We begin Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) of DRS Technologies, Inc. and its wholly-owned subsidiaries and controlling interests (hereinafter, we, us, our, the Company or DRS) with a note describing the Restatement of Previously Issued Consolidated Financial Statements, followed by recent developments and a company overview. This is followed by a discussion of the critical accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results, which we discuss under "Results of Operations." We then provide an analysis of cash flows and discuss our financial commitments under "Liquidity and Capital Resources." This MD&A should be read in conjunction with the consolidated financial statements and related notes contained herein and in our March 31, 2008 Annual Report on Form 10-K.

Forward-Looking Statements

The following discussion and analysis contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management's beliefs and assumptions, current expectations, estimates and projections. Such statements, including statements relating to the Company's expectations for future financial performance, are not considered historical facts and are considered forward-looking statements under the federal securities laws. These statements may contain words such as "believes," "anticipates," "plans," "expects," "intends," "estimates" or similar expressions. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to differ materially from those expressed or implied by these forward-looking statements and include, without limitation: the effect of our acquisition strategy on future operating results, including our ability to effectively integrate acquired companies into our existing operations; the uncertainty of acceptance of new products and successful bidding for new contracts; the effect of technological changes or obsolescence relating to our products and services; and the effects of government regulation or shifts in government policy, as they may relate to our products and services, and other risks or uncertainties detailed in Item 1A, "Risk Factors," included in our March 31, 2008 Annual Report on Form 10-K. Given these uncertainties, you should not rely on forward-looking statements. The Company undertakes no obligations to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Restatement of Previously Issued Consolidated Financial Statements

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

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

As a result of foregoing, we restated our previously filed consolidated financial statements and selected financial data for the year ended March 31, 2007, inclusive of our fourth quarter ended March 31, 2007 and our previously issued quarterly consolidated financial statements for the three month period ended June 30, 2007 in our March 31, 2008 Form 10-K (filed May 30, 2008). All amounts impacted by the restatement that are presented in the MD&A have been restated to reflect the $36.8 million charge in the appropriate period.

For additional information and a detailed discussion of the restatement, see Note 3, Restatement of Previously Issued Consolidated Financial Statements, to the accompanying consolidated financial statements.

Recent Developments

On October 22, 2008, pursuant to a definitive merger agreement dated May 12, 2008 (the Merger Agreement) among the Company, Finmeccanica-Societá per azioni, a societá per azioni organized under the laws of Italy (Finmeccanica) and Dragon Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Finmeccanica (Sub), Sub merged with and into the Company (the Merger). The Company survived the Merger and, as a result, became a wholly-owned subsidiary of Meccanica Holdings USA, Inc. (Holdings), a wholly-owned subsidiary of Finmeccanica.

In connection with the closing of the Merger pursuant to the Merger Agreement, we notified the New York Stock Exchange that each share of the Company's common stock, $0.01 par value per share, had been converted into the right to receive $81.00 in cash without interest.

Company Overview

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

The Company has four principal operating segments, on the basis of products and services offered: the Command, Control, Communications, Computers and Intelligence (C4I) Segment, the Reconnaissance, Surveillance & Target Acquisition (RSTA) Segment, the Sustainment Systems Segment and the Technical Services Segment. All other operations, primarily our Corporate Headquarters, are grouped in Other.

On October 1, 2007, the ESSIBuy operating unit, an operating unit of the Technical Services Segment, was consolidated into an operating unit of the Sustainment Systems Segment to achieve certain operating synergies. The balance sheet and operating results of ESSIBuy were reclassified for the period from April 1, 2007 through September 30, 2007.

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

Tactical Systems, which includes battle management tactical computer systems, peripherals, electronic test and diagnostics, and vehicle electronics.

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

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

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

On October 24, 2008, we implemented a new organizational structure that realigned our four segments (C4I, RSTA, Sustainment Systems, and Technical Services) into five operating groups: Reconnaissance Surveillance and Target Acquisition Group, Tactical Systems Group, Power and Environmental Systems Group, Command, Control and Computers Group; Technical Services, Intelligence and Advanced Systems Group.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in our March 31, 2008 Annual Report on Form 10-K. There were no significant changes in the Company's critical accounting policies during the six-month period ended September 30, 2008. Critical accounting policies are those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. Critical accounting policies for us include revenue recognition on contracts and contract estimates, valuation of goodwill and acquired intangible assets, pension plan and postretirement benefit plan obligations, accounting for income taxes, share-based payments and other management estimates.

Results of Operations

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

performance metrics, other significant financial metrics and significant liquidity metrics monitored by our senior management.

                                 Three Months Ended                            Six Months Ended
                                   September 30,                                September 30,
                                                            Percent                           2007       Percent
                                2008             2007        Change          2008          (Restated)     Change
Key performance metrics       (in thousands, except percentages)           (in thousands, except percentages)
Revenues:
   Products                 $     752,130     $   585,505       28.5 %   $   1,473,326     $ 1,122,330       31.3 %
   Services                 $     234,962     $   198,264       18.5 %   $     465,632     $   397,069       17.3 %

        Total revenues      $     987,092     $   783,769       25.9 %   $   1,938,958     $ 1,519,399       27.6 %
Costs and expenses:
   Cost and                 $     684,639     $   512,536       33.6 %   $   1,335,494     $   994,662       34.3 %
   expenses-Products
        % of product                 91.0 %          87.5 %                       90.6 %          88.6 %
        revenues
   Cost and                 $     208,109     $   179,104       16.2 %   $     421,424     $   364,430       15.6 %
   expenses-Services
        % of service                 88.6 %          90.3 %                       90.5 %          91.8 %
        revenues
   Merger-related           $       5,074     $         -        n/m     $      16,621     $         -        n/m
   expenses

        Total costs and     $     897,822     $   691,640       29.8 %   $   1,773,539     $ 1,359,092       30.5 %
        expenses

Operating income            $      89,270     $    92,129       (3.1 )%  $     165,419     $   160,307        3.2 %
   Operating income                   9.0 %          11.8 %                        8.5 %          10.6 %
   percentage
Bookings                    $   1,229,938     $ 1,107,989       11.0 %   $   2,295,178     $ 2,047,517       12.1 %
Other significant
financial metrics
Interest and related        $      24,361     $    28,106      (13.3 )%  $      47,832     $    56,816      (15.8 )%
expenses
Income taxes                $      21,770     $    20,566        5.9 %   $      38,689     $    34,826       11.1 %
Significant liquidity
metrics(A)
Free cash flow              $      51,889     $    41,610       24.7 %   $      24,323     $    28,244      (13.9 )%
EBITDA                      $     108,745     $   110,173       (1.3 )%  $     203,970     $   196,301        3.9 %


--------------------------------------------------------------------------------
   º (A)

n/m - not meaningful

Revenues for the three-months and six-months ended September 30, 2008, compared with the three-months and six-months ended September 30, 2007.

Consolidated revenue increased $203.3 million, or 25.9%, to $987.1 million for the three-month period ended September 30, 2008, as compared with the corresponding period in the prior year. The increase in revenue was comprised of an increase of $166.6 million and $36.7 million for product and service revenues, respectively.

Consolidated revenue increased $419.6 million, or 27.6%, to $1.94 billion for the six-month period ended September 30, 2008, as compared with the corresponding period in the prior year. The increase in revenue was comprised of an increase of $351.0 million and $68.6 million for product and service revenues, respectively.

Revenues-Products

Revenue from our products (e.g., hardware, components and systems) increased $166.6 million, or 28.5%, to $752.1 million for the three-month period ended September 30, 2008, as compared with the corresponding period in the prior year. The increase was primarily driven by greater shipments of

driver vision enhancement equipment and components for ground-based vehicles, Thermal Weapon Sights II (TWS II), certain rugged computer systems and a precision targeting system.

Revenues from driver vision enhancement equipment and components increased significantly as a result of elevated priority placed on the program by the customer to assist in increasing combat vehicle drivers' vision capability, survivability and mobility, which resulted in increased funding and accelerated delivery schedules. TWS II shipments increased as shipments were delayed in the prior-year period due to certain technical issues experienced on the programs. Rugged computer systems revenue increased due to increased funding and accelerated customer delivery requirements to supply troops in theatre, and the precision targeting system increased as we received a new contract for an armored version of the program.

Partially offsetting overall higher product revenues were lower revenues from a vehicle armor program, as the program was substantially completed during fiscal 2008, as well as decreased shipments of combat display workstations due to lower demand in the current year, lower shipments of replacement video display modules, as the program was substantially completed in fiscal 2008, and lower revenues from a reset program for heavy equipment trailers, as the program is winding down and switching to production which has not yet begun.

Revenue from our products increased $351.0 million, or 31.3%, to $1.47 billion for the six-month period ended September 30, 2008, as compared with the corresponding period in the prior year. The increase was primarily driven by greater shipments of driver vision enhancement equipment and components for ground-based vehicles, TWS II, certain rugged computer systems and roof assemblies for the Mine Resistant Ambush Protected (MRAP) vehicle.

Revenues from driver vision enhancement equipment and components increased significantly as a result of elevated priority placed on the program by the customer to assist in increasing combat vehicle drivers' vision capability, survivability and mobility, which resulted in increased funding and accelerated delivery schedules. TWS II shipments increased as shipments were delayed in the prior-year period due to certain technical issues experienced on the programs. Rugged computer systems revenue increased due to increased funding and accelerated customer delivery requirements to supply troops in theatre, and MRAP roof assembly production increased as the program commenced in the second half of fiscal 2008.

Partially offsetting overall higher product revenues were lower shipments of combat display workstations due to lower demand in the current year, fewer shipments of mobile power generation and distribution equipment for the U.S. Air Force and lower revenues from a vehicle armor program as both programs were substantially completed during fiscal 2008.

Revenues-Services

Revenue from services increased $36.7 million, or 18.5%, to $235.0 million for the three-month period ended September 30, 2008, as compared with the corresponding prior-year period. The primary drivers of the increase were increased demand for equipment and services under the Rapid Response program and revenues from satellite-based communication services.

Revenues from the Rapid Response program continue to increase as a result of continued operational demand in Iraq and Afghanistan and the increased revenue from satellite-based communications is a result of the commencement of program operations in the second half of fiscal 2008 to support deployed personnel.

Revenue from services increased $68.6 million, or 17.3%, to $465.6 million for the six-month period ended September 30, 2008, as compared with the corresponding prior-year period. The primary drivers of the increase were revenues from satellite-based communication services and demand for equipment and services under the Rapid Response program. The increased revenue from satellite-based

communications is a result of the commencement of program operations in the second half of fiscal 2008 to support deployed personnel. Revenues from the Rapid Response program continue to increase as a result of continued operational demand in Iraq and Afghanistan.

Partially offsetting the increase in service revenues were decreased revenues for a defense communication transmission system program as the contract is substantially complete. We expect to recognize additional revenue on this program as a result of a newly awarded contract.

Costs and expenses/Operating income

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

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

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

Consolidated costs and expenses increased $206.2 million, or 29.8%, to $897.8 million for the three-month period ended September 30, 2008, as compared with the corresponding period in the prior year. The increased costs are attributed to a $172.1 million increase in product-related expenses, $29.0 million increase in service-related expenses and $5.1 million in merger-related expenses.

Consolidated costs and expenses increased $414.4 million, or 30.5%, to $1.77 billion for the six-month period ended September 30, 2008, as compared with the corresponding period in the prior year. The increased costs are attributed to a $340.8 million increase in product-related expenses, a $57.0 million increase in service-related expenses and $16.6 million in merger-related expenses.

Costs and expenses-Products

Product costs and expenses increased $172.1 million, or 33.6%, to $684.6 million for the three-month period ended September 30, 2008, as compared with the corresponding period in the prior year, while increasing 350 basis points as a percentage of product revenues over the same period. The increase in costs and expenses was attributed to significant products revenue growth during the period, as noted above. The increase in cost and expenses as a percentage of product revenues was largely attributable to a significant increase in TWS II deliveries, along with additional material cost growth on the program, and a field retrofit provision for an airborne infrared counter measure program, as well $9.4 million of gains associated with the curtailment of certain pension plans recorded in the corresponding period in the prior year.

Product costs and expenses increased $340.8 million, or 34.3%, to $1.34 billion for the six-month period ended September 30, 2008, as compared with the corresponding period in the prior year, while

increasing 200 basis points as a percentage of product revenues over the same period. The increase in costs and expenses was attributed to significant products revenue growth during the period, as noted above. The increase in cost and expenses as a percentage of product revenues was largely attributable to a significant increase in TWS II deliveries along with additional material cost growth on the program, a field retrofit provision for an airborne infrared counter measure program, as well $9.4 million of gains associated with the curtailment of certain pension plans recorded in the corresponding period in the prior year.

Costs and expenses-Services

Costs and expenses-services increased $29.0 million, or 16.2% to $208.1 million during the three-month period ended September 30, 2008, as compared with the corresponding prior-year period, while decreasing 170 basis points as a percentage of service revenues over the same period. The increase in cost and expenses was attributed to service revenue growth during the period, as noted above. The decrease in costs and expenses as a percentage of service revenues was driven by the increase in higher margin satellite-based communication services and engineering services revenue, partially offset by $2.3 million of gains associated with the curtailment of certain pension plans recorded in the corresponding period in the prior year.

Costs and expenses-services increased $57.0 million, or 15.6%, to $421.4 million during the six-month period ended September 30, 2008, as compared with the corresponding prior-year period, while decreasing 130 basis points as a percentage of service revenues over the same period. The increase in cost and expenses was attributed to service revenue growth during the period, as noted above. The decrease in costs and expenses as a percentage of service revenues was driven by the increase in higher margin satellite-based communication service revenue, partially offset by $2.3 million of gains associated with the curtailment of certain pension plans recorded in the corresponding period in the prior year.

Merger-related expenses In the three- and six-month periods ended September 30, 2008, the Company incurred $5.1 and $16.6 million, respectively, in investment banking, legal and consulting expenses related to the merger with Finmeccanica.

Operating income We consider operating income to be an important measure for evaluating our operating performance and, as is typical in the industry, define operating income as revenues less related costs and expenses of producing the revenues, including allowable general and administrative expenses, and non-allocable costs, as defined above. Operating income is discussed in detail for each of the business segments in which we operate, and the segment operating income is one of the key metrics used by management to internally manage its operations. Consolidated operating income for the three-month period ended September 30, 2008 decreased $2.9 million, or 3.1%, to $89.3 million, as compared with the corresponding period in the prior year. In addition, operating income as a percentage of revenues decreased 280 basis points, which was attributed to the cost/revenue relationships, the curtailment gain recorded in the corresponding period in the prior year and merger-related expenses detailed above. See "Operating Segments" discussion for additional information.

Consolidated operating income for the six-month period ended September 30, 2008 increased $5.1 million, or 3.2%, to $165.4 million, as compared with the corresponding period in the prior year. Operating income as a percentage of . . .