Exhibit 13


                 Five-Year Financial Summary


  The   following  table  sets  forth  selected   historical
information  for the Company and the Company's  predecessor.
The  selected historical information as of October 23,  1998
and   for  the  period  then  ended  was  derived  from  the
predecessor  company's  audited financial  statements.   The
predecessor company is PEI Acquisitions Corporation ("PAC"),
which was incorporated on October 24, 1996.  On October  23,
1998,  PEI  Electronics Holding Corp. ("PEH"),  through  its
wholly-owned subsidiary PEI Holdings Corp. ("PHC"), acquired
all  of  the outstanding common stock of PAC.  Subsequently,
PHC was merged into PAC, and PAC was merged into its wholly-
owned  subsidiary, PEI Electronics, Inc.  On July 20,  1999,
PEH  changed  its  name to Integrated Defense  Technologies,
Inc.  ("IDT"  or  "the Company").  On August  6,  1999,  the
Company acquired substantially all of the assets and assumed
certain  liabilities  of  the Sierra  Research  division  of
Sierra  Technologies, Inc. and the Zeta division  of  Sierra
Networks,  Inc., and on September 29, 2000, it acquired  all
of  the  outstanding  common stock of  Tech-Sym  Corporation
("Tech-Sym").  The subsidiaries of Tech-Sym retained by  the
Company   include  Metric  Systems  Corporation  ("Metric"),
Continental  Electronics  ("Continental"),  and   Enterprise
Electronics  Corporation  ("Enterprise").   On  November  1,
2002,  the Company acquired substantially all of the  assets
and  assumed  certain  of  the liabilities  of  BAE  SYSTEMS
Advanced Systems Gaithersburg, Maryland operation (now known
as   "Signia").   Concurrent  with  this  acquisition,   the
Company's  Zeta division was reorganized and  combined  with
Signia.   The  Company's  financial statements  reflect  the
results  of operations of the acquired entities since  their
respective   dates  of  acquisition,  and  as  such,   these
acquisitions affect the comparability of the financial  data
for the periods presented.

  The  following  selected historical financial  information
should  be read in conjunction with "Management's Discussion
and   Analysis  of  Financial  Condition  and   Results   of
Operations"   and   the  Company's  consolidated   financial
statements contained in this Annual Report.


<TABLE>
<CAPTION>

                                                                 The Company                       Predecessor
                                          -------------------------------------------------------- -----------
                                                                                      October 24,   January 1,
                                                                                        1998 to      1998 to
                                                    Year ended December 31,           December 25,  October 23,
                                              2002       2001      2000       1999       1998          1998
                                          -------------------------------------------------------- -----------
                                                        (In thousands except per share amounts)

<S>                                        <C>        <C>        <C>        <C>          <C>         <C>
Revenues                                   $304,361   $263,952   $180,573   $102,232     $10,198     $38,796
Goodwill impairment charge (1)               (3,012)       ---        ---        ---         ---         ---
Income from operations                       26,749     26,001     14,981      8,078         901       3,994
Refinancing costs (1)                       (25,748)       ---     (1,492)    (2,840)        ---         ---
Net income (loss)                            (4,107)     2,299        605       (616)         25       2,916
Earnings (loss) per share, basic               (.21)       .17        .06       (.06)        ---         ---
                           diluted             (.21)       .15        .05       (.06)        ---         ---
Working capital at end of period            110,668     73,306     75,176     18,131       9,247       7,281
Total assets at end of period               447,700    278,298    284,895    121,089      47,353      14,601
Total debt at end of period                 218,708    171,225    177,710     66,824      31,741         ---
Stockholders' equity at end of period       163,409     50,180     54,584     29,800      10,025       5,894

</TABLE>

 (1)  See  Notes 3 and 5 of Notes to Consolidated  Financial
      Statements   contained  in  this  Annual  Report   for   a
      discussion  of  the  refinancing and  goodwill  impairment
      charges  incurred  by the Company during  the  three  year
      period ended December 31, 2002.  The goodwill impairment
      charge is included in the determination of income from
      operations for the year ended December 31, 2002.









           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS


  General

  Integrated  Defense Technologies, Inc. (the "Company")  is
a   designer  and  developer  of  advanced  electronics  and
technology   products  for  the  defense  and   intelligence
industries. The Company's products are installed on or  used
in  support of a broad array of military platforms in  order
to  enhance  their operational performance or  extend  their
useful  lives.  The Company's customers include all  branches
of  the  military  services, major  domestic  prime  defense
contractors  such  as The Boeing Company,  General  Dynamics
Corporation,  Lockheed Martin Corporation, Northrop  Grumman
Corporation,    Raytheon   Company   and   United    Defense
Industries,  Inc.,  foreign  defense  contractors,   foreign
governments and U.S. Government agencies.

  Most  of  the  Company's revenue is derived from  programs
funded by the Department of Defense. Revenue from direct and
indirect  U.S. Government business represented approximately
84% of the Company's revenue for the year ended December 31,
2002,  compared to 77% for the year ended December 31,  2001
and 84% for the year ended December 31, 2000.  A significant
portion  of  the Company's sales is derived from  strategic,
long-term  programs and from programs for which the  Company
is the incumbent supplier or has been the sole provider for
many years. Approximately 70% of the Company's sales for the
year ended December 31, 2002 were generated from sole-source
contract  relationships on programs that comprise  essential
components of the military's force structure.

  The   Company's   contracts  typically   fall   into   two
categories:  cost-plus and fixed-price contracts.  Contracts
for   research,  engineering,  prototypes,  and  repair  and
maintenance are typically cost-plus arrangements.  Customer-
funded research and development costs are typically included
in the Company's contracts and booked as revenue and cost of
revenue.

  In  a  fixed-price contract, the price is not  subject  to
adjustment based upon cost incurred to perform the  required
work  under  the  contract.  In a  cost-plus  contract,  the
Company  is reimbursed for allowable incurred costs  plus  a
fee,  which may be fixed or variable. The price on  a  cost-
plus  contract  is  based on allowable  costs incurred,  but
generally is subject to contract funding limitations.  Under
fixed-price  contracts the Company agrees to perform  for  a
predetermined contract price. Although fixed-price contracts
generally  permit the Company to keep profits if  costs  are
less  than  projected,  the  Company  bears  the  risk  that
increased or unexpected costs may reduce profit or cause the
Company to sustain losses on the contracts. Generally, fixed-
price  contracts  offer higher margins than  cost-plus  type
contracts.    For  the  year ended December  31,  2002,  the
Company generated approximately 82% of its sales from fixed-
price   contracts  and  approximately  18%  from   cost-plus
contracts,  providing a mix of higher profit margin  (fixed-
price)  business  and predictable profitability  (cost-plus)
business.

  All  of  the Company's domestic U.S. Government  contracts
and  subcontracts  are  subject to audit  and  various  cost
controls and include standard provisions for termination  at
the  convenience of the U.S. Government or for default.  The
Department of Defense generally has the right to  object  to
the  costs  as not allowable or as unreasonable,  which  can
increase  the  level of costs the Company bears.  Multi-year
U.S. Government contracts and related orders are subject  to
cancellation  if  funds  for contract  performance  for  any
subsequent   year  are  not  available.  Foreign  government
contracts  generally include comparable provisions  relating
to  termination at the convenience of the foreign government
or for default.

  Through  December  31,  2002, the  Company  accounted  for
substantially  all of its contracts using the percentage-of-
completion   method  of  accounting.   Going  forward,   the
Company's mix of percentage-of-completion revenues to  total
revenues will decline to approximately 80%, as the Company's
newly-acquired Signia business consists primarily of shorter-
term  production jobs for which revenues are not  recognized
until  delivery.  Under the percentage-of-completion  method
of  accounting, revenue is matched with the cost incurred on
each  unit  produced at the time the Company recognizes  its
sale  based  upon  the estimate of gross profit  margin  the
Company  expects to receive over the life of  the  contract.
The  Company  currently  evaluates its  estimates  of  gross
margin on a monthly basis. In addition, the Company uses the
cumulative  catch-up  method to  recognize  its  changes  in
estimates  of sales and gross margins during the  period  in
which those changes are determined. The Company charges  any
anticipated losses on a contract to operations  as  soon  as
those losses are determined. The principal components of the
Company's   contract   cost  of   revenue   are   materials,
subcontractor costs, labor and overhead. The Company charges
all of these costs to the respective contracts as incurred.

  The  Company  expenses operating costs  such  as  selling,
general   and   administrative,  independent  research   and
development costs and bid and proposal costs in  the  period
incurred.   The   major  components  of  these   costs   are
compensation and overhead. Capitalized debt issuance  costs,
qualifying software development costs and intangible  assets
are amortized over their useful lives, with the amortization
of  capitalized  software development costs  included  as  a
component  of  the  Company's cost  of  revenue.   Effective
January  1,  2002,  in  accordance with  the  provisions  of
Financial  Accounting Standards Board ("FASB") Statement  of
Financial  Accounting Standards No. 142, Goodwill and  Other
Intangible  Assets  ("SFAS  142"),  the  Company  no  longer
amortizes  its goodwill, although it must test its  goodwill
periodically for impairment.

  The  Company's  results  of operations,  particularly  its
revenue  and  its  cash flows, may vary  significantly  from
period  to  period depending upon the timing of delivery  of
finished  products, the terms of contracts and the level  of
export sales. As a result, period-to-period comparisons  may
show  substantial changes disproportionate to the  Company's
underlying business activity. Accordingly, the Company  does
not  believe  that its quarterly results of  operations  are
necessarily indicative of results for future periods.

  Forward-Looking Statements

  The information contained in this report includes forward-
looking statements, including in particular statements about
plans,   strategies   and  prospects   under   the   heading
"Management's Discussion and Analysis of Financial Condition
and  Results  of  Operations." Words such as "may,"  "will,"
"expect,"   "anticipate,"  "believe,"  "estimate,"   "plan,"
"intend"  and  similar expressions in this  report  identify
forward-looking statements. These forward-looking statements
are based on current views with respect to future events and
financial  performance of the Company based  on  assumptions
made  by  management. Actual results could differ materially
from those projected in the forward-looking statements.

  The  Company's forward-looking statements are  subject  to
risks and uncertainties, including:

  o  the Company's dependence on the defense industry and
     the business risks peculiar to that industry, including
     changing  priorities due to geopolitical conditions  or
     otherwise, or reductions in the U.S. Government defense
     budget;

  o  the  Company's  ability to obtain future  government
     contracts on a timely basis;

  o  the  availability of government funding and customer
     requirements;

  o  the  potential  development  of  new  and  competing
     technologies  and  the  Company's  ability  to  compete
     technologically;

  o  difficulties encountered in the integration of acquired
     businesses;

  o  general   economic  conditions,   the   competitive
     environment of the defense industry, international business
     and political conditions and timing of awards and contracts;
     and

  o  other factors described under "Factors Which May Affect
     Financial Condition and Future Results".

  As  for  the  forward-looking statements  that  relate  to
future  financial  results  and  other  projections,  actual
results  could be different due to the inherent  uncertainty
of  estimates, forecasts and projections, and may be  better
or  worse  than  anticipated. Given these uncertainties,  no
reliance  should  be  placed on forward-looking  statements.
Forward-looking statements represent the Company's estimates
and  assumptions  only as of the date they  were  made.  The
Company  expressly disclaims any duty to provide updates  to
forward-looking statements and the estimates and assumptions
associated with them after the date of this report in  order
to  reflect  changes  in circumstances  or  expectations  or
occurrence  of  unanticipated events, except to  the  extent
required by applicable securities laws.


  Corporate History

  The  Company's  equity sponsor, The Veritas Capital  Fund,
L.P., acquired PEI Electronics Inc. ("PEI") in October  1998
(the  "1998  Acquisition").  PEI  served  as  the  Company's
foundation  in acquiring other businesses. In  August  1999,
the   Company  acquired Sierra Research   ("Sierra")  and
the  Zeta  division  of   Sierra Networks,  Inc.  ("Zeta")
(the  "1999  Acquisition"). In September  2000, the  Company
acquired Tech-Sym  Corporation, retaining its Metric Systems
Corporation   ("Metric") subsidiary,    its    Continental
Electronics division ("Continental"),  and  its  Enterprise
Electronics  Corporation ("Enterprise")  subsidiary (the
"2000  Acquisition") and concurrently sold  two  other
subsidiaries of Tech-Sym Corporation to companies  owned  by
The  Veritas  Capital Fund, L.P. On November  1,  2002,  the
Company acquired  substantially  all of  the assets and assumed
certain of the liabilities of BAE SYSTEMS  Advanced Systems,
Gaithersburg, Maryland  operation (now   known  as  "Signia")
(the "2002 Acquisition").   Concurrent  with   the   2002
Acquisition, Zeta was reorganized and combined with  Signia.
The  Company's historical financial statements  reflect  the
results  of operations of the acquired companies from  their
respective  acquisition  dates. Accordingly,  the  Company's
consolidated  financial  statements  for  the   year   ended
December  31, 2000 include only the October through December
results  of  Metric,  Enterprise and  Continental,  and  its
consolidated  financial  statements  for  the   year   ended
December 31, 2002 include only the November through December
results  of  Signia.   See Note 4 of Notes  to  Consolidated
Financial Statements contained in this Annual Report  for  a
complete  discussion of these acquisitions and their  impact
on the Company's consolidated financial position and results
of operations.

  Metric   and   Sierra  are  included  in   the   Company's
Electronic  Combat Systems business segment,  PEI  comprises
the   Diagnostics  &  Power  Systems  segment,   and   Zeta,
Enterprise,  Continental  and Signia  are  included  in  the
Communications & Surveillance Systems segment.

  Results of Operations

  The  following  tables summarize the  Company's  operating
results  as a percentage of revenue and its business segment
data for the three years ended December 31, 2002:
--------------------------------------------------------------------------------
Year ended December 31,                                  2002     2001     2000
--------------------------------------------------------------------------------

Statement of operations and other financial information:

Revenue                                                  100.0%  100.0%   100.0%
Cost of revenue                                           72.2    69.5     72.2
--------------------------------------------------------------------------------

  Gross margin                                            27.8    30.5     27.8

Selling, general and administrative expenses              12.6    13.2     11.4
Research and development and bid and proposal expenses     5.0     4.8      4.9
Goodwill impairment charge                                 1.0     ---      ---
Amortization of patents, debt issuance costs and goodwill   .4     2.7      3.2
--------------------------------------------------------------------------------

  Income from operations                                   8.8%    9.8%     8.3%
================================================================================
EBITDA (1)                                                13.9%   16.6%    15.3%
================================================================================



Operations  information  by  segment  and  other
  financial information:
(In millions)

Revenue:
 Electronic Combat Systems                              $153.0  $130.1    $84.4
 Diagnostics & Power Systems                              84.1    72.2     60.2
 Communications & Surveillance Systems                    67.0    60.4     34.8
 Other                                                      .3     1.3      1.2
--------------------------------------------------------------------------------

   Total revenue                                        $304.4  $264.0   $180.6
================================================================================

Gross profit:
 Electronic Combat Systems                               $46.8   $43.0    $22.6
 Diagnostics & Power Systems                              19.5    17.1     16.2
 Communications & Surveillance Systems                    18.3    20.0     10.8
 Other                                                     ---      .5       .5
--------------------------------------------------------------------------------

   Total gross profit                                    $84.6   $80.6    $50.1
================================================================================

EBITDA (1):
 Electronic Combat Systems                               $27.9   $28.0    $14.8
 Diagnostics & Power Systems                              10.6     9.7      8.3
 Communications & Surveillance Systems                     4.1     6.3      3.9
 Other                                                     (.4)    (.1)      .7
--------------------------------------------------------------------------------

   Total EBITDA                                          $42.2   $43.9    $27.7
================================================================================

(1) The Company's EBITDA represents income from operations
    plus  depreciation and amortization, including goodwill
    amortization and any goodwill impairment charge.   EBITDA
    is not a presentation made in  accordance with accounting
    principles  generally  accepted  in  the  United   States
    ("U.S.  GAAP"), and as such, it should not be  considered
    in  isolation  or as a substitute for net income  (loss),
    cash  flows from operating activities or other income  or
    cash  flow  statement data prepared  in  accordance  with
    U.S.  GAAP or as a measure of profitability or liquidity.
    EBITDA is the measure of segment profit or loss which  is
    reviewed  by  the Company's Chief Executive  Officer  and
    Board  of Directors, and as such, in accordance with  the
    provisions  of  FASB  Statement of  Financial  Accounting
    Standards  No.  131,  Disclosures about  Segments  of  an
    Enterprise  and  Related Information, it is  the  measure
    used  for the Company's segment disclosures. The  Company
    monitors  EBITDA by segment to determine  each  segment's
    ability  to satisfy its debt service, capital expenditure
    and  working  capital  requirements and  because  certain
    covenants  in  the Company's revolving  credit  and  term
    loan  facility  are  based upon  similar  measures.   The
    Company's EBITDA is not necessarily comparable  to  other
    similarly  titled captions used by other companies.   For
    a  reconciliation  of  the  Company's  EBITDA  to  income
    (loss)  before  income taxes, see Note  15  of  Notes  to
    Consolidated  Financial  Statements  contained  in   this
    Annual Report.

  Results  of  Operations.  In 2002, the Company incurred  a
net  loss  of  $4.1 million on revenues of  $304.4  million,
compared to net income of $2.3 million on revenues of $264.0
million  in 2001, and net income of $.6 million on  revenues
of $180.6 million in 2000.

  The  Company's net loss for 2002 includes charges incurred
in  connection  with  debt refinancings  undertaken  on  the
occasions  of  its initial public offering in February  2002
and  its  acquisition  of Signia in November  2002  totaling
$25.7  million ($15.8 million after tax). The net loss  also
includes charges incurred in connection with the integration
of  the  Zeta division into Signia, consisting of  severance
pay  for  terminated employees of $.3 million  ($.2  million
after  tax) and a $3 million ($1.9 million after tax) write-
off  of the goodwill previously associated with Zeta.  These
charges  were  partially  offset by  the  lack  of  goodwill
amortization  in 2002 and by an $11.2 million ($7.1  million
after tax) reduction in the Company's interest expense as  a
result  of  the February 2002 refinancing.  For  a  complete
description  of  the  charges, see "Refinancing  Costs"  and
"Reorganization" following.

  Refinancing  Costs.   On February 27,  2002,  the  Company
completed an initial public offering of 8 million shares  of
common  stock at $22 per share.  In the offering, the Company
sold 6 million primary shares, generating net cash proceeds
of $116.7 million.  The majority of these proceeds were used
for  debt  retirement and refinancing.  Concurrent with  the
closing  of the offering, the Company repaid the outstanding
balances on its revolving credit and term loan agreement and
its  senior  subordinated notes, and replaced  the  previous
revolving credit and term loan facility with a new  facility
provided  by  a  syndicate  of financial  institutions.   On
November  1,  2002, in connection with the 2002 Acquisition,
the  Company amended and restated the revolving  credit  and
term  loan  facility.  See "Liquidity and Capital Resources"
following  for  further  discussion of  the  Company's  debt
refinancing, and of the terms and covenants associated  with
the amended revolving credit and term loan facility.

  In   connection   with  the  February  2002   early   debt
retirement  and  refinancing, the Company  incurred  charges
totaling  $20.7 million, including prepayment  penalties  of
$2.6  million,  a $4.8 million write-off of the  capitalized
debt  issuance  costs associated with the previous  debt,  a
$5.7 million write-off of unamortized discount on its senior
subordinated notes, and a $7.6 million payment to  terminate
interest  rate swap agreements associated with  the  retired
debt.  These charges are reflected as "Refinancing costs" in
the  Company's consolidated statement of operations for  the
year ended December 31, 2002.

  In   November   2002,   in  connection   with   the   2002
Acquisition,  the  Company incurred  charges  totaling  $5.1
million  in  connection with the amendment of  its  six-year
term   loan.   The  Company  wrote  off  the  $1.5   million
unamortized balance of previously capitalized debt  issuance
costs  associated with its six-year term loan  and  expensed
the  $3.6 million of costs paid to its lenders in connection
with  modification of the loan.  These charges are  included
in   "Refinancing  costs"  in  the  Company's   consolidated
statement  of  operations for the year  ended  December  31,
2002.

  On  September 29, 2000, the Company substantially modified
its   previous  subordinated  note  agreement  and  incurred
charges  of $1.5 million, consisting of a write-off  of  the
capitalized  debt issuance costs associated with  the  prior
note  and  an expensing of the costs paid to its lenders  in
connection   with  the  modification.   These  charges   are
reflected   as   "Refinancing  costs"   in   the   Company's
consolidated  statement of operations  for  the  year  ended
December 31, 2000.

  Reorganization.   In  an effort to reduce  overhead  costs
and  take advantage of available business synergies, in  the
fourth quarter of 2002, the Company reorganized and combined
its  Zeta division into its newly-acquired Signia operation.
Signia    assumed    all   management   and   administrative
responsibilities for Zeta, resulting in the  termination  of
fourteen  Zeta  employees.  Severance costs associated  with
these  terminations  totaled $250,000 and  are  included  in
"Selling,  general  and  administrative  expenses"  in   the
Company's consolidated statement of operations for the  year
ended  December  31,  2002.   The  severance  liability   is
included in "Accrued compensation" in the December 31,  2002
consolidated balance sheet.

  As   part   of  the  reorganization,  management undertook
an extensive review of  Zeta's  product planning,   sales,
marketing,   engineering,   production, overhead structure,
management, customer relationships,  and in-process  order
fulfillment.   This  review  resulted  in upward   revisions
of  cost  estimates  on  several  under-performing in-process
jobs.  The fourth quarter 2002  impact of  this change in
estimate was a $1.5 million reduction  in Zeta's revenues and
a $2.6 million increase in its cost of revenues.   Management
believes  the  process  improvements effected  at  the Zeta
division will prevent  recurrence  of significant changes in
cost estimates.

  In  addition,  due to the reorganization and  combination,
the   Company  wrote-off  the  remaining  unamortized   Zeta
goodwill.    This  $3 million write-off is  reflected  as  a
"Goodwill  impairment charge" in the Company's  consolidated
statement  of  operations for the year  ended  December  31,
2002.

  The  Company is seeking additional cost savings  from  the
combination of Zeta and Signia.  Excluding the impact of any
further  savings, the Company estimates that the combination
of  Zeta  and  Signia will result in an  annual  savings  of
approximately $1.4 million, primarily in the form of reduced
general  and  administrative  expenses  resulting  from  the
reduction in headcount.

  Revenue.     The  Company's revenue for  2002  was  $304.4
million,  up  $40.4  million  from  the  prior  year,  after
increasing  by $83.4 million and $78.3 million in  2001  and
2000, respectively.

  The  2000  revenue  increase resulted primarily  from  the
2000 Acquisition, which added $30.9 million to 2000 revenue,
and from the full year impact of the 1999 Acquisition, which
contributed  $46.4 million in incremental revenue  over  the
1999 level, affecting both the Electronic Combat Systems and
Communications  &  Surveillance  Systems   segments.   The
revenue   increase   from  the  1999  Acquisition   included
approximately $8.0 million attributable to increased  volume
from  the  Aircraft  Survivability  Equipment  Trainer   and
Station  Keeping Equipment follow-on program  sales  of  the
Electronic Combat Systems segment.

  The  2001  revenue  increase resulted primarily  from  the
full  year impact of the 2000 Acquisition, which contributed
approximately $90.1 million in incremental revenue over  the
2000  level,  increasing  Electronic  Combat  Systems'   and
Communications  &  Surveillance Systems' revenues  by  $56.5
million  and $33.6 million, respectively.   The increase  in
Electronic Combat Systems' revenues was partially offset  by
program  award  delays in the segment's data link  programs,
which  resulted in the deferral of $10.1 million of  revenue
into  2002.    The increase in Communications & Surveillance
Systems'  revenues was partially offset by  a  $7.7  million
decline  in  sales of microwave subsystems by the  Company's
Zeta   division.   Diagnostics  &  Power  Systems'  revenues
increased  by  $12.0  million from the  2000  level  due  to
increased  volume in the Reentry System Test Set  and  Light
Armored Vehicle diagnostics programs.

  In  2002, Electronic Combat Systems' revenue increased  by
$22.9  million  due primarily to the $10.1 million  of  data
link  program  revenue  deferred from  2001  and  to  strong
bookings  in  fourth  quarter  2001  and  throughout   2002,
including  a large fourth quarter 2001 order from  the  U.S.
Navy Fiber Optics Data Management System program and several
orders for the segment's airborne instrumentation pods under
the  Air  Force  P4 Refurbishment Contract.   Diagnostics  &
Power Systems' revenue was up $11.9 million as the result of
strong  fourth quarter 2001 orders for embedded diagnostics,
additions  to  the  scope  of the Abrams  Systems  Technical
Support program, earlier than expected booking of the Common
Support Function Module program, and an early contract award
for  the  10th  Year  Power Supplies and  Displays  program.
Communications & Surveillance Systems' revenues increased by
$6.6   million  from  the  2001  level  due  to   the   2002
Acquisition.  Signia's revenues totaled $7.5 million for the
two month period of ownership in 2002.  Excluding the impact
of   Signia,   2002   revenues  for  the  Communications   &
Surveillance  segment were less than  expected  due  to  the
first  quarter  loss of a weather radar  system  booking  in
Turkey  and  to  further declines in revenues of the  Company's
Zeta division.

  Gross  Profit.     The  Company's gross profit  percentage
for  2002  was  27.8%, down 2.7 points from the  prior  year
level, after increasing by 2.7 points in 2001 and 4.6 points
in 2000.

  The  2000  gross  margin increase  was  due  primarily  to
better  than  anticipated cost performance in  the  Aircraft
Survivability   Equipment  Trainer   and   Station   Keeping
Equipment  follow-on  programs  in  the  Electronic   Combat
Systems segment. Gross margin was also affected by the  2000
Acquisition,  specifically by the high-margin weather  radar
systems   products   of  the  Company's   Communications   &
Surveillance Systems segment.

  The  2001  gross margin increase was primarily the  result
of the full year impact of the 2000 Acquisition, specifically
due to the higher margins associated with the weather radar systems
products  of  the  Communications  &  Surveillance   Systems
segment and a favorable mix of test and training revenue  in
the  Electronic  Combat  Systems segment.  Gross  profit  was
adversely  affected by lower microwave sales volume  and  by
lower   capacity   utilization  in  the   Communications   &
Surveillance Systems segment. Also negatively impacting 2001
gross  margin were start-up costs associated with the  Power
Management  program  of  the  Diagnostics  &  Power  Systems
segment.  This  negative impact was offset  by  better  than
anticipated  cost  performance in  that  segment's  Aircraft
Survivability   Equipment  Trainer   and   Station   Keeping
Equipment follow on programs.

  The  2002  gross margin decline was due primarily  to  low
margins  earned  on  revenues of the Zeta  division  of  the
Communications & Surveillance Systems segment and  increased
volume   in   the  Diagnostics  &  Power  Systems   segment.
Diagnostics & Power Systems has a higher proportion of cost-
plus  business  than the Company's other  segments,  and  as
such,  its  margins are generally lower and can  reduce  the
Company's  consolidated  margin  percentage  in  periods  of
increased  Diagnostics revenue relative  to  total  revenue.
Electronic  Combat Systems' margins declined by  2.5  points
from the 2001 level as its prior year margins were unusually
high due to the favorable mix of test and training revenue.

  Selling,  General and Administrative Expenses.    Selling,
general   and   administrative  expenses   for   2002   were
$38.5  million, up $3.7 million from the prior  year  level,
after increasing by $14.3 million and $12.4 million in  2001
and   2000,  respectively.   As  a  percentage  of  revenue,
selling,  general  and administrative expenses  were  12.6%,
compared to 13.2% in 2001 and 11.4% in 2000.

  The  2000  increase in selling, general and administrative
expenses  was  primarily the result of the 2000 Acquisition,
which added approximately $3.0 million to expenses, and  the
full  year  impact  of  the  1999 Acquisition,  which  added
approximately $7.0 million in incremental expenses over  the
1999 level, affecting both the Electronic Combat Systems and
Communications & Surveillance Systems segments. In addition,
the  full  year  impact  of  initial  establishment  of  the
corporate  office  infrastructure and staff  in  1999  added
approximately $1.9 million in incremental expenses over  the
1999 level.

  The  2001  increase in selling, general and administrative
expenses resulted primarily from the full year impact of the
2000  Acquisition, which added $14.3 million in  incremental
expenses  over the 2000 level, affecting both the Electronic
Combat  Systems  and  Communications & Surveillance  Systems
segments.  Additionally, in the fourth quarter of 2001,  the
Company  incurred  $0.4  million  in  severance  costs   and
relocation expenses in connection with staff reductions  and
a  facility  relocation in its Communications & Surveillance
Systems  segment.   The impact of these additional  expenses
was  offset  by  a reduction in consulting expenses  in  the
Diagnostics & Power Systems segment due to the conclusion of
its business process re-engineering.

  The  2002  increase in selling, general and administrative
expenses  resulted primarily from additional  administrative
expenses  associated with operation, effective February  27,
2002,   as   a  publicly-held  company.   These  incremental
expenses consisted primarily of increased headcount  at  the
corporate  office,  the  addition of an  investor  relations
function,   increased  cost  of  obtaining   directors   and
officers' liability insurance, and increased accounting  and
legal fees.  Excluding the corporate administrative expenses
allocated  to  the  business  segments,  Electronic   Combat
Systems'  and Diagnostics & Power Systems' selling,  general
and  administrative expenses were both up  by  approximately
$.6  million  from  the 2001 level due  to  normal  business
growth.   Partially  offsetting these increases  was  a  $.9
million  decline  in Communications & Surveillance  Systems'
expenses,  as  the  savings achieved from  aggressive  cost-
cutting  measures, including its fourth quarter  2001  staff
reduction  and  facility relocation, more  than  offset  the
impact of the 2002 Acquisition, which added $1.2 million  to
the  segment's  2002  expenses. The Company  anticipates  an
approximate  $7  million incremental increase  in  its  2003
expenses  as  the  result of the 2002 acquisition;  however,
this  increase  is  not expected to impact  the  correlation
between  the  Company's selling, general and  administrative
expenses  and its revenues.  The Company continues  to  seek
ways  to  reduce  its  selling, general  and  administrative
expenses  but  anticipates that its corporate administrative
expenses may continue to increase, particularly in 2003,  as
the  result of new corporate governance legislation and  the
increasing costs of compliance, including but not limited to
increased legal and accounting fees and increasing costs  of
obtaining directors and officers' liability insurance.

  Research    and   Development   and   Bid   and   Proposal
Expenses.     Research and development and bid and  proposal
expenses  were $15.1 million in 2002, up $2.5  million  from
the  prior  year level after increasing by $3.9  million  in
2001  and  $4.4  million in 2000.  These  expense  increases
correspond  directly  to growth in the  Company's  business,
primarily due to the 1999, 2000 and 2002 Acquisitions. As  a
percentage  of  revenue, the Company's independent  research
and  development  and bid and proposal  expenses  have  been
maintained  at a level of approximately 5% for each  of  the
three years in the period ended December 31, 2002, at both a
consolidated  and  business segment level, with  independent
research  and  development  expenses  approximating  2%   of
revenues and bid and proposal expenses approximating  3%  of
revenues in each of the three years.

  Amortization   expense.      The  Company's   amortization
expense,  excluding amounts included in cost of revenue  for
amortization   of   internally   developed   software,   was
$.4  million in 2002, down significantly from the prior two
years.  The Company ceased amortization of its goodwill  on
January  1, 2002 in accordance with the provisions  of  SFAS
142.    See  Note  9  of  Notes  to  Consolidated  Financial
Statements contained in this Annual Report for a  pro  forma
presentation   of  the  Company's  results   of   operations
excluding goodwill amortization for 2001 and 2000.

  The  Company's  amortization expense can  be  expected  to
increase  by approximately $2.0 million in 2003 due  to  the
full  year impact of amortization associated with intangible
assets acquired in the 2002 Acquisition.  See Notes 4 and  9
of  Notes to Consolidated Financial Statements contained  in
this  Annual  Report  for further details  of  these  newly-
acquired intangible assets.

  Income  from  Operations.     The  Company's  income  from
operations was $26.7 million or 8.8% of revenue in 2002,
versus $26.0  million  or  9.8%  of  revenue  in  2001   and
$15.0 million or 8.3% of revenue in 2000.  The Company's 2002
income from operations includes a $3.0 million charge for
impairment of the goodwill of the Zeta division, as further
described under "Reorganization" preceding.

  Electronic  Combat  Systems had   operating  income  of
$20.6 million in 2002 compared to $16.0 million in 2001  and
$7.4  million in 2000.  The 2001 increase was due  primarily
to  the  full  year  impact of the 2000 Acquisition  and  an
improved  gross margin resulting from the favorable  mix  of
test   and  training  revenue.  The  2002  improvement   was
primarily  the  result of increased volume  and  a  lack  of
goodwill  amortization  expense,  partially  offset  by  the
reduction  in  its gross margin back to a more normal  level
and  an  increase  in  selling, general  and  administrative
expenses,   primarily  the  result  of  increased  corporate
administrative expense related to public company status.

  Diagnostics  &  Power Systems  had an operating income  of
$8.8  million in 2002, compared to $6.2 million in 2001  and
$4.6  million in 2000.  The increases in both years resulted
primarily from growth in the segment's business.   In  2002,
the  positive impact on the segment's results of  operations
resulting from the lack of goodwill amortization was  offset
by   an   increase  in  the  segment's  operating  expenses,
primarily due to increased corporate administrative  expense
related to public company status.

  Communications  &  Surveillance  Systems  had an operating
loss of $1.5 million in 2002, compared to operating income of
$2.6 million in 2001 and $2.2 million in 2000.  The segment's
2002 operating results include the $3.3 million in charges
associated   with  the  combination  of  Zeta  and  Signia
described  previously.  These charges were partially offset
by the positive results  achieved from downsizing and  cost
control  efforts and the lack of goodwill amortization expense
in 2002.

  Interest  Expense.    The Company's interest  expense  was
$8.3    million,   $19.4   million,   and   $10.1   million,
respectively, in 2002, 2001, and 2000. A substantial portion
of  the  Company's  indebtedness during these  periods  bore
interest  at a floating LIBOR-based rate. (See  Note  10  of
Notes  to  Consolidated Financial Statements and  "Liquidity
and  Capital Resources" following for further discussion  of
the  Company's  revolving credit loan and long  term  debt.)
Average   LIBOR  rates  were  6.547%,  3.63%   and   1.787%,
respectively, in 2000, 2001, and 2002; however, the positive
impact  of the interest rate declines on the Company's  2001
and  2002  interest expense was partially mitigated  by  its
LIBOR-based  interest  rate  swap  agreements.    The   2001
interest  expense increase resulted primarily from the  full
year  impact  of the additional debt incurred in  connection
with  the  2000  Acquisition.   The  2002  interest  expense
decline  was  due to the reduction in debt achieved  through
the  Company's  first  quarter 2002 public  offering-related
refinancing.  The Company's interest expense can be expected
to  increase  in  2003 as the result of the additional  debt
incurred  in  connection  with  the  2002  Acquisition.  The
Company  estimates that the additional borrowings under  the
facility  to  finance  this acquisition  will  increase  its
annual  interest expense by approximately $7 million, absent
any prepayments of the debt.

  Income Tax Expense.    The Company recorded an income  tax
benefit  of $3.1 million (43% of its pretax loss)  in  2002,
compared  to  income  tax expense of $4.7  million  (67%  of
pretax  income)  in 2001 and $2.8 million (82.3%  of  pretax
income) in 2000.   The Company's effective income tax  rates
exceeded the U.S. federal statutory rates in all periods due
primarily  to  non-deductible expenses,  including  goodwill
amortization in 2001 and 2000.

  Net Income (loss). As a result of the foregoing, the Company
had a net loss of $4.1 million in 2002, compared to net income
of $2.3 and $.6 million in 2001 and 2000, respectively.

  EBITDA.     The Company's EBITDA was $42.2 million,  $43.9
million,  and  $27.7  million  in  2002,  2001,  and   2000,
respectively.  As a percentage of revenue, EBITDA was 13.9%,
16.6%, and 15.3%, respectively.

  Electronic  Combat  Systems'  EBITDA  was  $27.9  million,
$28.0  million, and $14.8 million in 2002, 2001,  and  2000,
respectively. As a percentage of revenue, EBITDA was  18.2%,
21.5%,  and 17.5%, respectively. The 2001 increase  was  due
primarily  to  the full year impact of the 2000  Acquisition
and  improvement in gross margin. The decrease in  2002  was
primarily  the result of reduced gross margin and  increased
selling,  general  and administrative  expenses,  offset  by
increased sales volume.

  Diagnostics  &  Power Systems' EBITDA was  $10.6  million,
$9.7  million,  and $8.3 million, in 2002, 2001,  and  2000,
respectively.  As a percentage of revenue, EBITDA was 12.5%,
13.5%,  and  13.7%, respectively.  The EBITDA  increases  in
2001  and  2002  resulted  primarily  from  growth  in   the
segment's  business,  though in  2002,  revenue  growth  was
partially offset by increased operating expenses.

  Communications  & Surveillance Systems'  EBITDA  was  $4.1
million, $6.3 million, and $3.9 million, in 2002, 2001,  and
2000,  respectively. As a percentage of revenue, EBITDA  was
6.2%,  10.4%,  and  11.3%, respectively.   The  2001  EBITDA
increase  was due primarily to the full year impact  of  the
2000 Acquisition, partially offset by reduced volume in  the
segment's Zeta division.  The segment's 2002 EBITDA reflects
the  low  margins  earned by  Zeta  and  the  $.3 million in
severance charges associated with the combination of  Zeta
and Signia, partially offset by positive  results  achieved
from downsizing and cost control efforts.

  Liquidity and Capital Resources

  In  2002,  the  Company generated cash  of  $5.1  million,
primarily from its operations, compared to net cash usage of
$1.0 million in 2001 and net cash generation of $2.1 million
in 2000.

  Cash  provided by operations was $26.3 million  and  $12.9
million   in  2002  and  2001,  respectively,  compared   to
operating  cash  usage of $15.4 million in  2000.   Interest
expense, which is a significant factor in the Company's  net
income and operating cash flow, declined by $11.2 million in
2002  due to the extinguishment of debt using proceeds  from
the  Company's  initial public offering.   Interest  expense
increased  by  $9.4 million in 2001 due to  additional  debt
incurred  to finance the 2000 Acquisition. In 2003, interest
expense  can  be  expected  to increase  as  the  result  of
additional  debt  incurred  in  connection  with  the   2002
Acquisition, though the Company plans to early pay  as  much
of  this  debt  as  possible with cash  generated  from  its
operations.

  Another  significant influence in the Company's  operating
cash  flow is working capital usage, primarily the level  of
unbilled  accounts receivable, in which contractual  product
build   and  delivery  times,  materials  requirements   and
customer  billing  terms  can  at  times  combine   to   use
significant  amounts of working capital  over  the  contract
periods.   In  2002,  the  Company's working  capital  usage
totaled  $8.0 million, down from $12.4 million in  2001  and
$32.8  million in 2000.  The Company continues to  focus  on
improving its working capital management, particularly  with
respect  to  its  investments in  unbilled  receivables  and
inventory.

  Capital expenditures were $8.3 million, $5.6 million,  and
$5.2  million, respectively, in 2002, 2001, and  2000.   The
Company's   capital   expenditures  consist   primarily   of
purchases  of  engineering equipment, office  equipment  and
building  and leasehold improvements.  Due to the nature  of
the  Company's  business, capital expenditures  historically
have  not  been substantial. The higher levels in  2002  and
2001  were  due primarily to the purchase and implementation
of  new  and upgraded financial and administrative  systems.
Such   expenditures  approximated  $2.6  million  and   $1.0
million,  respectively,  in  2002  and  2001.   The  Company
expects  that  its  total  capital  expenditures  for  2003,
including those of the newly-acquired Signia business,  will
be within the range of  $7 to $9 million.

  In   November  2002,  the  Company  completed   the   2002
Acquisition  for  a cash purchase price of  $149.1  million,
including direct acquisition costs.  In September 2000,  the
Company  completed the 2000 Acquisition for a cash  purchase
price  of $135.9 million, including direct acquisition costs
and net of proceeds received from the concurrent sale of two
subsidiaries of Tech-Sym Corporation.

  In  connection  with  the  2000 Acquisition,  the  Company
refinanced its previously outstanding senior debt, replacing
its  revolving  credit and term loan facility  with  a  $170
million senior secured credit facility comprised of  a  $125
million  term  loan  and  a  $45  million  revolving  credit
facility.  In addition, the Company refinanced its  existing
senior   subordinated  indebtedness  and  issued  additional
senior subordinated indebtedness and additional warrants  to
purchase  shares  of  its common stock. The  Company  repaid
$48.8  million under the old credit facility, incurred  $6.6
million  in debt issue costs, borrowed $163.1 million  under
the  senior  secured credit facility and  received  a  $20.5
million capital contribution from its sole stockholder,  all
primarily in connection with the acquisition.

  On  February  27, 2002, the Company completed  an  initial
public  offering of 8 million shares of common stock at  $22
per  share.  In the offering, the Company sold 6 million
primary shares, generating net cash proceeds of approximately
$116.7  million.  Concurrent with closing of  the  offering,
the Company repaid the outstanding balances on its revolving
credit  and  term loan agreement and its senior subordinated
notes  ($125.8 million and $51.3 million, respectively)  and
replaced  the  previous  revolving  credit  and  term   loan
facility  with  a new facility provided by  a  syndicate  of
financial   institutions.    Refinancing   costs   paid   in
connection with this early retirement and refinancing of the
credit  facility totaled $14.8 million, including prepayment
penalties of $2.6 million, new debt issuance costs  of  $4.6
million,  and  a $7.6 million payment to terminate  interest
rate  swap agreements associated with the extinguished debt.
The  new  credit facility provided financing of up  to  $125
million,  consisting  of a $40 million  five-year  revolving
credit  facility, a $40 million five-year term loan,  and  a
$45 million six-year term loan.

  On   November  1,  2002,  in  connection  with  the   2002
Acquisition, the Company amended and restated its  revolving
credit  and term loan facility. The amendment increased  the
six-year  term loan by $135 million, increased  availability
under  the  revolving credit facility  by  $5  million,  and
updated  the financial covenants in the agreement to reflect
the  integration of Signia into the Company's Communications
&  Surveillance Systems segment.   In connection  with  this
amendment,  the Company paid additional debt issuance  costs
of  approximately $4.4 million.  At December 31,  2002,  the
Company  had outstanding borrowings of $218.5 million  under
the  facility, consisting of $36.6 million under  the  five-
year term loan, $179.3 million under the six-year term loan,
and  $2.5  million under the revolving credit facility.  The
current  interest  rates on these outstanding  balances  are
4.76%,  5.40%,  and 4.40%, respectively. In addition,  $15.1
million  of  the  credit line was allocated to  support  the
Company's  letters of credit at December 31,  2002,  leaving
available borrowings under the facility of $27.4 million  as
of that date.

  Borrowings  under the amended facility are  secured  by  a
pledge of substantially all of the Company's assets and bear
interest  at a base rate or LIBOR plus an applicable  margin
ranging  from  1%  to  4%. Available  borrowings  under  the
revolving  credit facility are determined by  the  Company's
borrowing  base,  which is calculated  based  upon  eligible
accounts  receivable  and  inventories  as  defined  in  the
agreement.

  The  amended  revolving  credit and  term  loan  agreement
contains   certain  financial  covenants  of  the   Company,
including  minimum  net worth, minimum EBITDA,  and  maximum
total leverage ratio, and places limitations or restrictions
on   various   business  transactions,   including   capital
expenditures, investments, purchases of the Company's stock,
dividend  payments,  and asset sales.  The  Company  was  in
compliance with these covenants on December 31, 2002.

  Historically, the Company's primary sources  of  liquidity
have  been  cash  provided by operations and  its  revolving
credit  agreement.   The  Company's  liquidity  position  is
dependent  on a number of factors, including the  timing  of
production and delivery on sales contracts and the timing of
billing and collection activity.  Purchases of materials for
production and payments for labor and overhead expenses  can
represent significant advance expenditures, and billings  to
and  collection  from customers can lag  those  expenditures
significantly  on some longer-term customer contracts.   The
Company's billing arrangements include (a) monthly  progress
payments  (typically  on  fixed-price  contracts)  in  which
customers  are billed 80% of incurred cost plus general  and
administrative  expenses  but without  profit,  (b)  monthly
billing  in full at cost incurred plus profit (typically  on
cost-plus  contracts),  (c) periodic milestone  achievement-
based  billing at cost incurred plus profit, and (d) billing
at final delivery at cost incurred plus profit.  Fixed-price
contracts, some milestone-based billing contracts, and bill-
at-delivery  contracts represent a significant required  use
of  working capital for the Company that must be  funded  by
operations or through external sources.

  The  Company  has  three  defined  benefit  pension  plans
covering  certain  of the employees at its  PEI  and  Sierra
subsidiaries.    See  Note  13  of  Notes  to   Consolidated
Financial Statements contained in this Annual Report  for  a
complete  description  of  these  plans,  including  details
regarding fluctuations in the fair values of plan assets and
the  projected  benefit  obligations associated  with  these
plans  for the three years ended December 31, 2002.    While
the  cash  requirements and expenses associated  with  these
plans  were  minimal  during this  three  year  period,  the
Company  anticipates that, absent a recovery in  the  equity
market, it may be required to make cash contributions to the
plans  in  2003  in  order  to  meet  minimum  plan  funding
requirements.

  The  Company's  liquidity  and ability  to  generate  cash
improved   significantly  during  2002,  and   the   Company
anticipates  continued  improvement in  its  operating  cash
flows  as  the  receivables built up  during  the  year  are
collected and as the Company continues to focus on  reducing
its  investment in working capital.    Based on its  current
level  of operations and anticipated growth, including  that
resulting  from  the  acquisition  of  Signia,  the  Company
believes  that  cash  from operations  and  other  available
sources of liquidity, including borrowings under the amended
revolving  credit facility, will be sufficient to  fund  its
operations  for  at least the next two years.   The  Company
does  not  currently anticipate any significant nonoperating
events that will require the use of cash.

  The  Company  has contractual obligations to  make  future
payments  under  its amended term loan agreement  and  under
long-term  noncancelable  lease agreements.   The  following
table  sets  forth  these  contractual  obligations  as   of
December 31, 2002.
-------------------------------------------------------------------------------
                                         Payments due by period
-------------------------------------------------------------------------------
Contractual Obligation       2003      2004-2007     2008 and beyond     Total
-------------------------------------------------------------------------------
(In millions)

Term loans                  $ 7.2        $38.4           $170.3         $215.9
Capital leases                 .1           .2              ---             .3
Operating leases              5.1         14.8               .4           20.3
-------------------------------------------------------------------------------
  Total                     $12.4        $53.4           $170.7         $236.5
===============================================================================

  The  Company's term loan obligations for 2008  and  beyond
relate to its six-year term loan, which must be paid in full
by  March  4,  2008.  The Company may prepay any obligations
under  its  revolving credit and term loan facility  without
penalty.   In  addition, the lenders under the facility  may
require   prepayments   from   the   proceeds   of   certain
transactions,  including sales of net  assets,  issuance  of
equity  securities, insurance/condemnation settlements,  and
the  reversion of surplus assets from pension plans, as well
as  from any excess cash flows, as defined in the agreement,
generated by the Company during a fiscal year.

  The   Company's   noncancelable   operating   leases   are
primarily  for  office  space and  manufacturing  equipment.
Certain   of  these  agreements  are  subject  to   periodic
escalation provisions for increases in real estate taxes and
other charges.

  At  December 31, 2002, the Company had outstanding letters
of  credit of approximately $15.1 million.  These letters of
credit,  substantially all of which expire in  2003,  relate
primarily   to   the   Company's  contracts   with   foreign
governments.

  Backlog

  The  Company  defines  backlog as the  value  of  contract
awards   received  from  customers  which  have   not   been
recognized  as  sales.  Funded backlog  refers  to  contract
awards  for  which the Company has received orders  and  the
customer  has obligated funds. Unfunded backlog consists  of
potential  product  orders  relating  to  existing  customer
contracts  that  are  the subject of  customer  options  for
additional  products  or  potential  orders  under  existing
contracts  that  receive  annual or incremental  funding.  A
significant  portion of the Company's  sales  are  to  prime
contractors,   the  Department  of  Defense,   and   foreign
governments  pursuant  to long-term contracts.  Accordingly,
the Company's backlog consists in large part of orders under
these contracts. As of December 31, 2002, funded backlog was
$285.8  million  and total backlog was $402.9  million.  The
Company expects to convert approximately 80% of its funded
backlog contracts as of December 31, 2002 into revenue in 2003.

  The  following  table  depicts the  Company's  backlog  of
orders by business segment as of the dates shown:
-------------------------------------------------------------------------------
                                                 Funded              Unfunded
                                         ----------------------      --------
December 31,                             2002     2001     2000        2002
-------------------------------------------------------------------------------
 (In millions)

Electronic Combat Systems               $140.2   $125.8   $104.3        $98.3
Diagnostics & Power Systems               59.4     51.7     33.6         17.9
Communications & Surveillance Systems     86.2     43.9     62.6           .9
-------------------------------------------------------------------------------
  Total Backlog                         $285.8   $221.4   $200.5       $117.1
===============================================================================

  The  newly-acquired  Signia business accounted  for  $46.7
million  of  the  Company's funded backlog at  December  31,
2002.

  While  it is expected that a substantial portion of funded
backlog  will  be  converted to  revenue  during  2003,  the
Company  cannot  provide assurance that  the  backlog,  both
funded  and  unfunded, will become revenue in any particular
period, if at all.  Uncertain timing of bookings and revenue
recognition is typical in the industry in which the  Company
conducts business.

  Seasonality

  The  Company's  business is seasonal, with a concentration
of revenue in the fourth quarter of the year, as many of the
Company's  sales  contracts expire on December  31  of  each
year.  As  a result, product sales efforts at year  end  are
expedited  to  fulfill funding terms prior to expiration  of
the contracts.

  Quantitative  and  Qualitative  Disclosures  about  Market
  Risk

  The  Company  is  exposed to market  risk  of  changes  in
interest rates with respect to its variable rate debt.    At
times,  the  Company uses interest rate swap  agreements  to
manage  this risk.  These interest rate swap agreements  are
structured  so  that the critical terms  of  the  agreements
match  those of the underlying debt.  The Company  does  not
enter  into derivative financial instruments for speculative
or trading purposes.

  At   December  31,  2002,  the  Company's  variable   rate
borrowings  totaled approximately $218.5 million.   On  this
same  date, the Company entered into an interest  rate  swap
agreement  with  a financial institution in the  total  face
amount  of  $115.0  million  to  mitigate  its  exposure  to
increases   in   interest  rates  with  respect   to   these
borrowings.  Under the agreement, the Company pays  a  fixed
rate  of  interest of 1.815% and receives a variable  LIBOR-
based  rate  of  interest from the holder of the  agreement.
LIBOR  rates  at December 31, 2002 approximated  1.4%.   The
interest  rate swap agreement is scheduled to  terminate  in
December 2003.  The realized gains and losses related to the
swap  agreement  are  included in the Company's  net  income
(loss)  concurrent with the hedged interest payments on  the
debt.

  To  illustrate the sensitivity of the Company's results of
operations to changes in interest rates with respect to  its
debt and interest rate swap agreement, the Company estimates
that  a  66%  increase  in LIBOR rates  would  increase  its
interest expense by approximately $1.1 million for the  year
ended  December 31, 2003. Likewise, a 66% decline  in  LIBOR
rates  would  reduce interest expense by approximately  $1.1
million.  This  hypothetical  change  in  LIBOR  rates   was
calculated  based on the fluctuation in LIBOR  during  2001,
which  was  the maximum LIBOR fluctuation in  the  last  ten
years.  The Company's estimates also assume a level of  debt
consistent  with  the December 31, 2002  level  and  do  not
consider the impact that additional prepayments of the  debt
could have on its interest expense.

  The   Company   does   not  generally   have   significant
transactions denominated in currencies other than  the  U.S.
dollar,  and as such, its foreign currency exchange risk  is
minimal.

  Related Party Transactions

  The   Company  pays  Veritas  Capital  Management,  L.L.C.
("Veritas") an annual management fee.  Veritas controls  the
Company's  principal stockholder, IDT Holding,  L.L.C.   The
Company  paid management fees to Veritas of $.7  million  in
2000 and $.9 million in both 2001 and 2002.  In addition, in
connection with the 2000 and 2002 Acquisitions, the  Company
paid  transaction advisory fees to The Veritas Capital Fund,
L.P. totaling $3 million and $2.5 million, respectively.  In
2002,  the  Company  also  paid a $1.5  million  transaction
advisory fee to The Veritas Capital Fund, L.P. in connection
with  its initial public offering on February 27, 2002.  The
Company was not indebted to its principal stockholder or  to
Veritas  at  December 31, 2001 or 2002.  Robert B. McKeon and
Thomas J. Campbell, the Chairman and Secretary of the Company,
respectively,  and  members of its Board of  Directors,  are
managing members of Veritas.

  William  G.  Tobin,  a member of the  Company's  Board  of
Directors  and audit committee, is a Managing  Director  and
Chairman of the Defense and Aerospace practice of Korn/Ferry
International,  an  executive  search  firm.   The   Company
contracted with Korn/Ferry in 2002 to conduct its search for
a  Chief  Operating Officer.  During 2002, the Company  made
payments to Korn/Ferry totaling $179,000 in connection  with
this  search.   The search was concluded in  2002,  and  all
payments  to  Korn/Ferry in connection with the search  have
been made.

  Edward  N.  Ney,  a  member  of  the  Company's  Board  of
Directors and audit committee, is Chairman Emeritus of Young
&  Rubicam,  an  advertising firm for  which  he  previously
served  as  President  and  Chief  Executive  Officer.   The
Company  has contracted with Burson-Marsteller, an affiliate
of  Young  &  Rubicam,  to  manage  its  investor  relations
functions.  During 2002, the Company made payments to Burson-
Marsteller totaling $223,000.

  Critical Accounting Policies and Estimates

  Management's   Discussion  and   Analysis   of   Financial
Condition  and  Results  of Operations  is  based  upon  the
Company's consolidated financial statements, which have been
prepared  in accordance with U.S. GAAP.  The preparation  of
these  financial  statements  requires  management  to  make
estimates and assumptions which affect the amounts  reported
in the financial statements and determine whether contingent
assets  and  liabilities,  if  any,  are  disclosed  in  the
financial  statements.   On an ongoing  basis,  the  Company
evaluates  its  estimates and assumptions,  including  those
related to long-term contracts, product returns and warranty
obligations,  bad debts, inventories, the recoverability  of
goodwill  and  other intangible assets, fixed  asset  lives,
income  taxes, self-insurance reserves, pensions  and  other
post-retirement benefits, environmental matters,  litigation
and  other  contingencies.  The Company bases its  estimates
and  assumptions  on historical experience  and  on  various
other factors which are believed to be reasonable under  the
circumstances,  including  current  and  expected   economic
conditions, the results of which form the basis  for  making
judgments   about  the  carrying  values   of   assets   and
liabilities  that  are  not  readily  apparent  from   other
sources.  Actual  results could differ materially  from  the
Company's   estimates   under   different   assumptions   or
conditions.

  The  Company  believes the following  critical  accounting
policies   affect   its  more  significant   estimates   and
assumptions  used  in  the preparation of  its  consolidated
financial statements:

  Revenue  Recognition.  The Company recognizes revenue  and
profit  on  substantially  all of its  contracts  using  the
percentage-of-completion method of accounting, which  relies
on  estimates of total expected contract revenues and costs.
However,   as  noted  previously,  the  Company's   mix   of
percentage-of-completion revenues to total  revenues  should
decline  to approximately 80% in 2003 as the result  of  the
2002  Acquisition.  The Company follows  the  percentage-of-
completion  method since reasonably dependable estimates  of
the  revenues and costs applicable to various stages of  the
contracts  can be made.  Recognized revenues and profit  are
subject to revisions as the projects progress to completion.
Revisions  to the Company's profit estimates are charged  to
income  in the period in which the facts that give  rise  to
the  revisions  become  known. Although  the  Company  makes
provisions  for  losses on its contracts  in  its  financial
statements,  it cannot provide assurance that such  contract
loss  provisions,  which are based  on  estimates,  will  be
adequate to cover all future losses or that it will  not  be
required  to  restate  prior  period  quarterly  or   annual
financial  statements  as  the  result  of  errors  in   its
estimates.

  Goodwill.   The  Company's December 31, 2002  consolidated
balance  sheet  contains a goodwill asset in the  amount  of
$143.8  million.   In connection with the adoption  of  SFAS
142, the Company performs periodic  impairment tests of  its
goodwill.  The process of evaluating goodwill for impairment
involves  the  determination  of  the  fair  value  of   the
Company's  business  units.  Inherent  in  such  fair  value
determinations   are   certain  judgments   and   estimates,
including  the interpretation of current economic indicators
and  market valuations, and assumptions about the  Company's
strategic  plans  with  regard to its  operations.   To  the
extent   additional  information  arises  or  the  Company's
strategies  change,  it  is  possible  that  the   Company's
conclusions regarding goodwill impairment could  change  and
result  in  a material effect on its consolidated  financial
position or results of operations.

  Intangible  Assets.   The  Company's  December  31,   2002
consolidated   balance  sheet  contains  intangible   assets
totaling  $56.0  million, substantially all  of  which  were
acquired  in the 2002 Acquisition.  These intangible  assets
consist   of   trade  names  and  trademarks,  patents   and
proprietary  technology,  and  customer  relationships.   In
connection  with  the  adoption of  SFAS  144,  the  Company
performs periodic impairment tests of its intangible  assets
when  events  and circumstances warrant such a review.   The
process  of  evaluating  intangible  assets  for  impairment
involves the estimation of their remaining useful lives  and
the  projection of future cash flows related to the  assets.
Factors  that  may  impact these estimates  and  projections
include,  among  other things, the level of  brand  support,
customer  demand, governmental regulation,  the  ability  to
raise  prices,  maintenance of historical market  share  and
margins,  and  other  factors.   Changes  in  the  Company's
estimates  and  assumptions regarding  these  factors  could
affect the Company's conclusions regarding the value of  its
intangible  assets and result in a material  effect  on  its
financial position or results of operations.

  Inventories.   The  Company  reduces  the  value  of   its
inventories for estimated obsolescence or unmarketable items
in an amount equal to the difference between the cost of the
inventories  and  their estimated market values  based  upon
assumptions  about future demand and market conditions.   If
actual future demand or market conditions are less favorable
than  those  projected by management, inventory  write-downs
may be required.

  Contingencies.   As  discussed in  Note  14  of  Notes  to
Consolidated Financial Statements contained in  this  Annual
Report,  the  Company is involved in various  legal  actions
arising  in  the normal course of its business, including  a
National  Park Service investigation regarding the  presence
of  residual  radioactive materials and contamination  at  a
uranium mine previously owned by a predecessor of one of the
Company's subsidiaries.  The outcomes of such legal  actions
are  not  expected, either individually or in the aggregate,
to  result  in  a material adverse effect on  the  Company's
business, results of operations, or financial condition.  It
is  possible, however, that future results of operations for
any   particular  quarterly  or  annual  period   could   be
materially  affected by changes in the Company's assumptions
related to these proceedings.  The Company accrues its  best
estimate  of the probable cost for the resolution  of  legal
claims.   Such estimates are developed in consultation  with
outside counsel handling these matters and are based upon  a
combination of litigation and settlement strategies.  To the
extent   additional  information  arises  or  the  Company's
strategies  change, it is possible that the  Company's  best
estimate  of  its liability in these matters,  if  any,  may
change.

  Pension and  Other Postretirement Benefits.    The  Company
follows the guidance of FASB Statement of Financial Accounting
Standards No. 87, Employers' Accounting for Pensions ("SFAS 87"),
and FASB Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than
Pensions ("SFAS 106"), when accounting for pension and post-
retirement  benefits.    Under  these  accounting standards,
assumptions  are  made  regarding  the  valuation of benefit
obligations  and  the  performance  of plan assets.  Delayed
recognition of differences between actual results and expected
or estimated results is a guiding principle of these standards.
This  delayed  recognition  of  actual  results allows for a
smoothed recognition  of  changes in benefit obligations and
plan performance over the working lives of the employees who
benefit  under the plans.   The  primary  assumptions are as
follows:

o  Discount rate - The  discount rate is used in calculating
   the present value of benefits, which is based on projections
   of benefit payments to be made in the future.

o  Expected return on plan assets - Management  projects the
   future  return  on plan assets based principally on prior
   performance.   These  projected  returns  reduce  the net
   benefit costs the Company will record currently.

  During 2002,  the Company  made changes to its assumptions
related to the discount rate and the expected return on plan
assets.    Management  consults  with  its  actuaries   when
selecting each of these assumptions.

  In selecting the discount rate, the Company considers fixed-
income security yields, specifically AA-rated corporate bonds.
At  December  31,  2002,  the  Company decreased the discount
rates  used  for  all  of its plans to 6.5% from the range of
7.0% to 7.25% used in the prior year as a result of decreased
yields for long-term AA-rated corporate bonds.

  In  estimating  the  expected  return  on  plan assets, the
Company  considers  past  performance and future expectations
for the types of investments held by the plans as well as the
expected  long-term  allocations  of  plan  assets  to  these
investments.  At December 31, 2002, the Company decreased the
expected  return on plan assets for all of its plans  to 8.5%
from the range of 8.5% to 9% used in the prior year.

  A variance in the assumptions described above would have an
impact  on  the  projected  benefit  obligations, the accrued
other  postretirement  benefit  liabilities,  the  annual net
periodic  pension  and other postretirement benefit cost, and
the Company's  other  comprehensive  loss associated with its
minimum pension liability adjustment.

  The fair value of the Company's pension plan assets declined
from  $27.3  million at December 31, 2001 to $23.7 million at
December 31,  2002  due  to  the  payment of benefits and the
decline  in the  equity markets.   This decline will serve to
increase  pension expense for 2003 through the calculation of
"market-related value",  which  recognizes  changes  in  fair
value averaged on a systematic basis over five years, but the
amount of these contributions has not yet been determined.

  For additional information regarding the Company's  pension
and postretirement plans, see Note 13 of Notes to Consolidated
Financial Statements contained in this Annual Report.

  The  above  listing is not intended to be a  comprehensive
list  of all of the Company's accounting policies.  In  many
cases,  the accounting treatment of a particular transaction
is  specifically  dictated by U.S. GAAP, with  no  need  for
management's judgment of their application.  There are  also
areas  in  which  management's  judgment  in  selecting   an
available   alternative  would  not  produce  a   materially
different  result.   See  the  Company's  audited  financial
statements and notes thereto contained in this Annual Report
for  a  discussion of the Company's accounting policies  and
other disclosures required by U.S. GAAP.

  Recent Accounting Pronouncements

  Effective  January  1,  2002,  the  Company  adopted  FASB
Statement  of  Financial  Accounting  Standards   No.   142,
Goodwill  and  Other Intangible Assets ("SFAS  142"),  under
which  the Company's goodwill is no longer amortized and  is
instead subject to annual impairment tests using a new  fair
value   based   approach.   The  Company's  other   recorded
intangible assets, substantially all of which were  acquired
in  the  2002  Acquisition, are being amortized  over  their
estimated useful lives.

  For  impairment  testing purposes, the Company  determined
the  value  of  its reporting units using a discounted  cash
flow  model,  a  guideline company model, and a  transaction
model,  and  by observation of demonstrable fair  values  of
comparable entities.  The Company determined that there  was
no  impairment  of its goodwill as of the  January  1,  2002
implementation  date  of SFAS 142.   However,  as  described
above,  a  subsequent  goodwill write-off  was  recorded  in
connection  with  the  combination  of  the  Company's  Zeta
division with Signia.

  In  fourth  quarter  2002, the Company early  adopted  the
provisions   of  FASB  Statement  of  Financial   Accounting
Standards No. 145 ("SFAS 145"), which  rescinded  FASB  Statement
of Financial  Accounting Standards No. 4, Reporting  Gains  and
Losses  from  Extinguishment of Debt ("SFAS  4"),  and  made
other   technical  corrections  to  existing   authoritative
pronouncements.   SFAS 4 required companies to classify  all
gains   and   losses   from  extinguishment   of   debt   as
extraordinary  items,  net of the related  tax  effects,  in
their statements of operations.  SFAS 145 requires gains  and
losses  from  extinguishment of debt  to  be  classified  as
income  or loss from continuing operations unless they  meet
the  criteria  for  classification  as  extraordinary  items
contained in Accounting Principles Board Opinion No. 30.  As
the  Company's  debt  extinguishments  are  not  unusual  or
infrequent in nature, the Company has classified its  fourth
quarter  2002 loss from the early extinguishment of debt  in
its loss from continuing operations and has reclassified its
first  quarter 2002 and its third quarter 2000  losses  from
early extinguishments of debt, both of which were previously
classified    as   extraordinary   items,   for   consistent
presentation.   These  losses are included  in  "Refinancing
costs"   in   the   Company's  consolidated  statements   of
operations.   See "Refinancing Costs" preceding for  further
discussion of these charges.

  In November 2002,  the  FASB issued Interpretation No. 45,
Guarantor's  Accounting  and  Disclosure  Requirements   for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others ("FIN 45").  This Interpretation elaborates on the
existing disclosure requirements for most guarantees, including
loan guarantees  such  as  standby  letters of credit.  It also
clarifies  that  at  the  time  a  guarantee  is issued, the
Company  must  recognize  an  initial liability for the fair
value of  the  obligations  it  assumes  under the guarantee
and must disclose that information in its interim and annual
financial statements.  The provisions related to recognizing
a  liability  at  inception of the guarantee do not apply to
product  warranties,   indemnification  provisions,   or  to
guarantees  accounted  for  as  derivatives.    The  initial
recognition and measurement provisions apply on a prospective
basis  to  guarantees  issued  or modified after December 31,
2002, and  the  disclosure  requirements apply to guarantees
outstanding  as  of  December 31, 2002.    The  Company   is
currently  assessing  the  impact  of  adopting  the initial
recognition  and  measurement   provisions  of  FIN 45 on its
consolidated financial statements.

  Factors  Which May Affect Financial Condition  and  Future
  Results

  The  following  are some of the factors,  in  addition  to
those described above, that the Company believes could cause
its  actual  results to differ materially from expected  and
historical results.

o The  Company  relies  on  sales  to  U.S.  Government
  entities.  The loss of all or a substantial portion of the
  Company's sales to the U.S. Government would have a material
  adverse effect on its results of operations and cash flow.
  In  addition, the Company's technology has been  developed
  substantially through research and development incurred in
  connection   with  long-term  development   contracts,   a
  substantial portion of which were funded either directly by
  its customers or indirectly through recovery of such costs
  under U.S. Government contracts. If the Company loses some
  or  all  of  its  government contracts, it cannot  provide
  assurance that it will be able to maintain the same level of
  funding for research and development in the future.

o The  Company's  government contracts  are  subject  to
  business risks peculiar to the defense industry, including
  the ability of the U.S. Government to:

  -  unilaterally suspend the Company from receiving new
     contracts pending resolution of alleged violations of
     procurement laws or regulations,
  -  terminate existing contracts,
  -  reduce the value of existing contracts,
  -  mandate the Company to enter into and perform a
     contract,
  -  audit and adjust the Company's contract-related costs
     and fees, including allocated indirect costs, and
  -  control and potentially prohibit the export of the
     Company's products.

o The  Company  obtains  many  of  its  U.S.  Government
  contracts through a competitive bidding process. The Company
  cannot  provide  assurance that it will win  competitively
  awarded  contracts  or  that  awarded  contracts  will  be
  profitable. The Company is also subject to risks associated
  with competitive bidding including the frequent need to bid
  on programs in advance of the completion of designs, which
  may result in unforeseen technological difficulties or cost
  overruns,  the  substantial time and  effort  required  to
  prepare  bids  and  proposals  for  competitively  awarded
  contracts  that  may not be awarded to the Company,  rapid
  technological obsolescence, and the constant need for design
  improvement.   In  addition, the Company  frequently  bids
  against  competitors  with  greater  financial  and  other
  resources.

o The U.S. Government's right to use technology developed
  by the Company limits its intellectual property rights. The
  Company seeks to protect the competitive benefits it derives
  from   its  patents,  proprietary  information  and  other
  intellectual property. However, it does not have the right
  to  prohibit the U.S. Government from using certain of its
  technologies or to prohibit third party companies, including
  the Company's 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 the Company has developed under government
  contracts. The Company is free to commercially exploit these
  government-funded   technologies  and   may   assert   its
  intellectual property rights to seek to block  other  non-
  government  users thereof, but the Company cannot  provide
  assurance that it could successfully do so.

o The electronics equipment industry is characterized by
  rapid   technological   changes,  frequent   new   product
  introductions, changes in customer requirements and evolving
  standards. The Company's failure to predict accurately the
  needs of its customers and prospective customers (including,
  directly  and  indirectly, the U.S.  Government),  and  to
  develop products or product enhancements that address those
  needs and these evolving standards, may result in the loss
  of current customers or the inability to secure prospective
  customers. While the Company intends to continue investing
  in  product and technology development, its products could
  become  obsolete  as new technologies  and  standards  are
  introduced and adopted. The development of new or enhanced
  products  is a complex and uncertain process that requires
  the  accurate  anticipation of  technological  and  market
  trends.  The Company may experience design, manufacturing,
  marketing and other difficulties that could delay or prevent
  the development, introduction or acceptance of new products
  and enhancements. Furthermore, while the Company intends to
  capitalize  on  the  diverse technologies,  expertise  and
  relationships existing across its business, it may not, in
  fact, be able to develop the new products and new business
  opportunities that it expects.



INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
   Integrated Defense Technologies, Inc.:

We have audited the accompanying consolidated balance sheets
of Integrated Defense  Technologies, Inc.  (a majority owned
subsidiary  of IDT Holding, L.L.C.)  and  subsidiaries as of
December 31, 2002  and  2001, and  the  related consolidated
statements  of  operations,  stockholders' equity,  and cash
flows  for  each  of  the  three  years  in the period ended
December 31, 2002.    These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements based
on our audits.

We  conducted  our  audits  in  accordance  with  auditing
standards  generally  accepted  in  the  United  States of
America.  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,  such  consolidated financial statements
present  fairly,  in  all material respects, the financial
position  of  Integrated  Defense  Technologies,  Inc. and
subsidiaries  as  of  December 31, 2002  and 2001, and the
results  of their operations and their cash flows for each
of the three years in the period ended December 31, 2002 in
conformity with accounting principles generally accepted in
the United States of America.

As  discussed  in  Note  9  to  the consolidated financial
statements,  in 2002,  the  Company  changed its method of
accounting for goodwill to conform to Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible
Assets.

/s/ Deloitte & Touche LLP

Birmingham, Alabama
January 30, 2003 (February 27, 2003 as to Note 17)








         INTEGRATED DEFENSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS


--------------------------------------------------------------------------------
  December 31,                                               2002         2001
--------------------------------------------------------------------------------
 (In thousands except share and per share amounts)


ASSETS
Current assets:
    Cash                                                 $  8,969     $  3,893
    Restricted cash                                         1,140          769
    Accounts receivable, net                              134,304      113,863
    Inventories, net                                       20,242       13,567
    Prepaid expenses and other current assets               3,047        2,028
    Deferred income taxes                                   6,456        7,068
--------------------------------------------------------------------------------
        Total current assets                              174,158      141,188

    Property and equipment, net                            62,002       45,548
    Goodwill, net                                         143,809       83,734
    Other intangible assets, net (Note 9)                  55,963          ---
    Deferred income taxes                                   2,987          ---
    Other assets                                            8,781        7,828
--------------------------------------------------------------------------------
        Total Assets                                     $447,700     $278,298
================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Revolving credit loan                                $  2,500     $  8,500
    Current portion of long-term debt                       7,348        9,164
    Accounts payable                                       20,737       14,802
    Accrued compensation                                   13,162        8,317
    Other accrued expenses                                 13,230       11,030
    Derivative liabilities                                    458        7,326
    Billings in excess of costs and earnings                6,055        8,743
--------------------------------------------------------------------------------
        Total current liabilities                          63,490       67,882

    Long-term debt                                        208,860      153,561
    Pension and other postemployment benefits              11,941        6,675
--------------------------------------------------------------------------------
        Total liabilities                                 284,291      228,118
--------------------------------------------------------------------------------
Commitments and contingencies (Note 14)
--------------------------------------------------------------------------------
Stockholders' equity:
    Preferred stock, $.01 par value per share,
      20,000,000 shares authorized, none issued               ---          ---
    Common stock, $.01 par value per share,
      200,000,000 shares authorized, 21,327,931
        issued at December 31, 2002 and 13,565,243
        issued at December 31, 2001                           213          136
    Additional paid-in capital                            170,955       54,434
    Accumulated other comprehensive loss                   (5,965)      (6,703)
    Retained earnings (deficit)                            (1,794)       2,313
--------------------------------------------------------------------------------
        Total stockholders' equity                        163,409       50,180
--------------------------------------------------------------------------------
        Total Liabilities and Stockholders' Equity       $447,700     $278,298
================================================================================

       See notes to consolidated financial statements.


                INTEGRATED DEFENSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Year ended December 31,                                             2002         2001        2000
----------------------------------------------------------------------------------------------------
(In thousands except share and per share amounts)

<S>                                                             <C>          <C>          <C>
Revenue                                                         $304,361     $263,952     $180,573
Cost of revenue                                                  219,735      183,330      130,459
----------------------------------------------------------------------------------------------------
Gross profit                                                      84,626       80,622       50,114

Selling, general and administrative expenses                      38,517       34,830       20,543
Research and development and bid and proposal expenses            15,144       12,681        8,767
Goodwill impairment charge                                         3,012          ---          ---
Amortization expense                                               1,204        7,110        5,823
----------------------------------------------------------------------------------------------------
Income from operations                                            26,749       26,001       14,981

Interest expense                                                 ( 8,270)     (19,437)     (10,064)
Refinancing costs                                                (25,748)         ---      ( 1,492)
Other income (expense) - net                                          84          403          ---
----------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                ( 7,185)       6,967        3,425

Income tax benefit (expense)                                       3,078       (4,668)     ( 2,820)
----------------------------------------------------------------------------------------------------
Net income (loss)                                               $( 4,107)    $  2,299     $    605
====================================================================================================

Earnings (loss) per share:
    Basic                                                          $(.21)        $.17         $.06
    Diluted                                                        $(.21)        $.15         $.05
====================================================================================================

Weighted-average shares outstanding:
    Basic                                                     19,316,647   13,565,243   10,847,623
    Diluted                                                   19,316,647   15,327,938   12,117,367
====================================================================================================
</TABLE>

       See notes to consolidated financial statements.




                     INTEGRATED DEFENSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                             CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Year ended December 31,                                                     2002         2001       2000
------------------------------------------------------------------------------------------------------------
(In thousands)

<S>                                                                      <C>           <C>          <C>
OPERATING ACTIVITIES:
    Net income (loss)                                                    $(4,107)     $ 2,299      $ 605
    Adjustments to reconcile net income (loss) to net cash
        provided by (used in) operating activities:
            Depreciation expense                                          11,062       10,776      6,851
            Amortization expense                                           1,408        7,110      5,823
            Goodwill impairment charge                                     3,012          ---        ---
            Refinancing costs                                             25,748          ---      1,492
            Deferred income taxes                                         (2,772)       5,109      2,673
            Changes in assets and liabilities, net of the effects
              of business acquisitions:
                Restricted cash                                             (371)       5,155     (2,936)
                Accounts receivable, net                                 (12,357)     (16,701)   (17,823)
                Income tax receivable                                       (647)       2,784     (4,998)
                Inventories, net                                           2,194         (248)     1,710
                Other current assets                                         696         (493)    (3,286)
                Accounts payable                                           4,292        2,189      2,833
                Billings in excess of costs and earnings                  (3,014)       3,602       (425)
                Other current liabilities                                  1,198       (8,724)    (7,873)
------------------------------------------------------------------------------------------------------------
                   Net cash provided by (used in) operating activities    26,342       12,858    (15,354)
------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
    Cash paid in connection with acquisitions, net of cash acquired
      and net of proceeds received from divested businesses in 2000     (148,929)         ---   (105,460)
    Purchases of property and equipment                                   (8,259)      (5,573)    (5,178)
    Capitalization of internally developed software                       (2,964)      (1,016)       ---
    Other                                                                   (110)        (100)       ---
------------------------------------------------------------------------------------------------------------
                   Net cash used in investing activities                (160,262)      (6,689)  (110,638)
------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
    Issuance of common stock, net of issuance costs, and
       contributed capital from parent                                   116,688          ---     20,500
    Issuance of long-term debt                                           220,000          ---    155,000
    Repayment of long-term debt                                         (172,651)      (7,664)   (43,500)
    Payment of refinancing costs                                         (19,041)         ---     (6,641)
    Net borrowings (repayments) under revolving credit loans              (6,000)         450      2,782
------------------------------------------------------------------------------------------------------------
                   Net cash provided by (used in) financing activities   138,996       (7,214)   128,141
------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash                                            5,076       (1,045)     2,149
Cash at beginning of year                                                  3,893        4,938      2,789
------------------------------------------------------------------------------------------------------------

Cash at end of year                                                       $8,969      $ 3,893    $ 4,938
============================================================================================================

Supplemental disclosures of cash flow information:
  Cash paid for interest                                                 $ 8,445     $ 19,406   $ 10,007
  Cash paid for income taxes                                             $   274     $    756   $  1,866
Supplemental disclosure of noncash investing and financing activity:
  Issuance of common stock warrant                                       $   ---     $    ---   $  3,679
  Unrealized loss on derivative financial instruments                    $(1,533)    $ (9,084)  $    ---
  Minimum pension liability adjustment                                   $(5,528)    $ (3,485)  $    ---

</TABLE>

       See notes to consolidated financial statements.



                      INTEGRATED DEFENSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>

                                                                                        Accumulated
                                                                            Additional     Other     Retained
                                                          Common Stock       Paid-in   Comprehensive Earnings
                                                        Shares     Amount    Capital       Loss      (Deficit)     Total
------------------------------------------------------------------------------------------------------------------------
 (In thousands except share amounts)

<S>                                                    <C>           <C>     <C>          <C>       <C>         <C>
Balance, January 1, 2000                               9,931,795     $99      $ 30,292    $ ---     $ (591)     $29,800

    Issuance of common stock and contributed
      capital from parent                              3,633,448      37        20,463      ---        ---       20,500
    Issuance of common stock warrant                         ---     ---         3,679      ---        ---        3,679
    Net income                                               ---     ---           ---      ---        605          605
------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                            13,565,243     136        54,434      ---         14       54,584

Comprehensive loss:
    Net income                                               ---     ---           ---      ---      2,299        2,299
    Other comprehensive loss:
      Minimum pension liability adjustment,
         net of income tax benefit of $1,324                 ---     ---           ---   (2,161)       ---       (2,161)
      Cumulative effect of change in accounting
         principle, net of income tax benefit
         of $1,088                                           ---     ---           ---   (1,775)       ---       (1,775)
      Unrealized loss on derivative instrument,
         net of income tax benefit of $2,364                 ---     ---           ---   (3,857)       ---       (3,857)
      Less reclassification adjustment for losses
         included in net income, net of income
         tax expense of $668                                 ---     ---           ---    1,090        ---        1,090
                                                                                                                 -------
  Total comprehensive loss                                   ---     ---           ---      ---        ---       (4,404)
------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001                            13,565,243     136        54,434   (6,703)     2,313       50,180

Issuance of common stock                               6,000,000      60       116,538      ---        ---      116,598
Conversion of common stock warrants                    1,762,688      17           (17)     ---        ---          ---

Comprehensive loss:
    Net loss                                                 ---     ---           ---      ---     (4,107)      (4,107)
    Other comprehensive income:
      Minimum pension liability adjustment,
         net of income tax benefit of $2,015                 ---     ---           ---   (3,513)       ---       (3,513)
      Unrealized losses on derivative instruments,
         net of income tax benefit of $586                   ---     ---           ---     (947)       ---         (947)
      Less reclassification adjustment for losses
         included in net loss, net of income
         tax expense of $3,203                               ---     ---           ---    5,198        ---        5,198
                                                                                                                 -------
  Total comprehensive loss                                   ---     ---           ---      ---        ---       (3,369)
------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002                            21,327,931    $213      $170,955 $ (5,965)   $(1,794)    $163,409
========================================================================================================================
</TABLE>

       See notes to consolidated financial statements.


   INTEGRATED DEFENSE TECHNOLOGIES, INC. AND SUBSIDIARIES
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION

  The Company has been built in part from the acquisition of several
businesses since 1998.  The Company's equity sponsor,  The
Veritas  Capital  Fund,  L.P.,  acquired  PEI  Electronics,  Inc.
("PEI")  on  October  23,  1998 through a  holding  company,  PEI
Electronics  Holding Corp. ("PEH"). PEI served as  the  Company's
foundation for acquiring other businesses. On July 20, 1999,  PEH
changed its name to Integrated Defense Technologies, Inc.  ("IDT"
or   "the Company").   The Company is a majority-owned subsidiary
of IDT Holding, L.L.C.

  On August 6, 1999, the Company acquired substantially all the
assets  and  assumed certain liabilities of the  Sierra  Research
("Sierra")  division of Sierra Technologies, Inc.  and  the  Zeta
division of Sierra Networks, Inc. ("Zeta").

  On  September 29, 2000, the Company acquired all of  the
outstanding  common  stock  of Tech-Sym Corporation  ("Tech-Sym")
(see Note 4).  Concurrent with this acquisition, two subsidiaries
of  Tech-Sym,  TRAK Communications, Inc. ("TRAK") and  CrossLink,
Inc.  ("CrossLink"), were sold to companies affiliated  with  IDT
through  common ownership.  The subsidiaries of Tech-Sym retained
by  the  Company  include Metric Systems Corporation  ("Metric"),
Continental    Electronics   ("Continental"),   and    Enterprise
Electronics Corporation ("Enterprise").

  On  November 1, 2002, the Company acquired substantially all  the
assets  and  assumed certain liabilities of BAE SYSTEMS  Advanced
Systems  Gaithersburg, Maryland operation (now known as "Signia")
(see  Note  4).  Concurrent with this acquisition, the  Company's
Zeta  division was reorganized and combined with Signia (see Note
5).

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Nature  of Business:  The Company develops and provides  advanced
electronics   and   technology  products  to  the   defense   and
intelligence  industries.  The Company serves customers  in  both
domestic  and international defense and commercial markets,  with
its principal customers being agencies of the U.S. Government and
major  domestic prime defense contractors.  The Company presently
operates  in three business segments: Electronic Combat  Systems,
Diagnostics  &  Power Systems, and Communications &  Surveillance
Systems.  See Note 15 for discussion of the nature of each of the
Company's   operating  segments,  including   information   about
products  and  services  provided and the  classes  of  customers
served.

  Principles of Consolidation:  The consolidated financial
statements  include  the  accounts of IDT  and  its  wholly-owned
subsidiaries.  All  significant  intercompany  transactions   and
accounts have been eliminated in consolidation.

  Accounting Estimates:  The preparation of financial statements
in  conformity with accounting principles generally  accepted  in
the  United  States  ("U.S. GAAP") requires  management  to  make
estimates and assumptions that affect the amounts reported in the
financial statements and determine whether contingent assets  and
liabilities,  if any, are disclosed in the financial  statements.
Significant  estimates  and assumptions are  used  for,  but  not
limited to, estimates of cost at completion of the Company's long-
term   contracts,  product  returns  and  warranty   obligations,
allowances  for  doubtful  accounts, inventory  valuation,  asset
impairments,  depreciable  lives  of  assets,  useful  lives   of
intangible assets, pension and postretirement benefit plans, self-
insurance   reserves,  tax  valuation  allowances,  environmental
matters, litigation, and other contingencies.  Future events  and
their   effects   cannot  be  predicted   with   certainty,   and
accordingly,  the  Company's  accounting  estimates  require  the
exercise  of  judgment.  The  Company  bases  its  estimates  and
assumptions on historical experience and on various other factors
believed  to  be  reasonable under the  circumstances,  including
current  and expected economic conditions, the results  of  which
form the basis for making judgments about the carrying values  of
assets  and  liabilities.   The  ultimate  resolution  of  issues
requiring   these   estimates  and   assumptions   could   differ
significantly  from  the  resolution  currently  anticipated   by
management and on which the financial statements are based.

  Changes in Estimates:  In the ordinary course of accounting for the
items discussed above, the Company makes changes in estimates  as
appropriate under the circumstances. Such changes and refinements
in  estimation  methodologies  are  reflected  in  the  Company's
reported results of operations in the period in which the changes
are   made  and,  if  material,  their  approximate  effects  are
disclosed in the Notes to Consolidated Financial Statements.

  Restricted Cash:  Restricted cash consists primarily  of
compensating  balance  requirements, monies  escrowed  to  secure
letters   of   credit  required  under  contracts  with   foreign
governments,  and funds acquired in the acquisition  of  Tech-Sym
Corporation.

  Inventories:   Inventories are stated at the lower  of  first-in,
first-out  ("FIFO") cost or market or valued using other  costing
methods which approximate the lower of FIFO cost or market.   For
the  purpose of this valuation, market values are estimated based
upon assumptions about future demand and market conditions.

  See Note 7 for further details of the Company's inventories.

  Goodwill:  Goodwill is recorded when the consideration paid for a
business  acquisition exceeds the fair value of the  identifiable
net tangible and intangible assets acquired.  On January 1, 2002,
the  Company  ceased amortization of its goodwill  in  accordance
with  the  provisions  of  Financial Accounting  Standards  Board
("FASB")  Statement  of Financial Accounting Standards  No.  142,
Goodwill and Other Intangible Assets ("SFAS 142").  Prior to that
time,  the  Company amortized its goodwill over a 15-year  period
using  the  straight-line  method.  Accumulated  amortization  of
goodwill  totaled approximately $13,745,000 at December 31,  2001
and 2002.

  In  accordance  with  the provisions of  SFAS  142,  the  Company
performs periodic impairment tests of its goodwill.  The  process
of  evaluating goodwill for impairment involves the determination
of  the fair values of the Company's business units.  These  fair
value  determinations involve judgments and estimates,  including
the  interpretation  of  current economic indicators  and  market
valuations,  and assumptions about the Company's strategic  plans
with regard to its operations.

  See  Note  9  for  further  information regarding  the  Company's
goodwill balances and its implementation of SFAS 142.

  Intangible  assets:  The Company's intangible assets  consist  of
customer  relationships, patents and proprietary technology,  and
trade  names  and  trademarks, substantially all  of  which  were
acquired  in connection with the November 1, 2002 acquisition  of
Signia.   The  Company's  intangible  assets  have  useful  lives
ranging from 10 to 31 years and are amortized on a straight  line
basis  over  these useful lives.  See Notes 4 and 9  for  further
information regarding the Company's intangible assets.

  Capitalized Debt Issuance Costs:  The Company capitalizes certain
costs  incurred in connection with obtaining financing  from  its
creditors.  The unamortized balances of capitalized debt issuance
costs at December 31, 2002 and 2001 of $3,327,000 and $4,978,000,
respectively,  are included in "Other assets"  in  the  Company's
consolidated balance sheets as of those dates.  These capitalized
costs  are amortized on a straight line basis over the  lives  of
the   associated   debt  agreements.    Amortization   of   these
capitalized  costs,  included in "Amortization  expense"  in  the
Company's consolidated statements of operations, totaled $766,000
in  2002, $835,000 in 2001, and $1,082,000 in 2000.  See  Note  3
for   further  information  regarding  the  debt  issuance  costs
capitalized  and  written off in connection  with  the  Company's
various refinancings.

  Capitalized  Software Development Costs:  The Company capitalizes
certain costs of development of computer software incurred  after
the   technological   feasibility  of  the   product   has   been
established.  The  unamortized balances of  capitalized  software
development costs at December 31, 2002 and 2001 of $3,777,000 and
$1,016,000, respectively, are included in "Other assets"  in  the
Company's  consolidated balance sheets as of those dates.   These
capitalized  costs are amortized on a straight  line  basis  over
periods  of two to three years. The related amortization  expense
is  included  in "Cost of revenues" in the Company's consolidated
statements of operations.

  Although the Company regularly reviews its capitalized development
costs  to  ensure  recognition of any decline  in  value,  it  is
possible   that,  for  any  given  product,  revenues  will   not
materialize  in  amounts anticipated due to  industry  conditions
that  include intense price and performance competition, or  that
product  lives  will  be reduced due to shorter  product  cycles.
Should  either  of  these events occur, the  carrying  amount  of
capitalized development costs would be reduced, producing adverse
effects  on  the  Company's  cost  of  revenues  and  results  of
operations.

  Property and Equipment:  Property and equipment is stated at cost
less  accumulated depreciation and amortization. Depreciation  is
computed  using  the  straight-line  method  over  the  following
estimated  useful lives: buildings 25 to 45 years, machinery  and
equipment  3  to 12 years, and office equipment 3  to  10  years.
Amortization  of  leasehold improvements is  computed  using  the
straight-line  method  over the lesser of  the  estimated  useful
lives  of  the assets or the remaining terms of the corresponding
leases.  The  amortization periods for  the  Company's  leasehold
improvements currently range from 5 to 7 years.   See Note 8  for
further details of the Company's property and equipment balances.

  Impairment of Long-Lived Assets (Excluding Goodwill):  The
Company  periodically evaluates the carrying value of  long-lived
assets  to  be  held  and used, including its  intangible  assets
subject  to  amortization, when events and circumstances  warrant
such  a  review.  The  carrying value of a  long-lived  asset  is
considered impaired when the anticipated undiscounted  cash  flow
from the asset is less than its carrying value. In such an event,
a  loss  is recognized based on the amount by which the  carrying
value exceeds the fair market value of the long-lived asset.

  Billings in Excess of Costs and Earnings:  Billings in excess  of
costs  and  earnings  consists  of  amounts  for  which  contract
billings  have been presented but the goods and services required
under the contracts have not yet been provided and the associated
revenue has not been recognized.

  Fair Value of Financial Instruments:  The carrying values of  the
Company's  receivables, accounts payable, billings in  excess  of
costs  and earnings, and accrued expenses approximate fair values
because of the short-term nature of these instruments. Additional
fair  value  disclosures for interest-bearing debt and  financial
instruments are presented in Notes 10 and 11.

  Derivative Financial Instruments:  The Company uses derivative
financial  instruments, primarily interest rate swaps, to  reduce
its  financial market risks. The Company does not use  derivative
financial instruments for speculative or trading purposes.

  The Company at times uses interest rate swap agreements to manage
the  risk  associated  with  interest rate  fluctuations  on  its
variable  rate debt.  The Company's interest rate swap agreements
are structured so that the critical terms of the agreements match
those  of  the  underlying  debt, and as  such,  they  have  been
designated  as  highly effective cash flow hedges as  defined  in
FASB  Statement of Financial Accounting Standards No. 133  ("SFAS
133")   Accounting   for  Derivative  Instruments   and   Hedging
Activities.   Accordingly,  changes in  the  fair  value  of  the
interest  rate swap agreements are recognized as a  component  of
other  comprehensive  income (loss)  until  the  hedged  interest
payments are recognized in earnings.  Any ineffective portion  of
a  hedge  is recognized immediately in earnings.  The  amount  of
unrealized  gain  or loss on an interest rate swap  agreement  is
recognized  immediately  in earnings if the  underlying  debt  is
early  extinguished.   The fair value of the  Company's  interest
rate  swap agreements, representing the approximate cost  to  the
Company  of  terminating  the agreements  on  a  given  date,  is
reflected   as   "Derivative  liabilities"   in   the   Company's
consolidated balance sheets.

  See Note 11 for further details of the Company's interest rate swap
agreements.

  Pension  and  Other  Postretirement  Benefits.    The   Company
follows  the  guidance  of FASB Statement of Financial Accounting
Standards No. 87, Employers' Accounting for Pensions ("SFAS 87"),
and  FASB  Statement  of  Financial Accounting Standards No. 106,
Employers'  Accounting  for  Postretirement  Benefits  Other Than
Pensions  ("SFAS 106"),  when  accounting  for  pension and post-
retirement  benefits.     Under   these   accounting   standards,
assumptions   are   made   regarding   the  valuation of benefit
obligations   and   the  performance  of plan assets.    Delayed
recognition  of differences  between actual results and expected
or  estimated results is a guiding principle of these standards.
This  delayed  recognition   of  actual  results  allows  for  a
smoothed  recognition   of  changes  in  benefit obligations and
plan  performance  over the  working  lives of the employees who
benefit  under  the  plans.    The  primary  assumptions  are as
follows:

o  Discount rate - The  discount rate is used in calculating
   the present value of benefits, which is based on projections
   of benefit payments to be made in the future.

o  Expected return on plan assets - Management  projects the
   future  return  on plan assets based principally on prior
   performance.   These  projected  returns  reduce  the net
   benefit costs the Company will record currently.

  Revenue Recognition:  A substantial portion of the Company's
revenue  is  earned under long-term contracts, generally  with  a
duration of greater than three months.  These long-term contracts
are  accounted for under the percentage-of-completion  method  of
accounting in which revenues are recorded for incurred costs plus
a  portion  of  the profit expected to be realized.  The  Company
follows this method since reasonably dependable estimates of  the
revenues  and costs applicable to various stages of the contracts
can be made.  The amount of revenue recognized is the portion  of
the total contract price that the cost expended to date bears  to
the anticipated total cost, based on current estimates of cost at
completion. It is not related to progress billings to  customers.
The contract price includes all amounts currently under contract,
including approved contract changes and the portion of authorized
but   unpriced  contract  changes  for  which  the  Company   can
reasonably  estimate the value. Claims for equitable  adjustments
to  contract value are recognized to the extent of costs incurred
when   realization  is  probable  and  amounts  can  be  reliably
estimated.  Estimated costs at completion on long-term  contracts
are reviewed and revised periodically throughout the lives of the
contracts,  and  adjustments  to  profit  resulting   from   such
revisions  are  recorded in the accounting period  in  which  the
revisions are made. Estimated losses on contracts are recorded in
full  as  they  are  identified. Contract  costs  include  direct
material,  labor  and subcontract costs, and  allocated  indirect
overhead.   Due  to  uncertainties  inherent  in  the  estimation
process,  it is possible that completion costs could  be  revised
further  on  some of these contracts, which could  delay  revenue
recognition and decrease the gross profit to be earned.

  Revenues  for  contracts which do not qualify for  percentage-of-
completion  accounting, primarily those of the  Company's  Signia
subsidiary,  are  recognized upon delivery  of  products  to  the
customer.

  For all types of sales, the revenue recognition process is deferred
until there is persuasive evidence of an arrangement, defined  by
the  Company as a purchase order or signed contract, the  selling
price is fixed or determinable, and there is reasonable assurance
of collection of the resulting receivable.

  The operating cycle of the Company is based upon the lives of
its  individual  contracts, which may  extend  beyond  one  year.
Accordingly, all contract-related assets, including  claims,  and
contract-related liabilities are classified as current assets  or
liabilities.  A  one year time period is used as  the  basis  for
classifying all other current assets and liabilities.

  Shipping and Handling:  Amounts billed to customers  for
shipping  and  handling  costs are included  in  revenue  in  the
consolidated  statements of operations with the associated  costs
included as a component of cost of revenue.

  Research  and Development:  Research and development expenditures
include all costs related to developing new or enhancing existing
products.  Customer funded research and development expenses  are
included  as a component of  "Cost of revenue", while  internally
funded  research  and  development  expenses  are  reflected   in
"Research and development and bid and proposal expenses"  in  the
Company's  consolidated  statements of operations.    During  the
years  ended  December 31, 2000, 2001, and  2002,  the  Company's
internally  funded  research  and development  costs  charged  to
expense   totaled   $6,987,000,   $6,054,000,   and   $6,533,000,
respectively.

  Income  Taxes:  Deferred income taxes are  recorded  for
differences  in the book and tax basis of assets and  liabilities
based  on the tax rates and laws enacted as of the balance  sheet
dates. The effects of future changes in tax laws or rates are not
anticipated.

  Earnings  (Loss)  Per  Share ("EPS"):  The  Company  reports  two
separate  earnings (loss) per share numbers, basic  and  diluted.
Basic EPS is computed using the weighted average number of common
shares  outstanding.  Diluted EPS is computed using the  weighted
average   number   of   common  and  equivalent   common   shares
outstanding.  Historically, common stock warrants have  been  the
Company's only common stock equivalent and have been included  in
the Company's EPS calculation only if dilutive.

  On February 5, 2002, the Company's Board of Directors approved  a
198.6359  to  1  common stock split.  All  share  and  per  share
amounts  for  2000 and 2001 have been restated  to  reflect  this
stock split.

  On February 27, 2002, in connection with its initial public stock
offering,  the  Company  issued 6,000,000  additional  shares  of
common  stock, and warrant holders converted outstanding warrants
into  235,749 shares of the Company's common stock.  On September
6,  2002,  warrant  holders converted the  remaining  outstanding
warrants  into 1,526,939 shares of restricted common stock.   The
Company no longer has any common stock warrants outstanding.

  The  computations  of  basic and diluted weighted-average  shares
outstanding  for the three years ended December 31, 2002  are  as
follows:
----------------------------------------------------------------------------
Year ended December 31,                      2002        2001        2000
----------------------------------------------------------------------------
Weighted-average shares outstanding      19,316,647  13,565,243   10,847,623
Dilutive effect of warrants                    ---    1,762,695    1,269,744
----------------------------------------------------------------------------
Weighted-average shares,
   assuming dilution                     19,316,647  15,327,938   12,117,367
============================================================================

  Common  stock  warrants outstanding from January 1, 2002  through
September  6,  2002 equated to 1,074,303 anti-dilutive  weighted-
average equivalent shares for the year ended December 31, 2002.

  Comprehensive Loss:  The Company's comprehensive  losses
include  its net income (loss) and all other nonowner changes  in
its  equity.  The Company's other comprehensive income (loss) for
the  years  ended December 31, 2002 and 2001 consists of  minimum
pension  liability adjustments and unrealized gains  (losses)  on
interest rate swap agreements (see Notes 11 and 13).  At December
31,  2002 and 2001, the Company's accumulated other comprehensive
loss   balances  included  in  its  consolidated  balance  sheets
consisted of cumulative minimum pension liability adjustments  of
$5,674,000 and $2,161,000, respectively, and unrealized losses on
interest   rate  swap  agreements  of  $291,000  and  $4,542,000,
respectively.

  Reclassifications:   Certain reclassifications have been made  to
the previously reported consolidated balance sheet as of December
31,  2001 and the consolidated statements of operations and  cash
flows  for the years ended December 31, 2001 and 2000 to  provide
comparability with the current year presentation.

  Recent Accounting Pronouncements:

  In fourth quarter 2002, the Company early adopted the provisions of
FASB  Statement of Financial Accounting Standards No. 145 ("SFAS 145"),
which rescinded FASB Statement of Financial Accounting Standards No. 4,
Reporting  Gains and Losses from Extinguishment  of  Debt  ("SFAS
4"),   and   made   other  technical  corrections   to   existing
authoritative  pronouncements.   SFAS  4  required  companies  to
classify  all  gains and losses from extinguishment  of  debt  as
extraordinary  items, net of the related tax  effects,  in  their
statements of operations.  SFAS 145 requires gains and losses from
extinguishment of debt to be classified as income  or  loss  from
continuing   operations  unless  they  meet  the   criteria   for
classification  as extraordinary items contained in  Accounting
Principles Board Opinion No.  30.  The Company has classified its
fourth quarter 2002 loss from the early extinguishment of debt in
its loss from continuing operations   and   has  reclassified  its
first   quarter   2002 ($20,696,000) and its third quarter 2000
($1,492,000) early  debt extinguishment losses, both of which were
previously  classified as  extraordinary items, net of tax, for
consistent presentation. These losses are included in "Refinancing
costs" in the Company's consolidated  statements of operations.
See Note 3 for further discussion of the Company's refinancing costs.

 In November 2002,  the  FASB issued Interpretation No. 45,
Guarantor's  Accounting  and  Disclosure  Requirements   for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others ("FIN 45").  This Interpretation elaborates on the
existing disclosure requirements for most guarantees, including
loan guarantees  such  as  standby  letters of credit.  It also
clarifies  that  at  the  time  a  guarantee  is issued, the
Company  must  recognize  an  initial liability for the fair
value of  the  obligations  it  assumes  under the guarantee
and must disclose that information in its interim and annual
financial statements.  The provisions related to recognizing
a  liability  at  inception of the guarantee do not apply to
product  warranties,   indemnification  provisions,   or  to
guarantees  accounted  for  as  derivatives.    The  initial
recognition and measurement provisions apply on a prospective
basis  to  guarantees  issued  or modified after December 31,
2002, and  the  disclosure  requirements apply to guarantees
outstanding  as  of  December 31, 2002.    The  Company   is
currently  assessing  the  impact  of  adopting  the initial
recognition  and  measurement   provisions  of  FIN 45 on its
consolidated financial statements.

NOTE 3 - REFINANCING

  On  February  27, 2002, the Company completed an  initial  public
offering  of 8,000,000 shares of common stock at $22  per  share.
In the offering, the Company sold 6,000,000 primary shares,
generating  net cash proceeds of $116,688,000.  The  majority  of
these  proceeds  were used for debt retirement  and  refinancing.
Concurrent  with closing of the offering, the Company repaid  the
outstanding  balances  on  its revolving  credit  and  term  loan
agreement  and  its  senior subordinated notes ($125,836,000  and
$51,250,000,  respectively) and replaced the  previous  revolving
credit and term loan facility with a new facility provided  by  a
syndicate of financial institutions.  This new facility  provided
financing of up to $125,000,000, consisting of a $40,000,000 five-
year  revolving  credit  facility, a $40,000,000  five-year  term
loan, and a $45,000,000 six-year term loan.

  On November 1, 2002, in connection with its acquisition of Signia
(see  Note  4),  the Company amended and restated  its  revolving
credit  and term loan facility. The amendment increased the  six-
year term loan by $135,000,000, increased availability under  the
revolving   credit  facility  by  $5,000,000,  and  updated   the
financial covenants in the facility to reflect the integration of
the Signia operation into the Company.

  In  connection with the early retirement and refinancing  of  its
previous  credit facility in February 2002, the Company  incurred
charges  totaling $20,696,000, including prepayment penalties  of
$2,565,000,  a  $4,833,000  write-off  of  the  capitalized  debt
issuance  costs associated with the previous debt,  a  $5,727,000
write-off  of  unamortized discount on  its  senior  subordinated
notes,  and a $7,571,000 payment to terminate interest rate  swap
agreements  associated with the retired debt.  These charges  are
reflected  as  "Refinancing costs" in the Company's  consolidated
statement of operations for the year ended December 31, 2002.

  In  February  2002,  the Company capitalized $4,629,000  of  debt
issuance costs associated with the new revolving credit and  term
loan agreement, consisting primarily of legal fees and a facility
fee  paid  to  the  new lenders.  In November 2002,  the  Company
incurred  charges  totaling $4,372,000  in  connection  with  the
amendment  of  its  six-year term loan and its  revolving  credit
facility.   The  Company  wrote off  the  $1,481,000  unamortized
balance  of capitalized debt issuance costs associated  with  its
six-year term loan, expensed the $3,571,000 of costs paid to  its
lenders in connection with the modification of its six-year  term
loan,  and  capitalized  $801,000 of  new  debt  issuance  costs,
consisting  primarily  of legal and other  third  party  expenses
related  to  the  amendment and expenses paid to its  lenders  in
connection   with  the  modification  of  its  revolving   credit
facility.   The  $1,481,000 write-off and the $3,571,000  expense
are   reflected   as   "Refinancing  costs"  in   the   Company's
consolidated statement of operations for the year ended  December
31,  2002.  The unamortized balance of capitalized debt  issuance
costs at December 31, 2002 of $3,327,000 is being amortized  over
the  remaining five-year term of the Company's amended  revolving
credit and term loan facility.

  On  September  29, 2000, the Company substantially  modified  its
previous  subordinated  note agreement and  incurred  charges  of
$1,492,000,  consisting of a write-off of  the  capitalized  debt
issuance costs associated with the prior note and an expensing of
the   costs   paid  to  its  lenders  in  connection   with   the
modification.  These charges are reflected as "Refinancing costs"
in  the  Company's consolidated statement of operations  for  the
year ended December 31, 2000.

NOTE 4 - BUSINESS ACQUISITIONS

  On November 1, 2002, the Company acquired substantially all of the
assets  and assumed certain of the liabilities of Signia.  Signia
designs   and  manufactures  high  performance  radio   frequency
surveillance  equipment used in communications  intelligence  and
signals   intelligence   applications.   The   Signia   operation
complements  the Company's Communications & Surveillance  Systems
segment,  particularly its Zeta division, which was  restructured
and  combined with Signia during the fourth quarter of 2002  (see
Note   5).    In  addition  to  reducing  the  overhead  expenses
associated with the Zeta division, the integration of Signia into
the  Communications & Surveillance Systems segment should broaden
its  capabilities and technological expertise in surveillance and
intelligence, while adding valuable new customer relationships.

  The  aggregate purchase price was $149,085,000 in cash, including
direct acquisition costs, which was financed primarily through an
add-on  to the Company's revolving credit and term loan facility.
See  Notes 3 and 10 for details of the Company's credit  facility
and  a summary of the November 1, 2002 amendment.   This purchase
price  is  subject to adjustment upon receipt of a final  closing
statement of assets and liabilities from the seller.

  The  acquisition was accounted for using the purchase method and,
accordingly,  the  purchase price, including  direct  acquisition
costs,   was   allocated  to  the  assets   acquired   (including
identifiable  intangible  assets) and liabilities  assumed  based
upon  their  estimated  fair values at the date  of  acquisition.
Independent appraisals were used to determine the estimated  fair
values  of  the assets acquired and the liabilities assumed,  and
the excess of cost over fair value was recorded as goodwill.  The
Company's  consolidated  statements  of  operations  include  the
results of operations of Signia from the acquisition date.

  The following table summarizes the recorded fair values of the
assets acquired and liabilities assumed at the date of
acquisition:

                                                     At November 1, 2002
                                                        (In thousands)
                                                        --------------

  Accounts receivable                                      $ 8,243
  Inventories                                                9,816
  Other current assets                                       2,289
  Property and equipment                                    19,269
  Intangible assets subject to amortization
    (26.5 year weighted-average useful life):
    Trade names and trademarks (10 year
     useful life)                             $ 1,581
    Patents and proprietary technology
     (15 year useful life)                     13,801
    Customer relationships (31 year
     useful life)                              40,912
                                              -------
                                                            56,294
  Goodwill                                                  63,087
                                                          ---------
      Total assets acquired                                158,998
                                                          ---------
  Accounts payable                                          (2,189)
  Other current liabilities                                 (7,563)
  Long-term debt                                              (161)
                                                          ---------
      Total liabilities assumed                             (9,913)
                                                          ---------
      Net assets acquired                                 $149,085
                                                          =========

 The $63,087,000 of goodwill was assigned to the Company's
Communications & Surveillance Systems segment.  All of the
goodwill is expected to be deductible for tax purposes.  For
further information regarding the Company's goodwill and other
intangible assets, see Note 9.

  The following unaudited pro forma consolidated results of operations
for the years ended December 31, 2002 and 2001 have been prepared
as though the acquisition occurred as of the beginning of each of
those years:
----------------------------------------------------------------------------
Year ended December 31,                                2002        2001
----------------------------------------------------------------------------
(In thousands except per share amounts)

Revenue                                            $364,098    $329,136
Loss before income taxes                             (8,355)       (637)
Net loss                                             (4,637)     (1,795)
Loss per share - basic and diluted                    $(.24)      $(.13)

  The  unaudited pro forma consolidated results of operations  have
been prepared for comparative purposes only and do not purport to
be indicative of the actual results that would have been achieved
had  the acquisition taken place as of January 1, 2001 or in  the
future.   The pro forma net loss for 2001 resulted primarily from
the  additional  interest expense that would have  been  incurred
assuming that the acquisition was financed through an addition to
the Company's debt and does not consider alternative financing or
interest rate risk reduction options that the Company could  have
employed.   In  addition,  both  the  2002  and  2001  pro  forma
presentations  include  a  one-time  expense  of   $940,000   for
retention bonuses accrued for certain key Signia employees.

  On  September 29, 2000, the Company acquired all of  the
outstanding  common stock of Tech-Sym for a total purchase  price
of $186,372,000 paid in cash, including direct acquisition costs.
Concurrent  with  this  acquisition, the Company  sold  TRAK  and
CrossLink,  two  former subsidiaries of Tech-Sym,  to  a  company
affiliated with IDT through common ownership for $50,500,000. The
acquisition  was  accounted for using the  purchase  method  and,
accordingly,  the  purchase price was  allocated  to  the  assets
acquired and liabilities assumed based upon their estimated  fair
values  at  the  acquisition  date.  The  Company's  consolidated
statements of operations include the results of operations of the
acquired business from the acquisition date.

  The components of the acquisition were as follows:

                                               (In thousands)
                                               --------------
    Fair value of assets acquired,
      including cash of $30,411,000               $134,183
    Fair value of liabilities assumed              (37,243)
    Goodwill                                        38,932
                                                  ---------
    Purchase price, net of proceeds from
      divested businesses                         $135,872
                                                  ========

  The following unaudited pro forma consolidated results of operations
for the year ended December 31, 2000 have been prepared as though
the acquisition occurred as of the beginning of that period:
-----------------------------------------------------------------------
Year ended December 31,                                       2000
-----------------------------------------------------------------------
(In thousands except per share amounts)

Revenue                                                   $266,956
Loss before income taxes                                    (2,639)
Net loss                                                    (6,040)
Net loss per share - basic and diluted                       $(.56)

  The unaudited pro forma consolidated results of operations
have been prepared for comparative purposes only and do not
purport to be indicative of the actual results that would have
been achieved had the acquisition taken place as of January 1,
2000 or in the future.

NOTE 5 - REORGANIZATION

  In  an  effort  to  reduce overhead costs and take  advantage  of
available business synergies, in the fourth quarter of  2002  the
Company  reorganized and combined its Zeta division with  Signia.
Signia assumed all management and administrative responsibilities
for   Zeta,  resulting  in  the  termination  of  fourteen   Zeta
employees.   Severance costs associated with  these  terminations
totaled  $250,000  and  are  included in  "Selling,  general  and
administrative expenses" in the Company's consolidated  statement
of  operations  for  the  year  ended  December  31,  2002.   The
Company's  $250,000 severance liability is included  in  "Accrued
compensation"  in  its  December 31,  2002  consolidated  balance
sheet.

  As  part  of  the reorganization, management  undertook  an
extensive  review  of Zeta's product planning, sales,  marketing,
engineering, production, overhead structure, management, customer
relationships,  and  in-process order fulfillment.   This  review
resulted in upward revisions of cost estimates on several  under-
performing  in-process jobs.  The fourth quarter 2002  impact  of
this  change  in  estimate was a $1,500,000 reduction  in  Zeta's
revenues and a $2,600,000 increase in their cost of revenues.

  In addition, due to the reorganization and combination, the Company
determined the value of the reorganized Zeta division using a
discounted cash flow model and wrote-off the remaining unamortized
goodwill balance associated with the division.   This $3,012,000
charge is reflected as a  "Goodwill impairment charge" in  the
Company's consolidated statement of operations  for  the year ended
December 31, 2002.

NOTE 6 - ACCOUNTS RECEIVABLE

  Accounts receivable, which includes both billed and unbilled
receivable amounts, are composed of the following:
----------------------------------------------------------------------------
 December 31,                                         2002        2001
----------------------------------------------------------------------------
 (In thousands)

Billed
  U.S. Government and prime contractors             $30,193    $ 15,981
  Foreign governments                                 9,037       3,215
  Commercial                                          3,845       3,293
----------------------------------------------------------------------------
                                                     43,075      22,489
----------------------------------------------------------------------------

Unbilled
  U.S. Government and prime contractors              78,572      69,464
  Foreign governments                                11,777      20,585
  Commercial                                          1,102       1,883
----------------------------------------------------------------------------
                                                     91,451      91,932
----------------------------------------------------------------------------
Total accounts receivable                           134,526     114,421
Less allowance for doubtful accounts                    222         558
----------------------------------------------------------------------------
Accounts receivable, net                           $134,304    $113,863
============================================================================

  The  increase  in  the Company's billed accounts receivable  from
December 31, 2001 was due in part to the acquisition of Signia in
November 2002.  Signia's accounts receivable at December 31, 2002
totaled  $5,208,000.   As Signia has no long-term  contracts,  no
portion of this balance was unbilled.

  Amounts included in unbilled receivables comprise earned contract
amounts  for  which  billings have not yet  been  presented.  The
requirements for billing are those commonly found in  contracting
situations, such as meeting contractual milestones. Substantially
all amounts not billed at December 31, 2002 will be billed during
2003.  It  is also anticipated that substantially all billed  and
unbilled accounts receivable will be collected within one year.

  Although the Company has a concentration of credit risk with
the   U.S.   Government,  it  has  not  historically  experienced
substantial  collection losses on U.S. Government  contracts.  In
addition,   the  Company's  foreign  receivables  are   generally
supported by letters of credit from the customers and,  as  such,
they  are  not subject to economic conditions that would  subject
the  Company to unusual collection risk.   The Company  does  not
generally require collateral to support its accounts receivable.

  Requests for equitable adjustments to contract value are filed
in  the  ordinary course of business. There were  no  significant
contract claims outstanding at December 31, 2002.

  The Company has no significant balances billed under retainage
provisions or other items subject to uncertainty concerning their
determination or ultimate resolution.

NOTE 7 - INVENTORIES

  Inventories consist of the following:
---------------------------------------------------------------------
 December 31,                                      2002      2001
---------------------------------------------------------------------
 (In thousands)

Stock materials                                  $14,983   $12,179
Work-in-process                                   10,525     8,605
Finished goods                                     3,363       461
---------------------------------------------------------------------
                                                  28,871    21,245
Less reserve for excess and obsolescence           8,629     7,678
---------------------------------------------------------------------
Inventories, net                                 $20,242   $13,567
=====================================================================

  Inventories  purchased  in the Signia acquisition  increased  the
Company's  stock materials, work-in-process, and  finished  goods
inventory  balances  by $4,397,000, $4,891,000,  and  $3,270,000,
respectively, and increased the reserve for excess and obsolescence
by $2,107,000.

  Work-in-process  and  finished  goods  inventories   consist
primarily  of  electronic components for use  in  fulfilling
current and future contracts.

NOTE 8 - PROPERTY AND EQUIPMENT, NET

  Property and equipment consists of the following:
------------------------------------------------------------------------
 December 31,                                         2002        2001
------------------------------------------------------------------------
 (In thousands)

Land, buildings and leasehold improvements           $42,431   $ 25,827
Machinery and equipment                               65,356     57,669
Office equipment                                      21,672     19,258
Construction-in-process                                3,586      2,549
------------------------------------------------------------------------
Total                                                133,045    105,303
Less accumulated depreciation and amortization        71,043     59,755
------------------------------------------------------------------------
Total                                                $62,002   $ 45,548
========================================================================

  Property  and equipment purchased in the Signia  acquisition
included   land,   buildings   and  leasehold   improvements   of
$14,919,000,  machinery and equipment of $3,945,000,  and  office
equipment of $405,000.

NOTE 9 - GOODWILL AND OTHER INTANGIBLE ASSETS

  Effective January 1, 2002, the Company adopted the provisions  of
FASB   Statement  of  Financial  Accounting  Standards  No.  142,
Goodwill  and Other Intangible Assets ("SFAS 142"),  under  which
the  Company's  goodwill is no longer amortized  and  is  instead
subject  to annual impairment tests using a new fair value  based
approach.   The  Company's  other  recorded  intangible   assets,
substantially  all  of  which  were  acquired  in  the  Company's
November  1, 2002 acquisition of Signia (see Note 4),  are  being
amortized over their remaining estimated useful lives.

Goodwill

  The  Company  completed the transitional impairment  testing  and
reallocation  of  goodwill to its business units  in  the  second
quarter  of  2002.  For impairment testing purposes, the  Company
determined  the value of its individual business  units  using  a
discounted  cash  flow model, a guideline company  model,  and  a
transaction model, and by observation of demonstrable fair values
of comparable entities.  The Company determined that there was no
impairment   of   its  goodwill  as  of  the  January   1,   2002
implementation date of SFAS 142.

  Changes in the carrying amount of the Company's goodwill for the
year ended December 31, 2002 were as follows:
-------------------------------------------------------------------------------
                                Electronic  Diagnostics  Communications
                                  Combat     & Power     & Surveillance
                                 Systems     Systems        Systems      Total
-------------------------------------------------------------------------------
(In thousands)

Balance as of January 1, 2002     $53,221    $20,075      $10,438     $ 83,734
Goodwill acquired in Signia
   acquisition (see Note 4)           ---        ---       63,087       63,087
Zeta goodwill written off
   (see Note 5)                       ---        ---       (3,012)      (3,012)
-------------------------------------------------------------------------------
Balance as of December 31, 2002   $53,221    $20,075      $70,513     $143,809
===============================================================================

  With the adoption of SFAS 142 on January 1, 2002, the Company ceased
amortization of its goodwill.  The following table presents the
pro forma results of the Company for the three years ended
December 31, 2002 on a comparable basis:
-------------------------------------------------------------------------------
Year ended December 31,                         2002        2001        2000
-------------------------------------------------------------------------------
(In thousands except per share amounts)

Reported net income (loss)                   $(4,107)     $2,299      $  605

Add back: goodwill amortization, net of tax      ---       5,153       3,482
-------------------------------------------------------------------------------
Adjusted net income (loss)                   $(4,107)     $7,452      $4,087
===============================================================================

Basic earnings (loss) per share:

Reported net income (loss)                     $(.21)       $.17        $.06

Add  back: goodwill amortization, net of tax     ---         .38         .32
-------------------------------------------------------------------------------
Adjusted net income (loss)                     $(.21)       $.55        $.38
===============================================================================

Diluted earnings (loss) per share:

Reported net income (loss)                     $(.21)       $.15        $.05

Add back: goodwill amortization, net of tax      ---         .34         .29
-------------------------------------------------------------------------------
Adjusted net income (loss)                     $(.21)       $.49        $.34
===============================================================================

Intangible Assets

-------------------------------------------------------------------------------
                                                 As of December 31, 2002
                                    Gross Carrying    Accumulated  Net Carrying
                                        Amount       Amortization     Amount
-------------------------------------------------------------------------------
(In thousands)

Trade names and trademarks             $ 1,581         $  27          $ 1,554
Patents and proprietary technology      13,870           153           13,717
Customer relationships                  40,912           220           40,692
-------------------------------------------------------------------------------
Total                                  $56,363         $ 400          $55,963
===============================================================================

  Annual amortization expense for the next five years should
approximate $2,400,000.

NOTE 10 - REVOLVING CREDIT LOAN AND LONG-TERM DEBT

  The Company's six-year revolving credit and term loan facility as
amended  on  November 1, 2002 (see Note 3) provides for  a  total
credit   facility  of  up  to  $265,000,000,  consisting   of   a
$45,000,000  five-year revolving credit facility,  a  $40,000,000
five-year  term loan ("Term Loan A") and a $180,000,000  six-year
term  loan  ("Term Loan B").  Borrowings under the  facility  are
secured by a pledge of substantially all of the Company's assets.
Available  borrowings  under the revolving  credit  facility  are
based  on  a  borrowing  base, which  is  calculated  based  upon
eligible  accounts receivable and inventories as defined  in  the
agreement,  and bear interest at the base rate or LIBOR  plus  an
applicable  margin  ranging from 1.00% to 3.00%  based  upon  the
Company's leverage ratio.  At December 31, 2002, the Company  had
LIBOR  loans  outstanding under the revolving credit facility  of
$2,500,000,   bearing  interest  at  4.4%,  and   an   additional
$15,124,000  of  the  credit line was allocated  to  support  the
Company's  letters of credit, leaving available borrowings  under
the facility of $27,376,000 as of that date.  The term loans bear
interest at the base rate or LIBOR plus an applicable margin  for
each  term  loan  ranging  from 1.00% to  4.00%  based  upon  the
Company's  leverage  ratio.  At December  31,  2002,  outstanding
balances   under  term  loans  A  and  B  were  $36,625,000   and
$179,325,000, respectively, and the interest rates on such  loans
were  4.76%  and  5.4%, respectively.  Term loans  A  and  B  are
payable in graduated installments and mature on March 4, 2007 and
March 4, 2008, respectively.

  The  amended  revolving credit and term loan  agreement  contains
certain financial covenants of the Company, including minimum net
worth,  minimum  EBITDA, and maximum total  leverage  ratio,  and
places   limitations   or  restrictions   on   various   business
transactions,   including   capital  expenditures,   investments,
purchases  of the Company's stock, dividend payments,  and  asset
sales.   The  Company was in compliance with these  covenants  at
December 31, 2002.

  At  December 31, 2001, the Company had a similar revolving credit
and  term  loan  agreement  which provided  for  a  total  credit
facility of up to $170,000,000. On December 31, 2001, LIBOR loans
outstanding  under the revolving credit facility were $8,500,000,
bearing  interest at 5.13%.  The outstanding balances under  term
loans A and B were $43,125,000 and $74,211,000, respectively,  and
the   interest  rates  on  such  loans  were  5.15%  and   5.65%,
respectively.

  At  December 31, 2002 and 2001, the fair values of the  Company's
borrowings  under its revolving credit and term  loan  agreements
approximated their carrying values based upon the variable nature
of the interest rates.

  At  December  31,  2001,  the Company had  a  $45,390,000  senior
subordinated  note. The note had a face value of $51,250,000  and
is  reflected in the Company's consolidated balance sheet net  of
an  unamortized discount of $5,860,000 at December 31, 2001.  The
note  bore  interest  at a stated rate of 12%  per  annum  (15.1%
effective interest rate) and was scheduled to mature on  December
31,  2007.  As  a  part of the subordinated debt  agreement,  the
Company  granted the lenders warrants to purchase 659,074  shares
of  its  common stock. In addition, under the terms of  the  debt
agreement, a warrant granted in 1999 to purchase 1,103,621 shares
of  common stock remained in full force and effect. The  warrants
were  exercisable at any time at the option of the holder at $.01
per  share  for  a period of ten years. The fair  values  of  the
warrants  were  estimated using the Black-Scholes option  pricing
model  and  are  reflected in the Company's consolidated  balance
sheet at December 31, 2001 as a debt discount and additional paid
in capital. All of these warrants were exercised during 2002.  At
December 31, 2001, the fair value of the senior subordinated note
approximated  its  carrying value based upon the  borrowing  rate
available to the Company for loans with similar terms and average
maturities.

  Long term debt is scheduled to mature as follows:

                            Term Loan  Term Loan    Capital
                                A          B        Leases     Total
-----------------------------------------------------------------------
(In thousands)

2003                         $5,437     $1,800       $111     $7,348
2004                          7,438      1,800        115      9,353
2005                          9,688      1,800         32     11,520
2006                         11,187      1,800        ---     12,987
2007                          2,875      1,800        ---      4,675
Thereafter                      ---    170,325        ---    170,325
-----------------------------------------------------------------------
Total                        36,625    179,325        258    216,208
Less current portion          5,437      1,800        111      7,348
-----------------------------------------------------------------------
Long-term debt              $31,188   $177,525       $147   $208,860
=======================================================================

  The  Company's  term loan obligations for 2007 and beyond  relate
primarily to its six-year term loan, which must be paid  in  full
by  March 4, 2008.  The Company may prepay any obligations  under
its revolving credit and term loan facility without penalty.   In
addition,  the lenders under the facility may require prepayments
from the proceeds of certain transactions, including sales of net
assets,  issuance  of  equity securities,  insurance/condemnation
settlements,  and  the reversion of surplus assets  from  pension
plans,  as well as from any excess cash flows, as defined in  the
agreement, generated by the Company during a fiscal year.

NOTE 11 - INTEREST RATE SWAP AGREEMENTS

 In October 2000, the Company entered into three interest rate swap
agreements with notional amounts of $25,000,000, $10,000,000, and
$60,000,000,  under which the Company paid fixed  interest  rates
ranging  from 6.39% to 6.75% and received a variable  LIBOR-based
rate  of  interest  from  the holders of the  agreements.   These
interest  rate  swap agreements were scheduled  to  terminate  in
October 2003, October 2005, and December 2005, respectively.  The
swap agreements reduced the Company's interest expense by $75,000
in 2000 and increased interest expense by $1,758,000 and $830,000
in 2001 and 2002, respectively.  As noted following, these swap
agreements were terminated in March 2002.

  On January 1, 2001, the Company adopted SFAS 133 which establishes
accounting  and  reporting standards for derivative  instruments,
including  certain  derivative  instruments  embedded  in   other
contracts and for hedging activities. Upon adoption of SFAS  133,
the  Company  recognized  a  one-time  transition  adjustment  to
increase  other comprehensive loss by $2,863,000 ($1,775,000  net
of income tax benefit), the fair value of the interest rate swaps
at  January  1, 2001, representing the approximate  cost  to  the
Company  of  terminating  the agreements  as  of  that  date.  In
accordance with SFAS 133, this transition adjustment is reflected
as  a cumulative effect of change in accounting principle, net of
income taxes, as a component of the Company's other comprehensive
loss  in  the accompanying consolidated statement of  changes  in
stockholders'  equity for the year ended December  31,  2001.  At
December  31,  2001,  the swap agreements had  a  fair  value  of
$7,326,000  ($4,542,000  net  of tax  benefit),  resulting  in  a
component  of  other  comprehensive loss for 2001  of  $4,463,000
($2,767,000 net of tax benefit).

  On  March  4,  2002, in connection with its debt  retirement  and
refinancing  (see  Note  3),  the  Company  paid  $7,571,000   to
terminate its interest rate swaps.  This expense is reflected  as
a component of  "Refinancing costs" in the Company's consolidated
statement of operations for the year ended December 31, 2002.

  On  December 31, 2002, the Company entered into an interest  rate
swap  agreement  with  a notional amount of  $115,000,000,  under
which  the  Company  pays a fixed interest  rate  of  1.815%  and
receives a variable LIBOR-based rate of interest from the  holder
of  the agreement. LIBOR rates declined during 2002 to a level of
approximately  1.4%  at December 31, 2002.   As  such,  the  swap
agreement had a negative fair value of $458,000 ($291,000 net  of
tax  benefit),  resulting in a loss component  of  the  Company's
other  comprehensive income for the year ended December 31,  2002
in that amount.  The interest rate swap agreement is scheduled to
terminate in December 2003, and as such, this component of  other
comprehensive  income  can be expected to  be  reclassified  into
earnings within the next twelve months.

  There was no impact to earnings due to hedge ineffectiveness during
2001 or 2002.

NOTE 12 - INCOME TAXES

  The provision (benefit) for income taxes consists of:
----------------------------------------------------------------------
 Year ended December 31,                 2002      2001      2000
----------------------------------------------------------------------
(In thousands)

Current:
  Federal                              $ (647)   $ (376)    $ 236
  State                                   341       (65)      (89)
----------------------------------------------------------------------
    Total current                        (306)     (441)      147

Deferred:
  Federal                              (2,051)    4,483     2,340
  State                                  (721)      626       333
----------------------------------------------------------------------
    Total deferred                     (2,772)    5,109     2,673
----------------------------------------------------------------------

Total (benefit) provision for
   income taxes                       $(3,078)   $4,668    $2,820
======================================================================

  Total income tax expense (benefit) differs from the amount
computed by applying the statutory federal income tax rate of 35%
to income (loss) before income taxes. The reasons for this
difference are as follows:
----------------------------------------------------------------------
 Year ended December 31,                 2002      2001      2000
----------------------------------------------------------------------
(In thousands)

Tax (benefit) at U.S. federal
  statutory rate                      $(2,515)   $2,438    $1,106
Goodwill amortization                     ---     1,359       937
State income taxes, net of
  federal tax effect                     (247)      632       261
State tax credit                          ---       ---       437
Extraterritorial income exclusion        (591)      ---       ---
Non deductible expenses                   247       148        36
Other                                      28        91        43
----------------------------------------------------------------------
                                      $(3,078)   $4,668    $2,820
======================================================================

  Deferred tax assets and liabilities are based upon the expected
future tax consequences of temporary differences between book and
tax income. The approximate tax effects of temporary differences
were as follows:
----------------------------------------------------------------------
 December 31,                                      2002      2001
----------------------------------------------------------------------
 (In thousands)

Deferred tax assets:
   Inventory reserve                             $3,484    $3,110
   Nondeductible expenses and reserves            4,775     3,406
   Debt costs                                     2,117       ---
   Unrealized loss on derivative instruments        415     2,784
   Unfunded pension liability                     2,127     1,324
   Net operating loss carryforward                5,282     3,286
   Other                                          1,220     1,317
----------------------------------------------------------------------
                                                 19,420    15,227
----------------------------------------------------------------------

Deferred tax liabilities:
   Basis difference in fixed assets               6,629     5,844
   Capitalized software development costs         1,545       ---
   Prepaid expenses                                 535        84
   Pension asset                                    ---     1,153
   Percentage of completion                       1,268     1,078
----------------------------------------------------------------------
                                                  9,977     8,159
----------------------------------------------------------------------
Net deferred tax asset                           $9,443    $7,068
======================================================================

  Additionally, the Company has federal and state net operating
loss  carryforwards of approximately $11,896,000 and $16,673,000,
respectively.  The net operating loss carryforwards  will  expire
between  2018  and  2022.  The Company  also  has  a  credit  for
alternative minimum taxes of $424,000 which does not expire.

  The above amounts are classified in the consolidated balance
sheets as follows:
----------------------------------------------------------------------
 December 31,                                      2002      2001
----------------------------------------------------------------------
 (In thousands)

Net current asset                                $6,456    $7,068
Net noncurrent asset                              2,987       ---
----------------------------------------------------------------------
Net deferred tax asset                           $9,443    $7,068
======================================================================

  In the opinion of management, it is more likely than not that
the  deferred tax assets will be realized. As such, no  valuation
reserve is considered necessary.

NOTE 13 - BENEFIT PLANS

  Defined Benefit Pension Plans:  Substantially all hourly and
salaried  employees  of  PEI are covered by  two  noncontributory
pension plans. The plans provide normal retirement benefits based
upon  years of credited service and applicable benefit  units  as
defined  by  the plans. The plans' assets consist principally  of
investments in balanced mutual funds, which are composed  of  50%
equity investments and 50% fixed income investments. Participants
do  not  contribute to the plan. PEI's pension plan for  salaried
employees  was  amended  such  that plan  participation  for  new
employees was frozen as of July 1, 2000.

  Sierra  also has a defined benefit pension plan covering
certain of its employees. The plan provides for normal retirement
benefits based upon years of service and average compensation for
certain  years of employment. Sierra amended the plan in 1992  to
terminate   the  accrual  of  additional  benefits  for   current
participants  and preclude additional participants from  entering
the plan.

  The  Company  makes contributions to its defined benefit  pension
plans  in  amounts  necessary  to  satisfy  the  minimum  funding
requirements  of ERISA. Information regarding the plans  for  the
three years ended December 31, 2002 is as follows:
----------------------------------------------------------------------
 Year ended December 31,                 2002      2001      2000
----------------------------------------------------------------------
(In thousands)

Change in projected benefit obligation:
   Projected benefit obligation at
    beginning of year                 $27,755   $27,214   $25,752
      Service cost                        120        88       444
      Interest cost                     1,930     1,954     1,977
      Amendments                          ---       ---        23
      Actuarial gain                    2,076       683     1,199
      Benefits paid                    (2,172)   (2,184)   (2,181)
----------------------------------------------------------------------
      Projected benefit obligation
        at end of year                $29,709   $27,755   $27,214
======================================================================

Change in plan assets:
   Fair value of plan assets at
    beginning of year                 $27,255   $29,504   $29,472
      Actual return on plan assets     (1,412)   (   49)    1,897
      Employer contribution                72        53       316
      Benefits paid                    (2,172)   (2,184)   (2,181)
      Fees paid                        (   43)   (   69)      ---
----------------------------------------------------------------------
      Fair value of plan assets
        at end of year                $23,700   $27,255   $29,504
======================================================================

Funded status at end of year          $(6,009)  $  (500)  $ 2,290
Unrecognized prior service cost           ---       ---        22
Unrecognized net actuarial loss         9,013     3,485       522
----------------------------------------------------------------------
Net amount recognized                 $ 3,004   $ 2,985   $ 2,834
======================================================================

Amounts recognized in consolidated
  balance sheets consist of ---
    Prepaid benefit cost              $   ---   $   ---   $ 2,834
======================================================================

    Accrued benefit cost              $ 6,009   $   500   $   ---
======================================================================

    Accumulated other comprehensive
      loss                            $ 9,013   $ 3,485   $   ---
======================================================================

  Prepaid benefit costs are included in "Other Assets" in the
Company's consolidated balance sheets.

  The components of net periodic pension cost (benefit) and the
assumptions used in the determination of net pension benefit
costs and benefit obligations are as follows:
---------------------------------------------------------------------------
 Year ended December 31,                      2002      2001       2000
---------------------------------------------------------------------------
(In thousands)

Service cost                               $   120   $    88    $   444
Interest cost                                1,930     1,954      1,977
Expected return on plan assets              (2,142)   (2,415)    (2,430)
Recognized prior service cost                    1         1          1
Recognized net actuarial loss                  192         2         11
---------------------------------------------------------------------------
Net periodic pension cost (benefit)        $   101   $  (370)   $     3
===========================================================================

Weighted-average assumptions:
   Discount rate                              6.5%   7.0%-7.25%     7.5%
   Expected return on plan assets             8.5%      8.5%-9%  8.5%-9%


  Defined Contribution Pension Plans:  On July 1, 2000, the defined
contribution  plans of PEI and Sierra were merged into  a  single
plan,  the  Integrated Defense Technologies,  Inc.  Savings  Plan
("IDT Savings Plan"), a defined contribution plan qualified under
Section  401(k) of the Internal Revenue Code. On March  1,  2001,
the  employees of Metric, Continental, and Enterprise also  began
participating  in  the  plan.   The  employees  of  Signia  began
participating  in  the plan on the November 1,  2002  acquisition
date.

  Eligible employees of the Company are allowed to contribute a
certain  percentage of their base salary on a tax-deferred  basis
to  the  plan  (subject to certain limitations), and the  Company
matches a portion of this amount on the participant's behalf. The
Company's contributions to the plan, and to the predecessor plans
of  PEI,  Sierra,  Metric, Continental, and  Enterprise,  totaled
approximately  $1,053,000, $2,940,000,  and  $3,213,000  for  the
years ended December 31, 2000, 2001, and 2002, respectively.

  Postretirement Health Care and Life Insurance Plans:  Sierra
has  postretirement health care and life insurance plans covering
certain  of  its  employees. In 1992, the plans were  amended  to
preclude additional participants from entering the plans  and  to
establish  a  maximum accrual of additional benefits for  current
participants.   In  accordance with FASB Statement  of  Financial
Accounting   Standards   No.  106,  Employers'   Accounting   for
Postretirement Benefits Other than Pensions ("SFAS 106"),  Sierra
accrues  the  costs  of such benefits over the  period  in  which
active  employees  become eligible under the existing  plans.  On
June  28,  2002,  Sierra  amended  its  postretirement  plans  to
discontinue  participation of participants who were not  eligible
to  retire  as of that date, resulting in an $888,000 decline  in
Sierra's  accumulated  postretirement  benefit  obligation.    In
accordance  with  SFAS 106, this decline has been  treated  as  a
negative  plan  amendment,  and  the  resulting  gain  is   being
amortized  over  3.64  years,  the remaining  service  period  to
retirement for the plan participants who were no longer  eligible
for benefits on the date of the amendment.

  Information regarding Sierra's postretirement benefit plans
for the three years ended December 31, 2002 is as follows:
---------------------------------------------------------------------------
 Year ended December 31,                       2002      2001      2000
---------------------------------------------------------------------------
(In thousands)

Change in accumulated postretirement
 benefit obligation:
   Accumulated postretirement benefit
    obligation at beginning of year          $5,393    $5,435    $5,453
      Service cost                               25        49        53
      Interest cost                             326       381       399
      Actuarial loss                            (72)      (32)      (72)
      Benefits paid                            (398)     (440)     (398)
      Plan amendments                          (888)      ---       ---
---------------------------------------------------------------------------
      Accumulated postretirement benefit
        obligation at end of year            $4,386    $5,393    $5,435
===========================================================================

Change in plan assets:
   Fair value of plan assets at beginning
    of year                                  $  ---    $  ---    $  ---
      Actual return on plan assets              ---       ---       ---
      Employer contribution                     398       440       398
      Benefits paid                            (398)     (440)     (398)
---------------------------------------------------------------------------
      Fair value of plan assets at end
       of year                               $  ---    $  ---    $  ---
===========================================================================

Funded status at end of year                 $4,386    $5,393    $5,435
Unamortized prior service cost                  766       ---       ---
Unrecognized net actuarial gain                 429       386       354
---------------------------------------------------------------------------
Net amount recognized                        $5,581    $5,779    $5,789
===========================================================================

Amounts recognized in consolidated balance
 sheets consist of-
      Accrued benefit cost                   $5,581    $5,779    $5,789
===========================================================================

  The components of net periodic postretirement benefit cost and the
assumptions used in the determination of postretirement benefit
costs and benefit obligations are as follows:
---------------------------------------------------------------------------
 Year ended December 31,                       2002      2001      2000
---------------------------------------------------------------------------
(In thousands)

Service cost                                   $ 25      $ 49      $ 53
Interest cost                                   326       381       399
Recognized gains                                (30)      ---       ---
Prior service cost recognized                  (122)      ---       ---
---------------------------------------------------------------------------
Net periodic postretirement benefit cost       $199      $430      $452
===========================================================================

Weighted-average assumptions:
  Discount rate                                6.5%      7.25%      8.0%
  Expected return on plan assets               ---        ---       ---

  As  the healthcare benefits to be received from these plans  have
been frozen, the healthcare cost trend rate has no impact on  the
service   and  interest  cost  components  of  the  net  periodic
postretirement  benefit cost or on the accumulated postretirement
benefit obligation.

  Preretirement  Health Benefits:  Sierra provides  health
benefits,  primarily  disability coverage, for  certain  inactive
employees  not covered under existing Sierra insurance  policies.
In   accordance  with  FASB  Statement  of  Financial  Accounting
Standards  No.  112,  Employers'  Accounting  for  Postemployment
Benefits, Sierra accrues the cost of such benefits in the  period
in which inactive employees become eligible for such benefits.

  Incentive Compensation Plan:  The Company has an incentive
compensation  plan  under which certain officers  and  other  key
employees  are selected to participate by the Board of Directors.
The  plan provides for additional compensation to be paid at  the
Board's  discretion  based  on  a  formula  which  considers  the
Company's  income  and asset performance. Incentive  compensation
charged to operations was $1,044,000 and $1,003,000 for the years
ended  December 31, 2000 and 2001, respectively.   The Board  did
not  grant  incentive  compensation awards  for  the  year  ended
December 31, 2002.

NOTE 14 - COMMITMENTS AND CONTINGENCIES

  Operating Leases - The Company has noncancelable operating
leases  primarily  for office space and manufacturing  equipment.
Subleases and contingent rentals are not significant.  Total rent
expense for all operating leases was $3,663,000,  $4,935,000, and
$5,008,000 for the years ended December 31, 2000, 2001, and 2002,
respectively.

  Future minimum lease payments required under noncancelable
operating leases at December 31, 2002 are as follows:
-------------------------------------------------------------
(In thousands)

2003                                              $5,083
2004                                               4,446
2005                                               4,145
2006                                               4,100
2007                                               2,059
Thereafter                                           421
-------------------------------------------------------------
                                                 $20,254
=============================================================

  Letters of Credit - At December 31, 2002, the Company had
outstanding  letters  of  credit  of  approximately  $15,124,000.
These  letters  of credit, substantially all of which  expire  in
2003,  relate  primarily to the Company's contracts with  foreign
governments.

  Claims  and Legal Proceedings - Various claims and  legal
proceedings  have  been or may be asserted or instituted  against
the Company in the ordinary course of business. In addition, many
of  the  Company's contracts are subject to final negotiation  or
adjustment with the customer in the ordinary course of  business.
Although  the ultimate costs of these matters cannot be predicted
with  certainty, the outcomes of such actions are  not  expected,
either  individually or in the aggregate, to result in a material
adverse  effect on the Company's business, results of operations,
or financial condition.

  In  July  2000, prior to its acquisition by the Company, Tech-Sym
received  a  Section  104(e) Request  for  Information  from  the
National  Park  Service  ("NPS") pursuant  to  the  Comprehensive
Environmental Response, Compensation and Liability  Act  of  1980
("CERCLA")  regarding a former uranium mine site located  in  the
Grand  Canyon. Tech-Sym's predecessor operated this uranium  mine
from  1956  to  1967.  In 1962, the land was  sold  to  the  U.S.
Government,  although the mining rights for the next  twenty-five
years were retained. Tech-Sym sold the mining rights in 1967, and
the   Company   believes  that  the  mine  was   operated   until
approximately 1972. The Company believes that there  are  several
other  companies  in  the chain of title  to  the  mining  rights
subsequent  to Tech-Sym, and accordingly, that there are  several
other   potentially   responsible  parties   ("PRPs")   for   the
environmental  conditions  at  the  site,  including   the   U.S.
Government  as  owner of the land. The NPS has  not  yet  made  a
demand  on IDT, nor to the Company's knowledge on any other  PRP,
nor  has  it  listed the site on the National  Priority  list  of
contaminated  sites.  The  Company  has  retained   a   technical
consultant  in connection with this matter and has evaluated  and
been  in  communication with NPS regarding actions  that  may  be
required by all PRPs. The Company cannot at present determine the
ultimate  financial  implications of this matter,  but  does  not
believe the total costs of the matter will be material based upon
its knowledge of current facts and circumstances.

NOTE 15 - SEGMENT INFORMATION

  The Company's business presently consists of three operating
segments: Electronic Combat Systems, Diagnostics & Power Systems,
and  Communications  &  Surveillance  Systems.  These  reportable
segments are defined primarily by their economic characteristics,
the nature of their products and services, and by their class  of
customer. As further described in Notes 1 and 4, the Company  has
been built upon acquisitions of business entities, including  the
acquisition  of  Tech-Sym  on  September  29,  2000.  Since  this
business  acquisition  addressed  two  of  the  Company's   three
operating segments, the Company did not operate in each  business
segment  in  full  in  2000. In addition,  the  Communications  &
Surveillance Systems segment includes only two months of Signia's
results of operations in 2002.

  The  Electronic Combat Systems segment, consisting of Sierra  and
Metric,  designs, integrates, manufactures, and sells electronics
and  avionics  equipment  primarily to the  U.S.  Government  for
military,  civil and governmental uses, and designs, manufactures
and  supports advanced test and evaluation systems, rangeless air
combat training systems, threat simulation equipment, high  power
transmitters,  and control subsystems for both guided  bombs  and
missile  launching  systems for the U.S. Department  of  Defense,
major  defense  prime contractors and foreign government  defense
agencies.

  The Diagnostics & Power Systems segment, consisting of PEI, is
a  contractor  primarily  to  the  U.S.  Government  and  foreign
governments,   and  designs,  manufactures  and   supports   test
equipment,  vehicle  electronics systems  and  energy  management
systems primarily for military combat vehicle applications.

  The Communications & Surveillance Systems segment, consisting
of   Enterprise,  Continental,  Zeta,  and  Signia,  designs  and
manufactures  meteorological surveillance and  analysis  systems,
more commonly known as Doppler weather radar systems, and designs
and    produces   advanced   electronics   systems,   subsystems,
components,  and radio frequency surveillance equipment  for  the
defense,  aerospace and communications industries  for  U.S.  and
foreign government agencies and commercial customers.

  The Company evaluates performance of the operating segments based
upon  revenue  and earnings before interest, taxes, depreciation,
and  amortization  ("EBITDA")  (1),  calculated  as  income  from
operations plus  depreciation and amortization, including goodwill
amortization and any goodwill impairment charge.  The  accounting
policies of the operating segments are consistent across segments
and are the same as those described for the Company as a whole in
Note  2.  Sales  among the operating segments are  insignificant.
With the exception of debt issuance cost amortization related  to
the  Company's revolving credit and term loan facility (see  Note
3), the Company's corporate expenses are allocated in full to the
segments  on  the  basis  of  relative employment,  revenue,  and
selected  assets. Corporate assets and expenses are  included  in
"All other" in the following tables.

  The  following table sets forth revenue for each of the Company's
operating  segments,  together with other  financial  information
related  to  EBITDA, depreciation and amortization  expense,  and
expenditures for long-lived assets attributable to the operating
segments, for the three years ended December 31, 2002.   The
depreciation  and amortization  expense  amounts  for  2001  and
2000  have   been reallocated  to  the  segments  to reflect  the
reallocation  of goodwill  in  accordance  with  SFAS  142  and
the  movement  of capitalized debt issuance costs to the Corporate
level.

--------------------------------------------------------------------------
 Year ended December 31,                      2002       2001       2000
--------------------------------------------------------------------------
(In thousands)

Revenues from unaffiliated customers:
   Electronic Combat Systems              $152,994   $130,139   $ 84,344
   Diagnostics & Power Systems              84,072     72,201     60,207
   Communications & Surveillance Systems    67,039     60,426     34,836
   All other                                   256      1,186      1,186
--------------------------------------------------------------------------
Total                                     $304,361   $263,952   $180,573
==========================================================================

Other financial information:
EBITDA (1):
   Electronic Combat Systems               $27,921   $ 28,012   $ 14,755
   Diagnostics & Power Systems              10,551      9,748      8,262
   Communications & Surveillance Systems     4,126      6,282      3,920
   All other                                  (367)      (155)       718
--------------------------------------------------------------------------
Total                                      $42,231   $ 43,887   $ 27,655
==========================================================================

Depreciation and amortization expense:
   Electronic Combat Systems               $ 7,222   $ 10,631   $  6,546
   Diagnostics & Power Systems               1,745      3,472      3,516
   Communications & Surveillance Systems     2,624      2,799      1,267
   All other                                   878        984      1,345
--------------------------------------------------------------------------
Total                                      $12,469   $ 17,886   $ 12,674
==========================================================================

Expenditures for long-lived assets (2):
   Electronic Combat Systems                $5,408   $ 3,012    $  1,857
   Diagnostics & Power Systems               1,920     1,745       2,075
   Communications & Surveillance Systems     3,618     1,708       1,224
   All other                                   277       124          22
--------------------------------------------------------------------------
Total                                     $ 11,223   $ 6,589    $  5,178
==========================================================================

(1)  EBITDA is not a presentation made in accordance with U.S. GAAP,
     and  as  such, it should not be considered in isolation or  as  a
     substitute  for  net  income (loss), cash flows  from  operating
     activities, or other income or cash flow statement data  prepared
     in accordance with U.S. GAAP, or as a measure of profitability or
     liquidity.  The Company monitors EBITDA by segment  to  determine
     each  segment's  ability  to satisfy its  debt  service,  capital
     expenditures,  and  working  capital  requirements  and   because
     certain covenants in the Company's revolving credit and term loan
     facility are based upon similar measures. The Company's EBITDA is
     not  necessarily  comparable to other similarly  titled  captions
     used by other companies. A reconciliation of the Company's EBITDA
     to  income  (loss)  before  income  taxes  is  presented  in  the
     following table.

(2)  Includes purchases of property and equipment and capitalization
     of internally developed software.

  Reconciliation of EBITDA to income (loss) before income taxes:

--------------------------------------------------------------------------
 Year ended December 31,                        2002       2001       2000
--------------------------------------------------------------------------
(In thousands)

EBITDA                                       $42,231    $43,887    $27,655
Less: Depreciation and amortization expense   12,470     17,886     12,674
      Interest expense                         8,270     19,437     10,064
      Refinancing costs                       25,748        ---      1,492
      Goodwill impairment charge               3,012        ---        ---
      Other income - net                      (   84)      (403)       ---
--------------------------------------------------------------------------
Income (loss) before income taxes            $(7,185)   $ 6,967    $ 3,425
==========================================================================

  The  Company's  business  is dependent upon  sales  to  the  U.S.
Government  and to its prime contractors.   Direct sales  to  the
U.S.  Government  totaled  approximately  $107,200,000  (59%   of
revenue), $160,771,000 (61% of revenue) and $165,699,000 (54%  of
revenue) in 2000, 2001 and 2002, respectively. These revenues are
attributed  primarily  to  the  Electronic  Combat  Systems   and
Diagnostics & Power Systems segments. The U.S. Government was the
only  customer  accounting  for more  than  10%  of  consolidated
revenue in any of the periods presented.

  The following table presents total assets for each of the
Company's  operating segments as of December 31, 2002  and  2001.
The  December  31, 2001 asset balances have been reclassified  to
reflect the reallocation of goodwill in accordance with SFAS  142
and  to  move  capitalized debt issuance costs to  the  Corporate
level.
--------------------------------------------------------------------------
 December 31,                                              2002       2001
--------------------------------------------------------------------------
 (In thousands)

Total assets:
   Electronic Combat Systems                           $163,615   $148,668
   Diagnostics & Power Systems                           57,216     50,743
   Communications & Surveillance Systems                202,004     57,184
   All other                                             24,865     21,703
--------------------------------------------------------------------------
Total                                                  $447,700   $278,298
==========================================================================

  The increase in Communications & Surveillance Systems' assets  is
due  primarily to the acquisition of Signia in the fourth quarter
of 2002 (see Note 4).  At December 31, 2002, Signia had assets of
$154,078,000,  including goodwill of  $63,087,000 and  intangible
assets of $55,894,000.  This increase was partially offset  by  a
$5,440,000  decline in the segment's accounts  receivable  and  a
$4,076,000  decline in its inventories due in part  to  the  Zeta
cost revisions discussed in Note 5.

  The  Company operates and generates its revenues primarily in the
United  States.  The  following  table  presents  revenues   from
unaffiliated  customers by geographic area for  the  three  years
ended December 31, 2002 and long-lived assets by geographic  area
at December 31, 2002 and 2001. For purposes of this presentation,
revenues  are  attributed to geographic area based upon  customer
location.  Long-lived  assets  include  property  and  equipment,
goodwill and other intangible assets, noncurrent deferred  income
tax assets, and all other noncurrent assets.
-------------------------------------------------------------------------
Year ended December 31,                     2002       2001       2000
-------------------------------------------------------------------------
(In thousands)

Revenue from unaffiliated customers:
   U.S.                                 $267,086   $204,617   $157,266
   International                          37,275     59,335     23,307
-------------------------------------------------------------------------
     Total                              $304,361   $263,952   $180,573
=========================================================================

-------------------------------------------------------------------------
 December 31,                                          2002       2001
-------------------------------------------------------------------------
 (In thousands)

Long-lived assets:
   U.S.                                            $257,212   $121,152
   International                                     16,330     15,958
-------------------------------------------------------------------------
      Total                                        $273,542   $137,110
=========================================================================

NOTE 16 - RELATED PARTY TRANSACTIONS

  The  Company  pays  Veritas Capital  Management,  L.L.C.
("Veritas")  an  annual  management  fee.  Veritas  controls  the
Company's principal stockholder, IDT Holding, L.L.C.  The Company
paid management fees to Veritas of  $675,000 in 2000 and $900,000
in  both  2001  and  2002. In addition, in  connection  with  the
business  acquisitions  described in Note  4,  the  Company  paid
transaction  advisory  fees  to The Veritas  Capital  Fund,  L.P.
totaling   $3,000,000 and $2,500,000, respectively, in  2000  and
2002.   In  2002, the Company also paid a $1,500,000  transaction
advisory fee to The Veritas Capital Fund, L.P. in connection with
its  initial  public offering on February 27, 2002.  The  Company
was  not  indebted to its principal stockholder or to Veritas  at
December 31, 2001 or 2002.  Robert B. McKeon and Thomas J. Campbell,
the  Chairman  and  Secretary of the Company,  respectively,  and
members  of  its  Board  of Directors, are  managing  members  of
Veritas.

  William G. Tobin, a member of the Company's Board of Directors and
audit  committee,  is  a Managing Director and  Chairman  of  the
Defense  and  Aerospace practice of Korn/Ferry International,  an
executive search firm. The Company contracted with Korn/Ferry  in
2002  to conduct its search for a Chief Operating Officer. During
2002,  the Company made payments to Korn/Ferry totaling  $179,000
in  connection  with this search.   The search was  completed  in
2002,  and  all  payments to Korn/Ferry in  connection  with  the
search have been made.

  Edward  N. Ney, a member of the Company's Board of Directors  and
audit  committee,  is Chairman Emeritus of Young  &  Rubicam,  an
advertising firm for which he previously served as President  and
Chief Executive Officer.  The Company has contracted with Burson-
Marsteller,  an  affiliate  of Young &  Rubicam,  to  manage  its
investor  relations  functions.  During 2002,  the  Company  made
payments to Burson-Marsteller totaling $223,000.

NOTE 17 - SUBSEQUENT EVENT

  On  February 27, 2003, the Company announced that it had retained
Bear,  Stearns  &  Co. Inc. to assist its Board of  Directors  in
evaluating   strategic   alternatives  in   order   to   maximize
stockholder value.


NOTE 18 - SUMMARY OF QUARTERLY INFORMATION - UNAUDITED

------------------------------------------------------------------------------
Quarter Ended                            March 31  June 30  Sept. 30  Dec. 31
------------------------------------------------------------------------------
(In thousands except per share amounts)

Year ended December 31, 2002:
Revenues                                $ 68,393   $72,099   $75,723  $88,146
Gross profit                              20,115    22,331    20,124   22,056
Goodwill impairment charge                   ---      ---       ---     3,012
Income from operations                     6,355     7,865     8,607    3,922
Refinancing costs                         20,696      ---       ---     5,052
Net income (loss)                       $(11,072)  $ 4,490   $ 4,614  $(2,139)
Earnings (loss) per share:
   Basic                                   $(.70)     $.23      $.23    $(.10)
   Diluted                                 $(.70)     $.21      $.22    $(.10)
Weighted average shares outstanding:
   Basic                                  15,762    19,801    20,216   21,328
   Diluted                                15,762    21,328    21,328   21,328

Year ended December 31, 2001:
Revenues                                $ 58,775   $62,618   $67,868  $74,691
Gross profit                              18,178    17,905    18,872   25,667
Income from operations                     4,753     3,812     5,582   11,854
Net income (loss)                       $(   640)  $(1,242)  $   129  $ 4,052
Earnings (loss) per share:
   Basic                                   $(.05)    $(.09)     $.01     $.30
   Diluted                                 $(.05)    $(.09)     $.01     $.26
Weighted average shares outstanding:
   Basic                                  13,565    13,565    13,565   13,565
   Diluted                                13,565    13,565    15,328   15,328
==============================================================================

For complete descriptions of the refinancing and goodwill
impairment charges included in the Company's results of
operations, see Notes 3 and 5 and "Refinancing Costs" and
"Reorganization" included in Management's Discussion and
Analysis of Financial Condition and Results of Operations.


DIVIDEND POLICY

The Company has never declared or paid a cash dividend on its
common  stock.  It  is the present policy of  the  Company's
Board  of  Directors to retain all earnings to  finance  the
Company's  operations. In addition, payment of dividends  is
restricted  by the Company's term loan and revolving  credit
agreement.

PRICE RANGE OF COMMON STOCK

Since February 27, 2002, the Company's common stock has traded on
The  New  York Stock Exchange under the symbol  IDE.  As  of
March 20,  2003, there were 21,327,931 shares  of  common
stock  outstanding, held by 36 registered stockholders.  The
following  table sets forth, for the four quarterly  periods
in  2002,  the  high and low sale prices  of  the  Company's
common stock as reported on The New York Stock Exchange.

---------------------------------------------------------------
Period                                        High      Low
---------------------------------------------------------------
First Quarter                               $ 27.75   $ 24.00
Second Quarter                                33.00     27.15
Third Quarter                                 29.43     17.70
Fourth Quarter                                20.95      9.51
===============================================================

CORPORATE HEADQUARTERS

Integrated Defense Technologies, Inc.
110 Wynn Drive
Huntsville, AL 35805
(256) 895-2000
www.integrateddefense.com

TRANSFER AGENT AND REGISTRAR

Bank of New York
101 Barclay Street
New York, New York 10286

INDEPENDENT AUDITORS

Deloitte & Touche LLP
417 20th Street North
Birmingham, AL 35203

ACCESS TO THE COMPANY'S FINANCIAL REPORTS

All of the Company's quarterly earnings releases and financial
filings   with  the  Securities  and  Exchange   Commission,
including the Company's Annual Report on Form 10-K,  can  be
accessed at our Web site: www.integrateddefense.com. Copies  of
the  Company's  Annual  Report on  Form  10-K  may  also  be
obtained without charge by contacting Investor Relations via
our Web site or by calling (256) 895-2000.

ANNUAL MEETING

The annual meeting of Integrated Defense Technologies, Inc. will
be  held  June 3, 2003, at 10:00 AM at The Metropolitan Club,
1 East 60th Street, New  York, NY, 10021.





            Board Members and Executive Officers


Board of Directors                 Other Executive Officers

Robert B. McKeon                   John J. Sciuto
Chairman                           President and Chief Operating Officer

Thomas J. Keenan                   John W. Wilhoite
Chief Executive Officer            Chief Financial Officer

Thomas J. Campbell                 Colonel James M. Davis, Jr.
Secretary                          Vice President, Business Development

General Richard E. Hawley          Gary A. Smith
                                   Vice President and Chief Technical Officer
General Barry R. McCaffrey
                                   William E. Collins
Edward N. Ney                      Vice President, Administration

Admiral Joseph W. Prueher

Admiral Leighton W. Smith, Jr.

William G. Tobin

General Anthony C. Zinni


Executive Committee

Robert B. McKeon
Thomas J. Campbell


Audit Committee

Edward N. Ney
William G. Tobin
Admiral Leighton W. Smith, Jr.


Compensation Committee

Robert B. McKeon, Chairman
Thomas J. Campbell
Edward N. Ney
Admiral Leighton W. Smith, Jr.


Nominating and Corporate Governance Committee

Robert B. McKeon, Chairman
Thomas J. Campbell