DRS Technologies Inc – ‘8-K/A’ for 10/20/98

As of:  Monday, 1/4/99   ·   For:  10/20/98   ·   Accession #:  950110-99-3   ·   File #:  1-08533

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Amendment to Current Report   —   Form 8-K
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Document/Exhibit                   Description                      Pages   Size 

 1: 8-K/A       Amendment to Form 8-K                                 23    104K 

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8-K/A
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================================================================================

 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

------------

FORM 8-K/A

 AMENDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
 Securities Exchange Act of 1934

------------

OCTOBER 20, 1998
 (Date of earliest event reported)

 Commission file number 1-8533

DRS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

       Delaware                                             13-2632319
(State or other jurisdiction of                              (I.R.S. Employer 
 incorporation or organization)                              Identification No.)

5 Sylvan Way, Parsippany, New Jersey                            07054         
(Address of principal executive offices)                       (Zip Code)       

(973) 898-1500
(Registrant's telephone number, including area code)

================================================================================

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     The undersigned  Registrant  hereby amends the following  items,  financial
statements,  exhibits,  or other  portions  of its  Current  Report on Form 8-K,
originally filed with the Securities and Exchange Commission on November 4, 1998
(the "Form 8-K") as set forth in the pages attached hereto:                     

ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits      

(a)  Financial Statements:                                            

     The following  financial  statements of the business  acquired are attached
hereto:                                                                         

Index to Financial Statements of the EOS Business of Raytheon Company........F-1

Report of Independent Accountants............................................F-2

Statement of Assets to be Acquired and Liabilities to be                        
  Assumed as of December 31, 1997 and September 30, 1998 (unaudited).........F-3

Statement of Direct Revenues and Direct Operating Expenses for the year         
ended December 31, 1997 and nine month periods                              
  ended September 30, 1998 and 1997 (unaudited)..............................F-4

Notes to Financial Statements................................................F-5

(b)  Pro Forma Financial Information:                                 

     The  following   unaudited  pro  forma  consolidated   condensed  financial
statements are attached hereto:                                                 

Unaudited pro forma condensed consolidated financial information............F-16

Unaudited pro forma condensed consolidated balance sheet                        
  as of September 30, 1998..................................................F-17

Unaudited pro forma  condensed  consolidated  statements of earnings for        
the fiscal year ended March 31, 1998 and the six-month period               
  ended September 30, 1998..................................................F-18

Notes to unaudited pro forma condensed consolidated financial information...F-19

(c)  Exhibits:                                                        

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ITEM 7(a)  Financial Statements                                                 

 INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

EOS Business of Raytheon Company                                                

Report of Independent Accountants...........................................F-2 

Statement of Assets to be Acquired and Liabilities to be                        
 Assumed as of December 31, 1997 and September 30, 1998 (unaudited)........F-3

Statement of Direct Revenues and Direct Operating Expenses for the year         
ended December 31, 1997 and the nine month periods                          
 ended September 30, 1998 and 1997 (unaudited).............................F-4

Notes to Financial Statements...............................................F-5 

F-1 

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 Report of Independent Accountants

     In our  opinion,  the  accompanying  statement of assets to be acquired and
liabilities  to be assumed  and the related  statement  of direct  revenues  and
direct operating expenses present fairly, in all material  respects,  the assets
to be acquired  and  liabilities  to be assumed of the EOS  Business of Raytheon
Company (the "EOS  Business" as defined in Note 1) as of December 31, 1997,  and
its direct  revenues and direct  operating  expenses for the year then ended, in
conformity  with  generally  accepted  accounting  principles.  These  financial
statements  are  the  responsibility  of  Raytheon  Company's  management;   our
responsibility  is to express an opinion on these financial  statements based on
our  audit.  We  conducted  our audit of these  statements  in  accordance  with
generally accepted auditing standards which 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audit  provides a reasonable  basis for the opinion  expressed
above.                                                                          

     The accompanying financial statements have been prepared for the purpose of
substantially  complying  with the rules and  regulations  of the Securities and
Exchange Commission for inclusion in the report on Form 8-K of DRS Technologies,
Inc. as described  in Note 1 and are not intended to be a complete  presentation
of the  financial  position,  results  of  operations  and cash flows of the EOS
Business.                                                                       

PricewaterhouseCoopers LLP                                                      

Dallas, Texas                                                                   
October 8, 1998                                                                 

F-2 

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EOS Business of Raytheon Company

Statement of Assets to be Acquired and Liabilities to be Assumed
December 31, 1997 and September 30, 1998 (unaudited)
(Dollars in Thousands)

                                                     December 31,  September 30,
                                                    1997          1998
                                                     ---------     ---------
                                                                   (unaudited)
ASSETS
Current assets:                                                                 
Accounts receivable, net ..........................   $ 2,847        $ 5,228
Contracts in process, net .........................    13,004         23,245
Prepaids ..........................................        96            117
                                                     --------       --------
    Total current assets ..........................    15,947         28,590
                                                     --------       --------

Property and equipment, at cost .....................    70,471         72,638  
 Less accumulated depreciation .....................   (55,175)       (58,179)
                                                     --------       --------
    Property and equipment, net ...................    15,296         14,459
                                                     --------       --------
        Total assets ..............................  $ 31,243       $ 43,049
                                                     ========       ========

LIABILITIES AND NET ASSETS
Current liabilities:                                                            
Accounts payable ..................................   $ 2,096        $ 1,550
Deferred revenues .................................        96              0
                                                     --------       --------
    Total current liabilities .....................     2,192          1,550
                                                     --------       --------

Commitments and contingencies (Notes 9 and 10)                                  

Net assets ..........................................  $ 29,051       $ 41,499  
                                                     ========       ========

The accompanying notes are an integral part of the financial statements.

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EOS Business of Raytheon Company

Statement of Direct Revenues and Direct Operating Expenses
For the year ended December 31, 1997
and the nine month periods ended September 30, 1998 and 1997 (unaudited)
(Dollars in Thousands)

                                                           Nine Months Ended
                                                           September 30,
                                                           (unaudited)
                                               December 31, --------------------
                                                1997        1998        1997
                                                --------    --------    --------
Direct revenues ...........................    $ 40,981    $ 47,055    $ 25,168 

Direct operating expenses                                                       
 Costs of revenues .......................      34,146      38,672      21,817
 Research and development ................       1,297         944         915
 Selling, general and administrative .....       4,333       5,221       2,572
                                              --------    --------    --------
     Total direct operating expenses .....      39,776      44,837      25,304
                                              --------    --------    --------

Direct revenues in excess of (less than)                                        
      direct operating expenses ...........    $  1,205    $  2,218    $   (136)
                                              ========    ========    ========

The accompanying notes are an integral part of the financial statements.

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EOS Business of Raytheon Company

 Notes to Financial Statements

1.   Basis of Presentation and Description of Business:                         

      Raytheon  Company  ("Raytheon"),   Raytheon  TI  Systems,  Inc.  ("RTIS"),
Raytheon  Systems  Georgia,  Inc. ("RSG" and together with Raytheon and RTIS the
"Sellers") and DRS Technologies,  Inc. ("DRS"),  DRS EO, Inc. and DRS FPA, L.P.,
wholly-owned  subsidiaries  of DRS  (collectively  referred  to with  DRS as the
"Buyer"),  entered  into an  asset  purchase  agreement  on July  28,  1998,  as
amended,(the  "Agreement") under which, on the contractually  designated closing
date, the Buyer acquired certain assets and liabilities consisting of the second
and third generation  scanning and staring infrared detector  businesses of RTIS
including all dewar and cryogenic cooler  manufacturing  and dewar and cryogenic
cooler  assembly but excluding the uncooled  Focal Plane Array ("FPA")  business
(collectively  referred  to as the "FPA  Business")  and the  second  generation
ground  electro-optical  business of Raytheon  and RSG (the "Ground EO Business"
and  together  with the FPA  Business  the  "EOS  Business").  The  accompanying
financial  statements  present the assets to be acquired and  liabilities  to be
assumed  and the  direct  revenues  and  direct  operating  expenses  of the EOS
Business  based  upon the  structure  of the  transaction  as  described  in the
Agreement; this transaction is herein referred to as the "Acquisition."         

     The financial  statements have been prepared to  substantially  comply with
the rules and regulations of the Securities and Exchange Commission for business
combinations  accounted  for as a purchase and are not intended to be a complete
presentation of the financial position,  results of operations and cash flows as
if the EOS Business  had operated as a  stand-alone  company.  The  accompanying
financial  statements,  rather  than  full  audited  financial  statements,  are
presented because the EOS Business was not operated as a stand-alone business by
the Sellers,  or, with respect to the FPA Business,  within the Defense Business
of Texas Instruments ("TI") for periods prior to July 11, 1997, or, with respect
to the Ground EO Business,  within the defense business of HE Holdings,  Inc., a
wholly-owned subsidiary of Hughes Electronics Corporation ("Hughes") for periods
prior to December 16, 1997.  In addition,  historically,  assets used in the EOS
Business were used as an integral  part of the  operations of the Sellers (or TI
and Hughes prior to ownership by the Sellers) to provide  goods and services for
use in higher  level  products  with such  activity  accounted  for  largely  as
internal cost transfers without formal  contracts,  billing or revenue tracking.
Because  the EOS  Business  was not  operated  as a  stand-alone  business,  the
presentation  does not include  certain  indirect  expenses of the EOS Business.
Therefore,  the accompanying  financial statements are not representative of the
complete results of operations of the EOS Business for the period presented.    

     The FPA Business  involves the design,  development and production of focal
plane arrays, which are used to generate night vision capability,  and cryogenic
linear coolers for infrared devices.                                            

     The Ground EO Business designs and manufactures  second generation  forward
looking  infrared  ("FLIR")  systems for use on Abrams tanks,  Bradley  Fighting
Vehicles  and  High  Mobility  Multi-Wheel  vehicles.   Second  generation  FLIR
technology allows a human operator to detect,  recognize and identify targets in
complete  darkness at a  substantially  greater range than the first  generation
FLIR systems.                                                                   

     Raytheon provides various services to the EOS Business  including,  but not
limited to, general management,  facilities  management,  human resources,  data
processing,  security, payroll and employee benefits administration,  financial,
legal, tax, insurance administration,  duplicating, telecommunications and other
miscellaneous  services.  Expenses related to these services have been allocated
to the EOS Business in the accompanying  statement of direct revenues and direct
operating  expenses first on the basis of direct usage when  identifiable,  with
the  remainder  allocated  primarily on the basis of direct labor costs or other
methodologies  which comply with U.S. Government cost accounting  standards.  In
the  opinion of  management,  these  methods of  allocating  indirect  costs are
reasonable;  however,  they do not  necessarily  equal  the  costs  that the EOS
Business would have incurred on a stand-alone  basis.  Therefore,  the financial
information  included herein may not necessarily reflect the financial position,
results of operations and cash flows of the EOS Business on a stand-alone  basis
in the future.                                                                  

     In the  accompanying  statement  of direct  revenues  and direct  operating
expenses, direct operating expenses presented reflect overhead rates specific to
RTIS (with  respect to the FPA  Business)  and the  Sensors  and  Communications
Systems segment of the Defense Business of Hughes (with respect to the Ground EO
Business),  while  direct  revenues  presented  are  derived  from total  direct
operating  expenses of the EOS Business,  including                             

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certain overhead costs,  plus the applicable profit (except for revenues related
to firm fixed price  contracts of the FPA Business which are derived from actual
billings). Because the overhead rates utilized were not based upon the operating
structure specific to the EOS Business, the direct operating expenses and direct
revenues  presented do not necessarily equal the operating  expenses or revenues
that the EOS  Business  would have  realized  had it operated  as a  stand-alone
company using its specific overhead rates.                                      

     The EOS Business  participates  in a  centralized  cash  management  system
wherein cash receipts are  transferred to and cash  disbursements  are funded by
Raytheon.  Since cash and cash equivalents  related to the operations of the EOS
Business were not acquired by the Buyer, they are excluded from the statement of
assets to be acquired and liabilities to be assumed.                            

2.   Summary of Significant Accounting Policies:                                

Use of Estimates                                                      

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions,  in particular estimates of anticipated contract costs and revenues
utilized in the earnings recognition  process,  that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of direct revenues
and direct operating  expenses during the reporting period.  Due to the inherent
uncertainty  involved in making  estimates,  actual  results  reported in future
periods may be based upon amounts which differ from those estimates.            

Revenue Recognition                                                   

     Revenues under  long-term  contracts  (except for revenues under firm fixed
price contracts of the FPA Business) are primarily  recorded under methods which
approximate  the  percentage of completion  method,  wherein costs and estimated
profit are recorded as revenues as the work is  performed.  Revenues  under firm
fixed price contracts of the FPA Business are recognized as deliveries are made.
Estimated profits for all long-term contracts are based on management  estimates
of total sales values and costs at completion.  These estimates are reviewed and
revised  periodically  throughout  the lives of the contracts,  and  adjustments
resulting from such revisions are recorded in the periods in which the revisions
are made.  When  appropriate,  increased  funding is assumed  based on  expected
adjustments of contract  prices for increases in scope and other changes ordered
by the  customer.  Since  many  contracts  extend  over a long  period  of time,
revisions  in cost and funding  estimates  during the  progress of work have the
effect of adjusting  current period  earnings for  performance in prior periods.
Losses on contracts are recorded in full as they are identified.                

     Certain  contracts  contain cost or performance  incentives or both.  These
incentives  provide  for  increases  in fees or profits  for  surpassing  stated
targets or other  criteria,  or for  decreases in fees or profits for failure to
achieve such targets or other criteria.  Performance  incentives are included in
sales at the time there is sufficient  information to relate actual  performance
to targets or other criteria.                                                   

     Cost of sales  includes  direct  engineering  and  manufacturing  costs and
certain  overheads  including fringe benefits and an allocated  portion of costs
incurred by support  departments  (see Note 1).  Expenditures  for  research and
development are charged to expense as incurred.                                 

     Pursuant to the  Agreement,  product or service  warranty  obligations  and
liabilities  relating to work  performed by the Sellers on contracts in progress
prior  to  the  closing  of  the   Acquisition  are  retained  by  the  Sellers.
Accordingly,  the EOS  Business  has  not  accrued  a  warranty  reserve  in the
accompanying financial statements.                                              

Accounts Receivable                                                   

     Accounts  receivable  are  comprised of amounts due from the United  States
Government (either directly,  or indirectly through commercial customers who are
the prime contractor on contracts where the EOS Business is a subcontractor  and
the United  States  Government  is the sole end  customer)  and from  commercial
customers principally related to long-term contracts and programs. These amounts
are billed in accordance  with contract  terms.  Amounts billed under  retainage
provisions of contracts are not  significant and  substantially  all amounts are
collectible within five years.                                                  

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Contracts in Process                                                  

     Contracts  in process  (except  for firm fixed price  contracts  of the FPA
Business)  are  stated  at  actual  production  costs,  including  manufacturing
overhead and special tooling and engineering  costs,  plus estimated profit (but
not in excess of  estimated  realizable  value)  reduced  by  amounts  billed to
customers and progress  payments received (or, for firm fixed price contracts of
the FPA  Business,  by amounts  identified  with  revenues  recognized  on units
delivered).                                                                     

     Firm fixed price  contracts  in process of the FPA  Business do not include
estimated profit.  The costs attributed to units delivered under these contracts
are  based on the  estimated  average  cost of all  units to be  produced  under
existing  contracts and are determined  under the learning curve concept,  which
anticipates  a  predictable  decrease  in unit  costs  as tasks  and  production
techniques become more efficient through repetition.                            

Property and Equipment                                                

     Pursuant to the  Agreement,  certain  property and  equipment  owned by the
Sellers which is used in  connection  with the EOS Business was purchased by the
Buyer,  and the cost and related  accumulated  depreciation of such property and
equipment is included in the accompanying financial statements.                 

     Property and equipment is recorded at cost less  accumulated  depreciation.
Major   improvements  and  renewals  are  capitalized  while   expenditures  for
maintenance and repairs and minor renewals are charged to expense.              

     Depreciation is computed using accelerated and  straight-line  methods over
the estimated useful lives of the related assets.  Recoverability of property is
periodically  evaluated by assessing whether the net book value can be recovered
over its remaining life through undiscounted cash flows generated by the asset. 

     The EOS Business  constructs  certain property for use within its programs.
The costs incurred to construct this property are capitalized as equipment under
construction  until  completion.  Once  completed,  the  property is placed into
service and depreciated based on its estimated useful life.                     

Income Taxes                                                          

     No  provision  or  benefit  for  income  taxes  has  been  provided  in the
accompanying  statements of direct revenues and direct operating expenses due to
the fact that the EOS Business was not operated as a stand-alone  company and no
allocation of the Sellers' income tax provision/benefit has been made to the EOS
Business.                                                                       

     Pursuant to the Agreement,  no tax related assets or liabilities  have been
acquired  or assumed by the Buyer and,  accordingly,  no tax  related  assets or
liabilities are reflected in the accompanying statement of assets to be acquired
and liabilities to be assumed.                                                  

3.   Accounts Receivable:                                                       

As of December 31, 1997, accounts receivable are comprised as follows:          

 Commercial ..............................................   $   541
 United States Government ................................     2,340
                                                             -------
       Total .............................................     2,881
  Less allowance for doubtful accounts ....................       (34)
                                                             -------
 Accounts receivable, net ................................   $ 2,847
                                                             =======

4.   Contracts in Process                                                       

     As of December 31, 1997 and  September 30, 1998  (unaudited),  contracts in
process are comprised as follows:                                               

                                                   December 31,    September 30,
                                                 1997             1998
                                                   ---------      ------------
                                                                   (unaudited)
Contracts in process ....................           $ 20,358        $ 42,261    
Progress payments .......................             (4,956)        (16,626)   
Reserves ................................             (2,398)         (2,390)   
                                                 --------        ---------
Total ...................................           $ 13,004        $ 23,245    
                                                 ========        =========

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     Cash  received  from direct  sales of the EOS  Business  was  approximately
$33,383 for the year ended December 31, 1997.                                   

5.   Property and Equipment:                                                    

   As of December 31, 1997, property and equipment are comprised as follows:

                                    Estimated Life
                                    (in years)
                                    ----------
Machinery and equipment ......................         10 - 13         $ 51,229 
Furniture and fixtures .......................         10 - 20           16,755 
Computer software and hardware ...............          3 - 6             1,414 
Equipment under construction .................           N/A              1,073 
                                                                      --------
     Total ..................................                           70,471
Less accumulated depreciation ................                          (55,175)
                                                                      --------
Property and equipment, net ..................                         $ 15,296 
                                                                      ========

     Depreciation expense for the year ended December 31, 1997 was approximately
$3,704.                                                                         

     In addition to the assets  recorded  above,  the EOS Business  uses certain
government-owned  equipment and shared Raytheon  equipment for production of the
programs.  All of these items have been excluded from the accompanying statement
of assets to be acquired and liabilities to be assumed.                         

     Concurrent with the closing of the  Acquisition,  the Sellers and the Buyer
entered  into a lease  agreement  and two  sublease  agreements  (the  "Leases")
whereby the Sellers  agreed to lease or sublease to the Buyer space  occupied by
the EOS Business in Texas and  California.  The Leases contain  certain  renewal
options  and  escalation  clauses.  RTIS  agreed to  sublease to the Buyer space
occupied by the FPA  Business in RTIS'  Semiconductor  building and its Research
West building.  Under the terms of the sublease for the Semiconductor  Building,
the Buyer will pay RTIS a monthly rental based upon the ratio of net square feet
occupied by the FPA Business (the "FPA Premises")  divided by the square feet of
the  premises  in which the FPA  Premises  are  located.  Under the terms of the
sublease for the Research West building,  the FPA Business will occupy all space
of the building and will pay RTIS rental  payments  equal to the monthly  rental
paid by RTIS.                                                                   

     Raytheon  agreed  to lease to the Buyer  space  currently  occupied  by the
Ground EO  Business in El  Segundo,  California  for a term of one year from the
closing date of the Acquisition. At the end of the one-year term, the Buyer will
have the option to rent the El Segundo space for up to three  additional  months
on a month-to-month basis.                                                      

     Minimum rental  commitments  under the Leases as of the closing date of the
Acquisition are as follows:                                                     

1st year ..............................................        $ 3,026
2nd year ..............................................          3,052
3rd year ..............................................          3,452
4th year ..............................................          3,607
5th year ..............................................          3,607
Thereafter ............................................         13,430
                                                               -------
Total .................................................        $30,174
                                                               =======

     Occupancy expense  (including rental expense) allocated to the EOS Business
for the year ended December 31, 1997 was approximately $906.                    

     Pursuant to the  Agreement,  RTIS has agreed to cooperate with the Buyer to
consolidate  the  FPA  Business  within  the  Semiconductor  and  Research  West
buildings  and  Raytheon  has  agreed  to  cooperate  with the Buyer to move all
operations  of the Ground EO Business.  RTIS and  Raytheon,  respectively,  have
agreed to pay all expenses in connection with these moves as well as the cost of
constructing and demising walls and other improvements in the buildings.        

     The EOS Business has certain operating lease commitments for equipment. The
minimum future commitments under these leases is not material.                  

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6.   Accrued Expenses:                                                          

     Pursuant to the Agreement, on or before the closing date of the Acquisition
Raytheon  will pay to each assumed  employee the cash  equivalent  of his or her
accumulated  but unused time in accordance with Raytheon's Paid Time Off Policy.
From and after the closing date of the Acquisition,  the assumed  employees will
receive vacation benefits pursuant to the Buyer's vacation policy. There were no
other  accrued  liabilities  of the EOS Business  assumed by the Buyer as of the
closing date of the Acquisition.  Accordingly,  as of December 31, 1997, accrued
expenses are excluded from the accompanying financial statements.               

7.   Related Party Transactions:                                                

     Included  in the  accompanying  statement  of  assets  to be  acquired  and
liabilities  to be assumed  are certain  amounts due to/due from other  Raytheon
Company entities as follows:                                                    

Accounts receivable ........................................     $ 255
Contracts in process .......................................     $ 324
Accounts payable ...........................................     $ 962

     In  addition  to the  items  noted  above,  included  in  the  accompanying
statement  of  direct  revenues  and  direct  operating   expenses  are  certain
transactions between the Ground EO Business and various related parties.        

     For the period from January 1, 1997 through  December 16, 1997,  the Ground
EO Business was part of Hughes (see Note 1) and did not have any  customers  who
were related parties. For the period from December 17, 1997 through December 31,
1997,  the Ground EO Business was part of Raytheon.  Prior to December 17, 1997,
RTIS, a subsidiary of Raytheon,  was a customer of the Ground EO Business.  As a
result of the merger between Hughes and Raytheon, RTIS became a related party to
the Ground EO Business.  The amount of direct revenue related to RTIS recognized
during the period  from  December  17,  1997  through  December  31,  1997,  and
therefore  included in the accompanying  statement of direct revenues and direct
operating expenses, is immaterial.                                              

     For the year ended December 31, 1997, the EOS Business  purchased goods and
services  from other  Raytheon  Company  entities  (or,  with respect to the FPA
Business,  the Defense  Business of TI for periods  prior to July 11, 1997,  or,
with respect to the Ground EO Business,  other Hughes entities for periods prior
to December 16, 1997) that were related  parties.  These goods and services were
provided and thus recorded at cost.  The total amount of these costs included in
the  accompanying  statement  of  operations  is not  material  to total  direct
operating expenses.                                                             

8.   Employee Benefit Plans:                                                    

     The  employees of the EOS Business  participate  in various  pension,  post
retirement, post employment, savings and investment, stock ownership and retiree
health care benefit plans of the Sellers. Pursuant to the Agreement, liabilities
pertaining  to  participation  by such  employees  of the EOS  Business in these
employee benefit plans of the Sellers are not assumed by the Buyer. Accordingly,
such  liabilities are excluded from the  accompanying  statement of assets to be
acquired and liabilities to be assumed. Pursuant to the Agreement,  employees of
the EOS Business  will  continue to receive  pension  accruals  from Raytheon as
though they were still  employees of Raytheon while they continue to be employed
by the Buyer through the end of the sixth full calendar  month after the closing
date of the Acquisition. Payroll deduction contributions will be required of the
employees to benefit from this continued accrual.                               

     A  retention  program  has  been  set in place to  retain  key  skills  and
leadership  capability  within the EOS  Business.  This bonus  program  includes
certain  employees  with bonus amounts  ranging from 3 to 12 months of base pay.
Raytheon  is  required  to pay 25% of the  retention  award for these  employees
within 20 days of the closing date of the Acquisition (except that for employees
of the FPA Business  the entire  bonus is payable  within 20 days of the closing
date of the Acquisition in the event the employees are not offered employment by
the Buyer at a comparable  compensation  level or that the employees' commute is
changed as defined by the  Agreement),  and the  remaining  75% of the retention
award within 20 days after the  employees  have  completed 90 days of employment
with the Buyer.                                                                 

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9.   Stock Options:                                                             

     As a business  unit of Raytheon,  the EOS  Business  has no employee  stock
option plan; however, certain employees of the EOS Business participate in stock
option plans of Raytheon.  These plans  provide for the grant of both  incentive
and  nonqualified  options at an exercise price which is 100% of the fair market
value on the date of grant.  The options may be exercised in their entirety from
one to ten years after the date of grant. In connection with the sale, employees
of the EOS Business who hold  unvested  options will be paid in cash by Raytheon
for the difference  between the value of the unvested  options as of the closing
date of the Acquisition and the exercise price of the options.                  

10.  Risk Concentrations, Commitments and Contingencies:                        

General                                                               

     Companies  such  as the  EOS  Business,  which  are  engaged  in  supplying
defense-related  equipment  to the  U.S.  Government,  are  subject  to  certain
business risks peculiar to that  industry.  Sales to the U.S.  Government may be
affected by changes in procurement  policies,  budget  considerations,  changing
concepts of national defense,  political  developments abroad and other factors.
As a result of the Balanced Budget and Emergency  Deficit Reduction Control Act,
the federal deficit and changing world order  conditions,  Department of Defense
("DOD")  budgets  have been  subject  to  increasing  pressure  resulting  in an
uncertainty as to the future effects of DOD budget cuts.                        

Credit Risk                                                           

     Financial  instruments  which subject the EOS Business to concentrations of
credit risk primarily  relate to accounts  receivable.  Contracts  involving the
U.S.  Government do not require collateral or other security.  However,  ongoing
credit  evaluations  of domestic  non-U.S.  Government  customers are conducted.
Generally collateral or other security is not required from these customers.    
Historically, no significant credit-related losses have been incurred by the EOS
Business.                                                                       

Market Concentrations and Export Sales                                

     Sales under United States Governmental  contracts  (including contracts for
which the EOS Business is either the prime contractor or a  subcontractor)  were
approximately   99%  of  net  sales  for  the  year  ended  December  31,  1997.
Approximately 80% of direct revenue for the year ended December 31, 1997 is from
two United States Government Programs. There are no export sales. Revenues under
United States Government prime contracts and subcontracts  approximated  $33,974
and $6,718,  respectively,  for the year ended December 31, 1997. Percentages of
United States  Government sales by contract type for the year ended December 31,
1997 were 68% cost plus and 32% firm fixed price.                               

Commitments                                                           

     Pursuant  to the  Agreement,  the  Buyer  acquired  all of the  rights  and
obligations of the Sellers in connection with purchase orders relating primarily
to the EOS Business which were  outstanding  at the closing of the  Acquisition.
These purchase orders relate  primarily to raw materials and purchased parts for
inventories  and equipment  under  construction.  As of December 31, 1997,  open
commitments for such purchase orders totaled approximately $19,990. In addition,
as of December  31,  1997,  the Ground EO Business  had  another  open  purchase
commitment with a related party of up to approximately $1,100.                  

Litigation and Regulatory Proceedings                                 

     The EOS  Business  is  subject  to  potential  liability  under  government
regulations and various lawsuits,  claims and proceedings  arising in the normal
course of business.  Management of the EOS Business and the Sellers  believe the
disposition  of matters  which are pending or asserted  will not have a material
adverse effect on the EOS Business' operations or financial position.           

     Raytheon is included among a number of U.S. defense  contractors  which are
currently  the  subject  of U.S.  government  investigations  regarding  alleged
procurement  irregularities.  Raytheon  is unable to predict  the outcome of the
investigations  at this time or to  estimate  the kinds or  amounts of claims or
other actions that could be instituted  against the EOS Business.  Under present
government  procurement  regulations,   such  investigations  could  lead  to  a

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government contractor being suspended or debarred from eligibility for awards of
new government  contracts.  In the current  environment,  even matters that seem
limited  to  disputes  about  contract  interpretation  can  result in  criminal
prosecution.  While criminal charges against contractors have resulted from such
investigations,  Raytheon does not believe such charges would be  appropriate in
its case and has not, at any time, lost its eligibility to enter into government
contracts or subcontracts under these regulations.                              

11.  Supply and Services Agreements:                                            

Supply Agreement: FPA Business as Supplier to RTIS                    

     Concurrent with the closing of the Acquisition,  RTIS and the Buyer entered
into a supply agreement (the "FPA Supply Agreement") whereby the Buyer agreed to
provide,  and RTIS agreed to purchase,  second  generation and third  generation
scanning and staring  cooled IR  detectors,  including  all dewar and  cryogenic
cooler  manufacturing  and dewar and cryogenic  cooler  assembly,  but excluding
uncooled FPAs (collectively, the "FPA Products").                               

     The Buyer will  exclusively  supply RTIS with FPA Products from the Closing
Date of the Agreement  through  December 31, 2000 (the  exclusivity  period) for
specific  programs  identified in the  Agreement  (with the  exclusivity  on the
JAVELIN program  including all Multiyear 1 quantities with deliveries  extending
into 2000 but not including  JAVELIN Multiyear 2). If Raytheon enters a contract
win during the  exclusivity  period for any of the  programs  identified  in the
Agreement, the Buyer would receive a corresponding contract for the FPA Products
listed in the Agreement. The Agreement specifies a quantity range and unit price
by program for the FPA Products to be supplied. RTIS is not obligated to place a
contract with the Buyer until a specific  contract has been funded.  For changes
to the quantity ordered during the exclusivity  period,  RTIS and the Buyer will
negotiate the price for the  quantities in excess of or below the quantity range
specified in the Agreement  consistent  with historical cost adjusted by forward
pricing rate multipliers.                                                       

     Under the FPA Supply  Agreement,  general RTIS requests for fabrication and
technical  services  from the Buyer will be priced at direct costs plus indirect
costs (including G&A) plus a 10% fee.                                           

Supply Agreement: RTIS as Supplier to FPA Business                    

     Concurrent with the closing of the Acquisition,  RTIS and the Buyer entered
into a supply  agreement  (the "RTIS Supply  Agreement")  whereby RTIS agreed to
provide,  and the  Buyer  agreed  to  purchase,  certain  fabrication  parts and
technical services (the "RTIS Products" and "RTIS Services", respectively).     

     RTIS will supply RTIS Products at a listed price for  quantities  specified
in the RTIS Supply  Agreement.  The prices for the RTIS  Products will remain as
listed in the RTIS Supply  Agreement for the firm  quantities for a period of 60
days from the closing of the Acquisition.                                       

     RTIS will also supply  engineering and  fabrication  services to the Buyer.
For all services that support FPA  Products,  or services that will be resold to
RTIS or its  affiliates,  services  will be billed  to the Buyer  based on RTIS'
direct costs. For all other RTIS Services, pricing will be based on RTIS' direct
costs and indirect costs (including G&A), plus a fee of 10%.                    

Master Services Agreement: RTIS as Service Provider to FPA Business   

     Concurrent with the closing of the Acquisition,  RTIS and the Buyer entered
into a master services agreement (the "RTIS Master Services  Agreement") whereby
RTIS agreed to provide,  and the Buyer agreed to purchase,  support services and
facilities  (collectively,  the  "RTIS  Master  Services")  including  cafeteria
vending and catering  services;  information  technology  services;  calibration
support  services;   special  manufacturing  maintenance  services;   receiving,
inspection  and  shipping   services;   mail  services;   purchasing   services;
environmental,   safety  and  health  services;  laboratory  analysis  services;
janitorial  services;  warehouse  services;  Environmental  Test  Lab  services;
exterior  facilities  repairs and maintenance  services;  technical  publication
services and engineering and drafting services. Generally, the cost to the Buyer
for the RTIS Master  Services will be (i) in the case of all services other than
engineering and drafting,  the cost to RTIS (but excluding G&A costs) and no fee
and (ii) in the case of  engineering  and  drafting  services,  the cost to RTIS
(including G&A costs) plus a 5% fee.                                            

     The RTIS Master  Services  Agreement  shall  continue to be in effect until
either  termination by mutual  consent or at the Buyer's  direction upon 30 days
notice.                                                                         

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Supply Agreement: Raytheon as Supplier to Ground EO Business          

     Concurrent  with the  closing of the  Acquisition,  Raytheon  and the Buyer
entered  into a supply  agreement  (the  "Raytheon  Supply  Agreement")  whereby
Raytheon  agreed to provide,  and the Buyer has the option to purchase,  certain
electro-optical  products be used for  Long-Range  Advanced  Scout  Surveillance
Systems ("LRAS3") and specific  components for the Improved Bradley  Acquisition
System LRIP contract  ("IBAS") and in any other future  contracts under the IBAS
and LRAS3 programs  (collectively the "Raytheon  Products").  Under the Raytheon
Supply  Agreement,  Raytheon shall have the exclusive  right to supply the Buyer
with the Raytheon  Products for the  duration of the LRAS3  contract.  The Buyer
shall have the right, but is not obligated,  to purchase  Raytheon  Products for
the IBAS contract and future contracts under the IBAS and LRAS3 programs.  Under
the Raytheon  Supply  Agreement,  the terms and conditions for the existing IBAS
and LRAS3  work will be the same as those  contained  in the IBAS LRIP and LRAS3
contracts,  respectively, with the exception of the contract type, which will be
cost plus a fixed fee of 10%  including  the cost of  money.  Pricing  and other
terms for all new  purchase  orders will be based on the IBAS  Contract  and the
LRAS3 Contract,  as applicable.  Raytheon agreed to supply products to the Buyer
at prices no greater than those  applied to most favored  customers for the same
quantities  and  under  the same  terms  and  conditions.  The  Raytheon  Supply
Agreement  shall continue to be in effect until the expiration or termination of
the IBAS  contract  and the LRAS  contract,  in each case as  extended by mutual
agreement, as applicable.                                                       

Supply Agreement: ELCAN as Supplier to Ground EO Business             

     Concurrent  with the closing of the  Acquisition,  Raytheon  Systems Canada
Ltd.  (ELCAN) and the Buyer entered into a supply  agreement  (the "ELCAN Supply
Agreement")  whereby ELCAN agreed to provide,  and the Buyer agreed to purchase,
certain  electro-optical  products  for the HTI  MultiYear  Production  Contract
("HTI") , the IBAS LRIP  contract and any other future  contracts  under the HTI
and IBAS programs.  (collectively the "ELCAN Products").  Under the ELCAN Supply
Agreement,  ELCAN shall have the exclusive right to supply ELCAN Products to the
Buyer for program  years one and two of the HTI  contract and phases one and two
of the IBAS LRIP  contract.  The Buyer  will  have the right to  purchase  ELCAN
Products for program year three of the HTI  contract  (and any option  exercises
under this program) and for phase three of the IBAS LRIP contract. Existing work
performed under the ELCAN Supply Agreement will be charged at a firm fixed price
which  includes a profit of 12% and  including  the cost of money.  Pricing  and
other  terms for all new  purchase  orders  will be based on the HTI  Multi-Year
Production Contract and the IBAS LRIP Contract,  as applicable.  ELCAN agreed to
supply  products  to the Buyer at prices no greater  than those  applied to most
favored  customers  for the  same  quantities  and  under  the  same  terms  and
conditions.  The ELCAN Supply Agreement shall continue to be in effect until the
expiration or  termination  of the HTI contract and the IBAS LRIP  contract,  in
each case as extended by mutual agreement, as applicable.                       

Supply Agreement: ROS as Supplier to Ground EO Business               

     Concurrent with the closing of the  Acquisition,  Raytheon Optical Systems,
Inc.  ("ROS") and the Buyer  entered  into a supply  agreement  (the "ROS Supply
Agreement"),  whereby  ROS agreed to provide  and the Buyer  agreed to  purchase
electro-optical  products  for the  IBAS  LRIP  contract  and any  other  future
contracts  under the IBAS program.  (the "ROS  Products").  Under the ROS Supply
Agreement,  ROS shall have the  exclusive  right to supply ROS  Products  to the
Buyer for phases one and two of the IBAS LRIP contract.  The Buyer will have the
right but is not  obligated  to procure the ROS  Products for phase three of the
IBAS LRIP contract and any future  contracts  under the IBAS  program.  Existing
work  performed  under the ROS Supply  Agreement will be charged at a firm fixed
price which includes profit of 10% and including the cost of money.  Pricing and
other terms for all new purchase orders will be based on the IBAS LRIP Contract.
ROS agrees to supply ROS  Products to the Buyer at prices no greater  than those
applied to most favored  customers  for the same  quantities  and under the same
terms and  conditions.  The ROS Supply  Agreement shall continue to be in effect
until the expiration or  termination  of the IBAS LRIP contract,  as extended by
mutual agreement, as applicable.                                                

     Master  Services  Agreement:  Raytheon  as  Service  Provider  to Ground EO
Business                                                                        

     Concurrent  with the  closing of the  Acquisition,  Raytheon  and the Buyer
entered  into  a  master  services  agreement  (the  "Raytheon  Master  Services
Agreement")  whereby  Raytheon  agreed  to  provide,  and the  Buyer  agreed  to
purchase,  certain support services and facilities (collectively,  the "Raytheon
Master  Services") in order to promote the efficient  operation of the Ground EO
Business  including but not limited to records retention  services,  information
technology services,  equipment storage,  calibration support services, and mail
services. Generally, the cost to the Buyer for the                              

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Raytheon  Master  Services  will  be  the  cost  to  Raytheon  including  labor,
out-of-pocket  costs to third parties and a reasonable  allocation  for overhead
and indirect  costs.  Raytheon will also offer certain other services  including
but not limited to special  manufacturing  services,  engineering  and technical
support  services,   purchasing  support  services,   contracts   administration
services,  safety and health  services and  facility and general  administrative
services.  Generally, the cost to the Buyer for these services will be the fixed
price of time and materials incurred by Raytheon plus a 5% fee.                 

     The Raytheon Master Services Agreement shall continue to be in effect until
either  termination by mutual consent or at the Buyer's  discretion upon 30 days
notice.  In any case,  Raytheon is not required to provide services  pursuant to
the Raytheon Master  Services  Agreement past the earlier of 24 months after the
closing  date of the  Acquisition  or 12 months  after the Buyer  vacates the El
Segundo facility.                                                               

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ITEM 7(b) Pro forma Financial Information                                       

 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES

Unaudited Pro Forma Condensed Consolidated Financial Information

     The  following  unaudited  pro  forma  condensed   consolidated   financial
information  (the pro forma financial  information) set forth below is presented
to reflect the pro forma effects of the  acquisition by DRS  Technologies,  Inc.
and  Subsidiaries  (DRS) of the EOS Business of Raytheon Company (EOS Business),
(the EOS  Acquisition).  As more fully  described  in the notes to the pro forma
financial  information,  the unaudited pro forma financial  statements also give
effect to the  acquisition  of the Applied  Systems  Division of Spar  Aerospace
Limited and Spar Aerospace (U.K.) Limited,  which took place on October 29, 1997
(the Spar Acquisition).                                                         

     The unaudited pro forma  financial  information  is based on, and should be
read together with: the historical  consolidated  financial statements of DRS as
of and for the year ended March 31, 1998; the unaudited  consolidated  financial
statements  of DRS as of and for the six months ended  September  30, 1998;  the
historical  financial  statements  of EOS  Business as of and for the year ended
December 31, 1997; and the unaudited financial  statements of EOS Business as of
and for the period ended September 30, 1998. The pro forma financial information
is based on certain  assumptions and includes the adjustments  described  herein
and in the notes to the pro forma financial information.                        

     The unaudited pro forma condensed  consolidated  balance sheet was prepared
based on the assumption  that the EOS Acquisition was completed on September 30,
1998. The unaudited condensed  consolidated  statements of earnings for the year
ended  March 31,  1998 and for the six  months  ended  September  30,  1998 were
prepared as if the both the EOS Acquisition  and the Spar  Acquisition had taken
place on April 1, 1997. For accounting  purposes,  the EOS  Acquisition  will be
treated as a purchase.                                                          

     It should be understood that the unaudited pro forma  financial  statements
do not necessarily reflect the actual consolidated financial position or results
of  operations  of the combined  entities  since,  among other  factors,  actual
expenses  related to or following the acquisitions may be different than amounts
assumed or  estimated.  The pro forma  financial  information  is  provided  for
illustrative  purposes  only  and  may  not  necessarily  be  indicative  of the
financial  results that would have occurred had the acquisitions  been effective
on the dates  indicated,  and should not be viewed as  indicative  of results of
operations or financial position of future periods.                             

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DRS TECHNOLOGIES, INC & SUBSIDIARIES
AND THE EOS BUSINESS OF RAYTHEON COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Fiscal Year Ended March 31, 1998
(in thousands except share and per share data)

                                                        [Enlarge/Download Table]

                                                        HISTORICAL                                   PRO FORMA               
                                          ----------------------------------------  -----------------------------------------
                                                                         EOS          SPAR            EOS            DRS/EOS 
                                              DRS         SPAR(2)    BUSINESS(4)   Adjustments    Adjustments         Total  
                                           --------      --------    -----------  ------------    -----------       ---------
                                                                                                                             
Revenues ............................... $ 190,854       $ 15,556     $ 40,981      $ (1,182)(2) $ (10,541)(8)    $ 235,668  
                                                                                                          (5),(6)            
Costs and expenses .....................  (176,595)       (14,324)     (39,776)         (329)(2)     6,079(7),(8)  (224,945) 
                                          --------        -------      -------        ------       -------          -------  
  Operating income (loss) ..............    14,259          1,232      $ 1,205        (1,511)       (4,462)          10,723  
                                                                       =======                                               
    Interest and related expenses ......    (5,098)          (170)                       --         (7,332)(6)      (12,600) 
Interest and other income, net .........     1,377            465                        --            --             1,842  
Minority interest ......................      (874)           --                         --            --              (874) 
                                          --------        -------                     ------       -------          -------  
  Earnings (loss) before income taxes ..     9,664          1,527                     (1,511)      (11,794)            (909) 
Income tax expense (benefit) ...........     3,292            285                       (453)(3)    (3,918)(9)         (794) 
                                          --------        -------                     ------       -------          -------  
  Earnings (loss) before extraordinary                                                                                       
    item (notes 6 and 10)...............   $ 6,372        $ 1,242                   $ (1,058)     $ (7,876)          $ (115) 
                                          ========        =======                     ======       =======          =======  
  Earnings per share                                                                                                         
    Earnings (loss) from continuing                                                                                          
      operations before extraordinary item                                                                                   
      Basic ............................     $1.13            --                         --            --            $(0.02) 
      Diluted ..........................      0.93            --                         --            --             (0.02) 
  Weighted average shares outstanding                                                                                        
      Basic ............................     5,626            --                         --            --             5,626  
      Diluted ..........................     9,045            --                         --            --             5,626  
                                          ========        =======                     ======       =======          =======  

 See accompanying notes to Unaudited Pro Forma Condensed
Consolidated Financial Information

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DRS TECHNOLOGIES, INC & SUBSIDIARIES
AND THE EOS BUSINESS OF RAYTHEON COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
 Six Months Ended September 30, 1998
(in thousands except per share data)

                                                        [Enlarge/Download Table]

                                                     HISTORICAL                     PRO FORMA          
                                             ---------------------------   --------------------------  
                                                                  EOS           EOS           DRS/EOS  
                                                DRS           BUSINESS(4)   Adjustments        Total   
                                             --------         -----------   -----------      --------  
                                                                                                       
Revenues ................................    $ 92,114          $ 35,154    $ (15,159)(8)     $ 112,109 
                                                                                    (5),(6)            
Costs and expenses ......................     (88,299)          (33,896)      12,083(7),(8)   (110,112)
                                             --------          --------    ---------         --------- 
  Operating income (loss) ...............       3,815          $  1,258       (3,076)           (1,997)
                                                               ========                                
Interest and related expenses ...........      (3,113)                        (2,675)(6)        (5,788)
Interest and other income, net ..........         328                             --               328 
Minority interest .......................        (425)                            --              (425)
                                             --------                      ---------         --------- 
Earnings (loss) before income taxes .....         605                         (5,751)           (3,888)
  Income tax expense (benefit) ..........         224                         (1,663)(9)        (1,439)
                                             --------                      ---------         --------- 
Earnings (loss) before extraordinary                                                                   
  item (notes 6 & 10) ...................    $    381                      $  (4,088)        $  (2,449)
                                             ========                      =========         ========= 
Earnings per share                                                                                     
  Earnings (loss) before extraordinary item                                                            
    Basic ...............................    $   0.06                --           --         $   (0.39)
    Diluted .............................        0.06                --           --             (0.39)
Weighted average shares outstanding                                                                    
    Basic ...............................       6,224                --           --             6,224 
    Diluted .............................       6,463                --           --             6,224 
                                             ========          ========    =========         ========= 

 See accompanying notes to Unaudited Pro Forma Condensed
Consolidated Financial Information

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 DRS TECHNOLOGIES, INC. & SUBSIDIARIES
AND THE EOS BUSINESS OF RAYTHEON COMPANY
Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 1998
(in thousands)

                                                        [Enlarge/Download Table]

                                                              HISTORICAL          PRO FORMA         
                                                              ----------   -----------------------  
                                                                  EOS          EOS         DRS/EOS  
                                                      DRS     Business(4)  Adjustments      Total   
                                                   --------   -----------  ----------      -------  
Assets                                                                                              
Current Assets:                                                                                     
                                                                                                    
  Cash ........................................... $ 13,026     $  --      $    500(6)     $ 13,526 
  Accounts receivable, net .......................   43,295       5,228        --            48,523 
  Inventories, net of progress payments ..........   41,152      23,245      (3,642)(8)      60,755 
  Prepaid expenses and other current assets ......    2,213         117        (833)(6)       1,497 
                                                   --------     -------    --------        -------- 
          Total current assets ...................   99,686      28,590      (3,975)        124,301 

Net equipment and improvements ...................   22,661      14,459        --            37,120 

Net Intangible assets ............................   31,451         --       15,643(5)       47,094 
Other assets .....................................    9,332         --         --             9,332 
                                                   --------     -------    --------        -------- 
          Total assets ...........................  163,130      43,049      11,668         217,847 
                                                   --------     -------    --------        -------- 

Liabilities and Stockholders' Equity                                                                
Current liabilities:                                                                                
  Current installments-- long term debt ..........    8,543         --         --             8,543 
  Other current liabilities ......................   42,913       1,550        (308)(6)      44,155 
                                                   --------     -------    --------        -------- 
          Total current liabilities ..............   51,456       1,550        (308)         52,698 

Long term debt, excluding current installments ...   57,819         --       57,000(6)      114,819 
Deferred income taxes ............................    3,897         --       (1,110)(6)       2,787 
Other liabilities ................................    4,233         --         --             4,233 
                                                   --------     -------    --------        -------- 
          Total liabilities ......................  117,405       1,550      55,582         174,537 

Stockholders' equity:                                                                               
  Common stock ...................................       67         --         --                67 
  Additional paid-in capital .....................   20,446         --         --            20,446 
  Retained earnings ..............................   27,438         --       (2,415)(6)      25,023 
          Net assets .............................      --      $41,499    $(41,499)           --   
                                                                =======    ========                 

  Cumulative translation adjustment ..............     (291)                                   (291)
  Treasury stock, at cost ........................   (1,561)                                 (1,561)
  Unamortized restricted stock compensation ......     (374)                                   (374)
                                                   --------                                -------- 
          Net stockholders' equity ...............   45,725                                  43,310 
                                                   --------                                -------- 
                                                   $163,130                                $217,847 
                                                   ========                                ======== 

 See accompanying notes to Unaudited Pro Forma Condensed
Consolidated Financial Information

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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES,
AND THE EOS BUSINESS OF RAYTHEON COMPANY

Notes to Unaudited Pro Forma Condensed Financial Information
 (dollar amounts in thousands)

1.   The unaudited pro forma condensed  consolidated financial statements of DRS
     Technologies,  Inc. and Subsidiaries (DRS) and the EOS Business of Raytheon
     Company (EOS  Business),  have been  prepared by combining  the  historical
     consolidated  financial  statements  of DRS with the  historical  financial
     statements of EOS Business.  The unaudited pro forma condensed consolidated
     financial  statements as of and for the six months ended September 30, 1998
     have been prepared combining the unaudited  historical financial statements
     of DRS and EOS  Business as of and for the six months ended  September  30,
     1998.  DRS prepares  consolidated  financial  statements  on the basis of a
     fiscal year ending March 31, whereas the historical financial statements of
     EOS  Business  have been  prepared on a calendar  year basis.  As permitted
     under United States  Securities  and Exchange  Commission  Regulation  S-X,
     Article 11, the pro forma condensed consolidated statement of earnings (the
     pro forma statement of earnings) for the year ended March 31, 1998 has been
     prepared by combining the  historical  financial  statements of DRS and EOS
     Business  on the  basis  of their  respective  historical  fiscal  periods.
     Therefore, the pro forma statement of earnings for the year ended March 31,
     1998 has been prepared using the consolidated  financial  statements of DRS
     as of and for the  fiscal  year ended  March 31,  1998,  together  with the
     financial  statements  of EOS  Business as of December 31, 1997 and for the
     year then ended. As a result,  the historical  financial  statements of EOS
     Business for the period  January 1, 1998 to March 31, 1998 are not included
in this pro forma presentation.                                       

     The pro forma financial statements also give effect to DRS's acquisition of
     the Applied Systems  Division of Spar Aerospace  Limited and Spar Aerospace
     (U.K) Limited, which took place on October 29, 1997 (the Spar Acquisition),
as if the Spar Acquisition had taken place effective April 1, 1997.   

     The pro forma  financial  statements  have not been  adjusted  for  certain
     operating   efficiencies   that  may  be   realized  as  a  result  of  the
acquisitions.                                                         

Spar Acquisition                                                                

2.   On October 29, 1997, DRS acquired, through certain of its subsidiaries, the
     net assets of the Applied  Systems  Division of Spar Aerospace  Limited,  a
     Canadian corporation (Spar Applied Systems),  and 100% of the stock of Spar
     Aerospace (U.K.) Limited, incorporated under the laws of England and Wales,
     pursuant to a Purchase  Agreement (the Agreement) dated as of September 19,
     1997,   between  DRS  and  Spar   Aerospace   Limited.   The  Company  paid
     approximately  $35.4  million  in cash  for  the  Spar  Acquisition  (which
     includes  $6.9  million  for  cash   acquired  in   connection   with  this
     transaction),  subject to certain working  capital  adjustments as provided
for in the Agreement.                                                 

     The Spar  Acquisition  was  accounted  for  using  the  purchase  method of
     accounting.   In  connection  with  the  Spar  Acquisition,   DRS  incurred
     professional fees and other costs of approximately $1.5 million, which were
     capitalized  as part of the total purchase  price.  The excess of cost over
     assets acquired and liabilities assumed was approximately $20.0 million and
     is being  amortized on a straight  line basis over 30 years.  The pro forma
     financial  statements  for the year ended March 31, 1998 reflect  increased
   amortization expense of $0.3 million resulting from the Spar Acquisition.

     The pro  forma  condensed  consolidated  statement  of  earnings  has  been
     adjusted to reflect the reversal of revenue  previously  recognized by Spar
     Applied  Systems in connection  with a certain  contract which was excluded
from the net assets acquired by DRS.                                  

3.   The adjustment to the provision for income taxes  represents the income tax
     effect of additional  amortization,  and reversal of revenue related to the
Spar Acquisition based on Canadian and UK effective tax rates.        

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EOS Acquisition                                                                 

4.   In an  agreement  dated  July 28,  1998 by and  between  Raytheon  Company,
     Raytheon Systems Georgia,  Inc., Raytheon TI Systems,  Inc.  (collectively,
     Raytheon) and DRS, DRS agreed to purchase certain assets and liabilities of
     the electro-optical  systems business of Raytheon.  The EOS Acquisition was
     consummated  on  October  20,  1998 for a  purchase  price of $45  million,
     subject  to post  closing  adjustments  of no more  than  $7  million.  For
     purposes of the pro forma financial statements, the pro forma balance sheet
     gives effect to the EOS  Acquisition  as if it had taken place on September
     30,  1998.  The pro forma  statements  of earnings  gives effect to the EOS
Acquisition as if it had taken place on April 1, 1997.                

     The EOS Business did not operate as a stand-alone business within Raytheon.
     Because  the EOS  Business  did not  operate on a  stand-alone  basis,  the
     historical financial statements do not include certain indirect expenses of
     the  EOS  Business  and  the  historical   financial   statements  are  not
     representative  of the complete  results of  operations of the EOS Business
for the periods presented.                                            

5.   The EOS  Acquisition  is being  accounted for using the purchase  method of
     accounting.  For purposes of the pro forma financial statements,  the total
     estimated purchase price is $53,500, consisting of the contractual purchase
     price of $45,000, the maximum post-closing adjustment of $7 million and the
     estimated costs of the acquisition. As of September 30, 1998, this purchase
     price  exceeds  the  estimated  fair  value  of  net  assets   acquired  of
     approximately  $37,857 (see also Note 8). The excess of the purchase  price
     over the net assets acquired results in goodwill which will be amortized by
     DRS on a straight line basis over 20 years. The pro forma balance sheet has
     been adjusted to reflect estimated  goodwill and the statements of earnings
     have been  adjusted  to reflect  amortization  expense of $782 for the year
     ended March 31, 1998 and $391 for the six months ended  September 30, 1998.
     The actual  purchase  price  will be  determined  upon  receipt by DRS of a
     closing date balance sheet, and the resulting purchase price could be up to
     $7,000 less than the amount used in the pro forma financial  statements.  A
     lower price would result in less goodwill and related amortization expense.

     DRS is in the process of  completing  its fair  valuation of the net assets
     acquired. As a result, the purchase price allocation has not been finalized
     and actual purchase price allocation may differ from that used for purposes
     of these pro forma  financial  statements.  The valuation could result in a
     different  portion of the  purchase  price being  allocated  to tangible or
     intangible assets,  including  acquired-in process research and development
     (IPR&D). The useful lives of such tangible or intangible assets could range
     from one to 20 years,  while IPR&D would be  expensed  immediately.  DRS is
     currently  unable  to  determine  the  potential  effect  on its  financial
     position and results of operations.  However, if the composite average life
     of these assets was 10 years,  the  amortization  expense would increase by
     $782  and  $391  for the  year and six  months  ended  March  31,  1998 and
     September  30,  1998,  respectively.  If the  composite  average life was 5
     years,  the  amortization  would  increase  by $2,346  and  $1,173  for the
     respective  periods  over  that  presented  in the  accompanying  pro forma
financial statements.                                                 

6.   In connection  with the EOS  Acquisition,  DRS entered into an amendment of
     its existing  credit  facility  whereby DRS obtained a $150 million secured
     credit  facility  (the  Borrowing)  consisting  of two  term  loans  in the
     aggregate  principal amount of $80 million and a $70 million revolving line
     of credit. The proceeds of the Borrowing at the date of the EOS Acquisition
     of $98,883  were used to repay the  balance of the debt  outstanding  under
     DRS's previous credit facility in the amount of $48,883 which had been used
to finance the Spar Acquisition and for general corporate purposes.   

     For accounting purposes, the amendment of the facility was accounted for as
     an  extinguishment  of debt and  therefore the  unamortized  balance of the
     deferred financing costs of the previous credit facility plus the fees paid
     to the lender in connection with the Borrowing resulted in an extraordinary
loss, net of related tax, of $2,415.                                  

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     The  pro  forma  balance  sheet  includes  an  adjustment  to  reflect  the
     additional bank borrowing of $50,000,  an assumed borrowing for the maximum
     post-closing  adjustment  of  $7  million,  the  write-off  of  unamortized
     deferred  financing costs of $833 and the after-tax effect on equity of the
     extraordinary   loss.  The  pro  forma   statements  of  earnings   include
     adjustments  for additional  interest  expense of $7,423 for the year ended
     March 31, 1998 and $2,767 for the six months ended  September 30, 1998, and
     include adjustments to reverse  amortization of deferred financing costs of
     $91  and $92 for the  year  ended  March  31,  1998  and six  months  ended
     September  30,  1998,   respectively.   The   extraordinary   loss  on  the
     extinguishment  of debt  is  excluded  from  the pro  forma  statements  of
earnings due to its non-recurring nature.                             

7.   Concurrent with the EOS  Acquisition,  DRS and Raytheon entered into master
     services  agreements  (the Master  Services  Agreements)  whereby  Raytheon
     agreed to provide and DRS agreed to purchase  various support  services and
     facilities for the EOS Business. Generally the cost to DRS will be the cost
     to Raytheon of labor,  out of pocket costs,  allocated  overhead,  and, for
     some  services,  an agreed-upon  fee. The pro forma  statements of earnings
     include adjustments for estimated costs associated with the Master Services
     Agreements  of $2,000 and $1,000 for the year ended  March 31, 1998 and six
months ended September 30, 1998, respectively.                        

8.   The EOS Business  recognized  revenues on certain contracts on a percentage
     completion  (cost-to-cost)  basis.  To be  consistent  with DRS  accounting
     policies,  revenue on these  contracts  would be recognized  based on units
     delivered.  The pro forma  statements of earnings  reflect  adjustments  to
     revenues  and cost of sales on these  contracts  and the pro forma  balance
     sheet reflects an adjustment to inventories for the carrying costs of these
contracts.                                                            

9.   The adjustment to the provision for income taxes  represents the income tax
     effect of an increase in interest  expense,  a reduction of amortization of
     deferred  financing  costs, an increase of amortization  related to the EOS
     Acquisition,  and the tax  effect of the  historical  direct  revenues  and
expenses of the EOS Business.                                         

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SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.                                          

                DRS TECHNOLOGIES, INC.
    Registrant

Date: January 4, 1999                                                           
             /s/  Nancy R. Pitek
                                         -------------------------------------
                  Nancy R. Pitek
                                         Vice President, Finance and Treasurer

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘8-K/A’ Filing		Date		First		Last			Other Filings
		12/31/00		13					10-Q
Filed on:		1/4/99		23
		11/4/98		2					8-K
For Period End:		10/20/98		1		21			8-K,  8-K/A
		10/8/98		4
		9/30/98		2		22			10-Q
		7/28/98		7		21
		3/31/98		2		22			10-K
		1/1/98		20
		12/31/97		2		20			10-Q
		12/17/97		11
		12/16/97		7		11
		10/29/97		16		20			8-K/A
		9/30/97		6					10-Q,  10-Q/A
		9/19/97		20
		7/11/97		7		11
		4/1/97		16		21
		1/1/97		11
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