during
the second quarter of fiscal 2008. In addition, approximately 8% of the partcipants of one of the Company's postretirement plans were terminated during fiscal 2008, which resulted in a
$0.4 million curtailment gain during the year.

The
following tables provide certain information regarding the Company's pension, postretirement and supplemental retirement plans. The Company utilizes a December 31

116

---



DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

13. Pensions and Other Employee Benefits (Continued)

measurement
date to calculate its end of year (March 31) benefit obligations, fair value of plan assets and annual net periodic benefit cost:

|                                                    |                                                               | Funded Defined
Benefit Pension Plans |       | Postretirement
Benefit Plans |   | Supplemental
Retirement Plans |        
|--------------------------------------------------- | ------------------------------------------------------------- | ------------------------------------ | ----- | ---------------------------- | - | ----------------------------- | -------
|
|
|Change in benefit obligation:                       |                                                               |                                      |       |                              |   |                               |        
|                                                    | Benefit obligation at beginning of year                       |                                      | $     | 254,005                      |   | $                             | 119,123
|                                                    | Addition of ESSI plans acquired after measurement date        |                                      |       |                             |   |                               | 131,794
|                                                    | Service cost                                                  |                                      |       | 6,591                        |   |                               | 7,353  
|                                                    | Interest cost                                                 |                                      |       | 14,415                       |   |                               | 12,983 
|                                                    | Plan participants' contributions                              |                                      |       | 130                          |   |                               | 127    
|                                                    | Actuarial gain                                                |                                      |       | (9,437                       | ) |                               | (10,254
|                                                    | Benefits paid                                                 |                                      |       | (11,376                      | ) |                               | (8,999 
|                                                    | Change in plan provisions                                     |                                      |       |                             |   |                               | 119    
|                                                    | Curtailment                                                   |                                      |       | (11,719                      | ) |                               |       
|                                                    | Exchange rate differences and other                           |                                      |       | 958                          |   |                               | 1,759  
|                                                    |                                                               |                                      |       |                              |   |                               |        
|                                                    | Benefit obligation at end of year                             |                                      |       | 243,567                      |   |                               | 254,005
|                                                    |                                                               |                                      |       |                              |   |                               |        
|Change in plan assets:                              |                                                               |                                      |       |                              |   |                               |        
|                                                    | Fair value of plan assets at beginning of year                |                                      |       | 197,857                      |   |                               | 91,658 
|                                                    | Fair value of plan assets assumed through acquisition of ESSI |                                      |       |                             |   |                               | 89,125 
|                                                    | Actual return on plan assets                                  |                                      |       | 17,439                       |   |                               | 18,297 
|                                                    | Plan participants' contributions                              |                                      |       | 130                          |   |                               | 127    
|                                                    | Employer contributions                                        |                                      |       | 15,170                       |   |                               | 6,617  
|                                                    | Benefits paid                                                 |                                      |       | (11,376                      | ) |                               | (8,999 
|                                                    | Exchange rate differences and other                           |                                      |       | 776                          |   |                               | 1,032  
|                                                    |                                                               |                                      |       |                              |   |                               |        
|                                                    | Fair value of plan assets at end of year                      |                                      |       | 219,996                      |   |                               | 197,857
|                                                    |                                                               |                                      |       |                              |   |                               |        
|Contributions between measurement date and year end |                                                               |                                      | 4,734 |                              |   | 3,033                         |        
|                                                    |                                                               |                                      |       |                              |   |                               |        
|                                                    | Funded status of the plans at year end                        |                                      | $     | (18,837                      | ) | $                             | (53,115
|                                                    |                                                               |                                      |       |                              |   |                               |        

117

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

The amounts recognized in the Consolidated Balance Sheet, as of March 31, 2008 and 2007 consist of:

|                                              |  | Funded Defined
Benefit Pension Plans |         | Postretirement
Benefit Plans |   | Unfunded
Supplemental
Retirement Plans |  
|--------------------------------------------- |  | ------------------------------------ | ------- | ---------------------------- | - | -------------------------------------- | -
|
|
|Non-current assets(1)                         |  | $                                    | 760     |                              | $ | 65                                     |  
|Current liabilities(1)                        |  |                                      |        |                              |   |                                       |  
|Non-current liabilities(1)                    |  |                                      | (19,597 | )                            |   | (53,180                                | )
|Accumulated other comprehensive (loss) income |  |                                      | (3,710  | )                            |   | 7,007                                  |  
|                                              |  |                                      |         |                              |   |                                        |  
|Net amount recognized                         |  | $                                    | (22,547 | )                            | $ | (46,108                                | )
|                                              |  |                                      |         |                              |   |                                        |  

---

Amounts
recognized in accumulated other comprehensive earnings (before taxes) at March 31, 2008 and 2007 consist of:

|                      |                                                   | Funded Defined
Benefit Pension Plans |        | Postretirement
Benefit Plans |   | Unfunded
Supplemental
Retirement Plans
|--------------------- | ------------------------------------------------- | ------------------------------------ | ------ | ---------------------------- | - | --------------------------------------
|
|
|Prior service cost    |                                                   | $                                    | 173    |                              | $ | 186                                   
|Net loss              |                                                   |                                      | (3,883 | )                            |   | 6,821                                 
|Transition obligation |                                                   |                                      |       |                              |   |                                      
|                      |                                                   |                                      |        |                              |   |                                       
|                      | Accumulated other comprehensive (losses) earnings |                                      | $      | (3,710                       | ) | $                                     
|                      |                                                   |                                      |        |                              |   |                                       

The
aggregate accumulated benefit obligation (ABO) for the Company's pension plans combined was $250.7 million and $247.9 million at March 31, 2008 and 2007,
respectively. The table below presents information for the pension plans with an ABO in excess of the fair value of plan assets at March 31, 2008 and 2007:

2008

2007(in thousands)Projected benefit obligation

$
183,336

$
196,256Accumulated benefit obligation

$
178,185

$
178,890Fair value of plan assets

$
140,393

$
125,227


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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

The
following weighted average actuarial assumptions were used to determine the benefit obligation and funded status of the plans:

|                 |                                        | Funded Defined
Benefit Pension Plans |      | Postretirement
Benefit Plans |      | Unfunded
Supplemental
Retirement Plans |     
|---------------- | -------------------------------------- | ------------------------------------ | ---- | ---------------------------- | ---- | -------------------------------------- | ----
|
|Rate assumptions |                                        |                                      |      |                              |      |                                        |     
|                 | Discount rate                          |                                      | 6.25 | %                            | 5.85 | %                                      | 6.10
|                 | Increase in future compensation levels |                                      | 3.90 | %                            | 3.85 | %                                      |    

The
following table summarizes the components of net periodic benefit cost for the Company's pension, postretirement and supplemental retirement plans.

|                                         |                                                    | Funded Defined
Benefit Pension Plans |   | Postretirement
Benefit Plans |   | Unfunded
Supplemental
Retirement Plans
|---------------------------------------- | -------------------------------------------------- | ------------------------------------ | - | ---------------------------- | - | --------------------------------------
|
|
|Components of net periodic benefit cost: |                                                    |                                      |   |                              |   |                                       
|                                         | Service cost                                       |                                      | $ | 6,591                        |   | $                                     
|                                         | Interest cost                                      |                                      |   | 14,415                       |   |                                       
|                                         | Expected return on plan assets                     |                                      |   | (16,334                      | ) |                                       
|                                         | Amortization of unrecognized actuarial loss (gain) |                                      |   | 321                          |   |                                       
|                                         | Transition obligation                              |                                      |   |                             |   |                                       
|                                         | Amortization of unrecognized prior-service cost    |                                      |   | 13                           |   |                                       
|                                         | Curtailment gain                                   |                                      |   | (11,719                      | ) |                                       
|                                         |                                                    |                                      |   |                              |   |                                       
|                                         | Net periodic (income) expense                      |                                      | $ | (6,713                       | ) | $                                     
|                                         |                                                    |                                      |   |                              |   |                                       

The following table summarizes the other changes in plan assets and benefit obligations recognized in other comprehensive earnings for the
Company's pension, postretirement and supplemental retirement benefit plans for the year ended March 31, 2008:

|                                                                                      |                                                  | Funded Defined
Benefit Pension Plans |         | Postretirement
Benefit Plans |   | Unfunded
Supplemental
Retirement Plans |       
|------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------ | ------- | ---------------------------- | - | -------------------------------------- | ------
|
|Prior service credit for the period                                                   |                                                  | $                                    | (10,538 | )                            | $ | (2,925                                 | )     
|Transition obligation                                                                 |                                                  |                                      | (320    | )                            |   | 153                                    |       
|Amortization of net (loss) gain                                                       |                                                  |                                      | 141     |                              |   | 140                                    |       
|Amortization of prior service cost                                                    |                                                  |                                      |        |                              |   | (127                                   | )     
|                                                                                      |                                                  |                                      |         |                              |   |                                        |       
|                                                                                      | Total recognized in other comprehensive earnings |                                      | $       | (10,717                      | ) | $                                      | (2,759
|                                                                                      |                                                  |                                      |         |                              |   |                                        |       
|Total recognized in net periodic benefit cost and other comprehensive (loss) earnings |                                                  | $                                    | (17,584 | )                            | $ | (1,715                                 | )     
|                                                                                      |                                                  |                                      |         |                              |   |                                        |       

119

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

The
following table summarizes the amounts expected to be amortized from accumulated other comprehensive earnings and recognized as components of net periodic benefit
costs during fiscal 2009:

|                             |  | Funded Defined
Benefit Pension Plans |      | Postretirement
Benefit Plans |   | Unfunded
Supplemental
Retirement Plans
|---------------------------- |  | ------------------------------------ | ---- | ---------------------------- | - | --------------------------------------
|
|Prior service cost           |  | $                                    | 13   |                              | $ | (24                                   
|Net actuarial (losses)/gains |  |                                      | (177 | )                            |   | (202                                  
|Transition obligation        |  |                                      |     |                              |   | 127                                   
|                             |  |                                      |      |                              |   |                                       
|                             |  | $                                    | (164 | )                            | $ | (99                                   
|                             |  |                                      |      |                              |   |                                       

The
following weighted average actuarial assumptions were used to determine the net periodic cost of the plans:

|                 |                                          | Funded Defined
Benefit Pension Plans |      | Postretirement
Benefit Plans |      | Unfunded
Supplemental
Retirement Plans |     
|---------------- | ---------------------------------------- | ------------------------------------ | ---- | ---------------------------- | ---- | -------------------------------------- | ----
|
|Rate assumptions |                                          |                                      |      |                              |      |                                        |     
|                 | Discount rate                            |                                      | 5.90 | %                            | 5.50 | %                                      | 5.65
|                 | Expected long-term return on plan assets |                                      | 8.10 | %                            | 8.15 | %                                      | 8.05
|                 | Increase in future compensation levels   |                                      | 3.90 | %                            | 3.80 | %                                      | 3.85

The
expected long-term return on plan assets assumption represents the average rate that the Company expects to earn over the long-term on the assets of the
Company's benefit plans, including those from dividends, interest income and capital appreciation. The assumption has been determined, based on expectations regarding future rates of return for the
plans' investment portfolio with consideration given to the allocation of investments by asset class and historical rates of return for each individual asset class.

The
annual increase in cost of benefits (health care cost trend rate) is assumed to be an average of 9.5% in fiscal 2009 and is assumed to gradually decrease to a rate of 4.8% in fiscal
2013 and thereafter. Assumed healthcare cost trend rates have an effect on amounts reported for postretirement medical benefit plans. A one percentage point decrease in the assumed healthcare cost
trend rates would have the effect of decreasing the annual aggregate service
and interest cost by $14 thousand and the postretirement medical obligations by $199 thousand. A one percentage point increase in the assumed healthcare cost trend rate would have the
effect of increasing the annual aggregate service and interest cost by $17 thousand and the postretirement medical obligations by $232 thousand.

Plan Assets

The Company has the responsibility to formulate the investment policies and strategies for each plan's assets. The overall domestic plans' policies and
strategies, which differ from plan to plan, include: maintaining the highest possible return commensurate with the level of assumed

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

risk,
preserving the benefit security for the plan's participants and maintaining an appropriately funded status (inclusive of fees).

The
Company does not involve itself with the day-to-day operations and selection of individual securities and investments, and, accordingly, has retained the
professional services of investment management organizations to fulfill those tasks. The investment management organizations have investment discretion over the assets placed under their management.
The Company provides each investment manager with specific investment guidelines relevant to its asset class. The table below represents all of the Company's funded pension plans' and postretirement
benefit plans' weighted-average asset allocation at March 31, 2008 and 2007 by asset category:

|                                                                     |  | Asset Allocation |  
|-------------------------------------------------------------------- |  | ---------------- | -
|
|Equity securities                                                    |  | 68               | %
|Debt securities                                                      |  | 23               | %
|Other, primarily cash, cash equivalents, real estate and hedge funds |  | 9                | %
|                                                                     |  |                  |  
|Total                                                                |  | 100              | %
|                                                                     |  |                  |  

The
table below presents the target allocation ranges for each major asset category for the Company's benefit plans for fiscal 2009.

|Asset Category                                          |  | Target Asset
Allocation Range |  
|------------------------------------------------------- |  | ----------------------------- | -
|Equity securities                                       |  | 39%73                        | %
|Debt securities                                         |  | 15%60                        | %
|Real estate                                             |  | 0%14                         | %
|Other, primarily cash, cash equivalents and hedge funds |  | 0%17                         | %

For
fiscal 2009, the Company expects to contribute $17.0 million and $1.7 million to its pension plans and postretirement plans, respectively.

The
following table presents expected pension and postretirement benefit payments:

Pension
Benefits

Postretirement
Payments

Supplemental
Retirement
Plan Payments(in thousands)2009

$
12,482

$
1,739

$
9612010

$
12,932

$
1,796

$
1,0222011

$
13,432

$
1,841

$
1,0042012

$
14,137

$
1,936

$
1,0672013

$
14,699

$
2,014

$
1,524Years 20142018

$
83,113

$
10,850

$
8,846


Defined Contribution PlansThe Company maintains defined contribution plans covering substantially all
domestic full-time eligible employees. The Company's contributions to these plans for fiscal 2008, 2007 and 2006 amounted to $21.9 million, $22.1 million and
$16.8 million, respectively.

121

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

14. Commitments and Contingencies

At
March 31, 2008, the Company was party to various noncancellable operating leases that expire at various dates through 2021 (principally for administration, engineering and
production facilities) with minimum rental payments as follows:

(in thousands)2009

$
33,7552010


27,3392011


19,5842012


14,9362013


9,393Thereafter


17,844Total

$
122,851


It
is not certain as to whether the Company will negotiate new leases as existing leases expire. Determinations will be made as existing leases approach expiration and will be based on
an assessment of the Company's capacity requirements at that time.

Rent
expense was $32.4 million, $31.5 million and $25.9 million in fiscal 2008, 2007 and 2006, respectively.

As
of March 31, 2008, $32.8 million was contingently payable under letters of credit and bank guarantees (see Note 9).

In
connection with various purchase business combinations, the Company may pay up to an aggregate of $2.9 million in contingent purchase price earn-outs in fiscal
2009, and none thereafter. Earn-outs are recorded as additional goodwill when the contingencies for such payments have been met.

The
Company is subject to purchase obligations for goods and services. The purchase obligations include amounts under legally enforceable agreements for goods and services with defined
terms as to quantity, price and timing of delivery and excludes purchase orders for products and services under firm government contracts for which the Company has full recourse under normal contract
termination clauses. As of March 31, 2008, the Company had
purchase obligations of $76.0 million and expects to satisfy $58.0 million in fiscal 2009, $10.6 million in fiscal 2010, $5.5 million in fiscal 2011, $1.3 million in
fiscal 2012 and $0.6 million in fiscal 2013.

Various
legal actions, claims, assessments and other contingencies, including certain matters described below, are pending against the Company and certain of the Company's subsidiaries.
These matters are subject to many uncertainties, and it is possible that some of these matters ultimately could be decided, resolved or settled adversely. The Company has recorded accruals totaling
$3.0 million at March 31, 2008 and 2007, for losses related to those matters it considers to be probable and that can be reasonably estimated (certain legal and environmental matters are
discussed in detail below). Although at March 31, 2008, the precise amount of liability that may result from those matters for which the Company has recorded accruals is not ascertainable, the
Company believes that any amounts exceeding the Company's recorded accruals should not materially affect the Company's financial condition or liquidity. It is possible, however, that the ultimate
resolution of those matters could result in a material

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

adverse
effect on the Company's results of operations and/or cash flows from operating activities for a particular reporting period.

Some
environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (also known as CERCLA or the Superfund law) and similar state statutes,
can impose liability upon former owners or operators for the entire cost of investigating and remediating contaminated sites regardless of the lawfulness of the original activities that led to the
contamination. In July 2000, prior to its acquisition by Integrated Defense Technologies, Tech-Sym Corporation, an indirect subsidiary of the Company, 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. The Orphan Mine, which was
operated by an alleged predecessor to Tech Sym between 1956 and 1967, is the subject of an NPS investigation regarding the presence of residual radioactive materials and contamination. Following
Tech-Sym's response to the Request for Information, the NPS directed Tech Sym and another alleged former owner/operator to perform an Engineering Evaluation and Cost Analysis (EE/CA) of
the site. Tech Sym made a good faith offer to conduct the EE/CA, but the NPS rejected this offer and may perform the EE/CA itself, or negotiate directly with another potentially responsible party for
the performance of the EE/CA. Following completion of the EE/CA, the NPS may direct one or more of the potentially responsible parties to perform any remediation that may be required by CERCLA. The
Company believes that it has legitimate defenses to Tech-Sym's potential liability and that there are other potentially responsible parties for the environmental conditions at the site,
including the U.S. government as owner, operator and arranger at the site. The potential liability associated with this matter can change substantially, due to such factors as additional information
on the nature or extent of contamination, methods of remediation that might be recommended or required, changes in the apportionment of costs among the responsible parties and other actions by
governmental agencies or private parties.

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

In
December 2004, ESSI was notified by the Enforcement Division of the SEC of the issuance of a formal order directing a private investigation and was notified that the SEC had issued
subpoenas to various individuals associated with ESSI to produce certain documents. The SEC staff also requested that ESSI produce certain documents in connection with the investigation. The subpoenas
related to trading in ESSI stock around ESSI's earnings releases in 2003 and to the adequacy of certain disclosures made by ESSI regarding related-party transactions in 2002 and 2003 involving
insurance policies placed by ESSI through an insurance brokerage firm in which an ESSI director was a principal at the time of the transactions. In February 2007, the SEC filed a civil injunctive
action in the United States District Court for the Eastern District of Missouri, Eastern Division, against a former director, officer and consultant of ESSI, alleging that he had violated the federal
securities laws by "tipping" his financial advisor and close friend by sharing material, nonpublic information regarding ESSI's financial condition shortly before certain 2003 earnings announcements.
That action is scheduled for trial on December 15, 2008.

On
or about September 23, 2005, the SEC staff advised ESSI's counsel that it had issued a subpoena directed to ESSI and expanded its investigation to include ESSI's disclosure of
a November 2004 stop work order relating to ESSI's Deployable Power Generation and

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Distribution
Systems (DPGDS) program for the U.S. Air Force and relating to trading in ESSI stock by certain individuals associated with ESSI. In connection with the foregoing SEC investigation, ESSI
and certain of its directors and officers have provided information and/or testimony to the SEC. ESSI has received no additional subpoenas or requests for information from the SEC on these subject
matters since May 2006.

In
January 2006, ESSI was informed that the Office of the U.S. Attorney for the Eastern District of Missouri was initiating an investigation into ESSI's disclosure of the DPGDS
stop-work order and into trading in ESSI stock by ESSI insiders, which preceded such disclosure. The U.S. Attorney's office advised ESSI that although it considered ESSI to be a subject of
its investigation, ESSI was not a target. In connection with this investigation, the U.S. Attorney's office issued ESSI a subpoena requesting specified information, which ESSI has furnished. ESSI has
received no additional subpoenas or requests for information from the U.S. Attorney's office on these subject matters since May 2006.

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

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

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

In
March 2007, ESSI's former Chief Financial Officer was indicted by the grand jury of the United States District Court for the Eastern District of Missouri relating to the backdating of
the timing of stock options at ESSI prior to the time ESSI was acquired by DRS. In July 2007, ESSI's former Chairman of the Board and Chief Executive Officer and his son (who was also a member of
ESSI's Board of Directors and Compensation Committee) were each indicted on similar charges. The July 2007 superseding indictment charges these former ESSI officers and directors with twelve counts of
fraud based on allegations that they backdated stock options on at least eight occasions between 1996 and 2002. The presiding judge has scheduled the criminal trial against these individuals to
commence on September 2, 2008.

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

The
Company is committed to full cooperation with regard to the foregoing investigations and proceedings. The Company is unable to determine at this time the impact, if any, these
matters could have on the Company.

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

In
August 2007, a shareholder derivative complaint was filed in the United States District Court for the Eastern District of Missouri against ESSI's former Chairman of the Board and
Chief Executive Officer, his son (who was also a member of ESSI's Board of Directors and Compensation Committee), ESSI's former Chief Financial Officer and ESSI's former Controller relating to the
alleged backdating of stock options prior to ESSI's acquisition by DRS. The complaint also contains claims against the Company as a nominal defendant and against each of the current members of the
Company's Board of Directors relating to the alleged backdating of ESSI stock options and the ESSI acquisition. The Company believes the claims made against the Company and its current Board of
Directors are without merit. The U.S. Attorney's office has moved to intervene and stay the case pending resolution of the related criminal charges against the individual ESSI defendants. DRS and the
DRS Directors have moved to dismiss the case on substantive and jurisdictional grounds. Those motions are pending.

In
January 2008, the Company received an inquiry from the Australian Competition and Consumer Commission (ACCC) related to one of our subsidiaries, DRS Training & Control
Systems, Inc. The ACCC has requested documents and information regarding allegations of possible anticompetitive activity in violation of the Australian Trade Practices Act. In April 2008, the
Company provided the documents and information requested by the ACCC. We have commenced an internal investigation involving this matter, but are currently unable to determine the timing or the impact,
if any, that the matter may have on us.

In
May 2008, the Company was notified that the NYSE Regulation Inc.'s Market Trading Analysis Department (the NYSE) and the SEC had each commenced independent inquiries regarding
trading in DRS securities prior to the public announcement that Finmeccanica S.p.A. and the Company had entered into a definitive merger agreement pursuant to which Finmeccanica had agreed to acquire
the Company for $81.00 per share in cash subject to the terms thereof. In each case, the Company was asked to provide certain documents and information. The Company was advised by the SEC that its
informal inquiry should not be construed as an indication by the SEC or its staff that any violations of law have occurred or as an adverse reflection upon any person or security. Similarly, the NYSE
advised the Company

125

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

that
it was engaged in a fact gathering process and that no inference of impropriety should be inferred.

In
May 2008, a plaintiff filed a putative class action lawsuit against the Company and each of its directors in the Superior Court of the State of New Jersey, challenging the Company's
proposed transaction with Finmeccanica, S.p.A. The complaint, captionedScheidt v. DRS Technologies, Inc., et al, alleges, among other
things, that the proposed transaction arises out of a flawed process, that the individual defendants are engaged in self-dealing in connection with the transaction, and that the Company's
stockholders will be divested of a large portion of the Company's assets for inadequate consideration if the transaction is consummated. The complaint asserts a claim for breach of fiduciary duties
against the individual defendants and a claim for aiding and abetting breaches of fiduciary duty against the Company. The plaintiff seeks, among other things, an order enjoining the defendants from
consummating the transaction and directing the individual defendants to exercise their fiduciary duties to obtain a transaction that is in the best interests of the Company's stockholders. The Company
believes that the claims asserted by the plaintiff are wholly without merit and intends to defend vigorously against the action.

15. Related-Party Transactions

The
Company currently leases a building in Oakland, New Jersey owned by LDR Realty LLC, a limited liability company that was wholly owned, in equal amounts, by David E. Gross,
DRS's co-founder and former President and Chief Technical Officer, and the late Leonard Newman, DRS's co-founder and former Chairman of the Board, Chief Executive Officer and
Secretary and the father of Mark S. Newman, DRS's current Chairman of the Board, President and Chief Executive Officer. Following Leonard Newman's death in November 1998, Mrs. Ruth Newman, the
wife of Leonard Newman and the mother of Mark S. Newman, succeeded to Leonard Newman's interest in LDR Realty LLC. The lease agreement, with a monthly rental of $21.2 thousand, expired
on April 30, 2007. The new lease commenced May 1,
2007 with the new monthly rental commencing on June 1, 2007 of $21.8 thousand for the first year with annual increases of approximately 3% every June 1. The lease expires
August 31, 2010.

Skadden,
Arps, Slate, Meagher & Flom LLP, a law firm to which a member of the Company's Board of Directors is of counsel, provides legal services to DRS. The Company paid
$1.3 million, $3.8 million and $2.3 million in fees to the firm during fiscal 2008, 2007 and 2006, respectively.

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

16. Operating Segments

As
discussed in Note 1.A., on October 1, 2007, the ESSIBuy operating unit, an operating unit of the Technical Services Segment, was consolidated into an operating unit of
the Sustainment Systems Segment to achieve certain operating synergies. The balance sheet and operating results of ESSIBuy were reclassified for the period from April 1, 2007 through
September 30, 2007. The results in the prior-year were not reclassified, as they were considered immaterial to both segments.

126

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

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

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

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

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

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

Transactions
between segments generally are negotiated and accounted for under terms and conditions that are similar to other government and commercial contracts; however, these
intercompany transactions are eliminated in consolidation. Other accounting policies of the segments are consistent with those described in the summary of significant accounting policies (see
Note 1). The Company evaluates segment-level performance based on revenues and operating income, as presented in the Consolidated Statements of Earnings. Operating income, as shown, includes
amounts allocated from DRS Corporate operations using an allocation

127

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

methodology
prescribed by U.S. government regulations for government contractors. Information about the Company's operating segments follows:

|                       |                               | C4I                   |   | RSTA      |         | Sustainment
Systems |         | Technical
Services |   | Other     |         | Total |        
|---------------------- | ----------------------------- | --------------------- | - | --------- | ------- | ------------------- | ------- | ------------------ | - | --------- | ------- | ----- | -------
|
|Fiscal 2008:           |                               |                       |   |           |         |                     |         |                    |   |           |         |       |        
|                       | Total revenues                |                       | $ | 1,356,326 |         | $                   | 786,394 |                    | $ | 503,961   |         | $     | 686,123
|                       |                               | Intersegment revenues |   |           | (21,214 | )                   |         | (4,729             | ) |           | (8,706  | )     |        
|                       |                               |                       |   |           |         |                     |         |                    |   |           |         |       |        
|                       | External revenues             |                       | $ | 1,335,112 |         | $                   | 781,665 |                    | $ | 495,255   |         | $     | 683,352
|                       |                               |                       |   |           |         |                     |         |                    |   |           |         |       |        
|                       | Operating income (loss)       |                       | $ | 151,142   |         | $                   | 85,361  |                    | $ | 71,955    |         | $     | 52,647 
|                       | Total assets                  |                       | $ | 1,354,533 |         | $                   | 496,961 |                    | $ | 1,319,197 |         | $     | 968,130
|                       | Depreciation and amortization |                       | $ | 26,573    |         | $                   | 13,656  |                    | $ | 17,763    |         | $     | 14,632 
|                       | Capital expenditures          |                       | $ | 29,627    |         | $                   | 15,129  |                    | $ | 8,535     |         | $     | 12,721 
|Fiscal 2007:(Restated) |                               |                       |   |           |         |                     |         |                    |   |           |         |       |        
|                       | Total revenues                |                       | $ | 1,144,775 |         | $                   | 605,417 |                    | $ | 448,113   |         | $     | 685,551
|                       |                               | Intersegment revenues |   |           | (5,313  | )                   |         | (5,836             | ) |           | (47,328 | )     |        
|                       |                               |                       |   |           |         |                     |         |                    |   |           |         |       |        
|                       | External revenues             |                       | $ | 1,139,462 |         | $                   | 599,581 |                    | $ | 400,785   |         | $     | 681,285
|                       |                               |                       |   |           |         |                     |         |                    |   |           |         |       |        
|                       | Operating income              |                       | $ | 130,046   |         | $                   | 31,826  |                    | $ | 59,319    |         | $     | 49,169 
|                       | Total assets                  |                       | $ | 1,232,321 |         | $                   | 415,488 |                    | $ | 1,299,714 |         | $     | 997,595
|                       | Depreciation and amortization |                       | $ | 25,100    |         | $                   | 14,243  |                    | $ | 18,393    |         | $     | 13,808 
|                       | Capital expenditures          |                       | $ | 24,764    |         | $                   | 14,113  |                    | $ | 6,131     |         | $     | 3,747  
|Fiscal 2006:           |                               |                       |   |           |         |                     |         |                    |   |           |         |       |        
|                       | Total revenues                |                       | $ | 1,125,138 |         | $                   | 448,656 |                    | $ | 78,775    |         | $     | 99,030 
|                       |                               | Intersegment revenues |   |           | (2,037  | )                   |         | (4,252             | ) |           | (9,371  | )     |        
|                       |                               |                       |   |           |         |                     |         |                    |   |           |         |       |        
|                       | External revenues             |                       | $ | 1,123,101 |         | $                   | 444,404 |                    | $ | 69,404    |         | $     | 98,623 
|                       |                               |                       |   |           |         |                     |         |                    |   |           |         |       |        
|                       | Operating income (loss)       |                       | $ | 125,936   |         | $                   | 54,510  |                    | $ | 8,261     |         | $     | 6,833  
|                       | Total assets                  |                       | $ | 1,192,823 |         | $                   | 410,739 |                    | $ | 1,281,229 |         | $     | 932,368
|                       | Depreciation and amortization |                       | $ | 25,827    |         | $                   | 13,810  |                    | $ | 2,939     |         | $     | 2,318  
|                       | Capital expenditures          |                       | $ | 18,821    |         | $                   | 15,649  |                    | $ | 932       |         | $     | 1,840  

Revenues
by major product category is as follows:

|                                                  |  | Years Ended March 31,
|------------------------------------------------- |  | ---------------------
|
|
|Command, Control & Communications                 |  | $                    
|Power Systems                                     |  |                      
|Intelligence Technologies                         |  |                      
|Tactical Systems                                  |  |                      
|Homeland Security Solutions                       |  |                      
|Reconnaissance, Surveillance & Target Acquisition |  |                      
|Sustainment Systems                               |  |                      
|Technical Services                                |  |                      
|                                                  |  |                      
|Total revenues                                    |  | $                    
|                                                  |  |                      

128

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Revenues,
total assets and long-lived assets by geographic location are presented in the table below. Revenues are attributed to countries based on the
physical location of the operating unit generating the revenues. Information about the Company's operations in these geographic locations for each of the three years ended March 31, 2008 is as
follows:

|                       |                   | United States |   | Canada    |  | United Kingdom |        | Total
|---------------------- | ----------------- | ------------- | - | --------- |  | -------------- | ------ | -----
|
|Fiscal 2008:           |                   |               |   |           |  |                |        |      
|                       | Revenues          |               | $ | 3,199,880 |  | $              | 74,682 |      
|                       | Total assets      |               | $ | 4,190,871 |  | $              | 89,526 |      
|                       | Long-lived assets |               | $ | 2,996,001 |  | $              | 32,753 |      
|Fiscal 2007:(Restated) |                   |               |   |           |  |                |        |      
|                       | Revenues          |               | $ | 2,735,502 |  | $              | 70,905 |      
|                       | Total assets      |               | $ | 4,085,334 |  | $              | 71,797 |      
|                       | Long-lived assets |               | $ | 2,997,359 |  | $              | 28,909 |      
|Fiscal 2006:           |                   |               |   |           |  |                |        |      
|                       | Revenues          |               | $ | 1,676,555 |  | $              | 43,238 |      
|                       | Total assets      |               | $ | 3,929,678 |  | $              | 59,730 |      
|                       | Long-lived assets |               | $ | 3,019,849 |  | $              | 22,696 |      

Export
sales accounted for approximately 5%, 8% and 10% of total revenues in the fiscal years ended March 31, 2008, 2007 and 2006, respectively.

17. Guarantor and Non-Guarantor Financial Statements

As
further discussed in Note 9, Debt, the Company has an aggregate of $350.0 million 65/8% Senior Notes, $550.0 million 67/8% Senior
Subordinated Notes, $250.0 million 75/8% Senior Subordinated Notes and $345.0 million 2.0% Convertible Senior Notes outstanding (collectively, the Notes). The Notes are
fully and unconditionally guaranteed, jointly and severally, by certain of 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 March 31, 2008 and 2007, the related Condensed Consolidating
Statements of Earnings and Condensed Consolidating Statements of Cash Flows for the years ended March 31, 2008, 2007 and 2006 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 information for each of the Guarantor and Non-guarantor Subsidiaries are not presented because management believes such financial statements
would not be meaningful to investors.

129

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Condensed Consolidating Balance Sheet    As of March 31, 2008    (in thousands)

|                                                  |                                                                  | Parent Company            |           | Guarantor
Subsidiaries |           | Non-Guarantor
Subsidiaries |           | Eliminations |        | Consolidated
|------------------------------------------------- | ---------------------------------------------------------------- | ------------------------- | --------- | ---------------------- | --------- | -------------------------- | --------- | ------------ | ------ | ------------
|Assets                                            |                                                                  |                           |           |                        |           |                            |           |              |        |             
|Current assets                                    |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Cash and cash equivalents                                        |                           | $         | 65,130                 |           | $                          |          |              | $      | 31,195      
|                                                  | Accounts receivable, net                                         |                           |           | 4                      |           |                            | 549,463   |              |        | 24,662      
|                                                  | Inventories, net                                                 |                           |           |                       |           |                            | 390,594   |              |        | 46,610      
|                                                  | Prepaid expenses, deferred income taxes and other current assets |                           |           | 191,400                |           |                            | 242,233   |              |        | 45,639      
|                                                  | Intercompany receivables                                         |                           |           | 2,105,884              |           |                            |          |              |        | 4,834       
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  |                                                                  | Total current assets      |           |                        | 2,362,418 |                            |           | 1,182,290    |        |             
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|Property, plant and equipment,
net                |                                                                  |                           | 16,096    |                        |           | 224,589                    |           |              | 14,992 |             
|Acquired intangibles, net                         |                                                                  |                           |          |                        |           | 167,301                    |           |              | 473    |             
|Goodwill                                          |                                                                  |                           | 24,116    |                        |           | 2,553,906                  |           |              | 46,567 |             
|Deferred income taxes and other noncurrent assets |                                                                  |                           | 16,591    |                        |           | 41,985                     |           |              | 16,805 |             
|Investment in subsidiaries                        |                                                                  |                           | 1,143,419 |                        |           | 36,861                     |           |              | 44     |             
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Total assets                                                     |                           | $         | 3,562,640              |           | $                          | 4,206,932 |              | $      | 231,821     
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|Liabilities and Stockholders' Equity              |                                                                  |                           |           |                        |           |                            |           |              |        |             
|Current liabilities                               |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Current installments of long-term
debt                           |                           | $         | 2,750                  |           | $                          | 225       |              | $      | 2,409       
|                                                  | Accounts payable                                                 |                           |           | 11,824                 |           |                            | 312,892   |              |        | 33,143      
|                                                  | Accrued expenses and other current liabilities                   |                           |           | 219,793                |           |                            | 578,701   |              |        | 60,862      
|                                                  | Intercompany payables                                            |                           |           |                       |           |                            | 721,477   |              |        |            
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  |                                                                  | Total current liabilities |           |                        | 234,367   |                            |           | 1,613,295    |        |             
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|Long-term debt, excluding current installments    |                                                                  |                           | 1,618,071 |                        |           | 3,017                      |           |              | 6,380  |             
|Other liabilities                                 |                                                                  |                           | 26,596    |                        |           | 116,592                    |           |              | 23,921 |             
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Total liabilities                                                |                           |           | 1,879,034              |           |                            | 1,732,904 |              |        | 126,715     
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Total stockholders' equity                                       |                           |           | 1,683,606              |           |                            | 2,474,028 |              |        | 105,106     
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             
|                                                  | Total liabilities and stockholders' equity                       |                           | $         | 3,562,640              |           | $                          | 4,206,932 |              | $      | 231,821     
|                                                  |                                                                  |                           |           |                        |           |                            |           |              |        |             

130

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

|                                                  |                                                                  | Parent
Company            |           | Guarantor
Subsidiaries |           | Non-
Guarantor
Subsidiaries |           | Eliminations |        | Consolidated
|------------------------------------------------- | ---------------------------------------------------------------- | ------------------------- | --------- | ---------------------- | --------- | --------------------------- | --------- | ------------ | ------ | ------------
|Assets                                            |                                                                  |                           |           |                        |           |                             |           |              |        |             
|Current assets                                    |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Cash and cash equivalents                                        |                           | $         | 92,795                 |           | $                           |          |              | $      | 14,598      
|                                                  | Accounts receivable, net                                         |                           |           | 4                      |           |                             | 504,188   |              |        | 31,050      
|                                                  | Inventories, net                                                 |                           |           |                       |           |                             | 285,033   |              |        | 45,735      
|                                                  | Prepaid expenses, deferred income taxes and other current assets |                           |           | 8,547                  |           |                             | 309,955   |              |        | 21,120      
|                                                  | Intercompany receivables                                         |                           |           | 2,083,561              |           |                             |          |              |        | 24,115      
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  |                                                                  | Total current assets      |           |                        | 2,184,907 |                             |           | 1,099,176    |        |             
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|Property, plant and equipment, net                |                                                                  |                           | 15,389    |                        |           | 206,332                     |           |              | 9,485  |             
|Acquired intangibles, net                         |                                                                  |                           |          |                        |           | 196,488                     |           |              | 496    |             
|Goodwill                                          |                                                                  |                           | 24,115    |                        |           | 2,549,258                   |           |              | 43,269 |             
|Deferred income taxes and other noncurrent assets |                                                                  |                           | 196,737   |                        |           | 2,292                       |           |              | 7,227  |             
|Investment in subsidiaries                        |                                                                  |                           | 1,143,419 |                        |           | 36,905                      |           |              |       |             
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Total assets                                                     |                           | $         | 3,564,567              |           | $                           | 4,090,451 |              | $      | 197,095     
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|Liabilities and Stockholders' Equity              |                                                                  |                           |           |                        |           |                             |           |              |        |             
|Current liabilities                               |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Current installments of long-term debt                           |                           | $         | 2,750                  |           | $                           | 188       |              | $      | 2,223       
|                                                  | Accounts payable                                                 |                           |           | 11,022                 |           |                             | 253,796   |              |        | 32,609      
|                                                  | Accrued expenses and other                                       |                           |           |                        |           |                             |           |              |        |             
|                                                  |                                                                  | current liabilities       |           |                        | 236,548   |                             |           | 390,799      |        |             
|                                                  | Intercompany payables                                            |                           |           |                       |           |                             | 871,857   |              |        | 14,814      
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  |                                                                  | Total current liabilities |           |                        | 250,320   |                             |           | 1,516,640    |        |             
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|Long-term debt, excluding current installments    |                                                                  |                           | 1,771,953 |                        |           | 3,242                       |           |              | 7,851  |             
|Other liabilities                                 |                                                                  |                           | 63,332    |                        |           | 239,653                     |           |              | 19,723 |             
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Total liabilities                                                |                           |           | 2,085,605              |           |                             | 1,759,535 |              |        | 115,123     
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Total stockholders' equity                                       |                           |           | 1,478,962              |           |                             | 2,330,916 |              |        | 81,972      
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             
|                                                  | Total liabilities and stockholders' equity                       |                           | $         | 3,564,567              |           | $                           | 4,090,451 |              | $      | 197,095     
|                                                  |                                                                  |                           |           |                        |           |                             |           |              |        |             

131

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Condensed Consolidating Statements of Earnings    Year Ended March 31, 2008    (in thousands)

|                                           |                  | Parent
Company                                            |         | Guarantor
Subsidiaries |         | Non-
Guarantor
Subsidiaries |         | Eliminations |         | Consolidated |       
|------------------------------------------ | ---------------- | --------------------------------------------------------- | ------- | ---------------------- | ------- | --------------------------- | ------- | ------------ | ------- | ------------ | ------
|Revenues                                   |                  | $                                                         |        |                        | $       | 3,006,940                   |         | $            | 310,539 |              | $     
|Cost and expenses                          |                  |                                                           | 651     |                        |         | 2,674,126                   |         |              | 282,833 |              |       
|                                           |                  |                                                           |         |                        |         |                             |         |              |         |              |       
|                                           | Operating income |                                                           |         | (651                   | )       |                             | 332,814 |              |         | 27,706       |       
|Interest income                            |                  |                                                           | 1,499   |                        |         | 76                          |         |              | 483     |              |       
|Interest and related expense               |                  |                                                           | 109,556 |                        |         | 300                         |         |              | 567     |              |       
|Other income (expense), net                |                  |                                                           | 1,293   |                        |         | (570                        | )       |              | (1,447  | )            |       
|Management fees                            |                  |                                                           | 3,154   |                        |         | (2,981                      | )       |              | (173    | )            |       
|Royalties                                  |                  |                                                           | 2,342   |                        |         | (37                         | )       |              | (2,305  | )            |       
|Intercompany interest                      |                  |                                                           | 97,931  |                        |         | (97,638                     | )       |              | (293    | )            |       
|                                           |                  |                                                           |         |                        |         |                             |         |              |         |              |       
|                                           |                  | Earnings before non-controlling interest and income taxes |         |                        | (3,988  | )                           |         | 231,364      |         |              | 23,404
|Non-controlling interest                   |                  |                                                           |        |                        |         |                            |         |              | 1,763   |              |       
|                                           |                  |                                                           |         |                        |         |                             |         |              |         |              |       
|                                           |                  | Earnings before income
taxes                              |         |                        | (3,988  | )                           |         | 231,364      |         |              | 21,641
|Income taxes                               |                  |                                                           | (1,660  | )                      |         | 78,095                      |         |              | 6,813   |              |       
|Earnings (losses) from subsidiary entities |                  |                                                           | 168,097 |                        |         |                            |         |              |        |              |       
|                                           |                  |                                                           |         |                        |         |                             |         |              |         |              |       
|                                           |                  | Net earnings                                              |         | $                      | 165,769 |                             | $       | 153,269      |         | $            | 14,828
|                                           |                  |                                                           |         |                        |         |                             |         |              |         |              |       

132

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Condensed Consolidating Statements of Earnings    Year Ended March 31, 2007    (in thousands)    (Restated)

|                                           |                  | Parent
Company                                                     |         | Guarantor
Subsidiaries |         | Non-
Guarantor
Subsidiaries |         | Eliminations |         | Consolidated |       
|------------------------------------------ | ---------------- | ------------------------------------------------------------------ | ------- | ---------------------- | ------- | --------------------------- | ------- | ------------ | ------- | ------------ | ------
|Revenues                                   |                  | $                                                                  |        |                        | $       | 2,596,026                   |         | $            | 244,454 |              | $     
|Cost and expenses                          |                  |                                                                    | (500    | )                      |         | 2,344,217                   |         |              | 226,034 |              |       
|                                           |                  |                                                                    |         |                        |         |                             |         |              |         |              |       
|                                           | Operating income |                                                                    |         | 500                    |         |                             | 251,809 |              |         | 18,420       |       
|Interest income                            |                  |                                                                    | 993     |                        |         | 117                         |         |              | 163     |              |       
|Interest and related expense               |                  |                                                                    | 119,046 |                        |         | 265                         |         |              | 601     |              |       
|Other income (expense), net                |                  |                                                                    | 180     |                        |         | (1,030                      | )       |              | 500     |              |       
|Management fees                            |                  |                                                                    | 2,705   |                        |         | (2,552                      | )       |              | (153    | )            |       
|Royalties                                  |                  |                                                                    | 2,288   |                        |         | (74                         | )       |              | (2,214  | )            |       
|Intercompany interest                      |                  |                                                                    | 98,530  |                        |         | (98,283                     | )       |              | (247    | )            |       
|                                           |                  |                                                                    |         |                        |         |                             |         |              |         |              |       
|                                           |                  | Earnings (losses) before non-controlling interest and income taxes |         |                        | (13,850 | )                           |         | 149,722      |         |              | 15,868
|Non-controlling interest                   |                  |                                                                    |        |                        |         |                            |         |              | 1,430   |              |       
|                                           |                  |                                                                    |         |                        |         |                             |         |              |         |              |       
|                                           |                  | Earnings (losses) before income taxes                              |         |                        | (13,850 | )                           |         | 149,722      |         |              | 14,438
|Income taxes                               |                  |                                                                    | (4,458  | )                      |         | 46,555                      |         |              | 4,641   |              |       
|Earnings (losses) from subsidiary entities |                  |                                                                    | 112,964 |                        |         |                            |         |              |        |              |       
|                                           |                  |                                                                    |         |                        |         |                             |         |              |         |              |       
|                                           |                  | Net earnings                                                       |         | $                      | 103,572 |                             | $       | 103,167      |         | $            | 9,797 
|                                           |                  |                                                                    |         |                        |         |                             |         |              |         |              |       

133

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Condensed Consolidating Statements of Earnings    Year Ended March 31, 2006    (in thousands)

|                                           |                  | Parent Company                                            |        | Guarantor Subsidiaries |         | Non-
Guarantor Subsidiaries |         | Eliminations |         | Consolidated |       
|------------------------------------------ | ---------------- | --------------------------------------------------------- | ------ | ---------------------- | ------- | --------------------------- | ------- | ------------ | ------- | ------------ | ------
|Revenues                                   |                  | $                                                         |       |                        | $       | 1,528,458                   |         | $            | 230,826 |              | $     
|Cost and expenses                          |                  |                                                           | 2,794  |                        |         | 1,347,349                   |         |              | 216,418 |              |       
|                                           |                  |                                                           |        |                        |         |                             |         |              |         |              |       
|                                           | Operating income |                                                           |        | (2,794                 | )       |                             | 181,109 |              |         | 14,408       |       
|Interest income                            |                  |                                                           | 6,801  |                        |         | 80                          |         |              | 372     |              |       
|Interest and related expense               |                  |                                                           | 63,996 |                        |         | 184                         |         |              | 6       |              |       
|Other income (expense), net                |                  |                                                           | 128    |                        |         | (782                        | )       |              | (77     | )            |       
|Management fees                            |                  |                                                           | 2,261  |                        |         | (2,083                      | )       |              | (178    | )            |       
|Royalties                                  |                  |                                                           | 2,096  |                        |         | (113                        | )       |              | (1,983  | )            |       
|Intercompany interests                     |                  |                                                           | 37,604 |                        |         | (37,707                     | )       |              | 99      |              |       
|                                           |                  |                                                           |        |                        |         |                             |         |              |         |              |       
|                                           |                  | Earnings before non-controlling interest and income taxes |        |                        | (17,900 | )                           |         | 140,320      |         |              | 12,635
|Non-controlling interest                   |                  |                                                           |       |                        |         |                            |         |              | 1,562   |              |       
|                                           |                  |                                                           |        |                        |         |                             |         |              |         |              |       
|                                           |                  | Earnings before income taxes                              |        |                        | (17,900 | )                           |         | 140,320      |         |              | 11,073
|Income taxes                               |                  |                                                           | (6,969 | )                      |         | 54,654                      |         |              | 4,314   |              |       
|Earnings (losses) from subsidiary entities |                  |                                                           | 92,425 |                        |         |                            |         |              |        |              |       
|                                           |                  |                                                           |        |                        |         |                             |         |              |         |              |       
|                                           | Net earnings     |                                                           | $      | 81,494                 |         | $                           | 85,666  |              | $       | 6,759        |       
|                                           |                  |                                                           |        |                        |         |                             |         |              |         |              |       

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Condensed Consolidating Statements of Cash Flows    Year Ended March 31, 2008    (in thousands)

|                                                       |                                                                   | Parent Company |                                       | Guarantor Subsidiaries |   | Non-
Guarantor Subsidiaries |         | Eliminations |         | Consolidated |  
|------------------------------------------------------ | ----------------------------------------------------------------- | -------------- | ------------------------------------- | ---------------------- | - | --------------------------- | ------- | ------------ | ------- | ------------ | -
|Net cash provided by operating activities              |                                                                   | $              | 131,685                               |                        | $ | 57,922                      |         | $            | 21,854  |              | $
|                                                       |                                                                   |                |                                       |                        |   |                             |         |              |         |              |  
|Cash Flows from investing activities                   |                                                                   |                |                                       |                        |   |                             |         |              |         |              |  
|                                                       | Capital expenditures                                              |                |                                       | (6,340                 | ) |                             | (57,249 | )            |         | (7,725       | )
|                                                       | Payments pursuant to business combinations, net of cash acquired  |                |                                       |                       |   |                             | (5,968  | )            |         |             |  
|                                                       | Dispositions of property, plant and equipment                     |                |                                       | 334                    |   |                             | 103     |              |         | 4            |  
|                                                       | Other, net                                                        |                |                                       |                       |   |                             |        |              |         |             |  
|                                                       |                                                                   |                |                                       |                        |   |                             |         |              |         |              |  
|                                                       |                                                                   |                | Net cash used in investing activities |                        |   | (6,006                      | )       |              | (63,114 | )            |  
|                                                       |                                                                   |                |                                       |                        |   |                             |         |              |         |              |  
|Cash Flows from financing activities                   |                                                                   |                |                                       |                        |   |                             |         |              |         |              |  
|                                                       | Borrowings on revolving line of credit                            |                |                                       | 415,000                |   |                             |        |              |         |             |  
|                                                       | Repayments of revolving line of credit                            |                |                                       | (415,000               | ) |                             |        |              |         |             |  
|                                                       | Repayments of long-term debt                                      |                |                                       | (152,750               | ) |                             | (188    | )            |         | (2,520       | )
|                                                       | Excess tax benefit realized from share-based payment arrangements |                |                                       | 4,055                  |   |                             |        |              |         |             |  
|                                                       | Dividends paid                                                    |                |                                       | (4,932                 | ) |                             |        |              |         |             |  
|                                                       | Proceeds from stock option exercises                              |                |                                       | 10,563                 |   |                             |        |              |         |              |  
|                                                       | Other                                                             |                |                                       |                       |   |                             | 200     |              |         | 1,225        |  
|                                                       | Net (repayments to) borrowings from Parent company                |                |                                       | (10,280                | ) |                             | 5,180   |              |         | 3,614        |  
|                                                       |                                                                   |                |                                       |                        |   |                             |         |              |         |              |  
|                                                       |                                                                   |                | Net cash used in financing activities |                        |   | (153,344                    | )       |              | 5,192   |              |  
|Effects of exchange rates on cash and cash equivalents |                                                                   |                |                                      |                        |   |                            |         |              | 145     |              |  
|                                                       |                                                                   |                |                                       |                        |   |                             |         |              |         |              |  
|Net (decrease) increase in cash and cash equivalents   |                                                                   |                | (27,665                               | )                      |   |                            |         |              | 16,597  |              |  
|Cash and cash equivalents, beginning of year           |                                                                   |                | 92,795                                |                        |   |                            |         |              | 14,598  |              |  
|                                                       |                                                                   |                |                                       |                        |   |                             |         |              |         |              |  
|Cash and cash equivalents, end of year                 |                                                                   | $              | 65,130                                |                        | $ |                            |         | $            | 31,195  |              | $
|                                                       |                                                                   |                |                                       |                        |   |                             |         |              |         |              |  

135

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Condensed Consolidating Statements of Cash Flows    Year Ended March 31, 2007    (in thousands)

|                                                       |                                                                   | Parent Company                                      |         | Guarantor Subsidiaries |         | Non-
Guarantor Subsidiaries |         | Eliminations |        | Consolidated |        
|------------------------------------------------------ | ----------------------------------------------------------------- | --------------------------------------------------- | ------- | ---------------------- | ------- | --------------------------- | ------- | ------------ | ------ | ------------ | -------
|Net cash provided by operating activities              |                                                                   | $                                                   | 122,045 |                        | $       | 44,310                      |         | $            | 28,880 |              | $      
|                                                       |                                                                   |                                                     |         |                        |         |                             |         |              |        |              |        
|Cash Flows from investing activities                   |                                                                   |                                                     |         |                        |         |                             |         |              |        |              |        
|                                                       | Capital expenditures                                              |                                                     |         | (7,492                 | )       |                             | (44,528 | )            |        | (3,887       | )      
|                                                       | Payments pursuant to business combinations, net of cash acquired  |                                                     |         | (5,169                 | )       |                             | (11,568 | )            |        |             |        
|                                                       | Other, net                                                        |                                                     |         | 2,915                  |         |                             | (189    | )            |        |             |        
|                                                       |                                                                   |                                                     |         |                        |         |                             |         |              |        |              |        
|                                                       |                                                                   | Net cash used in investing activities               |         |                        | (9,746  | )                           |         | (56,285      | )      |              | (3,887 
|                                                       |                                                                   |                                                     |         |                        |         |                             |         |              |        |              |        
|Cash Flows from financing activities                   |                                                                   |                                                     |         |                        |         |                             |         |              |        |              |        
|                                                       | Borrowings on revolving line of credit                            |                                                     |         | 540,500                |         |                             |        |              |        |             |        
|                                                       | Repayments of revolving line of credit                            |                                                     |         | (580,500               | )       |                             |         |              |        |              |        
|                                                       | Borrowings of long-term debt                                      |                                                     |         |                       |         |                             |        |              |        | 452          |        
|                                                       | Repayments of long-term debt                                      |                                                     |         | (2,750                 | )       |                             | (239    | )            |        | (1,730       | )      
|                                                       | Excess tax benefit realized from share-based payment arrangements |                                                     |         | 4,880                  |         |                             |        |              |        |             |        
|                                                       | Dividends paid                                                    |                                                     |         | (4,962                 | )       |                             |        |              |        |             |        
|                                                       | Proceeds from stock option exercises                              |                                                     |         | 12,868                 |         |                             |        |              |        |             |        
|                                                       | Other                                                             |                                                     |         |                       |         |                             |        |              |        | 480          |        
|                                                       | Net (repayments to) borrowings from Parent company                |                                                     |         | (5,445                 | )       |                             | 12,214  |              |        | (14,729      | )      
|                                                       |                                                                   |                                                     |         |                        |         |                             |         |              |        |              |        
|                                                       |                                                                   | Net cash (used in) provided by financing activities |         |                        | (35,409 | )                           |         | 11,975       |        |              | (15,527
|Effects of exchange rates on cash and cash equivalents |                                                                   |                                                     |        |                        |         |                            |         |              | 224    |              |        
|                                                       |                                                                   |                                                     |         |                        |         |                             |         |              |        |              |        
|Net increase in cash and cash equivalents              |                                                                   |                                                     | 76,890  |                        |         |                            |         |              | 9,690  |              |        
|Cash and cash equivalents, beginning of year           |                                                                   |                                                     | 15,905  |                        |         |                            |         |              | 4,908  |              |        
|                                                       |                                                                   |                                                     |         |                        |         |                             |         |              |        |              |        
|Cash and cash equivalents, end of year                 |                                                                   | $                                                   | 92,795  |                        | $       |                            |         | $            | 14,598 |              | $      
|                                                       |                                                                   |                                                     |         |                        |         |                             |         |              |        |              |        

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Condensed Consolidating Statements of Cash Flows    Year Ended March 31, 2006    (in thousands)

|                                                       |                                                                  | Parent Company                                      |          | Guarantor
Subsidiaries |            | Non-
Guarantor Subsidiaries |         | Eliminations |        | Consolidated |        
|------------------------------------------------------ | ---------------------------------------------------------------- | --------------------------------------------------- | -------- | ---------------------- | ---------- | --------------------------- | ------- | ------------ | ------ | ------------ | -------
|Net cash provided by operating activities              |                                                                  | $                                                   | 44,828   |                        | $          | 106,167                     |         | $            | 6,067  |              | $      
|                                                       |                                                                  |                                                     |          |                        |            |                             |         |              |        |              |        
|Cash Flows from investing activities                   |                                                                  |                                                     |          |                        |            |                             |         |              |        |              |        
|                                                       | Capital expenditures                                             |                                                     |          | (5,953                 | )          |                             | (34,142 | )            |        | (3,099       | )      
|                                                       | Payments pursuant to business combinations, net of cash acquired |                                                     |          | (1,425,696             | )          |                             |        |              |        |             |        
|                                                       | Other, net                                                       |                                                     |          | 62                     |            |                             | 316     |              |        | 1,116        |        
|                                                       |                                                                  |                                                     |          |                        |            |                             |         |              |        |              |        
|                                                       |                                                                  | Net cash used in investing activities               |          |                        | (1,431,587 | )                           |         | (33,826      | )      |              | (1,983 
|                                                       |                                                                  |                                                     |          |                        |            |                             |         |              |        |              |        
|Cash Flows from financing activities                   |                                                                  |                                                     |          |                        |            |                             |         |              |        |              |        
|                                                       | Borrowings on revolving line of credit                           |                                                     |          | 279,000                |            |                             |        |              |        |             |        
|                                                       | Repayments of revolving line of credit                           |                                                     |          | (315,300               | )          |                             |         |              |        |              |        
|                                                       | Borrowings of long-term debt                                     |                                                     |          | 1,220,000              |            |                             |        |              |        | 9,853        |        
|                                                       | Return of advanced interest on senior subordinated notes         |                                                     |          | (1,986                 | )          |                             |        |              |        |             |        
|                                                       | Debt issuance costs                                              |                                                     |          | (28,372                | )          |                             |        |              |        |             |        
|                                                       | Repayments of long-term debt                                     |                                                     |          | (167,461               | )          |                             | (324    | )            |        | (23          | )      
|                                                       | Dividends paid                                                   |                                                     |          | (3,705                 | )          |                             |        |              |        |             |        
|                                                       | Proceeds from stock option exercises                             |                                                     |          | 12,540                 |            |                             |        |              |        |             |        
|                                                       | Net borrowings from (repayments to) parent company               |                                                     |          | 107,160                |            |                             | (72,017 | )            |        | (23,895      | )      
|                                                       |                                                                  |                                                     |          |                        |            |                             |         |              |        |              |        
|                                                       |                                                                  | Net cash provided by (used in) financing activities |          |                        | 1,101,876  |                             |         | (72,341      | )      |              | (14,065
|Effects of exchange rates on cash and cash equivalents |                                                                  |                                                     |         |                        |            |                            |         |              | 553    |              |        
|                                                       |                                                                  |                                                     |          |                        |            |                             |         |              |        |              |        
|Net (decrease) increase in cash and cash equivalents   |                                                                  |                                                     | (284,883 | )                      |            |                            |         |              | (9,428 | )            |        
|Cash and cash equivalents, beginning of year           |                                                                  |                                                     | 300,788  |                        |            |                            |         |              | 14,336 |              |        
|                                                       |                                                                  |                                                     |          |                        |            |                             |         |              |        |              |        
|Cash and cash equivalents, end of year                 |                                                                  | $                                                   | 15,905   |                        | $          |                            |         | $            | 4,908  |              | $      
|                                                       |                                                                  |                                                     |          |                        |            |                             |         |              |        |              |        

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DRS TECHNOLOGIES INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

18. Unaudited Quarterly Financial Information

The following table sets forth unaudited quarterly financial information for fiscal 2008 and 2007:

|                           |  | Fiscal Year Ended March 31, 2008
|-------------------------- |  | --------------------------------
|
|
|Revenues                   |  | $                               
|Operating income           |  | $                               
|Net earnings               |  | $                               
|Basic earnings per share   |  | $                               
|Diluted earnings per share |  | $                               

|
|

|                           |  | Fiscal Year Ended March 31, 2007
|-------------------------- |  | --------------------------------
|
|
|Revenues                   |  | $                               
|Operating income           |  | $                               
|Net earnings               |  | $                               
|Basic earnings per share   |  | $                               
|Diluted earnings per share |  | $                               

The
unaudited quarterly financial data for the fourth quarter of fiscal 2007 and the first quarter of fiscal 2008 has been restated as a result of the adjustment
described in Note 2 to the consolidated financial statements.

19. Subsequent Event

On May 12, 2008, Finmeccanica, S.p.A. and the Company announced that they signed a definitive merger agreement under which Finmeccanica will acquire
100% of DRS stock for $81.00 per share in cash. The merger agreement provides for, among other things, the merger of a subsidiary of Finmeccanica with and into the Company with the Company as the
surviving corporation and becoming a wholly-owned subsidiary of Finmeccanica.

The
transaction is subject to approval by the stockholders of DRS, the receipt of regulatory approvals and other closing conditions, including review by U.S. antitrust authorities, the
Committee on Foreign Investment in the United States (CFIUS) and the Defense Security Service (DSS). The transaction is expected to close in the fourth quarter of 2008.

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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES    Schedule IIValuation and Qualifying Accounts    Years Ended March 31, 2008, 2007 and 2006

|Col. A                                       |  | Col. B |       | Col. C
Additions(a) |   | Col. D
Deductions(b) |  | Col. E
|-------------------------------------------- |  | ------ | ----- | ------------------- | - | -------------------- |  | ------
|
|
|
|Inventory reserve                            |  |        |       |                     |   |                      |  |       
|Year ended March 31, 2008                    |  | $      | 9,250 |                     | $ | 4,635                |  | $     
|Year ended March 31, 2007                    |  | $      | 9,361 |                     | $ | 3,508                |  | $     
|Year ended March 31, 2006                    |  | $      | 8,724 |                     | $ | 3,437                |  | $     
|Allowance for doubtful accounts              |  |        |       |                     |   |                      |  |       
|Year ended March 31, 2008                    |  | $      | 1,703 |                     | $ | 1,753                |  | $     
|Year ended March 31, 2007                    |  | $      | 1,668 |                     | $ | 1,259                |  | $     
|Year ended March 31, 2006                    |  | $      | 2,659 |                     | $ | 964                  |  | $     
|Other current assetsnote receivable reserve |  |        |       |                     |   |                      |  |       
|Year ended March 31, 2008                    |  | $      |      |                     | $ |                     |  | $     
|Year ended March 31, 2007                    |  | $      | 1,450 |                     | $ |                     |  | $     
|Year ended March 31, 2006                    |  | $      | 1,116 |                     | $ | 750                  |  | $     

---

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

Item 9A.    Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer, with the assistance of our Disclosure Committee, have conducted an evaluation of the
effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of March 31, 2008. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files under
the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is
accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures.
Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as

139

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of
March 31, 2008, the Company's disclosure controls and procedures were not effective because of the material weakness in internal control over financial reporting described below.

(b) Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial
reporting is a process designed under the supervision of the Company's Chief Executive Officer and Chief Financial Officer, and carried out by the Company's Board of Directors, management, and other
personnel, to provide reasonable assurance regarding the reliability of the Company's financial reporting and the preparation of the Company's consolidated financial statements for external reporting
purposes in accordance with U.S. generally accepted accounting principles. The Company's internal control over financial reporting includes policies and procedures that:



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As
of March 31, 2008, management has assessed the effectiveness of the Company's internal control over financial reporting based on the framework established in "Internal
ControlIntegrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. A material weakness is a deficiency, or a combination of deficiencies in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim consolidated financial statements will not be
prevented or detected on a timely basis. Based on the aforementioned assessment, the following material weakness was identified in the Company's internal control over financial reporting:



The
effectiveness of the Company's internal control over financial reporting as of March 31, 2008 has been audited by KPMG LLP, our independent registered public accounting
firm, as stated in their auditors' report which is included in Item 9 of this Form 10-K.

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(c) Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fourth quarter of the fiscal year ended March 31, 2008 that materially affected, or are reasonably likely to materially effect,
the Company's internal control over financial reporting.

(d) Remediation of Material Weakness in Internal Control Over Financial Reporting

The Company has engaged in, and continues to engage in substantial efforts to address the material weakness in internal control over financial reporting.
Specifically, management has implemented the following measure as of the date of filing of this Form 10-K:



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Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders
DRS Technologies, Inc.:

We
have audited DRS Technologies, Inc. and Subsidiaries' internal control over financial reporting as of March 31, 2008, based on criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). DRS
Technologies, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in Management's Report on Internal Control Over Financial Reporting, appearing in Item 9A(b). Our responsibility is to express an opinion on the Company's internal control
over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to the accounting for subsequent events has been
identified and included in management's report on internal control over financial reporting.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of DRS Technologies, Inc.
and subsidiaries as of March 31, 2008 and 2007 and the related consolidated statements of earnings, stockholders' equity and comprehensive earnings and cash flows for each of the years in the
three-year period ended March 31, 2008. This material weakness was considered in

142

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determining
the nature, timing, and extent of audit tests applied in our audit of the 2008 consolidated financial statements, and this report does not affect our report dated May 30, 2008,
which expressed an unqualified opinion on those consolidated financial statements.

In
our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the control criteria, DRS Technologies, Inc. has not
maintained effective internal control over financial reporting as of March 31, 2008, based on criteria established inInternal ControlIntegrated Frameworkissued by COSO.

/s/
KPMG LLP

Short
Hills, New Jersey
May 30, 2008

Item 9B.    Other Information

None

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PART III

Item 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

BOARD OF DIRECTORS

The board of directors currently is composed of eleven directors, who are divided into three classes. There are three Class I directors, four
Class II directors and four Class III directors. The members of one of the three classes of directors are elected each year. Directors hold office for three-year terms and
until their successors are elected and qualified.

The
following section contains certain information concerning our directors.

MARK S. NEWMANChairman of the Board, President and Chief Executive Officer of DRS

Mr. Newman,
age 58, became a director in 1988. Mr. Newman, who has been employed by us since 1973, was named Vice President, Finance, Chief Financial Officer and Treasurer
in 1980 and Executive Vice President in 1987. In May 1994, Mr. Newman became our President and Chief Executive Officer and in August 1995, became Chairman of the Board. Mr. Newman is a
director
of Congoleum Corporation and EFJ, Inc. He is a director of Business Executives for National Security (BENS) and also is a member of the Board of Governors of the Aerospace Industries
Association. Mr. Newman and Mr. Rosen, a director of DRS, are first cousins.

IRA ALBOMRetired Senior Vice President, Teleflex, Inc.

Mr. Albom,
age 79, became a director in February 1997. Mr. Albom was employed from 1977 to 2003 by Teleflex, Inc., a defense and aerospace company, and he was Senior
Vice President of Teleflex from 1987 until his retirement in 2003. Mr. Albom has over 40 years of operations and management experience in the defense and aerospace industry. At Teleflex,
he was actively involved in leading diligence teams and negotiating terms of mergers and acquisitions, as well as negotiating major contracts for Teleflex's Defense/Aerospace Group.

GENERAL CHARLES G. BOYD, USAF (Ret.)President and Chief Executive Officer, Business Executives for National Security (BENS)

General
Boyd, age 70, became a director in 2006. General Boyd is President and Chief Executive Officer of Business Executives for National Security (BENS) and has served in that position
since May 2002. Following his retirement from active duty with the United States Air Force in August 1995, General Boyd served as the Director, 21st Century International Legislators Project
for the Congressional Institute, Inc. and a strategy consultant to former Speaker of the House, Newt Gingrich. In July 1998, he was named Executive Director, U.S. Commission on National
Security/21st Century (Hart-Rudman Commission). In August 2001, he was named Senior Vice President and Washington Program Director, Council on Foreign Relations, Washington, D.C.
Prior to his military retirement, General Boyd was Deputy Commander in Chief, U.S. European Command (USEUCOM), Stuttgart-Vaihingen, Germany. Before assuming his position at USEUCOM, he was Vice
Commander of Strategic Air Command's 8th Air Force, Director of Plans at Headquarters, U.S. Air Force, Washington, D.C., and Commander of the Air University, with headquarters at Maxwell Air
Force Base, Alabama. General Boyd also is a member of the board of directors of the Nixon Center, Forterra Systems, Inc. and In-Q-Tel. He is a member of the USAF Air
University Board of Visitors, is Chairman of the Board of Trustees for the Air University Foundation, and serves on the Transformation Advisory Group for U.S. Joint Forces Command, as well as the
USEUCOM Senior Advisory Group.

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THE HONORABLE DR. DONALD C. FRASERRetired Professor, Boston University

Dr. Fraser,
age 67, became a director in 1993. He was the founder and Director of the Boston University Photonics Center and a Professor of Engineering and Physics at that
university until he retired in January 2006. From 1991 to 1993, Dr. Fraser was the Principal Deputy Under Secretary of Defense, Acquisition, with primary responsibility for managing the
Department of Defense acquisition process, including setting policy and executing programs. He served as Deputy Director of Operational Test and Evaluation for Command, Control, Communications and
Intelligence from 1990 to 1991, a position which included top level management and oversight of the operational test and evaluation of all major Department of Defense communications, command and
control, intelligence, electronic warfare, space and information management system programs. From 1981 to 1988, Dr. Fraser was employed as Vice President, Technical Operations at Charles Stark
Draper Laboratory and from 1988 to 1990, as its Executive Vice President and Chief Operating Officer. Dr. Fraser is a director of Aurora Flight Sciences, CTC, Inc. and Photon Dynamics.

WILLIAM F. HEITMANNSenior Vice PresidentFinance, Verizon Communications, Inc.

Mr. Heitmann,
age 59, became a director in February 1997. Mr. Heitmann has served as Senior Vice PresidentFinance of Verizon Communications, Inc. since
January 2005. He has been employed by Verizon Communications, Inc. since its formation in June 2000 through the merger of Bell Atlantic Corp. and GTE Corp. He was employed by Bell Atlantic
Corp. and its predecessors since 1971, serving as a Vice President from 1996 and as Treasurer from June 2000 to December 2004. Previously, he was President and Chief Investment Officer of NYNEX Asset
Management Company and President of NYNEX Credit Company. Mr. Heitmann serves as Chairman of Verizon Capital Corp. and is also President, Chief Investment Officer and a member of the board of
Verizon Investment Management Co. He is a member of the board of the Pension Real Estate Association, the Pension Fund Managers Advisory Committee of the NYSE and The Financial Executives
Institute.

THE HONORABLE STEVEN S. HONIGMANPartner, Fox Horan & Camerini LLP

Mr. Honigman,
age 60, became a director in 1998. Mr. Honigman has been a partner of the law firm of Fox Horan & Camerini LLP since January 2006. He was a
member of the law firm of Thelen Reid & Priest LLP from 1998 through 2005. Previously, he served as General Counsel to the Department of the Navy for five years. As chief legal officer
of the Department of the Navy and the principal legal advisor to the Secretary of the Navy, Mr. Honigman was recognized as a leader in acquisition reform, procurement-related litigation and the
accomplishment of
national security objectives in the context of environmental compliance. He also exercised Secretariat oversight of the Naval Criminal Investigative Service and served as the Department's Designated
Agency Ethics Officer and Contractor Suspension and Debarment Official. For his service, Mr. Honigman received the Department of the Navy Distinguished Public Service Award. Prior to his tenure
with the Department of the Navy, he was a partner of the law firm of Miller, Singer, Raives & Brandes. Through his law firm, Mr. Honigman is the General Counsel of Harbor Wing
Technologies, Inc., a company that has designed and is developing a new-technology wind-powered autonomous unmanned surface vessel for Navy, homeland security,
environmental and other applications. He is a member of the board of directors of EWA Information & Infrastructure Technologies, Inc.

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C. SHELTON JAMESPresident, C.S. James and Associates

Mr. James,
age 68, became a director in February 1999. Mr. James is President of C.S. James and Associates, business advisors, and has served in that position since May
2000. From December 2001 to July 2002, he was CEO of Technisource, Inc., a provider of information technology staffing, outsourced solutions and computer systems. Mr. James was Chairman
of the Board of Elcotel, Inc., a public communications company, until February 2000. He was President of Fundamental Management Corporation, an investment management company, from 1993 to 1998.
He also was Chairman and CEO of Cyberguard Corp. from August 1998 to March 1999. Mr. James serves as a director of Concurrent Computer Corporation, Inc. and CSPI, Inc.

MARK N. KAPLANOf Counsel, Skadden, Arps, Slate, Meagher & Flom LLP

Mr. Kaplan,
age 78, became a director in 1986. Mr. Kaplan was a member of the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1979 to 1998 and is
now of counsel to the firm. Mr. Kaplan also serves as a director of American Biltrite Inc., Autobytel, Inc., Congoleum Corporation and Volt Information Sciences, Inc. He is
a member of the Council on Foreign Relations, Inc. He also served as chairman and is now a member of the New York City Audit Committee. He previously served as co-chairperson of the
New York City Board of Education Audit Advisory Committee. Mr. Kaplan is a Trustee of Bard College, New York Academy of Medicine, WNET/Channel 13, New Alternatives for Children and New York
Hall of Science.

REAR ADMIRAL STUART F. PLATT, USN (Ret.)Chairman, Harbor Wing Technologies, Inc.

Admiral
Platt, age 74, became a director in 1991. Since 2004, Admiral Platt has served as Chairman and CEO of Harbor Wing Technologies, Inc., a company with operations in
Honolulu, Hawaii and Seattle, Washington that develops autonomous unmanned surface vessels for the U.S. Navy and other government agencies for homeland defense and surveillance missions. He is the
former Chairman of The Wornick Company, a producer of combat and humanitarian rations for the Department of Defense, and served in that position from 2000 until the sale of the company in 2004. From
May 1994 until 1998, he served as a Vice President of DRS and President of our Data Systems Group. Admiral Platt also served as President of our wholly-owned subsidiary, DRS Precision
Echo, Inc. (now known as DRS Data & Imaging Systems, Inc.), from July 1992 to July 1998. From 1998 to 2000, he was President and Chief Executive Officer of Western Marine
Electronics Company, a supplier of commercial sonar systems and underwater protection systems. Admiral Platt held various high level positions as a military officer in the Department of the Navy,
retiring as Competition Advocate General of the Navy in 1987. Since 2007, he has served on the Executive Advisory Board of the William E. Simon Graduate School of Business at the University of
Rochester. Admiral Platt is the author of "The Armament Tide" and "Letters from the Front Lines." Admiral Platt also is Chairman of the board of directors of Manakoa Services Corporation.

GENERAL DENNIS J. REIMER, USA (Ret.)Chief Strategy Officer, Detica Federal, Inc.

General
Reimer, age 68, became a director in 2000. Since October 2007, General Reimer has served as Chief Strategy Officer of Detica Federal, Inc., a provider of defense, homeland
security and intelligence consulting services to the U.S. government. He has been employed by Detica Federal and its predecessors since October 2005, serving as President of DeticaDFI, Inc.
from April 2007 to October 2007 and, prior to that, as President of DFI International, Inc. From

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April
2000 until May 2005, General Reimer served as Director of the National Memorial Institute for the Prevention of Terrorism, located in Oklahoma City, Oklahoma. General Reimer served as the
33rd Chief of Staff, U.S. Army, from June 1995 until June 1999. Prior to that, he was Commanding General of United States Army Forces Command, Fort McPherson, Georgia. From August 1999 until
March 2000, General Reimer served as Distinguished Fellow of the Association of the U.S. Army. General Reimer also serves as a director of SI-International and Mutual of America.

ERIC J. ROSENPartner, MSD Capital, LP

Mr. Rosen,
age 47, became a director in August 1998. Since March 2005, Mr. Rosen has been a partner of MSD Capital, LP, a private investment firm that exclusively
manages the capital of Michael S. Dell and his family. Mr. Rosen has responsibility for the private equity activities of MSD. Prior to his tenure at MSD, Mr. Rosen was a Managing
Director of Onex Corporation, where he worked since May 1989. Previously, he worked at Kidder, Peabody & Co. in both the Mergers and Acquisitions and Merchant Banking Groups.
Mr. Rosen and Mark S. Newman, the Chairman of the Board, President and Chief Executive Officer of DRS, are first cousins.

EXECUTIVE OFFICERS AND CERTAIN OTHER OFFICERS OF THE REGISTRANT

MARK S. NEWMAN, age 58, is Chairman of the Board, President and Chief Executive Officer. See description above.

VICE ADMIRAL PHILLIP M. BALISLE, USN (RET.), age 60, joined the Company in 2005 as Senior Vice President, Maritime Strategic Plans and Programs and was
promoted to Executive Vice President, Washington Operations, in April 2008. Prior to joining DRS, he was Commander, Naval Sea Systems Command (NAVSEA), leading a team of 46,000 men and women
nationwide in four shipyards, undersea and surface warfare centers, and the headquarters in Washington, D.C. Admiral Balisle's extensive 36-year military career included numerous shipboard
assignments: Commanding Officer, USS Kidd (DDG 993); Commanding Officer, USS Anzio (CG 68); Commander, Cruise-Destroyer Group THREE; and Commander, USS Abraham Lincoln Battle Group, among others. He
also served in significant assignments ashore, including Commanding Officer, Naval Communications Station, U.K.; Assistant Chief of Staff, Combat Systems, Naval Surface Forces, U.S. Atlantic Fleet;
Director, Theater Air Warfare N865; Vice Commander, NAVSEA; and Director, Surface Warfare on the Staff of the Chief of Naval Operations. Mr. Balisle replaced Mr. Bowman April 1,
2008, as Executive Vice President, Washington Operations.

VICE ADMIRAL MICHAEL L. BOWMAN, USN (RET.), age 64, was our Executive Vice President, Washington Operations, from June 2005 through March 2008. He
served as our Senior Vice President, Washington Operations, from the time he joined us in March 2001 until June 2005. Prior to that, he served for 35 years with the U.S. Navy, including a
number of assignments in the Washington, D.C. area involving Congressional relations in support of Navy and Marine Corps defense issues. Initially heading the Senate Liaison Office of the Secretary of
the Navy, he later was appointed Chief of Legislative Affairs, responsible for the coordination of all Depart ment of the Navy issues in the U.S. House of Representatives and the Senate.
Mr. Bowman's
position as Executive, Vice President Washington Operation was taken over by Mr. Balisle on April 1, 2008. Mr. Bowman remains with the Company as Senior Vice President, Washington
Operations.

NINA LASERSON DUNN, age 61, joined us as Executive Vice President, General Counsel and Secretary in July 1997. Prior to joining DRS, Ms. Dunn was
a director in the corporate law

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department
of Hannoch Weisman, a Professional Corporation, where she served as our outside legal counsel. Ms. Dunn is admitted to practice law in New York and New Jersey and is a member of the
American, New York State and New Jersey State Bar Associations.

ROBERT F. MEHMEL, age 45, has been our Executive Vice President, Chief Operating Officer, since May 2006. He joined us as Executive Vice President,
Business Operations and Strategy, in January 2001. Before joining DRS, he was Director, Corporate Development, at Jabil Circuit, Inc. Prior to that, he was Vice President, Planning, at
L-3 Communications Corporation from its inception in April 1997 until June 2000. Earlier, Mr. Mehmel held various positions in divisional and corporate financial management with
Lockheed Martin Corporation, Loral Corporation and Lear Siegler, Inc.

RICHARD A. SCHNEIDER, age 55, joined us in 1999 as our Executive Vice President, Chief Financial Officer. He also served as our Treasurer until November
2002. He held similar positions at NAI Technologies, Inc. (NAI) and was a member of its board of directors prior to its acquisition by us in February 1999. Mr. Schneider has over
30 years of experience in corporate financial management.

CORPORATE GOVERNANCE

Code of Ethics and Code of Business Conduct

We have adopted a Code of Ethics and a Code of Business Conduct that apply to all of our employees, including our Chief Executive Officer ("CEO"), Chief Financial
Officer ("CFO"), and Controller and directors. Our Code of Ethics and Code of Business Conduct have been posted on our corporate website atwww.drs.comunder the heading "Investor Info/Corporate Governance." We will post any amendment to the codes on our web site. The board is strongly
predisposed against any waivers of either code. To date, no such waiver has been granted. In the unlikely event of a waiver, such action will be posted on our web site noted above, as required under
SEC rules.

Audit Committee.The members of the Audit Committee are Messrs. Heitmann, who chairs the committee, Fraser and James. All of the
members of the Audit Committee are "independent" and satisfy the NYSE requirements for audit committee members, as well as the additional independence requirements of Rule 10A-3
under the Securities Exchange Act. As a result, no member has any relationship with the Company that may interfere with the exercise of his independence from the Company and the Company's management.
The board has determined that each member of the Audit Committee has the ability to read and understand fundamental financial statements. The board has determined that each of Messrs. Heitmann
and James qualify as an "Audit Committee Financial Expert," as defined by the rules of the SEC.

Material Changes to Process for Recommending Director Nominees

There were no material changes to the procedures by which security holders may recommend nominees to our board of directors, where those changes were implemented
after we last provided disclosure in response to the requirements Item 407(c)(2)(iv) or (c)(3).

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The rules of the Securities and Exchange Commission require that we disclose late filings of reports of stock ownership (and changes in stock ownership) by our
directors and executive officers. To the best of our knowledge, all of the required filings for our directors and executive officers were made on a timely basis in fiscal 2008.

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Item 11.    EXECUTIVE COMPENSATION

Executive Compensation Committee.The members of the Executive Compensation
Committee ("Compensation Committee") are Messrs. Kaplan, who chairs the committee, Albom and Honigman, Admiral Platt and General Reimer. The board has determined that each of the members of the
Compensation Committee is an independent director under the NYSE listing standards. The Compensation Committee operates under a written charter that was amended by the board on May 10, 2007, a
copy of which is available on our corporate web site atwww.drs.comor in print upon request. The Compensation Committee held six meetings during fiscal
2008. The report of the Compensation Committee is set forth below.

The
Compensation Committee is responsible for, among other things, reviewing and making decisions with respect to salaries, bonuses, stock-based awards and other benefits for our CEO,
CFO and the three other most highly compensated executive officers (collectively, the "Named Executive Officers"), and ensuring that they are compensated in a manner consistent with our philosophy and
objectives, as described in the "Compensation Discussion and Analysis." The Compensation Committee also administers our stock plans (including reviewing and approving stock option grants and other
awards to executive officers), reviews and approves our goals and objectives relevant to compensation of the Named Executive Officers and considers the structure of our compensation program as it
applies to all employees.

When
appropriate, the Compensation Committee recommends to the full board changes to the executive and the general compensation plans. On an annual basis, the Compensation Committee
approves the compensation for the Named Executive Officers.

The
Compensation Committee is responsible in all respects for the determination and finalization of compensation matters. The Compensation Committee has retained Mercer as its
compensation consultant to provide advice on matters relating to executive compensation. Mercer also assists the Compensation Committee in identifying and maintaining pay and performance information
relating to a group of peer companies, as well as compensation survey information and more general market compensation practices and trends. Mercer attended four of the Compensation Committee meetings
during fiscal 2008, including the executive sessions held during each of those meetings.

In
addition to considering information provided by its outside advisors, the Compensation Committee also considers recommendations from senior management in making determinations
regarding the overall executive compensation program and the individual compensation of the Named Executive Officers.

Compensation Committee Interlocks and Insider Participation

As noted above, the members of the Compensation Committee during fiscal 2008 were Messrs. Kaplan, who chairs the committee, Albom and Honigman, Admiral
Platt and General Reimer. From 1994 until 1998, Admiral Platt served as an officer of the Company.

Compensation Discussion and Analysis

Our Business

DRS is a leading supplier of defense electronics products, systems and military support services. We provide high-technology products, services and
support to all branches of the U.S. military, major aerospace and defense prime contractors, government intelligence agencies, certain international military forces and industrial markets. Our goals
are to continually improve our position as a leading supplier of defense electronics products and systems and to create long-term value for our stockholders. Our strategy to achieve our
objectives includes:

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(i) leveraging
incumbent relationships; (ii) developing and expanding existing technologies; (iii) leveraging a combination of service and product capabilities to better serve
customers; (iv) continuing to react quickly to the changing defense environment; (v) capitalizing on the Department of Defense's emphasis on recapitalization and modernization;
(vi) pursuing strategic acquisitions; (vii) maintaining a diversified business mix; and (viii) developing and retaining highly talented management and technical employees.

Our
compensation program is designed to reward our executives for the successful execution of this strategy and for managing and integrating acquired businesses and product lines into
our organization. Experience has shown that the individuals with the skills and experience necessary to manage a company that is expanding significantly through both acquisition and organic growth, to
understand the technical aspects of our products and services, and to deal effectively with the defense industry, are generally employed by a small group of industry competitors. Therefore, we tend to
focus on defense industry experience when attracting new executives and also look to that industry to determine competitive compensation programs and levels.

Executive Compensation Philosophy and Objectives

Our executive compensation program is intended to attract, retain and motivate key employees critical to the success of our business. The program is intended to
reward superior past performance and create incentives for future exemplary performance that will create long-term stockholder value. To achieve these objectives, our compensation program
provides opportunities that are comparable to those offered by similar companies, to reward long-term strategic management and the enhancement of stockholder value and to create a
performance-oriented environment.

Our
executive compensation philosophy is further designed to support our mission of creating long-term value for our stockholders and the successful execution of our goals
and business strategy outlined above. We believe that our success in achieving this mission is, in large part, attributable to the performance and dedication of our employees and, in particular, to
the leadership efforts of our Named Executive Officers. It is, therefore, important that the interests of our executives are aligned closely with the interests of our stockholders.

See
"Executive Compensation Committee," above, for a discussion of the Compensation Committee's responsibility for overseeing our executive compensation program and the role of outside
advisors.

Setting Executive Compensation

Guiding Principles

The Compensation Committee's intent is to provide a balanced mix of cash and equity-based compensation that it believes will align the short- and
long-term interests of our executives with those of our stockholders. When the Compensation Committee considers any component of the compensation of the CEO and the other Named Executive
Officers, the aggregate value and mix of all components are taken into consideration. The Compensation Committee believes that each element of compensation is important and that it is the appropriate
combination of these components that enables us to appropriately compensate and retain executives.

The
Company targets compensation at the median percentile within its benchmarking group (as described below) when performance "meets expectation," and above median for superior
performance. The determination of performance level is based on business performance relative to competitors and individual performance. Compensation is also

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intended
to reflect, with respect to each individual, individual performance, applicable business unit or function performance, tenure and internal pay equity. Realized compensation from prior stock
awards or other factors of wealth accumulation are not considered in setting current compensation levels.

To
enable the Company to maintain its pay-for-performance philosophy, the program is designed to deliver 60% to 80% of the target total direct compensation (base
salary plus annual incentives and long-term incentives) through variable pay programs. The target compensation mix for each of our Named Executive Officers for fiscal 2008 was:

Executive

Base
Salary ($)

Annual
Incentive
Target ($)

Long-Term
Incentive
Target ($)Mark S. Newman

936,250

786,450

2,800,000Robert F. Mehmel

504,400

363,168

900,000Michael L. Bowman(1)

312,000

205,920

650,000Nina Laserson Dunn

390,000

257,400

650,000Richard A. Schneider

390,000

257,400

650,000




Competitive Benchmarking

The Compensation Committee, as part of its consideration of the appropriateness of the Named Executive Officers' compensation, reviews market data of defense and
industry companies of comparable size and complexity and in similar geographic areas.

To
determine fiscal 2008 executive compensation, including base salaries, annual incentive payouts (based on fiscal 2008 performance) and long-term incentive awards granted
in fiscal 2008, the Compensation Committee selected the following peer group of eleven comparable companies with which DRS competes for talent, for business and for stockholder investment:



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Most of these companies' revenues range between one-half to two times of the Company's. ITT and L-3 (whose revenues are greater than two times those of the
Company) and FLIR (whose revenues are less than one-half those of the Company) are included because they compete with the Company for business and, together with the other peer companies,
create a peer group with median revenues close to the Company's. These companies also compete with the Company for talent.

Mercer
provides the Compensation Committee with analysis of executive compensation levels and practices as disclosed in the most recently available proxy statements of the peer group
companies. The proxy compensation data among the peer group is aligned to the DRS data in the following way:



Although
there is no specific peer group study for the Executive Vice President of the Washington Operations, Mercer has generally informed the Compensation Committee of market levels of
compensation for comparable positions.

The
peer group is reviewed annually by the Compensation Committee and updated as needed to remain appropriate for compensation benchmarking purposes. Specifically, the peer group used to
determine fiscal 2008 compensation differs from the group used with respect to 2007 as follows: Aviall, Inc. was removed after its acquisition by Boeing and, as discussed above, FLIR was added
to ensure an appropriately-sized peer group. (Due to the acquisition of Armor Holdings Inc. by BAE Systems Land and Armaments in July of 2007, Armor Holdings will not be in the peer group to
determine fiscal 2009 compensation.)

The Role of Named Executive Officers

As stated above, in addition to considering information provided by its outside advisors, the Compensation Committee also considers recommendations from senior
management in making determinations regarding the overall executive compensation program and the individual compensation of the Named Executive Officers. Our human resources team supports the
Compensation Committee and its work.

The
CEO annually reviews the performance and accomplishments of all other Named Executive Officers. He then presents his conclusions and recommendations based on these reviews for base
salary levels, annual bonus target amounts, annual bonus payouts and long-term incentive awards to the Compensation Committee for its consideration.

Executive Compensation Components

For fiscal 2008 the primary elements of compensation for our Named Executive Officers were:



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Salary

The Company provides Named Executive Officers and other employees with salaries to compensate them for services rendered during the fiscal year. Salaries for our
Named Executive Officers, which are generally targeted at or above the median of the peer group, are established based on the individual's job responsibilities, performance and experience, and our
overall budget for merit increases, all considered in the context of the competitive environment.

On
an annual basis, the Compensation Committee reviews and approves salary adjustments for the CEO and other Named Executive Officers, taking into account a review of competitive market
data, an assessment of Company performance, the advice of Mercer, recommendations of the CEO for the other Named Executive Officers, the annual performance of the CEO as assessed by the members of the
Compensation Committee, pay disparity and other considerations. In addition, if an executive's position or responsibilities with the Company change during the year, which may occur through change in
role or duties or due to Company growth, additional adjustments may be made.

On
May 9, 2007, the Compensation Committee approved the following salary increases in an executive session (without the presence of the CEO), effective as of April 1, 2007.
These salary adjustments generally reflected increases in the overall market for personnel in the defense industry, as well as increased individual duties and performance resulting from the continued
growth of the Company.

Executive

Fiscal 2007
Salary ($)

Fiscal 2008
Salary ($)

Percent
ChangeMark S. Newman

875,000

936,250

7
%Robert F. Mehmel

485,000

504,400

4
%Michael L. Bowman

300,000

312,000

4
%Nina Laserson Dunn

375,000

390,000

4
%Richard A. Schneider

375,000

390,000

4
%


Annual Incentive Awards

Annual incentives for the Named Executive Officers are awarded under the amended and restated DRS Technologies, Inc. Incentive Compensation Plan (the
"ICP"). The ICP was amended and approved by the stockholders in 2007 in order to continue to satisfy the provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The ICP is designed to encourage performance relative to our annual operating goals and objectives. Annual bonus payouts are linked to the financial performance of DRS as a whole, individual
job performance, accomplishment of the individual's specified goals and contributions to operational performance. The Compensation Committee annually reviews the ICP, as well as Mercer's analysis of
peer company practices, to determine that the ICP continues to provide the appropriate level of awards and to reward appropriate behaviors and performance.

Award Opportunities

Annual incentive opportunities for the Named Executive Officers are expressed as a percentage of salary and are targeted at the median of the peer companies. On
May 17, 2007, the Compensation Committee approved fiscal 2008 minimum, target and maximum ICP awards for each Named Executive Officer (as disclosed under the column "Estimated Future Payouts
Under Non-Equity Incentive Plan Awards" in the "Grants of Plan-Based Awards in Fiscal 2008" table, below).

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Performance Goals

Maximum ICP awards for the Named Executive Officers are based on predetermined financial performance goals. In determining the actual awards earned, the overall
financial performance is given a total weighting of 100% for the CEO and COO and 75% for the other Named Executive Officers. The remaining 25% of ICP opportunity for the Named Executive Officers other
than the CEO and COO is determined based on individual performance relative to objective performance goals determined for each executive officer and approved by the Compensation Committee. The
Compensation Committee also considers the individual's adherence to high ethical standards, as set forth in our Code of Ethics and Code of Business Conduct. The Compensation Committee has discretion
to determine what portion (less than or equal to 100%) of the earned ICP award should be paid to Named Executive Officers.

For
fiscal 2008, the financial performance targets for each of the Named Executive Officers are set forth below under the heading "Payouts," in order to illustrate actual performance
against such targets.

The
performance thresholds and maximums for each of the Named Executive Officers were as follows:

Performance Relative to Plan

Percent of Target EarnedBelow 90%

0
%Threshold

90%

50
%Maximum

120% or More

200
%


The
award target as a percentage of salary for each Named Executive Officer for fiscal 2008 were as follows:

Executive

Fiscal 2008
Award Target
(as % of Salary)Mark S. Newman

84
%Robert F. Mehmel

72
%Michael L. Bowman

66
%Nina Laserson Dunn

66
%Richard A. Schneider

66
%


The
differences in the respective targets of the CEO, COO and other Named Executive Officers reflect their respective scopes of responsibility with respect to achievement of such
targets.

The
performance measures chosen were selected as the Compensation Committee believes that they represent key financial metrics reflecting appropriate measures of Company performance.

Payouts

Earned ICP awards are made in cash within 75 days of the end of the fiscal year, and after the Compensation Committee has determined the extent of
achievement of ICP performance goals and the corresponding earned ICP awards for the Named Executive Officers.

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For
fiscal 2008, the achieved performance relative to financial goals for the Named Executive Officers are as follows:

Performance Measure

Performance
Weighting

Fiscal 2008
Target

Achieved
Performance

ICP Payout
(% of target)Revenue

20
%
$
3,000,000,000

$
3,295,384,000

30
%Bookings

25
%
$
2,750,000,000

$
3,862,029,000

50
%Operating Income

30
%
$
323,000,000

$
360,376,000

30
%(1)Free Cash Flow

25
%
$
105,000,000

$
140,147,000

50
%Overall Financial Performance

100
%






160
%


---

For
fiscal 2008, ICP payouts to the Named Executive Officers based on achievement of financial and individual objectives ranged from 158% to 170% of targets. (This payout range includes
with respect to the Named Executive Officers other than the CEO and CFO, rewards for achievement of individual objectives that are in addition to the overall financial performance number of 160%.)

In
making its determination as to what portion of the fiscal 2008 ICP award should be paid to the CEO, the Compensation Committee considered a variety of factors, including leadership
and managerial ability, execution of our business plan, overall business strategy, completion of individual performance objectives and adherence to our values, as well as a performance appraisal
completed by the Compensation Committee. The Compensation Committee may
reduce the ICP awards in its discretion. The Compensation Committee authorized payment to the CEO of 100% of his fiscal 2008 annual incentive bonus.

The
CEO evaluates the performance of the other Named Executive Officers and recommends to the Compensation Committee the amount of annual incentive otherwise earned that should be paid
to each. The criteria used for these determinations are similar to the factors used by the Compensation Committee to determine the CEO's incentive award. Each of the other Named Executive Officers
received 100% of his or her fiscal 2008 annual incentive bonus.

Awards
made to the Named Executive Officers under the ICP for performance in fiscal 2008 are reflected in the following table, as well as in the "Summary Compensation Table" below.

|NEO                  |  | Target
Award
($) |         | Financial
Performance
Factor
(%) |     | Relative
Weight
(%) |     | Individual
Performance
Factor
(%) |     | Relative
Weight
(%) |     | Final
Performance
Factor
(%) |     | Calculated
ICP Award
Earned
($) |   | Discretionary
Adjustment |  | Final ICP
Award
Earned
($)
|-------------------- |  | ---------------- | ------- | -------------------------------- | --- | ------------------- | --- | --------------------------------- | --- | ------------------- | --- | ---------------------------- | --- | ------------------------------- | - | ------------------------ |  | --------------------------
|Mark S. Newman       |  | $                | 786,450 |                                  | 160 | %                   | 100 | %                                 | N/A |                     | N/A |                              | 160 | %                               | $ | 1,258,300                |  | 0                         
|Robert F. Mehmel     |  | $                | 363,168 |                                  | 160 | %                   | 100 | %                                 | N/A |                     | N/A |                              | 160 | %                               | $ | 581,000                  |  | 0                         
|Michael Bowman       |  | $                | 205,920 |                                  | 160 | %                   | 75  | %                                 | 150 | %                   | 25  | %                            | 158 | %                               | $ | 325,400                  |  | 0                         
|Nina Laserson Dunn   |  | $                | 257,400 |                                  | 160 | %                   | 75  | %                                 | 200 | %                   | 25  | %                            | 170 | %                               | $ | 437,600                  |  | 0                         
|Richard A. Schneider |  | $                | 257,400 |                                  | 160 | %                   | 75  | %                                 | 200 | %                   | 25  | %                            | 170 | %                               | $ | 437,600                  |  | 0                         

For fiscal 2009, the approved ICP financial goals are based on the same measures as fiscal 2008, i.e., consolidated revenue, bookings,
operating income and free cash flow.

155

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Long-term Incentive Awards

Long-term incentive awards to our Named Executive Officers, as well as other key employees, are intended to increase their motivation and incentive to
enhance the long-term value of the Company by enlarging their personal stake in its success.
All long-term incentive awards to the Named Executive Officers are currently made in the form of stock options and restricted stock.

Fiscal
2008 long-term incentive awards were granted under our 2006 Omnibus Plan, which was designed to give the Compensation Committee the flexibility to make incentive
awards that are comparable to those found in the marketplace in which we compete for executive talent.

For
fiscal 2008, the Compensation Committee granted long-term incentive awards to the Named Executive Officers in the form of nonqualified stock options and restricted stock
of approximately equal value. By using this mix of stock options and restricted stock, we are able to provide executives with a strong incentive to increase the Company's value and encourage stock
ownership.

On
June 12, 2007, the Compensation Committee reviewed and approved the value of the amounts to be allocated between stock options and restricted stock granted to each Named
Executive Officer. The Compensation Committee approved the awards using the following guidelines, which generally target the value of annual awards at or below the median of the peer companies. The
guidelines were based on data prepared by Mercer, the CEO's recommendations for the other Named Executive Officers, an assessment of executives' performance and other budgetary considerations.

Band

Restricted Shares Value ($)

Stock Options Value ($)CEO

$
1,400,000

$
1,400,000COO

$
450,000

$
450,000Other Named Executive Officers

$
325,000

$
325,000


The
number of stock options granted is determined using a Black-Scholes valuation as of the date of grant, and the number of restricted shares granted is determined using the closing
stock price of DRS common stock at the date of grant. The long-term incentive awards made to the Named Executive Officers in fiscal 2008 are described in the "Grants of
Plan-Based Awards in Fiscal 2008" table.

With
respect to fiscal years following 2008, the Compensation Committee has adopted a policy of fixing the grant date for all regular (annual) equity grants as three business days
following the release of our fourth quarter earnings, and, in the case of new hires and other off-cycle grants, three business days following the next succeeding quarterly release of
earnings. In light of the merger agreement between Finmeccanica and the Company, annual grants for fiscal 2009 will not be made in accordance with the policy set forth above. For fiscal 2008, annual
grants were made on June 15, 2007 consistent with past practice.

Nonqualified Stock Options

Stock options constitute a key element of our long-term incentive strategy in that stock options deliver value to the executive only when the value of
DRS common stock increases. Stock options have a ten-year term and typically vest in four equal annual installments commencing on the first anniversary of the date of grant. Stock option
grants are made with an exercise price equal to the closing price of DRS common stock on the date of grant (or if there is no reported sale on such date, the last preceding date on which any reported
sale occurred). Under the 2006 Omnibus Plan, stock options may not be repriced. Prior to the

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exercise
of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents.
The vesting conditions and holding requirements are intended to encourage executive share ownership. Stock options generally are granted once each year.

For
treatment of stock options upon different termination and change in control scenarios, see "Potential Payments on Termination or Change in Control," below.

Restricted Stock

Awards of restricted stock constitute an additional key element of our long-term incentive strategy. The Compensation Committee believes that
full-value stock facilitates share ownership and motivates and retains key talent. Restricted stock awards under our 2006 Omnibus Plan vest on the third anniversary of the date of grant.
Restricted stock awards typically are granted annually to the Named Executive Officers. The Company also makes awards of restricted stock to retain and reward high-performing employees who
are critical to the future success of the Company.

For
treatment of restricted stock upon different termination and change in control scenarios, see "Potential Payments on Termination or Change in Control," below.

Retirement and Other Benefits

Most of our U.S.-based employees, including the Named Executive Officers, are eligible to participate in one of our 401(k) plans and our welfare plans. In
addition, the Named Executive Officers and certain other employees are eligible to participate in our Supplemental Executive Retirement Plan.

401(k) Plan

Under the 401(k) plan in which the Named Executive Officers participate, most DRS U.S.-based employees, including the Named Executive Officers, can make salary
deferrals to the plan, with the right to distributions from the plan upon retirement. The Company matches employee contributions in the 401(k) Plan for employees in most facilities (including for the
Named Executive Officers) at 90 cents for every dollar on deferrals of up to 6% of gross eligible wages.

Supplemental Executive Retirement Plan

The Named Executive Officers do not participate in any Company defined benefit pension plan qualified under Section 401 of the Code.

DRS
maintains a Supplemental Executive Retirement Plan ("SERP") for the benefit of certain key executives, including the Named Executive Officers. Under the SERP, we will provide
retirement benefits to each of these key executives, based on years of service and final average annual compensation, in accordance with the benefit class to which such executive is assigned by the
Compensation Committee, as defined in the SERP. Participants may receive monthly benefits under the SERP on retirement (a) when the retirement occurs on or after the later of the date the
participant attains the age of 65 or the date the participant is first credited with ten or more years of service, or (b) when the retirement occurs after attaining age 55 with ten or more
years of service.

Based
on Mercer's analysis of peer company practices regarding executive retirement benefits plans and the amount of compensation provided under such plans, we believe it is appropriate
to maintain the SERP to help provide competitive total compensation for key executives, including the Named Executive Officers.

157

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The Compensation Committee adopted a change to the SERP on November 8, 2007 in order to simplify its administration by providing that calculation of the Retirement/Savings Plan
offset should generally be based on a hypothetical match contribution instead of actual data for all years of service.

See
"Pension Benefits," below, for further discussion of the SERP.

Employment and Change in Control Arrangements

The Company maintains certain employment agreements and change in control arrangements intended, among other purposes, to help retain qualified employees,
maintain a stable work environment and provide economic security to certain of our employees in the event of certain terminations of employment following a change in control. In addition, the SERP and
the 2006 Omnibus Plan contain change in control provisions. Certain amendments to the employment agreements will be required to be made in 2008 for compliance with Section 409A of the Code. The
Company has begun an analysis of such required changes.

A
detailed description of these arrangements and an estimate of the potential payments and benefits to the Named Executive Officers upon various termination scenarios and upon a change
in control, in each case assuming the relevant event occurred on March 31, 2008, the end of fiscal 2008, are set forth in the "Estimate of Potential Payments on Termination or Change in Control
as of Fiscal 2008 Year End" table.

The
merger agreement between Finmeccanica and the Company provides that the closing of the merger will constitute a "change in control" and give rise to "good reason" under the
employment agreements. At the effective time of the merger, each of the Named Executive Officers other than Mr. Bowman will be entitled to a cash payment in a lump sum equal to three times the
sum of (i) the executive's base salary plus (ii) the bonus earned by the executive during the immediately preceding fiscal year. It is anticipated that all of Named Executive Officers
who have entered into employment agreements with the Company will remain employed with the Company following the closing of the merger. Further, the merger agreement provides that the Company will
enter into new employment agreements with
Mr. Newman, effective as of the closing of the merger, and with the other Named Executive Officers other than Mr. Bowman following the closing of the merger.

Perquisites

We provide Named Executive Officers with certain limited perquisites that the Compensation Committee believes are reasonable, competitive and consistent with the
objectives of the executive compensation program.

We
provide aircraft usage to our CEO (under a fractional ownership arrangement) for business use and occasionally for personal use. The CEO reimburses the Company for personal use based
on the hourly rate that we are charged under our fractional ownership agreements.

Tax and Accounting Implications

Deductibility of Executive Compensation

The Compensation Committee's general policy is, where feasible, to structure the compensation paid to the covered employees (as defined in Section 162(m)
of the Code) so as to allow it to be deductible under Section 162(m) of the Code; however, the Compensation Committee retains the flexibility, where necessary to meet competitive market
pressures and promote incentive and retention goals, to pay compensation which may not be so deductible.

For
fiscal 2008, all of the compensation paid to the covered employees was deductible under Section 162(m) of the Code. Because Mr. Kaplan is not an outside director
pursuant to

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Section 162(m)
of the Code, he recuses himself from determinations of short- and long-term incentive awards to the covered employees.

Accounting for Stock-Based Compensation

Beginning on April 1, 2006, the Company began accounting for stock-based payments, including awards granted under the 2006 Omnibus Plan, in accordance with
the requirements of SFAS 123R.

EXECUTIVE COMPENSATION COMMITTEE REPORT

The Executive Compensation Committee of the Board of Directors of the Company has reviewed and discussed with management the above Compensation Discussion and
Analysis required by Item 402(b) and, based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be
included in the Company's Annual Report on Form 10-K.

| |  | Submitted by the Executive Compensation Committee,                                            
| |  | ----------------------------------------------------------------------------------------------
| |  | Mark N. Kaplan, Chairman
Ira Albom
Steven S. Honigman
Stuart F. Platt
General Dennis J. Reimer

EXECUTIVE COMPENSATION  SUMMARY COMPENSATION TABLE

The following summary compensation table sets forth the cash and non-cash compensation paid to or earned by our Named Executive Officers for fiscal
2008 and fiscal 2007:

|                                                                         |  | Year      |  | Salary
($)      |  | Stock
Awards
($)(1) |  | Option
Awards
($)(2) |  | Non-Equity
Incentive Plan
Compensation
($)(3) |  | Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(4) |  | All Other
Compensation
($)(5) |  | Total
($)          
|------------------------------------------------------------------------ |  | --------- |  | --------------- |  | ------------------- |  | -------------------- |  | --------------------------------------------- |  | ------------------------------------------------------------------------------ |  | ----------------------------- |  | -------------------
|Mark S. NewmanChairman of the Board,
President & Chief Executive
Officer |  | 2008
2007 |  | 936,250
875,000 |  | 905,729
667,615     |  | 1,236,166
1,158,816  |  | 1,258,300
1,073,100                           |  | 332,000
2,337,000                                                              |  | 118,905
84,515                |  | 4,787,350
6,196,046
|Robert F. MehmelExecutive Vice President
Chief Operating Officer         |  | 2008
2007 |  | 504,400
485,000 |  | 328,153
218,420     |  | 329,317
303,542      |  | 581,100
509,800                               |  | 42,000
18,000                                                                  |  | 54,044
53,426                 |  | 1,839,014
1,588,188
|Michael L. BowmanExecutive Vice President
Washington Operations(6)       |  | 2008
2007 |  | 312,000
300,000 |  | 203,061
119,452     |  | 225,508
206,248      |  | 325,400
295,000                               |  | 
                                                                            |  | 50,408
36,679                 |  | 1,116,377
957,379  
|Nina Laserson DunnExecutive Vice President
General Counsel & Secretary   |  | 2008
2007 |  | 390,000
375,000 |  | 203,061
137,190     |  | 252,607
250,168      |  | 437,600
368,800                               |  | 84,000
54,000                                                                  |  | 51,978
43,375                 |  | 1,419,246
1,228,533
|Richard A. SchneiderExecutive Vice President,
Chief Financial Officer    |  | 2008
2007 |  | 390,000
375,000 |  | 203,061
137,190     |  | 252,607
250,168      |  | 437,600
368,800                               |  | 63,000
72,000                                                                  |  | 62,033
55,402                 |  | 1,408,301
1,258,560

---

159

---





Mr. Newman

Mr. Mehmel

Mr. Bowman

Ms. Dunn

Mr. SchneiderRestricted Stock June 2007

$
370,428

$
119,065

$
85,991

$
85,991

$
85,991Restricted Stock June 2006

$
317,240

$
125,219

$
75,135

$
75,135

$
75,135Restricted Stock July 2005

$
218,061

$
83,869

$
41,935

$
41,935

$
41,935$
905,729

$
328,153

$
203,061

$
203,061

$
203,061


Mr. Newman

Mr. Mehmel

Mr. Bowman

Ms. Dunn

Mr. SchneiderStock Option June 2007

$
282,051

$
90,659

$
65,473

$
65,473

$
65,473Stock Option June 2006

$
259,679

$
102,499

$
61,501

$
61,501

$
61,501Stock Option November 2004

$
388,636

$
80,966

$
70,440

$
70,440

$
70,440Stock Option January 2004

$
305,800

$
55,193

$
28,094

$
55,193

$
55,193$
1,236,166

$
329,317

$
225,508

$
252,607

$
252,607




Matching
Contribution
to Employee
Savings Plan
($)

Supplemental
Insurance
($)(a)

Medical
Insurance
Benefits
($)(b)

Personal
Use of
Auto
($)

Other
($)

Total
($)Mark S. Newman

12,218

41,369

14,170

39,278

11,870
(c)(d)
118,905Robert F. Mehmel

12,218

4,313

13,615

23,898



54,044Michael L. Bowman

12,218

2,442

11,670

24,078



50,408Nina Laserson Dunn

12,218

12,980

9,224

17,556



51,978Richard A. Schneider

12,218

15,797

13,615

20,404



62,034




160

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GRANTS OF PLAN-BASED AWARDS IN FISCAL 2008

The following table provides information concerning grants of plan-based awards made to each of the Named Executive Officers in fiscal 2008:

|                     |  |                     |  | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) |  | Stock
Awards:
Number of
Shares of
Stock
(2) |  | Option
Awards:
Number of
Underlying
Options
(3) |  |        |  |       
|-------------------- |  | ------------------- |  | ------------------------------------------------------------------ |  | ------------------------------------------- |  | ----------------------------------------------- |  | ------ |  | ------
|
|
|Mark S. Newman       |  | 6/15/2007
6/15/2007 |  | 393,225                                                            |  | 786,450                                     |  | 1,572,900                                       |  | 25,782 |  | 58,200
|Robert F. Mehmel     |  | 6/15/2007
6/15/2007 |  | 181,584                                                            |  | 363,168                                     |  | 726,336                                         |  | 8,287  |  | 18,707
|Michael L. Bowman    |  | 6/15/2007
6/15/2007 |  | 102,960                                                            |  | 205,920                                     |  | 411,840                                         |  | 5,985  |  | 13,510
|Nina Laserson Dunn   |  | 6/15/2007
6/15/2007 |  | 128,700                                                            |  | 257,400                                     |  | 514,800                                         |  | 5,985  |  | 13,510
|Richard A. Schneider |  | 6/15/2007
6/15/2007 |  | 128,700                                                            |  | 257,400                                     |  | 514,800                                         |  | 5,985  |  | 13,510

---

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OUTSTANDING EQUITY AWARDS AT FISCAL 2008 YEAR END

The following table provides information concerning the current holdings of stock option and stock awards for each of the Named Executive Officers as of the end
of fiscal 2008.

|                     |  | Option Awards                                                           |  | Stock Awards                                     
|-------------------- |  | ----------------------------------------------------------------------- |  | -------------------------------------------------
|
|Mark S. Newman       |  | 11/24/00
11/16/01
11/06/02
01/22/04
11/04/04
07/06/05
06/16/06
06/15/07 |  | 90,000
90,000
90,000
123,000
72,000
55,000
10,889
|Robert F. Mehmel     |  | 01/08/01
11/16/01
11/06/02
01/22/04
11/04/04
07/06/05
06/16/06
06/15/07 |  | 50,000
30,000
35,000
22,200
15,000
21,500
4,298  
|Michael L. Bowman    |  | 01/22/04
11/04/04
07/06/05
06/16/06
06/15/07                            |  | 2,825
12,500                                     
|Nina Laserson Dunn   |  | 11/06/02
01/22/04
11/04/04
07/06/05
06/16/06
06/15/07                   |  | 30,000
22,200
13,050
12,500
2,579                
|Richard A. Schneider |  | 11/16/01
11/06/02
01/22/04
11/04/04
07/06/05
06/16/06
06/15/07          |  | 30,000
30,000
13,000
13,050
12,500
2,579         

---

162

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OPTION EXERCISES AND STOCK VESTED IN FISCAL 2008

The following table provides information concerning (i) exercises of stock options during fiscal 2008, including the number of shares acquired upon
exercise and the value realized, and (ii) the number of shares acquired upon the vesting of stock awards during fiscal 2008 and the value realized, for each of the Named Executive Officers:

|                     |  | Option Awards |  | Stock Awards
|-------------------- |  | ------------- |  | ------------
|
|Mark S. Newman       |  | 190,000       |  | 8,251,864   
|Robert F. Mehmel     |  |              |  |            
|Michael L. Bowman    |  | 6,929         |  | 124,194     
|Nina Laserson Dunn   |  | 15,000        |  | 394,748     
|Richard A. Schneider |  | 9,200         |  | 290,322     

---

PENSION BENEFITS

The Named Executive Officers are not eligible to participate in any qualified defined benefit plan. However, the Named Executive Officers and certain other key
employees are eligible to participate in a nonqualified supplemental defined benefit plan (the Supplemental Executive Retirement Plan, or SERP, discussed in the "Compensation Discussion and Analysis"
above).

Under
the SERP, participants may receive monthly benefits on the date the participant attains age 65 and is credited with 10 or more years of service or, if later, following a
participant's retirement. The SERP also provides for a reduced early retirement benefit beginning at age 55, so long as the participant has 10 or more years of credited service. See "Pension Benefits
Table for Fiscal 2008" footnote (3) below.

For
Mr. Newman, monthly benefits are calculated by multiplying his final average annual compensation by a percentage equal to the sum of 3% for each of the first 10 years
of service plus 1.5% for each of the next 20 years of service and then dividing by 12. The monthly benefits for the other Named Executive Officers are calculated by multiplying their final
average annual compensation by a percentage equal to the sum of 2% for each of the first 10 years of service plus 1.5% for each of the next 20 years of service and then dividing by 12.
The maximum percentage by which the final average annual compensation may be multiplied is 60% for Mr. Newman and 50% for the other Named Executive Officers.

Final
average annual compensation is defined as the participant's average annual base salary over the 36-month period in which such salary is highest during the
60-month period immediately prior to retirement. For the CEO, compensation under the SERP is the sum of base salary and bonus.

The
Named Executive Officers' monthly benefit will be reduced by any amounts available as a monthly retirement benefit from the DRS Retirement/Savings Plan attributable to contributions
made by the Company and by any Old-Age Insurance Benefits of the Social Security Act payable to such person.

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A
retiring employee may elect to receive a reduced retirement benefit with joint and survivor rights and/or a period certain benefit.

PENSION BENEFITS TABLE FOR FISCAL 2008

The following table provides information concerning defined benefit pension benefits for each of the Named Executive Officers as of the end of fiscal 2008. There
are no qualified pension benefits.

|Name                     |  | Plan
Name |  | Years of
Credited
Service(1) |  | Present Value of
Accumulated
Benefit(1)(2)(3) |  | Payments During
Fiscal Year
|------------------------ |  | --------- |  | ---------------------------- |  | --------------------------------------------- |  | ---------------------------
|Mark S. Newman(4)        |  | SERP      |  | 34.1                         |  | 10,096,000                                    |  | N/A                        
|Robert F. Mehmel         |  | SERP      |  | 6.9                          |  | 94,000                                        |  | N/A                        
|Michael L. Bowman(5)     |  | SERP      |  | 6.8                          |  |                                              |  | N/A                        
|Nina Laserson Dunn(4)(6) |  | SERP      |  | 15.5                         |  | 823,000                                       |  | N/A                        
|Richard A. Schneider     |  | SERP      |  | 19.3                         |  | 637,000                                       |  | N/A                        

---

For
a description of the SERP, see discussion in "Compensation Discussion and Analysis" above.

POTENTIAL PAYMENTS ON TERMINATION OR CHANGE IN CONTROL

Change in Control Under the SERP

Each participant in the SERP employed by DRS immediately prior to a change in control will be vested and a single lump sum amount will be paid within
60 days of the change in control or, if later, the earliest date permitted under Section 409A of the Code, equal to the present value of the benefit payable as an immediate life annuity
without reduction for early commencement.

A
change in control under the SERP occurs when any of the following occur: (i) any person becomes the beneficial owner of DRS securities, representing 20% or more of voting power;
(ii) board members already in place cease to constitute a majority of the number of directors then serving; (iii) there is a merger or consolidation of DRS (or any subsidiary) with any
other corporation, where directors previously serving cease to constitute the majority; and (iv) our stockholders approve a plan of complete liquidation, dissolution or sale of all or nearly
all of

164

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our
assets, where directors immediately prior cease to represent the majority of the board. However, a change in control under the SERP will not occur by virtue of the consummation of any
transaction(s) immediately following which the stockholders of DRS immediately prior to such transaction(s) continue to have substantially the same proportionate ownership in an entity which owns all
or substantially all of the assets of DRS immediately following such transaction(s). For purposes of the above, (A)"person" has the meaning given in Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d), except that such term shall not include (i) DRS or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of DRS or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the stockholders of DRS in substantially the same proportions as their ownership of stock of DRS and (B)"Affiliate" has the meaning set forth in
Rule 12b-2 promulgated under Section 12 of the Exchange Act.

A
participant in the SERP is also eligible to designate a beneficiary for a death benefit under the SERP. The death benefit, with respect to a participant who was a participant prior to
April 1, 2004, will be a lump sum amount equal to five times the final average annual
compensation of the participant. The death benefit for a participant who became a participant on or after April 1, 2004 will be equal to the present value of the participant's accrued benefit
under the SERP as of his or her death.

Other
terms of the SERP are described above in the "Compensation Discussion and Analysis" and the "Pension Benefits" sections.

Change in Control or Termination Under the Omnibus Plans

The 2006 Omnibus Plan sets forth the following provisions which, in the absence of specific provisions in the award agreements, govern the treatment of awards
upon termination of employment or service. Upon a participant's termination of employment for any reason other than cause, disability or death, options that are not exercisable at the time of
termination will be forfeited and those that are exercisable will remain exercisable for three months following the termination date, unless the participant dies within those three months, in which
case the options will expire one year after the termination date. Upon a participant's termination of employment due to disability or death, options that are not exercisable at the time of termination
will be forfeited and those that are exercisable will remain exercisable for one year following the termination date. Upon termination for cause, all of the participant's outstanding options will
expire on the termination date. Upon a participant's termination of employment with DRS for any reason, all of such participant's unvested shares of restricted stock are forfeited to DRS, unless, if
the termination is for any reason other than for cause, the Compensation Committee determines to permit the participant to retain such unvested shares. In the event of a forfeiture of shares of
restricted stock, DRS will repay the participant the amount paid, if any, by the participant for such forfeited shares. The 1996 Omnibus Plan contains substantially the same provisions regarding
termination.

In
the event of a change in control, unless all outstanding awards under the 2006 Omnibus Plan are converted, assumed or replaced by a successor with an award of equivalent economic
value containing equivalent terms, all outstanding awards under the 2006 Omnibus Plan shall become fully and immediately transferable, vested and exercisable; and, in addition, if the outstanding
awards under the 2006 Omnibus Plan are converted, assumed or replaced by a successor and a participant's employment is subsequently terminated without "cause" or by the executive for "good reason"
(each as defined in the 2006 Omnibus Plan), within 24 months of the change in control, any converted, assumed or replaced options that remain subject to restrictions or unvested shall become
fully and immediately transferable, vested and exercisable upon the date of such subsequent termination. The 1996 Omnibus Plan provides that upon a

165

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change
in control all outstanding awards under such plan shall immediately become fully exercisable, vested and transferable.

Change in Control and Termination Payments Under the Employment Agreements

Mr. Newman

Effective as of January 1, 2005, we entered into an amended and restated employment agreement with Mr. Newman ("Newman Employment Agreement") that
provides for his employment as Chairman of the Board, President and CEO of DRS through December 2007, with automatic one-year extensions commencing on January 1, 2006, unless either
party gives 90 days' notice. In addition to providing for base salary and employee benefits, including an automobile and reimbursement of all business-related automobile expenses, the Newman
Employment Agreement provides for a target annual bonus equal to 84% of Mr. Newman's salary, reimbursement of certain tax and financial consulting expenses up to a maximum of $20,000 per year,
and reimbursement of Mr. Newman's expenses, including reasonable legal fees up to a maximum of $20,000 incurred in connection with the negotiation of the Newman Employment Agreement and
reasonable legal fees incurred in connection with any non-frivolous dispute arising under the agreement.

If
Mr. Newman's employment is terminated by us without cause or by Mr. Newman for good reason (each, as defined in the Newman Employment Agreement), he would be entitled to
receive (a) a severance payment equal to the greater of (x) two or (y) the fraction, the numerator of which is the number of months remaining in the term and the denominator of
which is 12, times the sum of (i) his current annual base salary plus (ii) the bonus earned by him during the fiscal year preceding the year of termination, (b) a prorated portion
of his incentive bonus based on his prior year's incentive bonus, (c) continued coverage in our welfare benefit plans and perquisite plans (including use of a company-supplied automobile) for
the greater of (x) two or (y) the fraction, the numerator of which is the number of months remaining in the term and the denominator of which is 12, years and (d) outplacement. If
Mr. Newman's employment is terminated by us without cause or by Mr. Newman for good reason after a change in control (each, as defined in the Newman Employment Agreement), he is entitled
to receive (a) a payment equal to three times the sum of (i) his current annual base salary plus (ii) the bonus earned by him during the fiscal year preceding the year of
termination, (b) a prorated portion of his incentive bonus based on his prior year's incentive bonus, (c) continued coverage in our employee benefit plans for three years, and
(d) outplacement services. In addition, all awards granted to Mr. Newman under the 1996 Omnibus Plan and any successor plan will vest in full and options will remain exercisable for one
year following termination.

If
any payments or benefits received by Mr. Newman would be subject to the "golden parachute" excise tax under the Code, we would be required to pay him such additional amounts as
may be necessary to place him in the same after-tax position as if the payments had not been subject to the excise tax. The Newman Employment Agreement also
contains provisions that restrict Mr. Newman's ability to engage in any business that is competitive with the Company's business for a period of one year following his retirement or termination
by us for cause or by Mr. Newman without good reason.

Other Named Executive Officers

We have entered into employment agreements with each of Ms. Dunn, Mr. Schneider and Mr. Mehmel, each of which agreements was amended as of
August 18, 2004 and, as to Mr. Schneider, which was further amended as of June 8, 2006 (such agreements, as amended, the "Employment Agreements").

166

---





Each of the Employment Agreements has a term: Ms. Dunn's, for three years, and Mr. Schneider's and Mr. Mehmel's, for two years. In addition, the terms of the
Employment Agreement are extended automatically for one additional year periods (or two additional year periods in the case of Ms. Dunn) beginning on the first anniversary of the effective date
of each Employment Agreement unless at least 90 days' notice for non-extension is given by either us or the executive. Each of the Employment Agreements provides for the executive's
participation in our employee benefit and incentive plans and for the reimbursement of the executive's expenses, including reasonable legal fees, incurred in connection with any
non-frivolous dispute arising under the executive's Employment Agreement.

Under
these Employment Agreements, if the executive is terminated by us without cause or by the executive for good reason (each, as defined in the Employment Agreements), the executive
is entitled to severance benefits, including continuation of salary for 12 months (in the case of Ms. Dunn's agreement, salary continuation is for the remaining term of the agreement but
no less than 24 months), continuation of employee benefits for such period, plus payment of a pro rata portion of the bonus that would have been payable for the year of termination. If the
executive's employment is terminated under the same circumstances within two years following a change in control (as defined in the Employment Agreements), the executive is entitled to a lump sum cash
severance payment equal to three times the sum of (i) the executive's then-current salary plus (ii) the bonus earned by the executive for the preceding fiscal year and
continued employee benefits for three years following termination of employment. Under each of the Employment Agreements, if any payments or benefits received by the executive would be subject to the
"golden parachute" excise tax under the Code, we would be required to pay the executive such additional amounts as may be necessary to place the executive in the same after-tax position as
if the payments had not been subject to the excise tax. Each of the Employment Agreements provides that in the event the executive's employment is terminated by us for cause or by the executive
without good reason, for one year following such termination of employment the executive is not permitted to compete with DRS or to solicit, without our permission, the employment of any of our
employees.

Mr. Bowman
does not have an employment agreement providing for severance. However, he is eligible under the Executive Severance Plan, which provides for severance of 2.5 times the
sum of his base salary and bonus and continuation of benefits for 21/2 years if his employment is terminated by us without cause or by him for good reason within two years following a
change in control (as defined in the Executive Severance Plan). There is a cap reducing any payments that would constitute nondeductible excess parachute payments under Section 280G of the
Code, which is the highest amount payable without causing such non-deductibility. Mr. Bowman stepped down from his position as Executive Vice
President, Washington Operations, as of March 31, 2008 and assumed other responsibilities for the Company.

See
the discussion under "Employment and Change in Control Arrangements" within Item 11,Executive Compensation, Compensation Discussion and
Analysis,above, for additional information regarding the effect of the merger agreement between Finmeccanica and the Company on the employment arrangements of the Named
Executive Officers.

167

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ESTIMATE OF POTENTIAL PAYMENTS ON TERMINATION OR CHANGE IN CONTROL  AS OF FISCAL 2008 YEAR END

The following tables show potential payments upon termination or change in control to the Named Executive Officers, determined as if such events took place on
March 31, 2008 (the last business day of the fiscal year):

|Executive
Mark S. Newman                                                            |  | Discharge
for Willful,
Deliberate
or Gross
Misconduct |   | Quit
Without
Good
Reason |   | Death      |     | Termination
Due to
Disability |           | Change in
Control |   | Termination
Without
Cause
(TWOC)
or Quit for
Good Reason
(QFGR) |     | TWOC or
QFGR
Within
2 Years
After
Change in
Control |           
|------------------------------------------------------------------------------------ |  | ----------------------------------------------------- | - | ------------------------ | - | ---------- | --- | ----------------------------- | --------- | ----------------- | - | --------------------------------------------------------------- | --- | --------------------------------------------------- | ----------
|Two Times Base Pay                                                                   |  |                                                       |  |                          |   |           |     |                               |          |                   |   |                                                                |     |                                                     |          
|Two Times Bonus                                                                      |  |                                                       |  |                          |   |           |     |                               |          |                   |   |                                                                |     |                                                     |          
|Two Times Benefits(1)                                                                |  |                                                       |  |                          |   |           |     |                               |          |                   |   |                                                                |     |                                                     |          
|One Times Base Pay for Termination Due to Disability (Less Disability Plan Payments) |  |                                                       |  |                          |   |           |     |                               |          |                   | $ | 936,250                                                         |     |                                                     |          
|Three Months (or to end of fiscal year) for Termination Due to Death                 |  |                                                       |  |                          |   |           |     | $                             | 234,063   |                   |   |                                                                |     |                                                     |          
|Three Times Base Pay                                                                 |  |                                                       |  |                          |   |           |     |                               |          |                   |   |                                                                |     |                                                     |          
|Three Times Bonus                                                                    |  |                                                       |  |                          |   |           |     |                               |          |                   |   |                                                                |     |                                                     |          
|Three Times Benefits                                                                 |  |                                                       |  |                          |   |           |     |                               |          |                   |   |                                                                |     |                                                     |          
|Pro Rata Bonus(8)                                                                    |  |                                                       |  |                          |   |           |     |                               |          |                   |   |                                                                |     |                                                     |          
|Vesting of Equity Awards(2)                                                          |  |                                                       |  |                          |   |           |     | $                             | 4,378,352 |                   |   |                                                                |     | $                                                   | 4,378,352 
|Benefit Under SERP                                                                   |  |                                                       |  |                          | $ | 10,096,000 | (3) | $                             | 4,370,750 | (4)               | $ | 10,096,000                                                      | (3) | $                                                   | 16,114,000
|280G Gross-Up(7)                                                                     |  |                                                       |  |                          |   |           |     |                               |          |                   |   |                                                                |     |                                                     | 0         
|Total:                                                                               |  | $                                                     |  |                          | $ | 10,096,000 |     | $                             | 8,983,165 |                   | $ | 11,032,250                                                      |     | $                                                   | 20,492,352

|
|

|Executive
Robert F. Mehmel                                                          |  | Discharge
for Willful,
Deliberate
or Gross
Misconduct |  | Quit
Without
Good
Reason |        | Death |   | Termination
Due to
Disability |     | Change in
Control |         | Termination
Without
Cause
(TWOC)
or Quit for
Good Reason
(QFGR) |   | TWOC or
QFGR
Within
2 Years
After
Change in
Control |    
|------------------------------------------------------------------------------------ |  | ----------------------------------------------------- |  | ------------------------ | ------ | ----- | - | ----------------------------- | --- | ----------------- | ------- | --------------------------------------------------------------- | - | --------------------------------------------------- | ---
|One Times Base Pay                                                                   |  |                                                      |  |                          |       |       |   |                              |     |                   |        |                                                                 |   |                                                    |    
|One Times Benefits(1)                                                                |  |                                                      |  |                          |       |       |   |                              |     |                   |        |                                                                 |   |                                                    |    
|One Times Base Pay for Termination Due to Disability (Less Disability Plan Payments) |  |                                                      |  |                          |       |       |   |                              |     | $                 | 504,400 |                                                                 |   |                                                    |    
|Three Months (or to end of fiscal year) for Termination Due to Death                 |  |                                                      |  |                          |       |       | $ | 126,100                       |     |                   |        |                                                                 |   |                                                    |    
|Three Times Base Pay                                                                 |  |                                                      |  |                          |       |       |   |                              |     |                   |        |                                                                 |   |                                                    |    
|Three Times Bonus                                                                    |  |                                                      |  |                          |       |       |   |                              |     |                   |        |                                                                 |   |                                                    |    
|Three Times Benefits                                                                 |  |                                                      |  |                          |       |       |   |                              |     |                   |        |                                                                 |   |                                                    |    
|Pro Rata Bonus(8)                                                                    |  |                                                      |  |                          |       |       |   |                              |     |                   |        |                                                                 |   |                                                    |    
|Vesting of Equity Awards(2)                                                          |  |                                                      |  |                          |       |       | $ | 1,499,559                     |     |                   |        |                                                                 | $ | 1,499,559                                           |    
|Benefit Under SERP                                                                   |  |                                                      |  |                          | 94,000 | (3)   | $ | 2,290,333                     | (4) |                   | 94,000  | (3)                                                             | $ | 846,000                                             | (5)
|280G Gross-Up(7)                                                                     |  |                                                      |  |                          |       |       |   |                              |     |                   |        |                                                                 |   | 0                                                   |    
|Total:                                                                               |  |                                                      |  | $                        | 94,000 |       | $ | 3,915,992                     |     | $                 | 598,400 |                                                                 | $ | 2,345,559                                           |    

168

---



|
|

|Executive
Nina Laserson Dunn                                                        |  | Discharge
for Willful,
Deliberate
or Gross
Misconduct |   | Quit
Without
Good
Reason |   | Death   |     | Termination
Due to
Disability |           | Change in
Control |   | Termination
Without
Cause
(TWOC)
or Quit for
Good Reason
(QFGR) |     | TWOC or
QFGR
Within
2 Years
After
Change in
Control |          
|------------------------------------------------------------------------------------ |  | ----------------------------------------------------- | - | ------------------------ | - | ------- | --- | ----------------------------- | --------- | ----------------- | - | --------------------------------------------------------------- | --- | --------------------------------------------------- | ---------
|Two Times Base Pay                                                                   |  |                                                       |  |                          |   |        |     |                               |          |                   |   |                                                                |     |                                                     |         
|Two Times Benefits(1)                                                                |  |                                                       |  |                          |   |        |     |                               |          |                   |   |                                                                |     |                                                     |         
|One Times Base Pay for Termination Due to Disability (Less Disability Plan Payments) |  |                                                       |  |                          |   |        |     |                               |          |                   | $ | 390,000                                                         |     |                                                     |         
|Three Months (or to end of fiscal year) for Termination Due to Death                 |  |                                                       |  |                          |   |        |     | $                             | 97,500    |                   |   |                                                                |     |                                                     |         
|Three Times Base Pay                                                                 |  |                                                       |  |                          |   |        |     |                               |          |                   |   |                                                                |     |                                                     |         
|Three Times Bonus                                                                    |  |                                                       |  |                          |   |        |     |                               |          |                   |   |                                                                |     |                                                     |         
|Three Times Benefits                                                                 |  |                                                       |  |                          |   |        |     |                               |          |                   |   |                                                                |     |                                                     |         
|Pro Rata Bonus(8)                                                                    |  |                                                       |  |                          |   |        |     |                               |          |                   |   |                                                                |     |                                                     |         
|Vesting of Equity Awards(2)                                                          |  |                                                       |  |                          |   |        |     | $                             | 967,067   |                   |   |                                                                |     | $                                                   | 967,067  
|Benefit Under SERP                                                                   |  |                                                       | 0 |                          | $ | 823,000 | (3) | $                             | 1,871,267 | (4)               | $ | 823,000                                                         | (3) | $                                                   | 967,000  
|280G Gross-Up                                                                        |  |                                                       |  |                          |   |        |     |                               |          |                   |   |                                                                |     |                                                     | 0        
|Total:                                                                               |  | $                                                     | 0 |                          | $ | 823,000 |     | $                             | 2,935,834 |                   | $ | 1,213,000                                                       |     | $                                                   | 1,934,067

|
|

|Executive
Richard A. Schneider                                                      |  | Discharge
for Willful,
Deliberate
or Gross
Misconduct |  | Quit
Without
Good
Reason |     | Death |           | Termination
Due to
Disability |   | Change in
Control |     | Termination
Without
Cause
(TWOC)
or Quit for
Good Reason
(QFGR) |           | TWOC or
QFGR
Within
2 Years
After
Change in
Control |  
|------------------------------------------------------------------------------------ |  | ----------------------------------------------------- |  | ------------------------ | --- | ----- | --------- | ----------------------------- | - | ----------------- | --- | --------------------------------------------------------------- | --------- | --------------------------------------------------- | -
|One Times Base Pay                                                                   |  |                                                      |  |                         |     |       |          |                               |   |                  |     |                                                                 |          |                                                     | $
|One Times Benefits(1)                                                                |  |                                                      |  |                         |     |       |          |                               |   |                  |     |                                                                 |          |                                                     | $
|One Times Base Pay for Termination Due to Disability (Less Disability Plan Payments) |  |                                                      |  |                         |     |       |          |                               | $ | 390,000           |     |                                                                 |          |                                                     |  
|Three Times Base Pay                                                                 |  |                                                      |  |                         |     |       |          |                               |   |                  |     |                                                                 |          |                                                     |  
|Three Times Bonus                                                                    |  |                                                      |  |                         |     |       |          |                               |   |                  |     |                                                                 |          |                                                     |  
|Three Times Benefits                                                                 |  |                                                      |  |                         |     |       |          |                               |   |                  |     |                                                                 |          |                                                     |  
|Pro Rata Bonus(8)                                                                    |  |                                                      |  |                         |     |       |          |                               |   |                  |     |                                                                 |          |                                                     |  
|Vesting of Equity Awards(2)                                                          |  |                                                      |  |                         |     | $     | 967,067   |                               |   |                  |     | $                                                               | 967,067   |                                                     | $
|Benefit Under SERP                                                                   |  | 0                                                     |  | 637,000                  | (3) | $     | 1,842,000 | (4)                           |   | 637,000           | (3) | $                                                               | 1,501,000 | (5)                                                 |  
|280G Gross-Up(7)                                                                     |  |                                                      |  |                         |     |       |          |                               |   |                  |     |                                                                 | 0         |                                                     |  
|Total:                                                                               |  |                                                      |  | 637,000                  | (3) | $     | 2,809,067 |                               | $ | 1,027,000         |     | $                                                               | 2,468,067 |                                                     | $

|
|

|Executive
Michael L. Bowman |  | Discharge
for Willful,
Deliberate
or Gross
Misconduct |  | Quit
Without
Good
Reason |  | Death |  | Termination
Due to
Disability |  | Change in
Control |         | Termination
Without
Cause
(TWOC)
or Quit for
Good Reason
(QFGR) |   | TWOC or
QFGR
Within
2 Years
After
Change in
Control | 
|---------------------------- |  | ----------------------------------------------------- |  | ------------------------ |  | ----- |  | ----------------------------- |  | ----------------- | ------- | --------------------------------------------------------------- | - | --------------------------------------------------- | 
|21/2 Times Base Pay          |  |                                                      |  |                         |  |      |  |                              |  |                   |        |                                                                 |   |                                                    | 
|21/2 Times Bonus             |  |                                                      |  |                         |  |      |  |                              |  |                   |        |                                                                 |   |                                                    | 
|21/2 Times Benefits(1)       |  |                                                      |  |                         |  |      |  |                              |  |                   |        |                                                                 |   |                                                    | 
|Pro Rata Bonus(8)            |  |                                                      |  |                         |  |      |  |                              |  |                   |        |                                                                 |   |                                                    | 
|Vesting of Equity Awards(2)  |  |                                                      |  |                         |  |      |  |                              |  | $                 | 967,067 |                                                                 | $ | 967,067                                             | 
|Benefit Under SERP(9)        |  | 0                                                     |  | 0                        |  | 0     |  | 0                             |  |                   | 0       |                                                                 |   | 0                                                   | 
|280G Gross-Up(7)             |  |                                                      |  |                         |  |      |  |                              |  |                   |        |                                                                 |   |                                                    | 
|Total:                       |  |                                                      |  |                         |  |      |  |                              |  | $                 | 967,067 |                                                                 | $ | 967,067                                             | 

---

169

---



EQUITY COMPENSATION PLAN INFORMATION

The table below sets forth information about shares of DRS common stock that may be issued under our equity compensation plans as of March 31, 2008.

|Plan Category                                          |  | No. of Securities
to be Issued upon
Exercise of
Outstanding Options |   | Weighted Average
Exercise Price of
Outstanding Options |  | No. of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in Column(A))
|------------------------------------------------------ |  | ------------------------------------------------------------------- | - | ------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------
|
|Equity Compensation Plans Approved by Stockholders     |  | 2,152,418(a                                                         | ) | 36.54                                                  |  | 3,721,942                                                                                                                              
|Equity Compensation Plans Not Approved by Stockholders |  | N/A                                                                 |   | N/A                                                    |  | N/A                                                                                                                                    

---

Directors' Compensation

The Nominating/Governance Committee reviews and makes recommendations to the board regarding the form and amount of compensation for non-employee
directors. In making its determination, the board also considers the advice of Mercer. Directors who are employees of DRS receive no compensation for service on the board. Each
non-employee director receives an annual board cash retainer of $45,000. Each non-employee director also receives a cash fee of $2,500 for each board meeting
attended. No fees are paid for meetings attended by telephone. For service on committees, non-employee directors receive the following additional annual retainers: each member of the Audit
Committee receives $10,000 (the chair receives $20,000); each member of the Compensation Committee receives $5,000 (the chair receives $10,000), and each member of the Nominating/Governance Committee
and each member of the Ethics Committee receives $2,500.

In
addition, under the DRS Technologies, Inc. 2006 Omnibus Plan ("2006 Omnibus Plan") approved by our stockholders in August 2006, each non-employee director receives
an annual grant of non-qualified options to purchase 2,500 shares of DRS common stock on the date of the annual meeting of stockholders. Each new director receives
non-qualified options to

170

---



purchase
5,000 shares of DRS common stock on the date the director is elected or appointed. Options vest on the first anniversary of the date of grant. The purchase price for options granted under the
2006 Omnibus Plan is the fair market value on the date of grant. Effective as of April 5, 2007 to reflect corporate governance best practices, the 2006 Omnibus Plan was amended to define fair
market value as the closing price per share on the NYSE on the date of grant (or, if there is no reported sale on such date, the closing price per share on the last preceding date on which any
reported sale occurred). Prior to then, fair market value was defined as the closing price per share on the last preceding date on which shares were traded on the NYSE. The options granted to
directors are subject to the terms and conditions of the 2006 Omnibus Plan or any predecessor plan.

DIRECTOR COMPENSATION TABLE FOR FISCAL 2008

The following director compensation table sets forth fees, awards and other compensation paid to or earned by our non-employee directors for fiscal
2008:

|                    |  | Fees Earned
or Paid in
Cash(1)
$ |  | Option
Awards(2)
$ |  | Total
$
|------------------- |  | -------------------------------- |  | ------------------ |  | -------
|Ira Albom           |  | 65,000                           |  | 52,263             |  | 117,263
|Charles G. Boyd     |  | 57,500                           |  | 52,263             |  | 109,763
|Donald C. Fraser    |  | 65,000                           |  | 52,263             |  | 117,263
|William F. Heitmann |  | 75,000                           |  | 52,263             |  | 127,263
|Steven S. Honigman  |  | 65,000                           |  | 52,263             |  | 117,263
|C. Shelton James    |  | 65,000                           |  | 52,263             |  | 117,263
|Mark N. Kaplan      |  | 65,000                           |  | 52,263             |  | 117,263
|Stuart F. Platt     |  | 62,500                           |  | 52,263             |  | 114,763
|Dennis J. Reimer    |  | 67,500                           |  | 52,263             |  | 119,763
|Eric J. Rosen       |  | 55,000                           |  | 52,263             |  | 107,263

---

Director CompensationBasic
Annual Retainer
$

Supplemental
Annual Retainer
$

Meeting
Fees
$

Total
$Ira Albom

45,000

10,000

10,000

65,000Charles G. Boyd

45,000

2,500

10,000

57,500Donald C. Fraser

45,000

10,000

10,000

65,000William F. Heitmann

45,000

20,000

10,000

75,000Steven S. Honigman

45,000

10,000

10,000

65,000C. Shelton James

45,000

10,000

10,000

65,000Mark N. Kaplan

45,000

10,000

10,000

65,000Stuart F. Platt

45,000

7,500

10,000

62,500Dennis J. Reimer

45,000

12,500

10,000

67,500Eric J. Rosen

45,000



10,000

55,000


171

---





Aggregate Number of Options
Outstanding at FY EndIra Albom

25,000Charles G. Boyd

7,500Donald C. Fraser

22,500William F. Heitmann

20,000Steven S. Honigman

2,500C. Shelton James

7,500Mark N. Kaplan

25,000Stuart F. Platt

5,000Dennis J. Reimer

15,000Eric J. Rosen

27,500


Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows as of May 23, 2008 the number of shares of common stock beneficially owned by each director and director nominee, each executive
officer and by all of our directors, nominees and executive officers as a group.

|Name of Beneficial Owner                                                        |  | Amount and
Nature of
Beneficial
Ownership(a) |              | Percent
of Class
|------------------------------------------------------------------------------- |  | -------------------------------------------- | ------------ | ----------------
|Mark S. Newman                                                                  |  | 758,570                                      | (b)(c)(d)(e) | 1.8%            
|Ira Albom                                                                       |  | 27,300                                       | (c)          | *               
|Charles G. Boyd                                                                 |  | 6,500                                        | (c)          | *               
|Donald C. Fraser                                                                |  | 26,728                                       | (c)          | *               
|William F. Heitmann                                                             |  | 19,500                                       | (c)          | *               
|Steven S. Honigman                                                              |  | 0                                            | (c)          | *               
|C. Shelton James                                                                |  | 5,866                                        | (c)          | *               
|Mark N. Kaplan                                                                  |  | 31,000                                       | (c)          | *               
|Stuart F. Platt                                                                 |  | 13,150                                       | (c)          | *               
|Dennis J. Reimer                                                                |  | 13,000                                       | (c)          | *               
|Eric J. Rosen                                                                   |  | 25,000                                       | (c)          | *               
|Robert F. Mehmel                                                                |  | 210,696                                      | (c)(d)       | *               
|Phillip M. Balisle(f)                                                           |  | 6,050                                        | (c)(d)       | *               
|Michael L. Bowman(g)                                                            |  | 34,274                                       | (c)(d)       | *               
|Nina Laserson Dunn                                                              |  | 87,192                                       | (c)(d)       | *               
|Richard A. Schneider                                                            |  | 131,542                                      | (b)(c)(d)    | *               
|All directors, director nominees and executive officers as a group (16 persons) |  | 1,396,368                                    | (c)(d)       | 3.3%            

---

172

---







173

---



The
following table sets forth security ownership information, as of the date indicated, with respect to each holder, other than our directors, director nominees and executive officers,
known by us to own beneficially more than five percent of the Company's common stock.

|Name and Address of Beneficial Owner of Common Stock                          |  | Amount and
Nature of
Beneficial
Ownership |   | Percent
of
Class(a) |  
|----------------------------------------------------------------------------- |  | ----------------------------------------- | - | ------------------- | -
|Marsico Capital Management, LLC
1200 17th Street, Suite 1600
Denver, CO 80202 |  | 2,635,439(b                               | ) | 6.36                | %
|FMR LLC
82 Devonshire Street
Boston, MA 02109                                 |  | 2,862,766(c                               | ) | 6.91                | %
|                                                                              |  |                                           |   |                     |  

---

Item 13.    CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

Review and Approval of Related Person Transactions

The Nominating and Corporate Governance Committee is responsible for review, approval or ratification of "related person transactions" between the Company or its
subsidiaries and related persons. Under SEC rules, a related person is a director, officer, nominee for director or 5% stockholder of the Company since the beginning of the last fiscal year and their
immediate family members, as defined under applicable SEC rules. The board has adopted written policies and procedures that apply to any transaction or series of transactions in which the Company or a
subsidiary is a participant, the amount involved exceeds $120,000, and a related person has a direct or indirect material interest. The board has determined that a related person does not have a
direct or indirect material interest in the following categories of transactions:



174

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The
Company's General Counsel determines whether a transaction would constitute a Related Person Transaction under the above criteria and refers any such transactions to the Nominating
and Corporate Governance Committee. The Nominating and Corporate Governance Committee may approve, ratify, reject or take other action with respect to the transaction in its discretion.

Related Person Transactions

The Company currently leases a building in Oakland, New Jersey owned by LDR Realty LLC, a limited liability company that was wholly owned, in equal
amounts, by David E. Gross, DRS's co-founder and former President and Chief Technical Officer, and the late Leonard Newman, DRS's co-founder and former Chairman of the Board,
Chief Executive Officer and Secretary and the father of Mark S. Newman, DRS's current Chairman of the Board, President and Chief Executive Officer. Following Leonard Newman's death in November 1998,
Mrs. Ruth Newman, the wife of Leonard Newman and the mother of Mark S. Newman, succeeded to Leonard Newman's interest in LDR Realty LLC. The lease agreement, with a monthly rental of
$21.2 thousand, expired on April 30, 2007. The new lease commenced May 1, 2007 with the new monthly rental commencing on June 1, 2007 of $21.8 thousand for the first
year with annual increases of approximately 3% every June 1. The lease expires August 31, 2010.

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

Skadden,
Arps, Slate, Meagher & Flom LLP, a law firm to which a member of our board of directors is of counsel, provides legal services to us.

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG LLP ("KPMG") audited our annual consolidated financial statements for fiscal 2008 and the effectiveness of our internal control over financial
reporting as of March 31, 2008. In addition, KPMG reviews our interim consolidated financial statements.

We
have been advised by KPMG that KPMG are independent accountants with respect to DRS within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, each as
amended, and the requirements of the Public Company Accounting Oversight Board.

Disclosure of Auditor Fees

The table below sets forth the total amount billed to us by KPMG for services performed for fiscal 2008 and fiscal 2007, and breaks down these amounts by the
category of service:

|Fiscal Year |  | Audit Fees |           | Audit-Related Fees |   | Tax Fees |  | All Other Fees
|----------- |  | ---------- | --------- | ------------------ | - | -------- |  | --------------
|2008        |  | $          | 5,755,000 |                    | $ | 174,000  |  | $             
|2007        |  | $          | 6,292,000 |                    | $ | 133,000  |  | $             

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Audit Fees.Audit fees we paid to KPMG during fiscal 2008 and 2007 were for professional services for the audit of our
internal control over financial reporting and the audit of our consolidated financial statements included in Form 10-K, review of the unaudited consolidated financial statements
included in Forms 10-Q, and for services that are normally provided by KPMG in connection with statutory and regulatory filings or engagements, including issuance of comfort letters
and consents.

Audit-Related Fees.Audit-related fees paid to KPMG during fiscal 2008 and 2007 were for assurance and related services that
traditionally are performed by the independent auditors, principally audits of employee benefit plans.

Tax Fees.Tax fees are fees we paid KPMG during fiscal 2008 and fiscal 2007 related to tax compliance and general tax
consulting, tax reviews of our stock offering and acquisitions, individual expatriate tax assistance and IRS examination assistance.

All Other Fees.We did not engage KPMG to provide any services other than as set forth above during fiscal 2008 and fiscal
2007. During fiscal 2008 and fiscal 2007, KPMG provided to us at no cost a subscription to KPMG's online accounting research tool.

The
Audit Committee has considered all services provided by the independent auditors to us and concluded this involvement is compatible with maintaining the auditors' independence.

The
Audit Committee is responsible for appointing the Company's independent registered public accounting firm and approving the terms of the independent registered public accounting
firms' services. The Audit Committee has established a policy for the pre-approval of all audit and permissible non-audit services to be provided by our independent registered
public accounting firm. This policy describes the permitted audit, audit-related, tax and other services (collectively, "Disclosure Categories") that the independent registered public accounting firm
may perform. The policy requires that for each fiscal year, a description of the services ("Service List") anticipated to be performed by the independent auditors in each of the Disclosure Categories
in the ensuing fiscal year be presented by the Company's CFO to the Audit Committee for approval.

Any
requests for audit, audit-related, tax and other services not covered by the Service List must be submitted to the Audit Committee by the CFO for specific pre-approval,
irrespective of the amount, and work cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings of the Audit Committee.
However, the authority to grant specific pre-approval between meetings, as necessary, has been delegated to the Chairman of the Audit Committee. The Chairman updates the full Audit
Committee at the next regularly scheduled meeting for any interim approvals granted and such approvals are ratified by the full committee.

On
a quarterly basis, the Audit Committee reviews the status of services and fees incurred year to date, as compared with the original Service List and the forecast of remaining services
and fees for the fiscal year.

All
services performed by KPMG for fiscal years 2008 and 2007 were pre-approved by the Audit Committee in accordance with its policy. Services anticipated to be performed by
KPMG for fiscal 2009 also have been approved in accordance with the policies and procedures of the Audit Committee.

176

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PART IV

Item 15.    Exhibits and Financial Statement Schedules

|(a) |  | The following are documents filed as part of this report: |  |                                                                                                                                                                                                               
|--- |  | --------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | 1.                                                        |  | Financial Statements                                                                                                                                                                                          
|    |  |                                                           |  | See Item 8. Financial Statements and Supplementary Data                                                                                                                                                       
|    |  | 2.                                                        |  | Financial Statement Schedules                                                                                                                                                                                 
|    |  |                                                           |  | Schedule IIValuation and Qualifying Accounts                                                                                                                                                                 
|    |  |                                                           |  | All other financial statement schedules have been omitted because they are either not required, not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.
|(b) |  | Exhibits                                                  |  |                                                                                                                                                                                                               
|    |  | See Exhibits Index following the signature page hereto    |  | 180                                                                                                                                                                                                           

177

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.
|------------------- |  | ----------------------
|Dated: May 30, 2008 |  |                       
|                    |  |                       

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|Signature                                   |  | Title                                                        |  | Date        
|------------------------------------------- |  | ------------------------------------------------------------ |  | ------------
|                                            |  |                                                              |  |             
|/s/MARK S. NEWMANMark S. Newman             |  | Chairman of the Board, President and Chief Executive Officer |  | May 30, 2008
|/s/RICHARD A. SCHNEIDERRichard A. Schneider |  | Executive Vice President, Chief Financial Officer            |  | May 30, 2008
|/s/IRA ALBOMIra Albom                       |  | Director                                                     |  | May 30, 2008
|/s/CHARLES G. BOYDCharles G. Boyd           |  | Director                                                     |  | May 30, 2008
|/s/DONALD C. FRASERDonald C. Fraser         |  | Director                                                     |  | May 30, 2008
|/s/WILLIAM F. HEITMANNWilliam F. Heitmann   |  | Director                                                     |  | May 30, 2008
|/s/STEVEN S. HONIGMANSteven S. Honigman     |  | Director                                                     |  | May 30, 2008

178

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|/s/C. SHELTON JAMESC. Shelton James |  | Director |  | May 30, 2008
|----------------------------------- |  | -------- |  | ------------
|/s/MARK N. KAPLANMark N. Kaplan     |  | Director |  | May 30, 2008
|/s/STUART F. PLATTStuart F. Platt   |  | Director |  | May 30, 2008
|/s/DENNIS J. REIMERDennis J. Reimer |  | Director |  | May 30, 2008
|/s/ERIC J. ROSENEric J. Rosen       |  | Director |  | May 30, 2008

179

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EXHIBIT INDEX

Certain of the following exhibits, designated with an asterisk (*) are filed herewith. The exhibits not so designated have been filed previously by the Company
with the Securities and Exchange Commission and are incorporated herein by reference to the documents indicated in brackets, following the descriptions of such exhibits.

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                    
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Amended and Restated Certificate of Incorporation of DRS Technologies, Inc. [Registration Statement on Form S-1, File No. 33-64641, Post-Effective Amendment No. 1 filed on May 10, 1996, Exhibit 3.4]                                                                                                                                                                         
|3.2         |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of DRS Technologies, Inc. [Form 8-K filed on August 14, 1997, Exhibit 3.9]                                                                                                                                                                                                                   
|3.3         |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of DRS Technologies, Inc. [Form 10-Q filed on August 14, 2001, Exhibit 3.9]                                                                                                                                                                                                                  
|3.4         |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of DRS Technologies, Inc. [Registration Statement on Form S-4, File No. 333-112423 filed on February 2, 2004, Exhibit 3.4]                                                                                                                                                                   
|3.5         |  | Amended and Restated By-Laws of the Company [Form 10-K filed on June 14, 2004, Exhibit 3.5]                                                                                                                                                                                                                                                                                    
|3.6         |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of DRS Technologies, Inc. [Form 10-K filed on June 9, 2006, Exhibit 3.6]                                                                                                                                                                                                                     
|4.1         |  | Registration Rights Agreement, dated as of September 22, 1995, between the Company and Forum Capital Markets L.P., as initial purchaser [Registration Statement on Form S-2, File No. 33-64641, filed on November 30, 1995,
Exhibit 4.3]                                                                                                                                       
|4.2         |  | Registration Rights Agreement dated as of October 30, 2003, by and among the Company, each of the Guarantors (as defined therein), and Bear, Stearns & Co., Wachovia Capital Markets, LLC and Fleet Securities, Inc., as
initial purchasers, relating to the Company's 67/8% Senior Subordinated Notes due 2013 [Form 10-Q filed on November 14, 2003, Exhibit 10.2]           
|4.3         |  | Registration Rights Agreement, dated as of December 23, 2004, by and among the Company, each of the Guarantors (as defined therein), and Bear, Stearns & Co. Inc., Wachovia Capital Markets, LLC and Banc of America
Securities, LLC, as initial purchasers, relating to the Company's 67/8 Senior Subordinated Notes due 2013. [Form 10-K filed on June 14, 2005, Exhibit 4.2]
|4.4         |  | Indenture, dated as of October 30, 2003, among the Company, the Guarantors (as defined therein) and The Bank of New York, as trustee, relating to the Company's 67/8% Senior Subordinated Notes due 2013 [Form 10-Q
filed on November 14, 2003, Exhibit 4.1]                                                                                                                   
|4.5         |  | Form of Indenture, between DRS Technologies, Inc. and The Bank of New York, as trustee, relating to Senior Debt Securities [Registration Statement on Form S-3 ASR, File No. 333-130926, filed on January 9, 2006, Exhibit 4.1]                                                                                                                                                

180

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|4.6   |  | First Supplemental Indenture, dated as of January 31, 2006, among DRS Technologies, Inc., the Guarantors (as defined therein) and The Bank of New York, as trustee, relating to $350,000,000 aggregate principal amount of
65/8% Senior Notes due 2016. [Form 8-K filed on February 6, 2006, Exhibit 4.1]          
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.7   |  | Form of Indenture between DRS Technologies, Inc. and The Bank of New York, as trustee, relating to Subordinated Debt Securities [Registration Statement on Form S-3 ASR, File No. 333-130926, filed on January 9, 2006,
Exhibit 4.2]                                                                               
|4.8   |  | First Supplemental Indenture, dated as of January 31, 2006, among DRS Technologies, Inc., the Guarantors (as defined therein) and The Bank of New York, as trustee, relating to $250,000,000 aggregate principal amount of
75/8% Senior Subordinated Notes due 2018. [Form 8-K filed February 6, 2006, Exhibit 4.2]
|4.9   |  | Indenture, dated as of January 31, 2006, among DRS Technologies, Inc., the Guarantors (as defined therein) and The Bank of New York, as trustee, relating to $300,000,000 aggregate principal amount of 2.00% Convertible Senior Notes due 2026.
[Form 8-K filed February 6, 2006, Exhibit 4.3]                    
|10.1  |  | Amended and Restated 1996 Omnibus Plan [Registration Statement on Form S-4, File No. 333-112423, filed on February 2, 2004, Exhibit 10.3]                                                                                                                                                                          
|10.2  |  | Joint Venture Agreement, dated as of November 3, 1993, by and between DRS Systems Management Corporation and Laurel Technologies, Inc. [Form 10-Q, filed on February 16, 1993, Exhibit 6(a)(3)]                                                                                                                    
|10.3  |  | Partnership Agreement dated December 13, 1993, by and between DRS Systems Management Corporation and Laurel Technologies, Inc. [Form 10-Q, filed on February 16, 1993, Exhibit 6(a)(5)]                                                                                                                            
|10.4  |  | Waiver Letter dated as of December 13, 1993, by and between DRS Systems Management Corporation and Laurel Technologies, Inc. [Form 10-Q, filed on February 16, 1993, Exhibit 6(a)(4)]                                                                                                                              
|10.5  |  | Amendment to Partnership Agreement of Laurel Technologies Partnership by and among Laurel Technologies, Inc., now known as Sunburst Management Inc., and DRS Systems Management Corporation, effective August 3, 1999. [Form 10-K,
filed on June 14, 2005, Exhibit 10.4]                                           
|10.6  |  | Employment, Non-Competition and Termination Agreement, dated July 20, 1994, between Diagnostic/Retrieval Systems, Inc. and David E. Gross [Form 10-Q, filed on August 15, 1994, Exhibit 1]                                                                                                                         
|10.7  |  | Employment Agreement, dated as of November 20, 1996, by and between the Company and Mark S. Newman [Form 10-K filed on June 29, 1999, Exhibit 10.47]                                                                                                                                                               
|10.8  |  | Amendment No. 1 to the Employment Agreement between DRS Technologies, Inc. and Mark S. Newman, dated August 18, 2004. [Form 10-Q filed on November 11, 2004, Exhibit 10.1]                                                                                                                                         
|10.9  |  | Amended and Restated Employment Agreement between DRS Technologies Inc. and Mark S. Newman, executed June 10, 2005. [Form 10-K filed on June 14, 2005, Exhibit 10.13]                                                                                                                                              
|10.10 |  | Employment Agreement, dated as of April 30, 1997, by and between the Company and Nina Laserson Dunn [Form 10-K filed on June 29, 1999, Exhibit 10.48]                                                                                                                                                              

181

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|10.11 |  | Amendment No. 1 to the Employment Agreement between DRS Technologies, Inc. and Nina Laserson Dunn, dated August 18, 2004. [Form 10-Q filed on November 9, 2004, Exhibit 10.3]                                                                                                                                                                                                                          
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.12 |  | Employment Agreement, dated as of February 19, 1999, by and between the Company and Richard A. Schneider [Form 10-K filed on June 29, 1999, Exhibit 10.49]                                                                                                                                                                                                                                             
|10.13 |  | Amendment No. 1 to the Employment Agreement between DRS Technologies, Inc. and Richard A. Schneider, dated August 18, 2004. [Form 10-Q filed on November 9, 2004, Exhibit 10.5]                                                                                                                                                                                                                        
|10.14 |  | Amendment No. 2 to the Employment Agreement between DRS Technologies, Inc. and Richard A. Schneider, dated June 8, 2006. [Form 10-K filed on June 9, 2006, Exhibit 10.14]                                                                                                                                                                                                                              
|10.15 |  | Employment Agreement, dated as of June 26, 2002, by and between the Company and Robert F. Mehmel [Form 10-K filed on June 28, 2002, Exhibit 10.36]                                                                                                                                                                                                                                                     
|10.16 |  | Amendment No. 1 to the Employment Agreement between DRS Technologies, Inc. and Robert F. Mehmel, dated August 18, 2004. [Form 10-Q filed on November 9, 2004, Exhibit 10.4]                                                                                                                                                                                                                            
|10.17 |  | Agreement and Plan of Merger, among DRS Technologies, Inc., Maxco, Inc. and Engineered Support Systems, Inc., dated September 21, 2005 [Form 8-K filed on September 23, 2005, Exhibit 2.1]                                                                                                                                                                                                             
|10.18 |  | Third Amended and Restated Credit Agreement, dated as of January 31, 2006, by and among DRS Technologies, Inc., the lenders party to the agreement and the lenders who may become party to the agreement, Wachovia Bank, National Association,
Bear Stearns Corporate Lending Inc., and Bank of America, N.A., BNP Paribas and Calyon, New York Branch. [Form 8-K filed February 6, 2006, Exhibit 10.1]
|10.19 |  | Modification Number 1 to Amendment to Partnership Agreement of Laurel Technologies Partnership, dated as of December 30, 2005, by and between Laurel Technologies, Inc., now known as Sunburst Management, Inc., and DRS Systems
Management Corporation [Form 10-K filed on June 9, 2006, Exhibit 10.19]                                                                                               
|10.20 |  | Amendment No. 2 to the DRS Technologies, Inc. Amended and Restated 1996 Omnibus Plan Effective July 6, 2005. [Form 10-K filed on June 9, 2006, Exhibit 10.20]                                                                                                                                                                                                                                          
|10.21 |  | Amendment to DRS Technologies, Inc. Amended and Restated 1996 Omnibus Plan [Form 10-K filed on June 14, 2004, Exhibit 10.18]                                                                                                                                                                                                                                                                           
|10.22 |  | Amended and Restated DRS Technologies, Inc. Supplemental Executive Retirement Plan, Effective March 31, 2005. [Form 10-K filed on June 15, 2005, Exhibit 10.27]                                                                                                                                                                                                                                        
|10.23 |  | DRS Technologies, Inc. 2006 Omnibus Plan [Form 10-Q filed on August 9, 2006, Exhibit 10.1]                                                                                                                                                                                                                                                                                                             
|10.24 |  | Amendment to DRS Technologies Inc. 2006 Omnibus Plan effective April 5, 2007.                                                                                                                                                                                                                                                                                                                          
|10.25 |  | Agreement and Plan of Merger Dated as of May 12, 2008 Among FinmeccanicaSocietá per Azioni, Dragon Merger Sub, Inc. and DRS Technologies, Inc. [Form 8-K filed May 13, 2008, Exhibit 1.1]                                                                                                                                                                                                             
|*21   |  | List of subsidiaries of the Company, as of March 31, 2008                                                                                                                                                                                                                                                                                                                                              
|*23.1 |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                                                                                                                                    

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|*31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------
|*31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
|*32.1 |  | Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    
|*32.2 |  | Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    

183

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