DECISIONONE HOLDINGS CORP, 10-K, 1996-09-30

DECISIONONE HOLDINGS CORP
10-K, 1996-09-30
COMPUTER INTEGRATED SYSTEMS DESIGN

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30,1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 0-28090

DecisionOne Holdings Corp.

(exact name of registrant as specified in its charter)

Delaware 13-3435409
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

50 East Swedesford Road 19355
Frazer, Pennsylvania (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (610) 296-6000

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
- --------------------- ------------------------
None None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------------ -------------

The aggregate market value of the registrant's voting stock held by non-
affiliates, based upon the closing price of Common Stock on August 28, 1996, as
reported by the Nasdaq National Market System, was approximately $553,605,334.
In making such calculation, registrant is not making a determination of the
affiliate or non-affiliate status of any holders of shares of Common Stock.

At August 28, 1996, 27,338,535 shares of the registrant's Common Stock were
outstanding.

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

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Proxy Statement prepared in connection with its
1996 Annual Meeting of Stockholders (Part III)
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TABLE OF CONTENTS

Item No. Page
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PART I
<S> <C>
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . .

PART II

5. Market for Registrant's Common Equity and Related Stockholder Matters . . .
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . .
7. Management's Discussion and Analysis of Financial Condition and Results of.
Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . .
9. Changes in and Disagreements with Accountants on Accounting and Financial.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

10. Directors and Executive Officers of the Registrant . . . . . . . . . . .
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
12. Security Ownership of Certain Beneficial Owners and Management . . . . .
13. Certain Relationships and Related Transactions . . . . . . . . . . . . . .

PART IV

14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . .

</TABLE>
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PART I

Item 1. Business

General

DecisionOne is the largest independent (i.e., not affiliated with an
original equipment manufacturer ("OEM")) provider of multivendor computer
maintenance and technology support services in the United States, based on
Dataquest Incorporated ("Dataquest") estimates of 1995 revenues. The Company's
services include hardware support, user and software support, network support
and other support services. These services are offered by the Company across a
broad range of computing environments, including mainframes, midrange and
distributed systems, workgroups, personal computers ("PCs") and related
peripherals.

The Company has built an extensive infrastructure to provide its services,
with approximately 3,900 technical personnel located in over 150 service
locations in North America supplemented by strategic alliances in selected
international markets. This field force is supported by the Company's
proprietary service technologies, such as its International Support Information
System ("ISIS") database, its Field Inventory System ("FIS") and its Dispatch
Data Gathering ("DDG") system, which enable the Company to manage its extensive
inventory and technician network and provide support for over 15,000 hardware
products manufactured by more than 1,000 OEMs. The Company, through its three
customer support centers ("CSCs"), provides support for most major operating
systems and over 150 shrink-wrapped software applications.

DecisionOne markets its services through direct and indirect channels,
including a sales force of approximately 260 professionals. The Company also
works with OEMs, other computer service providers (e.g., systems integrators,
facilities management outsourcers and disaster recovery specialists) and
international support service providers to expand its marketing reach. The
Company provides its services to a diverse group of national and multinational
corporations, including American Airlines, Inc., Chevron Corp., General Electric
Company ("GE") and Netscape Communications Corporation ("Netscape"). The Company
also acts as a warranty or maintenance provider for equipment manufactured by
Compaq Computer Corporation ("Compaq"), Digital Equipment Corporation
("Digital"), International Business Machines Corporation ("IBM") and Sun
Microsystems, Inc. ("Sun"), among others.

Company History

Founded in 1969, the Company began operations as a provider of key punch
machines under the tradename "Decision Data". During the 1980s, its operations
expanded to include the sale of midrange computer hardware and related
maintenance services. During fiscal 1993, the Company decided to focus
principally on providing computer maintenance and support services and sold its
computer hardware products business.

From the beginning of fiscal 1993 through fiscal 1996, the Company has
established a major presence in the computer maintenance and technology support
services industry through the acquisition and integration of 27 complementary
businesses. The most significant of these were IDEA Servcom, Inc. ("Servcom"),
certain assets and liabilities of which were acquired in August 1994 for $29.5
million, and Bell Atlantic Business Systems Services ("BABSS") in October 1995
for approximately $250.0 million.

BABSS was established in the mid-1950s under the name Sorbus Inc. and was
acquired by Bell Atlantic Corporation in 1985. In January 1990, BABSS acquired
the assets of the third-party service business of Control Data Corporation
("CDC"), expanding its presence in the maintenance of large systems. After the
CDC acquisition, BABSS focused significant resources on the development of, and
experienced significant growth in, its customer and revenue bases, and by mid-
1995 had grown to be among the largest independent providers of multivendor
computer maintenance and technology support services in the United States.

The BABSS acquisition provided the Company with a major presence in the
servicing of large mainframe systems and in other service areas, such as
software and network support, in which the Company had not previously competed
in a significant fashion. Moreover, the acquisition further enhanced the
Company's presence in its

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traditional midrange business. As a result of the acquisition, BABSS became a
wholly-owned subsidiary of the Company and the name of the Company's principal
operating subsidiary was changed to DecisionOne Corporation.

Industry Background

As estimated by Dataquest, revenues in the United States hardware maintenance
and software asset support services industry were in excess of $39 billion in
1995. Independent, multivendor computer service providers' revenues accounted
for approximately $6 billion of this total. Within the independent, multivendor
segment, hardware maintenance was the dominant service, accounting for
approximately 73% of 1995 revenues. Technology support services, including
software support, network support and end-user training, comprised the remaining
27% of 1995 revenues.

Participants in this marketplace include (i) OEM service organizations, which
historically have had a significant market share, (ii) a small number of large
independent companies offering a broad range of service capabilities, and (iii)
hundreds of smaller independent companies, servicing either specific systems or
limited geographic areas of the United States. The significant market position
of OEMs is due largely to their traditional role of servicing their own
installed base of equipment.

Historically, large organizations satisfied information technology
requirements through mainframe or stand-alone midrange systems utilizing
hardware and software produced by a single OEM. Maintenance and support services
for these systems were usually provided directly by the OEMs or, in certain
instances, by an organization's in-house technical support staff. However, the
Company believes a number of developments have resulted in a movement by many
organizations away from this traditional reliance on OEMs or in-house technical
support staff towards independent providers of multivendor computer maintenance
and technology support services.

Computing environments have become increasingly complex and technology is
changing rapidly. A principal factor contributing to the complexity has been the
migration of organizations from a centralized environment characterized by
single vendor mainframe or stand-alone systems to a decentralized,
geographically diverse environment characterized by multivendor and multisystem
technologies. This has resulted in greater expense and substantial
inefficiencies for organizations in supporting their computer systems. Finally,
the overall increase in the sophistication and interdependency of computing
technology has made it more difficult for end-users to determine which system
component is at fault when a problem arises.

All of these factors have contributed to a significant increase in the
complexity of computer maintenance and technology support. This complexity has
frequently surpassed the abilities of both the in-house support staffs of
organizations and their vendor OEMs, resulting in an increased demand for a
single-source solution. Accordingly, many organizations are now choosing to
outsource their computer maintenance and technology support services needs to
multivendor providers of these services, resulting in a demand not only for
hardware maintenance services, but also complex software and network support and
end-user training.

The Company believes that, as the multivendor, multisystem environment becomes
more prevalent, organizations are becoming increasingly reluctant to outsource
their service needs to OEMs, which they may perceive as favoring the OEM's own
equipment and not providing as broad a range of multivendor services as do
independent providers such as the Company. Furthermore, in recent years, many
OEMs, particularly those without an extended history of providing technical
service, have focused on their core competencies and have outsourced their
service and support requirements.

Company Services

The Company provides a comprehensive array of services to customers across a
broad range of computing environments, including mainframes, midrange and
distributed systems, workgroups, PCs and related peripherals. The Company prices
its products and services on either a fixed fee or per incident basis. Pricing
is based on various factors including equipment failure rates, cost of spare
parts and labor expenses. The Company customizes its contracts to the individual
customer based generally on the nature of the customer's requirements, the term
of the contract and the combination of services that are provided. Services are
bundled to match the support requirements

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of customers and include hardware support, user and software support, network
support, management information services, program management, planning support
and ancillary support services.

Hardware Support

Hardware support services consist of remedial and preventive maintenance for
computers and computer peripheral devices as well as a variety of support
capabilities required to prepare a system for operation and improve its
efficiency. These support capabilities include support for system installation,
de-installation, moves, upgrades, reconfigurations, system configuration audits,
inventory tracking services and data restoration assistance.

The Company supports over 15,000 different hardware products manufactured by
more than 1,000 OEMs. It maintains and manages an inventory of over 2 million
parts representing more than 250,000 part numbers. The Company also has access
to a network of computer equipment vendors, brokers and highly skilled repair
suppliers, as well as 24-hour access to certain IBM Designated Parts Sales
Locations.

In addition to its on-site diagnostic tools, the Company uses industry and
proprietary software diagnostic capabilities to monitor system performance on a
remote basis. Also, large customers are provided remote, on-line access to
certain of the Company's systems to log service requests and track service
delivery.

The Company also repairs and refurbishes computer parts and assemblies at
seven depot repair centers in the United States. These services are provided not
only for service customers but also OEMs, distributors and other third-party
maintenance companies. Subassemblies repaired include system logic boards, hard
disk drive assemblies, peripherals, power supplies and related equipment. The
Company's depot repair facilities located in Malvern, Pennsylvania; Boston,
Massachusetts; Milwaukee, Wisconsin; and San Francisco, California are certified
to ISO-9002 standards.

The Company also provides logistics services, including the planning and
forecasting of parts requirements, parts sourcing, and parts inventory and
warranty management, for Compaq and other manufacturers.

User and Software Support

The Company's Customer Support Centers handle over 250,000 calls from
customers per month, including over 80,000 calls for help desk and software
support. Levels of support range from basic and network support for corporate
end-users to advanced operating system support for systems administrators.
Customized support also is available for vertical market applications and OEM
accounts. Operational services are available seven days per week, twenty-four
hours a day.

The Company currently provides support for PC/workstation operating systems
such as Windows 95(R), Windows(R), MS-DOS(R), and Sun Microsystems' Solaris(R),
as well as support on network operating systems such as Novell Netware(R) and
Windows NT(R). Groupware products like Lotus Notes and Internet browsers such as
Netscape also are fully supported. Additionally, over 100 PC software products
ranging from spreadsheets and word processing to communications and graphics are
supported, as are numerous on-line services.

Network Support

The Company provides support services for networked computing environments,
including management, administration, and operations support for both local area
networks ("LANs") and wide area networks ("WANs"). Network support services are
designed to reduce the cost of ownership of networked computing, improve
productivity of network users, and supplement customers' internal support
staffs. The Company provides both remote network management services and on-
site network services.

Remote network management services provide monitoring of fault and performance
data in customers' networks and problem resolution from the Company's network
management center.

The Company provides on-site network services to assist customers with network
administration, operations, and remedial support. Network specialists may be
resident at the customer site or dispatched as necessary.

Management Information

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As a result of its support activities, the Company accumulates information on
hardware, network and user performance which allows it to make service
improvement recommendations to customers. Management information services allow
customers to make informed decisions relating to hardware and software
procurements as well as the need for increased employee training. The Company
believes these services differentiate it from OEMs and software developers that
may favor their own products.

Program Management

The Company provides ongoing management services for companies that wish to
outsource all or a portion of their services management requirements. Typical
services include third-party vendor management, fixed asset management and
tracking, on-site personnel support and program evaluation.

Planning Support

The Company assists customers in defining their enterprise service
requirements, establishing service delivery benchmarks, recommending process
improvements and auditing the results of implemented programs over time. As a
result of these engagements, the Company has recently begun entering into shared
risk/shared reward agreements with certain customers where, in return for a
single-source relationship, the Company ties its compensation to the attainment
of customer service cost reductions and system availability goals.

Ancillary Support Services

In order to provide customers with comprehensive solutions, the Company
maintains strategic alliances with several significant companies. The Company
does not receive revenues for services provided by its strategic partners. Key
relationships include: General Electric Computer Leasing Corp., which provides
computer acquisition, disposition and financing services; SunGard Recovery
Services Inc., which provides disaster recovery services; and MicroAge, Inc.,
which supplies hardware products such as personal computers, peripherals,
network products and related devices.

International Business Partners

In order to provide international service to its multinational customers, the
Company supplements its broad North American infrastructure with strategic
alliances in selected international markets. The Company maintains relationships
with International Computers Limited ("ICL") and FBA Computer Technology
Services ("FBA"). The Company licenses many of its proprietary multivendor
support tools to FBA and to ICL Sorbus, which is ICL's multivendor services
group in Western Europe. As a result, the Company is able to offer its
multinational customers service in Western Europe, Asia and Australia.

ICL is a leading information technology company that has approximately 23,000
employees operating in about 80 countries around the world. In Western Europe,
the ICL Sorbus companies provide multivendor services in 17 countries with
approximately 250 service locations and about 5,000 employees. Several of the
Company's major customers, including American Airlines and E. I. du Pont de
Nemours & Company, Inc. benefit from the agreement between the Company and ICL
Sorbus, whereby ICL Sorbus agrees to provide services at the European locations
of the Company's multinational customers. The Company also utilizes ICL's other
service branches for worldwide multivendor support, including the Hong Kong
facility which manages services offerings to 18 countries throughout Asia, India
and the Pacific Rim.

FBA, an affiliate of Fujitsu Ltd., provides multivendor services in Australia
and New Zealand from 21 locations with 150 employees. In addition to providing
technical support to FBA, the Company has supplied various management and sales
support personnel to FBA. FBA also provides services to certain of the Company's
multinational customers, including Sun.

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Service Infrastructure

Centralized Dispatch

When a customer places a call for remedial maintenance, the Company uses its
DDG system to manage the process. When a customer is identified, the DDG system
displays the customer's service level requirements and covered equipment.
Specific information on the symptoms of the problem and the products that are
malfunctioning are entered into the system to begin tracking the service event.
The Company's Customer Support Representative ("CSR") selects, based upon the
requirements of the service event, the appropriate Customer Service Engineer
("CSE") from a list of pre-assigned primary and back-up personnel and passes
this information to the selected CSE.

The Company maintains three CSC's in Malvern, Pennsylvania; Bloomington,
Minnesota; and Austin, Texas. Customers can reach the CSCs by calling one toll-
free telephone number. The CSCs currently are staffed with over 260 CSRs and 17
staff/operations managers. There is a duty manager on call in each center at all
times. CSCs are available on a 24 hour, 7 day per week basis. Redundancy for
disaster recovery purposes is designed into the CSC system through the three
locations' use of automatic telecommunications switching.

Inventory Logistics

In order to meet customer computer repair requirements, the Company maintains
a tiered approach to inventory management. Parts or assemblies with low failure
rates or high costs are stocked in either the Company's central distribution
center located in Malvern, Pennsylvania or in its critical parts center in
Dallas, Texas. The Company also maintains six regional distribution centers in
Atlanta, Georgia; Newark, New Jersey; Los Angeles, California; San Francisco,
California; Chicago, Illinois; and Wilmington, Ohio for critical parts needed
more frequently throughout the United States. In order to service customers
whose response time requirements are two to four hours, higher usage parts are
maintained at the Company's branch offices or local Attended Stocking Locations.
Customer site parts storage is arranged when customer response time requirements
are two hours or less.

FIS is a real-time system which tracks the Company's inventory and repairable
spare parts assigned to its field workforce and located at seven distribution
centers, field offices or at customer sites. Parts information processed through
FIS is integrated with the Company's other key systems, including DDG and ISIS.

Service Technology

The Company has developed several proprietary technologies for use in service
planning, support and delivery. These service tools include proprietary
databases, remote diagnostic and system monitoring software, and instructional
documentation. These technical support tools not only provide remote and on-site
predictive and remedial service support, but also enable the Company to collect
extensive, objective systems performance measurement information (on the
customer's environment as well as benchmarking against the Company's database)
which its customers can use to identify potential efficiencies, evaluate
competing products and technologies, and determine whether its requirements are
being met.

The Company's proprietary service technologies include ISIS, SERVICE EDGE and
MAXwatch(R). The Company licenses certain of these technologies and provides
other technical support to certain foreign multivendor service providers,
including ICL Sorbus in Europe, FBA in Australia and New Zealand, and PT
Metrodata Electronics in Indonesia.

International Support Information Systems. ISIS is a database accessible to
the Company's customer service engineers that is comprised of diagnostic and
symptom fix data for thousands of products, service updates, and service
planning information, such as machine performance and parts usage information,
and remote support capabilities for large IBM systems, including automatic
"call home" to the Company. The Company believes that ISIS is the most
comprehensive service-related database of any independent computer service
organization.

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SERVICE EDGE. SERVICE EDGE is a PC-based system installed at the customer's
site which monitors error messages and collects and reports service data to help
customers predict potential system failures and provide customers with system
performance information.

MAXwatch(R). MAXwatch(R) is an on-site program for Digital products which
monitors system integrity, proactively detects and corrects certain system
errors, and automatically "calls home" for remote technical support when pre-
defined error thresholds are exceeded. A similar product, MAX400, is available
for IBM AS/400 systems.

Training

The Company maintains the technical expertise of its engineers through
training programs designed to teach the various techniques for determining the
status of a customer's total computer operations. The Company's training offers
support professionals a broad exposure to various computer system technologies.

The Company's training facilities include 26 classrooms, 23,000 square feet of
hands-on lab space, 26 full-time instructors and video specialists and a
curriculum of over 80 courses. The Company has five training centers and labs
located in Frazer, Pennsylvania; Malvern, Pennsylvania; Bloomington, Minnesota;
Milwaukee, Wisconsin; and Phoenix, Arizona. Six months following course work,
the Company surveys the engineers to gauge the effectiveness and applicability
of its training curriculum.

Sales and Marketing

The Company sells its services through both direct and indirect sales
channels. The Company's direct sales force consists of approximately 220 sales
professionals who are organized into a general commercial sales group as well as
into several dedicated groups including: a Federal Group, which sells to the
Federal Government; a National Accounts Group, which focuses on large and
multinational corporate customers; and a Telesales Group, which focuses on small
accounts.

The Company also sells its services through its indirect sales force comprised
of approximately 40 sales professionals. Product support relationships exist
with OEMs such as Sequent Computer Corporation, EMC/2 Corporation, Sun and
Compaq, and software developers such as Netscape, Novell, Inc., Microsoft
Corporation and SunSoft, Inc.

Customers

The Company services over 40,000 customers at over 130,000 sites across the
United States and Canada. The Company sells services to five types of customers:
large businesses that have complex computing support needs and typically
maintain a data center, distributed computing and work group environments;
medium-sized businesses that rely primarily on distributed systems for their
computing needs; small businesses that principally use LANs and WANs for
computing; individuals who use stand-alone computing systems; and OEMs and
software developers that contract with the Company for warranty services,
logistic support services or help desk support. A significant portion of the
Company's revenues are attributable to large businesses with complex computing
support needs.

Competition

Competition among computer support service providers, both OEM and independent
service organizations, is intense. The Company believes that approximately 80%
of that portion of the hardware maintenance services market that is related to
mainframes and stand-alone midrange systems is currently serviced by OEM service
organizations. In addition, the Company believes that OEM service organizations
provide a smaller, but still significant, portion of the computer maintenance
services related to distributed systems, workgroups and PCs. The remainder of
the market is serviced by a small number of larger, independent companies, such
as the Company, offering a broader range of service capabilities, as well as
numerous small companies focusing on narrower areas of expertise.

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The Company considers its principal competitors to include: IBM and its
affiliate Technology Service Solutions, Digital, the multivendor service
divisions of certain other OEMs, other national independent service
organizations that are not affiliated with OEMs such as Vanstar Corporation,
Entex Corporation and Stream International, Inc., and various regional service
providers.

The Company believes that the primary competitive factors in the computer
services industry are the quality of a company's services, the ability to
service a wide range of products supplied by a variety of vendors, the
geographic coverage of a company's services and the cost to the customer of
those services. The Company believes that customers are increasingly looking for
service providers capable of providing a single-source solution for their
increasingly complex multivendor systems.

See "Risk Factors--Competition; Competitive Advantages of OEMs".

EMPLOYEES

As of June 30, 1996, the Company had approximately 5,600 full-time and 50
part-time employees. None of the Company's employees is currently covered by
collective bargaining agreements. Management considers employee relations to be
good.

RISK FACTORS

Cautionary Statement Concerning Forward-Looking Statements

This Form 10-K contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include, without
limitation, those preceded by, followed by or that include the words "believes,"
"expects," "anticipates" or similar expressions. For such statements the Company
claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. The important
factors, discussed below, could cause actual results to differ materially from
those expressed in such forward-looking statements.

Contract-Based Revenue; Fixed Fee Contracts

As is customary in the computer services industry, the Company experiences
losses of its contract-based revenue as customers may, typically upon 30, 60 or
90-days notice, either cancel or elect not to renew their contracts with the
Company or eliminate certain equipment or services from coverage under the
contracts. Over 85% of the Company's revenues during the year ended June 30,
1996 were contract-based. The Company believes the principal reasons for the
loss of contract-based revenue are the replacement of the equipment being
serviced with new equipment covered under a manufacturer's warranty, the
discontinuance of the use of equipment being serviced for a customer due to
obsolescence or a customer's determination to utilize a competitor's services or
to move technical support services in-house. While the Company has been able to
maintain revenue growth through new contracts and acquisitions, there can be no
assurance it will continue to do so in the future.

Under many of the Company's contracts, the customer pays a fixed fee for
customized bundled services which are priced by the Company based on its best
estimates of various factors, including estimated future equipment failure
rates, cost of spare parts and labor expenses. While the Company believes it has
historically been able to estimate these factors accurately enough to be able to
price these fixed-fee contracts on terms favorable to the Company, there can be
no assurance the Company will be able to continue to do so in the future.

Management and Funding of Growth

Any future growth of the Company will require the Company to manage its
expanding domestic operations and international affiliations and to adapt its
operational systems to respond to changes in the business environment, while
maintaining a competitive cost structure. The BABSS acquisition and the
expansion of the Company's service offerings have placed and will continue to
place significant demands on the Company and its management to improve the
Company's operational, financial and management information systems, to develop
further the management skills of the Company's managers and supervisors, and to
continue to train, motivate and effectively

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manage the Company's employees. The failure of the Company to manage its prior
or any future growth effectively could have a material adverse effect on the
Company.

Additionally, the Company's ability to maintain and increase its revenue base
and to respond to shifts in customer demand and changes in industry trends will
be partially dependent on its ability to generate sufficient cash flow or obtain
sufficient capital for the purpose of, among other things, financing
acquisitions, satisfying customer contractual requirements and financing
infrastructure growth, including a significant investment in repairable spare
parts, which are classified as non-current assets. There can be no assurance
the Company will be able to generate sufficient cash flow or that outside
financing will be available on acceptable terms to fund the Company's future
growth.

Competition; Competitive Advantages of OEMs

Competition among computer support service providers, both OEM and independent
service organizations, is intense. The Company believes approximately 80% of
that portion of industry hardware maintenance services related to mainframes and
stand-alone midrange systems is currently serviced by OEM service organizations.
In addition, the Company believes that OEM service organizations provide a
smaller, but still significant, portion of the computer maintenance services
related to distributed systems, workgroups and PCs. The remainder of the market
is serviced by a small number of larger, independent companies, such as the
Company, offering a broader range of service capabilities, as well as numerous
small companies focusing on narrower areas of expertise or serving limited
geographic areas.

In most instances, OEM service organizations have greater resources than the
Company, and, because of their access to the OEM's engineering data, may be able
to respond more quickly to servicing equipment that incorporates new or emerging
technologies. Moreover, some OEMs, especially in the mainframe environment, do
not make available to end-users or independent service organizations the
technical information, spare parts, diagnostics, engineering changes and other
support items required to service their products, and design and sell their
products in a manner so as to make it virtually impossible for a third party to
perform maintenance services without potentially infringing upon certain
proprietary rights of the OEM. See "--Inventory Management" and "--Copyright
Issues." Therefore, OEM service organizations sometimes have a cost and timing
advantage over the Company because the Company must first develop or acquire
from another party the required support items before the Company can provide
services for that equipment. An OEM's cost advantage, the unavailability of
required support items or various proprietary rights of the OEM may preclude the
Company from servicing certain products.

In June 1994, IBM filed in the United States District Court for the Southern
District of New York a motion to terminate a 1956 consent decree (the "IBM
Consent Decree") that, among other things, requires IBM to provide spare parts,
documentation and other support items for IBM electronic data processing systems
to third parties on reasonable terms and places other restrictions on IBM's
conduct. On January 18, 1996, the Court entered an order approving a
modification of the IBM Consent Decree that, among other things, terminated the
IBM Consent Decree except insofar as it applies to the System 360/370/390
(mainframes) and AS/400 (midrange) families of IBM products. In July 1996, IBM
and the U.S. Department of Justice ("DOJ") reached an agreement in tentative
settlement of the remainder of IBM's motion (the "Proposed Settlement"). The
Proposed Settlement is subject to approval by the Court after a public comment
period. Moreover, each of IBM and DOJ reserves the right to withdraw consent to
the Proposed Settlement at any time until final approval by the Court. Under the
terms of the Proposed Settlement, certain of the remaining provisions of the IBM
Consent Decree (primarily relating to sales and marketing restrictions on IBM)
would terminate either immediately upon, or within six months of, entry of an
order by the Court approving the Proposed Settlement; all of the other remaining
provisions (including those requiring IBM to provide parts and other support
items to third parties) would terminate on July 2, 2000 with respect to AS/400
systems and on July 2, 2001 with respect to System 360/370/390 mainframes. The
impact, if any, upon the Company if such sales and marketing restrictions are
terminated is impossible to predict because it depends upon what changes, if
any, IBM would make in its sales and marketing policies and practices. If the
remaining provisions of the IBM Consent Decree are terminated as to mainframe
and midrange products, the Company's ability to service these products may be
adversely affected. Furthermore, as the Company's business is highly dependent
upon its ability to service a wide variety of equipment in a multivendor
environment (See "--Dependence on Computer Industry Trends"), the inability to
compete effectively for the service of IBM mainframes and midrange products
could cause the loss of a
8
<PAGE>

substantial portion of the Company's customer base to IBM or an IBM affiliate,
which would have a material adverse effect on the Company's business.

Acquisition Growth Strategy

The Company has historically pursued an aggressive acquisition strategy,
acquiring 27 complementary businesses from the beginning of fiscal 1993 through
June 30, 1996. The Company expects to continue to evaluate acquisitions that can
provide meaningful benefits by expanding the Company's hardware maintenance and
technology support capabilities and leveraging its existing infrastructure.
However, there are various risks associated with pursuing an acquisition
strategy of this nature. The risks include problems inherent in integrating new
businesses, including potential loss of customers and key personnel and
potential disruption of operations. There can be no assurance that suitable
acquisition candidates will be available, that acquisitions can be completed on
reasonable terms, that the Company will successfully integrate the operations of
any acquired entities or that the Company will have access to adequate funds to
effect any desired acquisitions. See "--Management and Funding of Growth" and
"Dependence on Computer Industry Trends".

Inventory Management

In order to service its customers, the Company is required to maintain a high
level of inventory for extended periods of time. While the Company believes it
has maintained sufficient reserves for inventory obsolescence, any decrease in
the demand for the Company's maintenance services could result in a substantial
portion of the Company's inventory becoming excess, obsolete or otherwise
unusable. In addition, rapid changes in technology could render significant
portions of the Company's inventory obsolete, thereby giving rise to inventory
write-offs and a reduction in profitability. The inability of the Company to
manage its inventory or the need to write off inventory in the future could have
a material adverse effect on the Company's business, financial results and
results of operations.

Inventory purchases are made from OEMs and other vendors. The Company
typically has more than a single source of supply for each part and component,
but from time to time it will have only a single supplier for a particular part.
In some cases, the Company's OEM customer may be the only source of supply for a
repair part or component. Should a supplier be unwilling or unable to supply any
part or component in a timely manner, the Company's business could be adversely
affected. In addition, the Company is dependent upon IBM for obtaining certain
parts that are critical to the maintenance of certain IBM mainframe and midrange
systems that IBM is currently required to make available to third parties
pursuant to the IBM Consent Decree. There can no assurance that the IBM Consent
Decree will continue in effect in a manner that will require IBM to make these
parts available (See "--Competition; Competitive Advantages of OEMs"). Even if
such parts or components are available, a shortage of supply could result in an
increase in procurement costs which, if not passed on to the customer, may
adversely affect the Company's profitability.

In connection with the Company's performance of most hardware maintenance, the
computer system which is being serviced must be turned on for the purpose of
service or repair. When the computer is turned on, the resident operating system
software and, in some cases diagnostic software, is transferred from a
peripheral storage device or a hard disk drive into the computer's random access
memory. Within the past several years, several OEMs have been involved in
litigation with independent service organizations, including the Company, in
which they have claimed such transfer constitutes the making of an unauthorized
''copy'' of such software by the independent service organization which
infringes on the software copyrights held by the OEMs. The Company is aware of
three cases in this area which have been decided in favor of the OEM. Although
the Company was not a party in any of these cases, three similar claims have
been asserted against the Company, each of which has been resolved. Litigation
of this nature can be time consuming and expensive, and there can be no
assurance the Company will not be a party to similar litigation in the future,
or that such litigation would be resolved on terms that do not have a material
adverse effect on the Company.

9
<PAGE>

Certain proposed amendments to the copyright laws that are pending in Congress
would, if enacted, limit manufacturers' ability to make copyright claims similar
to those of the OEMs mentioned above with respect to the transfer of operating
system software into random access memory. However, there can be no assurance
such legislation will be adopted.

Dependence on Computer Industry Trends

The Company's future success is dependent upon the continuation of a number of
trends in the computer industry, including the migration by information
technology end-users to multivendor and multisystem computing environments, the
overall increase in the sophistication and interdependency of computing
technology, and a focus by information technology managers on cost-efficient
management. The Company believes these trends have resulted in a movement by
both end-users and OEMs towards outsourcing and an increased demand for support
service providers that have the ability to provide a broad range of multivendor
support services. There can be no assurance these trends will continue into the
future.

Additionally, rapid technological change and compressed product life cycles
which may lead to the development of improved or lower cost technologies, higher
quality hardware with significantly reduced failure rates and maintenance needs,
or customer decisions to replace rather than continue to maintain aging
hardware, could result in a reduced need for the Company's services in the
future. Moreover, such rapid technological changes could adversely affect the
Company's ability to predict equipment failure rates, and, therefore, to
establish prices that provide adequate profitability.

Dependence on Key Personnel

The Company's continued success depends, to a large extent, upon the efforts
and abilities of key managerial employees, particularly the Company's executive
officers. See "Item 10--Directors and Executive Officers of the Registrant".
Competition for qualified management personnel in the industry is intense. The
loss of the services of certain of these key employees or the failure to retain
qualified employees when needed could have a material adverse effect on the
Company's business. The Company does not maintain key man insurance.

Item 2. Properties

The Company leases certain office and warehouse facilities under operating
leases and subleases that expire at various dates through November 30, 2005. The
Company's executive offices are located at the Frazer, Pennsylvania facilities
listed below. The principal facilities currently leased or subleased by the
Company are as follows:

Square
Location Footage Lease Expiration
-------------------------------------------- ------- ----------------
<S> <C> <C>
Frazer, Pennsylvania (Office)............... 109,800 November 2005
Frazer, Pennsylvania (Office)............... 35,968 April 2003
Malvern, Pennsylvania (Depot/Call Center)... 200,000 May 2000
Horsham, Pennsylvania (Warehouse)........... 100,000 December 1999
Bloomington, Minnesota (Call Center)........ 66,000 March 1998
Hayward, California (Depot)................. 91,000 June 1997
Northborough, Massachusetts (Depot)......... 52,778 July 1998
</TABLE>

The Company's management believes that its current facilities will be adequate
to meet its projected growth for at least the next several years.

10
<PAGE>

Item 3. Legal Proceedings

The Company is a party, from time to time, to lawsuits arising in the ordinary
course of business. The Company believes it is not currently a party to any
material legal proceedings. However, within the past several years, several OEMs
have been involved in litigation with independent service organizations,
including the Company, in which such OEMs have claimed infringement of software
copyrights held by the OEMs. The Company currently is not involved in any such
litigation. See "Risk Factors--Copyright Issues."

The Company, or certain businesses as to which it is alleged that the Company
is a successor, have been identified as potentially responsible parties in
respect of three waste disposal sites that have been identified by the United
States Environmental Protection Agency as Superfund Sites: (i) PAS Irwin Dump
Site, Oswego, New York (and six satellite sites, including the Fulton Terminals
Site, Fulton, New York); (ii) North Penn Area 6 Site, Lansdale, Pennsylvania;
and (iii) Revere Chemical Site, Nockamixon, Pennsylvania. In addition, the
Company received a notice several years ago that it may be a potentially
responsible party with respect to the Boarhead Farms Site, Bridgeton,
Pennsylvania, at a site related to the Revere Chemical site, but has not
received any additional communication with respect to that site. Under
applicable law, all parties responsible for disposal of hazardous substances at
those sites are jointly and severally liable for clean-up costs. The Company has
estimated that its share of the costs of the clean-up of one of the sites will
be approximately $500,000, which has been provided for in liabilities related to
the discontinued products division in the accompanying consolidated balance
sheets as of June 30, 1996, 1995 and 1994. Complete information as to the scope
of required clean-up at these sites is not yet available and, therefore,
management's evaluation may be affected as further information becomes
available. However, in light of information currently available to management,
including information regarding assessments of the sites to date and the nature
of involvement of the Company's predecessor at the sites, it is management's
opinion that the Company's share, if any, of the cost of clean-up of these sites
will not be material to the consolidated financial position, results of
operations or liquidity of the Company. See Note 18 of the Notes to the
Company's Consolidated Financial Statements.

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

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.

11
<PAGE>

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The common stock of DecisionOne Holdings Corp. trades on the Nasdaq National
Market System, under the symbol "DOCI". As of September 23, 1996, there were
approximately 1,700 stockholders of record.

The Company has not declared or paid cash dividends on its Common Stock during
its last five fiscal years. The Company currently intends to retain any future
earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future.

The Company's common stock began trading on April 4, 1996. High and low
trade prices, as reported on the Nasdaq National Market System, for the period
April 4, 1996 to June 30, 1996 were $29 3/4 and $19 1/2, respectively.

Item 6. Selected Financial Data

The following selected consolidated financial data sets forth, for the periods
and the dates indicated, selected consolidated financial data of the Company,
derived from the historical consolidated financial statements of the Company.
The consolidated financial data of the Company for the years ended June 30,
1994, 1995 and 1996 and as of June 30, 1995 and 1996 are derived from the
Company's audited consolidated financial statements included elsewhere herein.
The information set forth below is qualified by reference to and should be read
in conjunction with the Company's Consolidated Financial Statements and Notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".

Years Ended June 30,
------------------------------------------
The Company 1992 1993 1994 1995 1996
- ----------- ---------- ---------- ---------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>

Statement of Operations Data:(1)
Revenues................................ $112,773 $114,060 $108,416 $163,020 $540,191
Income (loss) before discontinued
operations and extraordinary item...... 1,441 (5,234) 10,112 41,415 20,789
Net income (loss) (2)................... 2,524 (10,590) 10,112 42,528 18,862
Income Per Share Data: (3)
Primary income (loss) per common share:
Continuing operations.................. $ 0.11 $ (0.25) $ 0.45 $ 1.81 $ 0.83
Net income (loss)....................... 0.19 (0.50) 0.45 1.86 0.75
Fully diluted income (loss) per common
share:
Continuing operations.................. 0.11 (0.25) 0.45 1.79 0.82
Net income (loss)....................... 0.19 (0.50) 0.45 1.84 0.74
Balance Sheet Data:
Inventory............................... $ 14,787 $ 7,146 $ 4,459 $ 4,024 $ 30,130
Repairable parts inventory.............. 19,657 13,545 9,473 27,360 154,970
Total assets............................ 84,846 44,721 35,496 135,553 514,510
Long-term debt, less current portion.... 60,175 44,769 2,366 6,157 188,582
Redeemable preferred stock.............. -- -- 6,436 6,811 --
Total stockholders' equity (deficiency). (47,477) (58,146) (27,627) 14,677 180,793
</TABLE>

(1) The Selected Financial Data presented includes the results of operations and
balance sheet data of the Company, including the following significant
acquisitions: Servcom from September 1, 1994 and BABSS from October 20,
1995.

12
<PAGE>

(2) The years ended June 30, 1992 through 1994 include income taxes based on an
effective tax rate substantially less than the 40% effective tax rate used
for the year ended June 30, 1996. The year ended June 30, 1995 includes a
$23.1 million net benefit arising from the recognition of future tax
benefits of tax loss carryforwards and temporary timing differences.
(3) Primary and fully diluted income per share data for all periods presented
reflects the automatic conversion of the Redeemable Preferred Stock into an
aggregate of 11,271,941 shares of Common Stock which occurred upon
completion of the Company's initial public offering of Common Stock ("IPO").

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

The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements including the notes thereto, included in Item
9 herein.

This discussion contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."

Company History

From the beginning of fiscal 1993 through fiscal 1996, the Company established
a major presence in the computer maintenance and technology support services
industry through the acquisition and integration of 27 complementary businesses.
The most significant of these were IDEA Servcom, Inc. ("Servcom"), certain
assets and liabilities of which were acquired in August 1994 for $29.5 million,
and Bell Atlantic Business Systems Services ("BABSS") in October 1995 for
approximately $250.0 million.

On October 20, 1995, the Company completed its acquisition of BABSS, for
approximately $250 million. At the time of the acquisition, BABSS was among the
largest independent service organizations servicing end-user organizations and
OEMs. Prior to the acquisition of BABSS, the Company had higher gross margins
than BABSS principally because approximately 30% of the Company's revenues in
fiscal 1995 were attributable to higher margin contracts involving systems that
can be serviced by only a limited number of service providers ("proprietary
systems"), whereas BABSS had no revenues from such systems.

The Company's primary source of revenue is from contracted services for
multivendor computer maintenance and technology support services, including
hardware support, user and software support, network support and other support
services. Approximately 70% of the Company's revenues during the last fiscal
year were derived from maintenance contracts for post-warranty service covering
a broad spectrum of computer hardware. These contracts typically have a
stipulated monthly fee over a fixed initial term (e.g., one year) and continue
thereafter unless canceled by either party. In addition, the Company enters into
per incident arrangements with its customers. Per incident contracts can cover a
range of bundled services for computer maintenance or support services or for a

13
<PAGE>

specific service, e.g., network support or equipment relocation services.
Another form of per incident service revenues includes time and material
billings for ad hoc services, principally maintenance and repair, provided by
the Company. Furthermore, the Company derives other revenues from the repair of
hardware and components at the Company's logistics services and depot repair
facilities. Pricing of the Company's services is based on various factors
including equipment failure rates, cost of spare parts and labor expenses. The
Company customizes its contracts to the individual customer based generally on
the nature of the customer's requirements, the term of the contract and the
services that are provided.

The Company experiences revenue growth from two principal sources: internally
generated sales from its direct sales force and the acquisition of contracts and
businesses of other service providers. The Company experiences loss of revenue
under contract when customers replace contract-based equipment being serviced
with new equipment covered under a manufacturer's warranty, discontinue the use
of equipment being serviced due to obsolescence, choose to use a competitor's
services or move technical support services in-house.

Cost of revenues is comprised principally of personnel-related costs
(including fringe benefits), inventory cost recognition, amortization of spare
parts and facilities costs and related expenses.

The acquisition of contracts and businesses has generally provided the Company
with an opportunity to realize economies of scale because the Company does not
increase its costs related to facilities and personnel in the same proportion as
increases in acquired revenues.

Results of Operations

This discussion of results of operations is presented for the Company for the
fiscal years ended June 30, 1996, 1995 and 1994. The results of operations of
the Company include the operations of BABSS from October 20, 1995 and Servcom
from September 1, 1994.

The following table sets forth, for the periods indicated, certain operating
data as a percentage of revenues:

Fiscal years ended June 30,
---------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Revenues................................ 100.0% 100.0% 100.0%
Cost of revenues........................ 74.5 69.6 71.0
----- ----- -----
Gross profit.......................... 25.5 30.4 29.0
Selling, general and administrative
expenses.............................. 12.8 13.5 15.2
Amortization and write-off of
intangibles........................... 2.9 4.2 5.0
Provision (credit) for unused leases.... - - (5.9)
Restructuring expense................... 0.7 - -
----- ----- -----
Total operating expenses................ 16.4 17.7 14.3
----- ----- -----
Operating income...................... 9.1 12.7 14.7
Interest expense........................ 2.7 1.5 4.5
Provision (benefit) for income taxes.... 2.6 (14.2) 0.9
Gain from discontinued operations....... - (0.7) -
Extraordinary item - early
extinguishment of debt................ 0.3 - -
----- ----- -----
Net income............................ 3.5% 26.1% 9.3%
===== ===== =====
</TABLE>

Fiscal 1996 compared to fiscal 1995

Revenues: Revenues increased by $377.2 million, or 231.4%, from $163.0
million for the fiscal year ended June 30, 1995 to $540.2 million for the fiscal
year ended June 30, 1996. The increase is largely a result of acquisitions,
principally the BABSS acquisition in October 1995 which accounted for
approximately $350 million of the increase.

14
<PAGE>

Gross profit: Gross profit increased by $88.4 million, or 178.6%, from $49.5
million during the fiscal year ended June 30, 1995 to $137.9 million for the
fiscal year ended June 30, 1996. As a percentage of revenues, gross profit
decreased from 30.4% to 25.5%, reflecting the change in mix of services
resulting from the acquisition of BABSS. As a result of that acquisition, a
smaller portion of revenues was derived from proprietary systems which typically
generate higher profit margins than services for non-proprietary systems.

Selling, general and administrative expenses: Selling, general and
administrative expenses increased by $47.2 million, from $22.0 million for the
fiscal year ended June 30, 1995 to $69.2 million for the fiscal year ended June
30, 1996, principally as a result of the additional expenses relating to the
revenue growth discussed above. As a percentage of revenues, selling, general
and administrative decreased from 13.5% to 12.8%, respectively, reflecting
economies of scale.

Amortization and write-off of intangibles: Amortization of intangibles
increased by $8.9 million, from $6.8 million for the fiscal year ended June 30,
1995 to $15.7 million for the fiscal year ended June 30, 1996, principally due
to the amortization of intangibles arising from the BABSS acquisition.

Restructuring expense: During fiscal 1996, the Company recorded $3.6 million
(net of adjustments recording during the year) in restructuring costs. These
costs were related principally to future rent obligations and related costs for
facilities of the Company that the Company determined were no longer required as
a result of the acquisition of BABSS.

Interest expense: Interest expense increased by $12.2 million, from $2.5
million for the fiscal year ended June 30, 1995 to $14.7 million for the fiscal
year ended June 30, 1996, principally as a result of the indebtedness incurred
to finance the acquisition of BABSS. See Note 10 of the Notes to the Company's
Consolidated Financial Statements.

Provision for income taxes: The income tax provision for the fiscal year
ended June 30, 1996 was based on an effective tax rate of approximately 40%.
For the fiscal year ended June 30, 1995, the Company reported an income tax
benefit equivalent of approximately 126%, arising primarily from the recognition
of future tax benefits of tax loss carry-forwards and temporary timing
differences. See Note 11 of the Notes to the Company's Consolidated Financial
Statements.

Extraordinary item - early extinguishment of debt: Upon consummation of its
IPO in April 1996, the Company was required to pay the total outstanding
principal amount of its $30 million of 10.101% subordinated debentures due
October 20, 2001. This prepayment resulted in the write-off of unamortized
original issue discount of approximately $1.9 million, net of income tax effect
of $1.3 million, related to warrants issued with the debentures.

Fiscal 1995 compared to fiscal 1994

Revenues: Revenues increased by $54.6 million, or 50.4%, from $108.4 million
for fiscal 1994 to $163.0 million for fiscal 1995. The increase principally
reflected the benefit throughout the period of the Company's acquisition of
certain assets and liabilities of Servcom in August 1994. Servcom had a monthly
revenue base of approximately $5 million at the time of the acquisition.

Gross profit: Gross profit increased by $18.1 million, or 57.6%, from $31.4
million in fiscal 1994 to $49.5 million in fiscal 1995. As a percentage of
revenues, gross profit increased from 29.0% to 30.4%, principally as a result of
increased revenues from service contracts without a proportionate increase in
personnel costs.

Selling, general and administrative: Selling, general and administrative
expenses increased by $5.5 million, from $16.5 million in fiscal 1994 to $22.0
million in fiscal 1995. The increase is related predominantly to the Servcom
acquisition, which required additional administrative and selling support for
the Servcom customer contracts. As a percentage of revenues, selling, general
and administrative expenses decreased from 15.2% to 13.5%, due to economies of
scale.

15
<PAGE>

Amortization and write-off of intangibles: Amortization of intangibles
increased by $1.4 million, from $5.4 million in fiscal 1994 to $6.8 million in
fiscal 1995. The amortization in fiscal 1994 included a $2.9 million write-off
of intangibles relating to acquisitions in prior years. Furthermore,
amortization of intangibles arising from acquisitions made in 1991 and 1992
ended during fiscal 1994, offsetting, in part, the additional amortization of
intangibles recorded during fiscal 1995 as a result of the August 1994
acquisition of Servcom.

Credit for unused leases: During fiscal 1994, the Company recorded a benefit
of $6.4 million arising from the settlement of lease obligations for facilities
no longer used in the Company's business, which obligations had previously been
accrued in fiscal 1993. During fiscal 1995, there were no comparable lease
settlements.

Interest expense: Interest expense decreased $2.3 million, from $4.8 million
in fiscal 1994 to $2.5 million in fiscal 1995, due to the 1994 Financial
Restructuring (see Note 10 of the Notes to the Company's Consolidated Financial
Statements) and a decrease in the prevailing interest rates on bank loans.

Income taxes: During fiscal 1995, the Company recorded a $23.1 million
income tax benefit related to the expected utilization of tax loss carryforwards
(which is net of a $10 million offsetting charge for potential limitations on
their use) and the future tax benefit of other deductible temporary differences.
As of June 30, 1995, based on its ability to generate taxable income, the
Company recorded the appropriate deferred taxes. See Note 11 of the Notes to
the Company's Consolidated Financial Statements. The effective tax rate in 1994
was approximately 9.2%, which resulted from application of alternative minimum
income tax and state taxes.

Discontinued operations: During fiscal 1995, the Company revised its
estimates of certain accruals created as a result of the disposal of its
computer products division during fiscal 1993. The reversal of certain accruals
resulted in $1.1 million in additional net income in fiscal 1995. See Note 3 of
the Notes to the Company's Consolidated Financial Statements.

Limitation on Use of Net Operating Loss and Other Tax Credit Carryforwards

At June 30, 1996, the Company had tax loss carryforwards of approximately
$38.1 million, which expire between 2002 and 2009, and other tax credits of
approximately $1.1 million, available indefinitely, for federal income tax
purposes. The Company believes that the IPO may have caused an "ownership
change" pursuant to applicable regulations in effect under Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the Company
therefore estimates that the use of these tax loss carryforwards and other tax
credits will be limited during any future period subsequent to June 30, 1996 to
approximately $20.0 million per annum.

Liquidity and Capital Resources

Until its IPO in April 1996, the Company's principal sources of capital had
been borrowings from banks, private placements of equity and debt securities
with principal stockholders and cash flow generated by operations.

The Company has relied on banks as the primary source of funds required for
larger acquisitions, such as the August 1994 acquisition of certain assets and
liabilities of Servcom and the October 1995 acquisition of BABSS. The Company's
smaller acquisitions since July 1993 have been funded largely through a
combination of seller financing and cash.

As stated above, in fiscal 1994, the Company initiated the 1994 Financial
Restructuring. Prior to the 1994 Financial Restructuring, the Company was not in
default on any of its debt instruments. However, the payment-in-kind provisions
that permitted the Company to pay in full its obligations under the Company's
14.5% Senior Subordinated Notes and 13.5% Junior Subordinated Notes by issuance
of additional notes were scheduled to expire. The Company would not have had
sufficient cash flow to satisfy its obligations under the notes, and the 1994
Restructuring was completed to reduce the Company's debt service obligations and
avoid defaulting under the subordinated notes. See Notes 10 and 14 of the Notes
to the Company's Consolidated Financial Statements.

In October 1995, the Company used a combination of bank financing and private
placements to finance the approximately $250 million acquisition of BABSS and to
repay existing bank debt of $31.5 million. The Company borrowed $230.0 million
from banks, and obtained an additional $30 million from the private placement of
Series C

16
<PAGE>

Preferred Stock and $30.0 million from the issuance of the 10.101% subordinated
notes due 2002. See Note 10 of the Notes to the Company's Consolidated Financial
Statements. In addition, the banks provided the Company with the $30.0 million
1995 Revolving Credit Facility.

In April 1996, the Company completed an initial public offering raising $106
million through the issuance of 6.3 million shares of common stock. The Company
used the proceeds to repay approximately $70 million of the 1995 Term Loan and
$30 million of the 10.101% subordinated notes due 2001. Concurrent with the
IPO, the Company's Preferred Stock (Series A, B and C) were converted into
common stock in accordance with the terms of each series.

In April 1996 the Company converted the 1995 Term Loan and the existing $30
million Revolving Credit Facility into a $225 million variable rate, unsecured
revolving credit facility ("the 1996 Revolving Credit Facility"). The 1996
Revolving Credit Facility bears interest at floating rates, based either on the
LIBOR or prime rate, in either case plus an applicable margin, at the Company's
option. As of June 30, 1996, the applicable rate was LIBOR plus 0.75%, or
6.32%. To offset the variable rate characteristic of the borrowings, the
Company has entered into interest rate swap agreements resulting in fixed
Eurodollar interest rates of 5.4% on $40.0 million through December 1997 and
5.5% on another $40.0 million through December 1998, thereby leaving
approximately $100 million subject to floating rates under the 1996 Revolving
Credit Facility. See Notes 1 and 10 of the Notes to the Company's Consolidated
Financial Statements.

The borrower under the 1996 Revolving Credit Facility is the Company's primary
operating subsidiary, DecisionOne Corporation. Repayment of the debt is
guaranteed by the Company and its other subsidiaries, except for its Canadian
subsidiary.

As of June 30, 1996, the Company had available borrowings under the 1996
Revolving Credit Facility of $35.1 million.

The Company, or certain businesses as to which it is alleged that the Company
is a successor, have been identified as potentially responsible parties in
respect of three waste disposal sites that have been identified by the U.S.
Environmental Protection Agency as Superfund sites. In addition, the Company
received a notice several years ago that it may be a potentially responsible
party in respect of a fourth, related site, but has not received any other
communication in respect of that site. The Company has estimated that its share
of the costs of the clean-up of one of the sites will be approximately $500,000,
which has been provided for in liabilities related to the discontinued products
division in the accompanying consolidated balance sheets as of June 30, 1996,
and 1995. Complete information as to the scope of required clean-up at these
sites is not yet available and, therefore, management's evaluation may be
affected as further information becomes available. However, in light of
information currently available to management, including information regarding
assessments of the sites to date and the nature of involvement of the Company's
predecessor at the sites, it is management's opinion that the Company's share,
if any, of the cost of clean-up of these sites will not be material to the
consolidated financial position, results of operations or liquidity of the
Company. See Note 18 of the Notes to the Company's Consolidated Financial
Statements.

In fiscal years 1996, 1995, and 1994, the Company generated net cash flow from
operating activities of $51.9 million, $38.4 million, and $28.7 million,
respectively. Cash required to fund the purchase of spare parts and for capital
expenditures totaled $70.8 million, $14.9 million and $2.2 million, during
fiscal 1996, 1995 and 1994, respectively. At June 30, 1996 the Company had no
material commitments for purchases of spare parts or capital expenditures.

The allowance for uncollectible accounts at June 30, 1996 and 1995 amounted to
9.4% and 19.2% of trade receivables, respectively, because of the Company's
write-off experience with respect to accounts receivable obtained by
acquisition and the potential offset against an OEM's trade receivable in
respect of unreturned unused and replaced parts.

The Company maintains a significant inventory of expendable and repairable
spare parts. Expendable parts are expensed as they are used in the operations of
the business. Repairable spare parts are recorded at cost at the time of

17
<PAGE>

their acquisition and amortized over five years. The Company maintains a high
level of inventories due to the wide range of products serviced, ranging from
mainframe to personal computers.

The Company provides for obsolescence when accounting for expendable
inventories and reviews obsolescence as it applies to its repairable spare
parts. The Company believes it has provided adequate reserves for obsolescence
for expendable inventories. The Company believes that accumulated amortization
on repairable spare parts renders the need for an obsolescence reserve with
respect to repairable spare parts unnecessary.

At June 30, 1996, the Company's debt-to-equity ratio was approximately 1 to
1. The balance sheet reflects working capital (deficiency) as of June 30, 1996,
1995, and 1994, of $12.9 million, ($51.8) million and ($34.0) million,
respectively, which deficits for 1995 and 1994 were primarily attributable to
the use of short-term liabilities to fund the purchase of long-term assets.

The Company will continue to have obligations relating to maturities of long
term debt in future years. See Note 10 of the Notes to the Company's
Consolidated Financial Statements. The Company believes that its operations will
generate sufficient cash to meet its requirements for working capital and for
purchases of repairable spare parts and debt service obligations and to finance
any further capital expenditures. Expansion of the Company's business through
acquisitions, however, may require additional funds. While the Company will seek
such financing as may be required to fund any future acquisitions, there is no
assurance that such financing will be available on reasonable terms.

Effect of Inflation

Inflation has not been a material factor affecting the Company's business.
In recent years, the cost of electronic components has remained relatively
stable due to competitive pressures within the industry, which has enabled the
Company to contain its service costs. The Company's general operating expenses,
such as salaries, employee benefits, and facilities costs, are subject to normal
inflationary pressures, the effect of which, is minimized through increases in
service contracts.

Item 8. Financial Statements and Supplementary Data

Attached hereto and a part of this report are financial statements and
supplementary data listed in Item 14.

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

None.

18
<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant

The following table sets forth certain information concerning the
directors and executive officers of the Company.

Name Age Position
- --------------------------- --- ----------------------------------------------
<S> <C> <C>
Kenneth Draeger......... 56 Chairman and Chief Executive Officer and Director
Stephen J. Felice....... 39 President
R. Peter Zimmermann..... 56 Executive Vice President
Thomas J. Fitzpatrick... 38 Vice President and Chief Financial Officer
Joseph S. Giordano...... 41 Senior Vice President--Operations
James J. Greenwell...... 37 Senior Vice President--Sales & Marketing
Thomas M. Molchan....... 41 General Counsel and Corporate Secretary
Dwight T. Wilson........ 40 Vice President--Human Resources
Don E. Ackerman......... 62 Director
Bruce K. Anderson....... 56 Director
Michael C. Brooks....... 51 Director
Thomas E. McInerney..... 55 Director
Arthur F. Weinbach...... 53 Director
</TABLE>

Kenneth Draeger has been the Chief Executive Officer of the Company since
July 1992 and Chairman of the Company since November 1995. From 1988 to 1991,
Mr. Draeger was President of Agfa/Compugraphic, a manufacturer of electronic
pre-press equipment. Mr. Draeger is also a director of Galileo Electro-optics
Corporation.

Stephen J. Felice has been the President of the Company since October 1995.
Mr. Felice joined BABBS in March 1987. He served as Vice President and General
Manager, Sales and Operations from January 1991 to October 1995 and was
responsible for all service delivery, sales activity, customer management, and
marketing channels with management responsibility over almost 3,000 employees.

R. Peter Zimmermann has been the Executive Vice President of the Company
since August 1996. From March 1993 to August 1996, he was Vice President and
Chief Financial Officer of the Company. From October 1991 to March 1993, Mr.
Zimmermann was Vice President and Chief Financial Officer of Revelation
Technologies, Inc. and was a self-employed financial consultant from July 1989
to October 1991. His experience includes serving as a partner of Touche Ross &
Co., a predecessor of Deloitte & Touche LLP.

Thomas J. Fitzpatrick has been the Vice President and Chief Financial
Officer of the Company since August 1996. Prior to August 1996 Mr. Fitzpatrick
was Vice President of Network Finance at Bell Atlantic Network Services, Inc.
Mr. Fitzpatrick served more than eight years at Bell Atlantic Business Systems
Services, including over four years as Vice President and Chief Financial
Officer.

Joseph S. Giordano has been Senior Vice President--Operations of the Company
since October 1995. From October 1993 to October 1995, Mr. Giordano was Vice
President Sales and Service Delivery of BABSS. From January 1991 to October
1993, he was an Area General Manager of BABSS.

James J. Greenwell has been Senior Vice President--Sales & Marketing of the
Company since October 1995, and was Vice President Sales and Marketing of the
Company from 1993 to October 1995. From January 1992 to 1993, Mr. Greenwell was
Director of Operations of the Company's Qantel operation. Prior to January 1992,
he was Vice President, Sales and Marketing of Qantel Corporation.

Thomas M. Molchan has been General Counsel and Corporate Secretary of the
Company since October 1995. From December 1986 to October 1995, he was Vice
President and General Counsel of BABSS.

19
<PAGE>

Dwight T. Wilson has been Vice President--Human Resources of the Company
since October 1995. From April 1994 to October 1995, Mr. Wilson was Vice
President--Human Resources of BABSS. From October 1990 to March 1994, Mr.
Wilson was Director, Human Resources Policies and Planning of BABSS.

Don E. Ackerman has been a Director of the Company since 1988 and was its
Chairman from 1988 until 1994. Mr. Ackerman has been Chairman of WCI
Communities Limited Partnership since July 1995, the Chairman of Walden
University since September 1992 and President of Chandelle Ventures, Inc.
since November 1991. Prior to that time, Mr. Ackerman was a partner at J.H.
Whitney & Co. ("Whitney"). Mr. Ackerman is also a director of Genicom
Corporation ("Genicom") and Schlumberger Ltd.

Bruce K. Anderson has been a Director of the Company since 1988. Mr.
Anderson has been a General Partner of certain Welsh, Carson, Anderson, &
Stowe ("WCAS") affiliated partnerships since 1979. Mr. Anderson is also a
director of SEER Technologies and Broadway & Seymour.

Michael C. Brooks has been a Director of the Company since 1988. Mr. Brooks
has been a General Partner of Whitney since January 1985 and currently serves
as Managing Partner. Mr. Brooks is also a director of SunGard Data Systems,
Inc.

Thomas E. McInerney has been a Director of the Company since 1988. From 1994
to 1995, Mr. McInerney served as Chairman of the Company. Mr. McInerney has
been a General Partner of certain WCAS affiliated partnerships since 1991. Mr.
McInerney is also a director of Bisys Group, Inc. and Aurora Electronics, Inc.

Arthur F. Weinbach has been a Director of the Company since 1996. Mr.
Weinbach is President and Chief Executive Officer and a Director of Automatic
Data Processing, Inc. ("ADP"). Since 1981, he has served in various executive
and managerial positions with ADP, including over nine years as Chief
Financial Officer and six years as a member of ADP's Board of Directors.
Prior to joining ADP, Mr. Weinbach was a Partner with Touche Ross & Co., a
predecessor of Deloitte & Touche LLP.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to
the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders to
be filed by the Company with the Securities and Exchange Commission on or
before October 28, 1996.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

20
<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules and reports on Form 8-K

(a) The following documents are filed as part of this report:

(1) Financial Statements

See Index to Financial Statements appearing on Page F-1.

(2) Financial Statement Schedules

Schedule II--Valuation and Qualifying Accounts

(3) Exhibits

Exhibits
- --------

The following is a list of exhibits filed as part of this Annual Report on
Form 10-K. Where so indicated by footnote, exhibits which were previously filed
are incorporated by refernce. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated parenthetically,
together with a reference to the filing indicated by footnote.

Exhibit No. Exhibit
----------- -------

3.1 Amended and Restated Certificate of Incorporation (Exhibit 3.1)(1)

3.2 Amended and Restated Bylaws (Exhibit 3.2)(1)

10.1*+ Stock Option and Restricted Stock Purchase Plan, as amended and
restated, subject to approval at the next annual meeting of
stockholders

10.2+ Form of Incentive Stock Option Agreement (Exhibit 10.2)(1)

10.3+ Incentive Stock Option Agreement, dated June 1, 1993, with Kenneth
Draeger (Exhibit 10.3)(1)

10.4+ Incentive Stock Option Agreement, dated August 1, 1993, with
Kenneth Draeger (Exhibit 10.4)(1)

10.5+ Incentive Stock Option Agreement, dated February 1, 1994, with
Kenneth Draeger (Exhibit 10.5)(1)

10.6+ Incentive Stock Option Agreement with R. Peter Zimmermann
(Exhibit 10.6)(1)

10.7+ Employment Agreement with Kenneth Draeger (Exhibit 10.7)(1)

10.8+ Employment Letter with Stephen J. Felice (Exhibit 10.8)(1)

10.9+ Employment Letter with R. Peter Zimmermann (Exhibit 10.9)(1)

10.10+ Employment Letter with James J. Greenwell (Exhibit 10.10)(1)

10.11 Amended and Restated Registration Rights Agreement
(Exhibit 10.11)(1)

10.12 First Amendment to Amended and Restated Registration Rights
Agreement (Exhibit 10.12)(1)

10.13 Lease for Frazer, Pennsylvania executive offices (East)
(Exhibit 10.14)(1)

10.14 Lease for Frazer, Pennsylvania executive offices (West)
(Exhibit 10.15)(1)

10.15 Lease for Malvern, Pennsylvania depot and call center
(Exhibit 10.16)(1)

10.16+ Employment Letter with Joseph S. Giordano (Exhibit 10.17)(2)

10.17 Lease for Bloomington, Minnesota call center (Exhibit 10.18)(2)

10.18 Lease for Hayward, California depot (Exhibit 10.19)(2)

10.19 Lease for Northborough, Massachusettes depot (Exhibit 10.20)(2)

10.20* Revolving Credit Agreement, dated as of April 26, 1996, among
DecisionOne Holdings Corp., DecisionOne Corporation and The First
National Bank of Boston et al.

10.21*+ Employment Agreement with Thomas J. Fitzpatrick

21* Subsidiaries of the Registrant

23* Consent of Deloitte & Touche LLP

24* Power of Attorney

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

* Filed herewith.

+ Compensation plans and arrangements for executives and others.

(1) Filed as an Exhibit to Registration Statement No. 333-1256 on Form S-1
filed with the Securities and Exchange Commission on February 9, 1996.

(2) Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registration
Statement No. 333-1256 on Form S-1 filed with the Securities and Exchange
Commission on March 14, 1996.

(b) Current Reports on Form 8-K filed during the quarter ended June 30,
1996:

None.

21
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
<S> <C>
Independent Auditors' Report F-2

Consolidated Balance Sheets as of June 30, 1996 and 1995 F-3

Consolidated Statements of Operations for the Years Ended
June 30, 1996, 1995 and 1994 F-4

Consolidated Statements of Shareholders' Equity for the Years Ended
June 30, 1996, 1995 and 1994 F-5

Consolidated Statements of Cash Flows for the Years Ended
June 30, 1996, 1995 and 1994 F-6

Notes to Consolidated Financial Statements F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
of DecisionOne Holdings Corp.:

We have audited the accompanying consolidated balance sheets of DecisionOne
Holdings Corp. and subsidiaries (the "Company") as of June 30, 1996 and 1995,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended June 30, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14. These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of DecisionOne Holdings Corp. and
subsidiaries at June 30, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1996
in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
August 30, 1996

F-2
<PAGE>

DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT NUMBER OF SHARES OF COMMON STOCK)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,221 $ 2,659
Accounts receivable, net (Note 5) 92,650 27,758
Inventories (Note 6) 30,130 4,024
Prepaid expenses, income tax receivable and other assets 4,752 763
Deferred tax asset (Note 11) 8,018 8,503
-------- --------

Total current assets 143,771 43,707

REPAIRABLE PARTS, Net 154,970 27,360

PROPERTY AND EQUIPMENT, Net (Note 7) 32,430 4,429

DEFERRED TAX ASSET, Net (Note 11) 16,405 25,011

INTANGIBLES, Net (Note 8) 164,659 34,568

OTHER ASSETS 2,275 478
-------- --------

TOTAL ASSETS $514,510 $135,553
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long-term debt (Note 10) $ 2,321 $ 19,414
Accounts payable 53,347 11,412
Accrued expenses (Note 9) 36,217 21,773
Deferred revenues 38,485 40,222
Income taxes payable (Note 11) 1,648
Net liabilities related to discontinued products division
(Notes 3 and 18) 479 1,056
-------- --------

Total current liabilities 130,849 95,525

REVOLVING CREDIT LOAN AND LONG-TERM DEBT (Note 10) 188,582 6,157

OTHER LIABILITIES (Note 12) 14,286 12,383

REDEEMABLE PREFERRED STOCK (Note 15) 6,811

SHAREHOLDERS' EQUITY:
Preferred stock, no par value; authorized 5,000,000
shares; none outstanding
Common stock, $.01 par value;
authorized 100,000,000 shares in 1996 and 25,000,000
shares in 1995; issued and outstanding 27,340,288 shares
in 1996 and 8,935,348 shares in 1995 273 89
Additional paid-in capital (Note 10) 255,262 107,991
Accumulated deficit (73,516) (92,378)
Foreign currency translation adjustment 622 680
Pension liability adjustment (Note 16) (1,848) (1,705)
-------- --------

Total shareholders' equity 180,793 14,677
-------- --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $514,510 $135,553
======== ========
</TABLE>

See notes to consolidated financial statements.

F-3

<PAGE>

DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
REVENUES:
Service $ 526,703 $ 154,044 $ 97,548
Other 13,488 8,976 10,868
----------- ----------- -----------

540,191 163,020 108,416
----------- ----------- -----------
COST OF REVENUES:
Service 393,311 107,922 70,502
Other 9,005 5,561 6,478
----------- ----------- -----------

402,316 113,483 76,980
----------- ----------- -----------

GROSS PROFIT 137,875 49,537 31,436

OPERATING EXPENSES:
Selling, general and administrative
expenses 69,237 21,982 16,474
Amortization and write-off of
intangibles (Notes 2 and 8) 15,673 6,776 5,380
Credit for unused leases, net (Note 14) (6,401)
Restructuring charge (Note 17) 3,592
----------- ----------- -----------

OPERATING INCOME 49,373 20,779 15,983

INTEREST EXPENSE, net of interest
income of $239 in 1996,
$53 in 1995 and $132 in 1994 14,714 2,468 4,847
----------- ----------- -----------

INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (BENEFIT),
DISCONTINUED OPERATIONS AND
EXTRAORDINARY ITEM 34,659 18,311 11,136

PROVISION FOR INCOME TAXES (BENEFIT) 13,870 (23,104) 1,024
(Note 11) ----------- ----------- -----------

INCOME BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM 20,789 41,415 10,112

DISCONTINUED OPERATIONS (Note 3) -
Income from operations of discontinued
products division 1,113
----------- ----------- -----------

INCOME BEFORE EXTRAORDINARY ITEM 20,789 42,528 10,112

EXTRAORDINARY ITEM, NET OF TAX BENEFIT
OF $1,284 (Note 10) 1,927
----------- ----------- -----------

Net income $ 18,862 $ 42,528 $ 10,112
=========== =========== ===========

PRIMARY INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ .83 $ 1.81 $ .45
Discontinued operations .05
Extraordinary item (.08)
----------- ----------- -----------
Net income $ .75 $ 1.86 $ .45
=========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 25,195,867 22,842,727 22,594,764
=========== =========== ===========

FULLY DILUTED INCOME (LOSS) PER COMMON
SHARE:
Continuing operations $ .82 $ 1.79 $ .45
Discontinued operations .05
Extraordinary item (.08)
----------- ----------- -----------

Net income $ .74 $ 1.84 $ .45
=========== =========== ===========

Weighted average number of common and
common equivalent shares outstanding 25,429,961 23,149,301 22,594,764
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT NUMBER OF SHARES OF COMMON STOCK)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------------- ---------------------------
NUMBER OF AMOUNT NUMBER OF AMOUNT PAID-IN ACCUMULATED
SHARES SHARES CAPITAL DEFICIT
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993

Net income 8,889,547 $ 89 $ 87,324 $(145,018)

Adjustment to pension liability 10,112

Foreign currency translation
adjustment

Accrued dividends on Series A and B
Redeemable Preferred Stock (Note 15) (186)

Increase in additional paid-in
capital and number of common stock
shares due to debt restructuring

BALANCE, JUNE 30, 1994 30,801 21,220
---------- -------- --------- ---------
Net income 8,920,348 89 108,358 (134,906)

Adjustment to pension liability 42,528

Foreign currency translation
adjustment

Accrued dividends on Series A and B
Redeemable Preferred Stock (Note 15) (375)

Increase due to exercise of options
(Note 13) 15,000 8
---------- -------- --------- ---------
BALANCE, JUNE 30, 1995 8,935,348 89 107,991 (92,378)

Net income

Adjustment to pension liability 18,862

Increase - Common Stock issued:
Exercise of preemptive rights 384,502 4 1,526
Public offering 6,300,000 63 106,250
Exercise of options 329,850 3 300
Exercise of warrants 118,664 1 598
Conversion of Redeemable Preferred
Stock 11,271,924 113 37,529

Decrease - stock issuance costs (1,573)

Increase - issuance of warrants 126

Increase - issuance of warrants
attached to Subordinated Debentures 3,400

Foreign currency translation adjustment

Accrued dividends on Redeemable
Preferred Stock (885)
--------- -------- ---------- --------- --------- ---------
BALANCE, JUNE 30, 1996 - $ 0 27,340,288 $ 273 $ 255,262 $ (73,516)
========= ======== ========== ========= ========= =========

<CAPTION>
FOREIGN TOTAL
CURRENCY PENSION SHAREHOLDERS'
TRANSLATION LIABILITY (DEFICIENCY)
ADJUSTMENT ADJUSTMENT EQUITY
<S> <C> <C> <C>
BALANCE, JUNE 30, 1993 $445 $ (986) $(58,146)

Net income 10,112

Adjustment to pension liability (639) (639)

Foreign currency translation
adjustment 12 12

Accrued dividends on Series A and B
Redeemable Preferred Stock (Note 15) (186)

Increase in additional paid-in
capital and number of common stock
shares due to debt restructuring 21,220
---- ------- --------
BALANCE, JUNE 30, 1994 457 (1,625) (27,627)

Net income 42,528

Adjustment to pension liability (80) (80)

Foreign currency translation
adjustment 223 223

Accrued dividends on Series A and B
Redeemable Preferred Stock (Note 15) (375)

Increase due to exercise of options
(Note 13) 8
---- ------- --------
BALANCE, JUNE 30, 1995 680 (1,705) 14,677

Net income 18,862

Adjustment to pension liability (143) (143)

Increase - Common Stock issued:
Exercise of preemptive rights 1,530
Public offering 106,313
Exercise of options 303
Exercise of warrants 599
Conversion of Redeemable Preferred
Stock 37,642

Decrease - stock issuance costs (1,573)

Increase - issuance of warrants 126

Increase - issuance of warrants
attached to Subordinated Debentures 3,400

Foreign currency translation adjustment (58) (58)

Accrued dividends on Redeemable Preferred
Stock (885)
---- ------- --------
BALANCE, JUNE 30, 1996 $622 $(1,848) $180,793
==== ======= ========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
- -------------------------------------------------------------------------

<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 18,862 $ 42,528 $ 10,112
Adjustments to reconcile net income
to net cash provided by operating
activities:
Income from discontinued operations (1,113)
Write-down of intangible assets 70 2,932
Net credit on unused leases, net (6,401)
Depreciation and amortization 61,851 16,172 10,158
Deferred income taxes 7,579 (23,104)
Provision (recovery of loss) on
accounts receivable 3,434 1,930 (162)
Provision for inventory obsolescence 1,171 1,995 1,580
Extraordinary item 1,927
Changes in operating assets and
liabilities, net of effects from
companies acquired, which
provided (used) cash:
Accounts receivable (1,900) (8,836) (3,498)
Inventories (1,248) 931 1,107
Accounts payable 29 4,552 (787)
Accrued expenses 227 (5,723) 264
Deferred revenues (33,928) 6,811 9,547
Net changes in other assets and
liabilities (6,110) 2,202 3,870
--------- -------- --------
Net cash provided by
operating activities 51,894 38,415 28,722
--------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures - net of
retirements (7,278) (2,786) (304)
Repairable parts purchases (63,514) (12,154) (1,857)
Purchases of companies (275,562) (39,331) (1,187)
--------- -------- --------

Net cash used in investing
activities (346,354) (54,271) (3,348)
--------- -------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred
stock 31,392 2,250
Proceeds from issuance of
subordinated debentures 30,000
Proceeds from issuance of common stock 106,313
Proceeds from borrowings 703,259 32,000 11,000
Payment of subordinated debentures (30,000)
Payments on borrowings (537,548) (14,463) (37,713)
Principal payments under capital
leases (3,423)
Other 29 (483)
--------- -------- --------
Net cash provided by (used
in) financing activities 300,022 17,537 (24,946)
--------- -------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 5,562 1,681 428

CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 2,659 978 550
--------- -------- --------

CASH AND CASH EQUIVALENTS, END OF YEAR $ 8,221 $ 2,659 $ 978
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Net cash paid during the year for:
Interest $ 14,838 $ 2,065 $ 485
Income taxes 5,344 1,009 397
Noncash investing/financing
activities:
Interest exchanged for subordinated
debt (Note 10) 2,073
Issuance of seller notes in
connection with acquisitions (Note 10) 587 2,866 1,313
Accretion of accrued dividends
(Note 15) 885 375 186
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS

DecisionOne Holdings Corp. and its wholly owned subsidiaries (the
"Company") are providers of multi-vendor computer maintenance and
technology support services. The Company's services include hardware
support, user and software support, network support and other support
services. These services are offered by the Company across a broad range of
computing environments, including mainframes, midrange and distributed
systems, workgroups, personal computers ("PCs") and related peripherals.
The Company maintains approximately 3,900 technical personnel located in
over 150 service locations in North America.

Through June 30, 1995, the Company's services predominantly involved the
provision of maintenance services to the midrange computer market. On
October 20, 1995, the Company acquired Bell Atlantic Business Systems
Services, Inc. ("BABSS") (see Note 4). BABSS provided computer maintenance
and technology support services for computer systems ranging from the data
center, which includes both mainframe and midrange systems, to desk top.
Subsequent to the acquisition, DecisionOne Holdings Corp.'s principal
operating subsidiary, Decision Servcom, Inc., was merged into BABSS, which
had changed its name to DecisionOne Corporation. As a result, DecisionOne
Corporation is the principal operating subsidiary of the Company.

The Company's wholly owned, direct international subsidiaries are not
significant to the Company's financial statements.

2. SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION - The consolidated financial statements include the accounts
of DecisionOne Holdings Corp. and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in
consolidation.

CASH AND CASH EQUIVALENTS - Cash and cash equivalents are highly liquid
investments with remaining maturities of three months or less at the time
of purchase.

INVENTORIES - Inventories are stated at the lower of cost or market, cost
principally being determined using the weighted average method. The Company
previously determined cost using the FIFO (first-in, first-out) method. The
change has no material effect on the financial statements.

REPAIRABLE PARTS - Repairable parts are required in order to meet the
requirements of the contracts with the Company's maintenance customers.
These parts are principally purchased from equipment manufacturers and
other third parties. As these parts are purchased, they are capitalized at
cost and amortized principally using the straight-line method over three to
five years, their estimated useful life. Repairable parts are repaired by
the Company based upon anticipated need and generally have an economic life
that extends beyond the normal life cycle of the applicable product. Costs
of refurbishing parts are charged to operations as incurred. Repairable
parts are stated at cost, less accumulated amortization of $45,064,000 and
$46,554,000 as of June 30, 1996 and 1995, respectively. Repairable parts
amortization expense for the years ended June 30, 1996, 1995 and 1994 was
$37,869,000, $7,688,000 and $5,929,000, respectively.

F-7
<PAGE>

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is provided for using the straight-line method over the
estimated useful lives of the depreciable assets. Capitalized equipment
leases and leasehold improvements are amortized over the shorter of the
related lease terms or asset lives. Maintenance and repairs are charged to
expense as incurred; renewals and betterments are capitalized. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting
gain or loss is charged to operations.

INTANGIBLE ASSETS - Intangible assets are comprised of excess purchase
price over net assets acquired (goodwill), debt issuance costs and other
intangible assets, including the fair value of contractual profit
participation rights, acquired customer contracts, tradenames, other
intangibles, and amounts assigned to noncompete agreements.

Goodwill is being amortized on a straight-line basis over 20 years. Other
intangibles are being amortized, primarily on a straight-line basis, over 3
to 8 years for customer contracts; 20 years for contractual profit
participation rights; 1 to 6 years for tradenames and other intangibles;
and over four-year terms for specific noncompete agreements. Debt issuance
costs are amortized using the interest method over the term of the related
debt.

CARRYING VALUE OF LONG-TERM ASSETS - The Company evaluates the carrying
value of long-term assets, property and equipment, repairable parts and
intangible assets, based upon current and anticipated undiscounted cash
flows, and recognizes an impairment when such estimated cash flows will be
less than the carrying value of the asset. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and
fair value.

REVENUE - The Company enters into maintenance contracts whereby it services
various manufacturers' equipment. Revenues from these contracts are
recognized ratably over the terms of such contracts. Revenues from multi-
period contracts are recorded as deferred revenues and are recognized
ratably over the term of the contracts.

Revenues derived from the maintenance of equipment not under contract are
recognized as the service is performed.

Revenues derived from other technology support services are recognized as
the service is performed or ratably over the term of the contract.

Estimated losses on contracts, if any, are charged against earnings in the
period in which such losses are identified.

FOREIGN CURRENCY TRANSLATION - Gains and losses resulting from foreign
currency translation are accumulated as a separate component of
shareholders' equity (deficiency). Gains and losses resulting from foreign
currency transactions are included in operations.

CREDIT RISK - Concentration of credit risk with respect to trade
receivables is limited due to the large number of customers comprising the
Company's customer base and their dispersion across many industries.

F-8
<PAGE>

INCOME TAXES - Effective July 1, 1993, the Company changed its policy of
accounting for income taxes to conform to Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes. The
Company previously followed Financial Accounting Standards No. 96,
Accounting for Income Taxes. SFAS No. 109 requires, among other things, the
accrual of deferred tax liabilities for future taxable amounts, deferred
tax assets for future deductions and operating loss carryforwards, and a
valuation allowance to reduce deferred tax assets to the amounts that are
more likely than not to be realized. The adoption of SFAS No. 109 on July
1, 1993 did not have a material effect on the Company's consolidated
financial position or results of operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The following disclosures of the
estimated fair value of financial instruments were made in accordance with
the requirements of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies.

CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, AND ACCOUNTS PAYABLE -
The carrying amount of these items are a reasonable estimate of their
fair value.

SHORT-TERM DEBT AND LONG-TERM DEBT - Rates currently available to the
Company for debt with similar terms and remaining maturities are used
to estimate the fair value for debt issues. Accordingly, the carrying
amount of debt is a reasonable estimate of its fair value.

USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates and assumptions.

POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS - Effective July 1, 1994, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 106, ("SFAS No. 106") Employers' Accounting for
Postretirement Benefits Other Than Pensions, and Statement of Financial
Accounting Standards No. 112 ("SFAS No. 112"), Employers' Accounting for
Postemployment Benefits. The adoption of SFAS No. 106 and SFAS No. 112 did
not have a material effect on the Company's consolidated financial position
or results of operations.

STOCK-BASED COMPENSATION - In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"). SFAS No. 123
defines a fair value method of accounting for stock options and other
equity instruments. Under the fair value method, compensation cost is
measured at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting period.

Under SFAS No. 123, the Company is permitted to continue to account for
employee stock-based transactions under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), but will
be required to disclose in a note to the consolidated financial statements
pro forma net income and income per share information as if the Company had
applied the new method of accounting. SFAS No. 123 also requires increased
disclosures for stock-based compensation arrangements regardless of the
method chosen to measure and recognize compensation for employee stock-
based arrangements.

The Company has determined that it will continue to account for such
transactions under APB No. 25 and will provide the disclosures required by
SFAS No. 123 during the year ending June 30, 1997.

F-9
<PAGE>

DERIVATIVE FINANCIAL INSTRUMENTS - Derivative financial instruments, which
constitute interest rate swaps (see Note 10), are used by the Company in
the management of its interest rate exposure and are accounted for on an
accrual basis. These derivative financial instruments are used to hedge
risk caused by fluctuating interest rates. Hedged financial instruments are
accounted for based on settlement accounting. Income and expense are
recorded in the same category as that arising from the related asset or
liability. The amounts to be paid or received under interest rate swap
agreements are recognized as interest income or expense in the periods in
which they accrue. Gains and losses resulting from effective hedges of
existing assets, liabilities or firm commitments are deferred and
recognized when the offsetting gains and losses are recognized on the
related hedged items. Gains realized on termination of interest rate swap
contracts are deferred and amortized over the remaining terms of the
original swap agreements. The Company does not hold or issue any derivative
financial instruments for trading purposes.

3. DISCONTINUED OPERATIONS

On February 9, 1993, the Company sold all of the inventory, fixed assets
and other intangible assets, as defined in the asset purchase agreement, of
its products division. The remaining assets and liabilities of the
discontinued operations consisted mainly of accounts receivable and accrued
expenses for warranty, lease commitments and other accrued costs. In 1993,
the Company established liabilities based on the best available
information. In 1995, the Company revised its estimates as a result of
settlement of these liabilities and the consolidated statement of
operations for 1995 reflects an increase in net income of $1,113,000 for
the change in estimate.

In conjunction with the sale of the products division, the Company entered
into a maintenance service agreement with the purchaser. The agreement
provides that the Company has the option to be the exclusive provider of
warranty, extended warranty and maintenance services of products marketed
by the purchaser for a term of 5 years after the date of the sale.

4. BUSINESS ACQUISITIONS

During the years ended June 30, 1996, 1995 and 1994, the Company acquired
certain net assets of a series of service companies as follows:

<TABLE>
<CAPTION>
CONSIDERATION (IN THOUSANDS)
-------------------------------------------
TOTAL
NUMBER OF PURCHASE OTHER
YEARS ENDED ACQUISITIONS CASH NOTES PRICE INTANGIBLES GOODWILL

Significant business acquisitions:
<S> <C> <C> <C> <C> <C> <C>
June 30, 1995 1 $27,413 $2,094 $29,507 $15,600 $7,394
June 30, 1996 1 250,549 250,549 72,581 60,533

Nonsignificant business and maintenance contract acquisitions:

June 30, 1994 5 975 1,490 2,465 3,193
June 30, 1995 5 9,327 255 9,582 4,577 8,680
June 30, 1996 5 14,853 578 15,431 6,522 6,318
</TABLE>

The Company purchased substantially all of the operating assets and assumed
certain liabilities of the acquired entities. These acquisitions have been
accounted for as purchase transactions, with the purchase price of each
acquisition allocated to the assets and liabilities acquired based on their
respective estimated fair values at the dates of acquisition. The results
of operations of the acquired entities have been included in the
accompanying consolidated financial statements from the dates of
acquisition.

F-10
<PAGE>

On August 31, 1994, the Company purchased certain net assets and
liabilities of IDEA/Servcom, Inc. for approximately $29,500,000. This
acquisition was funded by cash and the issuance of a $2,600,000
noninterest-bearing note to the seller. See seller notes payable section of
Note 10. The excess of asset purchase price over the fair value of assets
acquired at the date of purchase resulted in goodwill of approximately
$7,400,000.

On October 20, 1995, the Company acquired all of the outstanding common
stock of BABSS, a subsidiary of Bell Atlantic Corporation ("BAC") for
approximately $250,549,000. The acquisition was funded with the proceeds
from the issuance of $30,000,000 of Series C preferred stock, $30,000,000
of subordinated debentures and the balance from additional bank borrowings
(see Notes 10 and 15). The excess of asset purchase price over the fair
value of assets acquired at the date of purchase resulted in goodwill of
approximately $58,796,000 initially recorded. Subsequent to the
acquisition, the Company recorded a net adjustment increasing goodwill by
$1,737,000 and adjusted other balance sheet accounts principally by the
same amount. This resulted from the adjustment and reclassification of
certain tax accruals offset by favorable negotiations on certain leased
facilities (see Note 9). As part of the acquisition, the Company purchased
from BAC contractual profit participation rights whereby the Company will
receive a fixed percentage of the annual operating profits (3.2% or 3.5%,
depending upon the level of profits) earned by a former foreign affiliate
of BAC which provides computer maintenance and technology support services
in Europe. The value of the discounted estimated future cash flows over a
twenty-year period from these contractual profit participation rights is
$25,000,000.

The following summarized unaudited pro forma information for significant
acquisitions that have a material effect on the Company's results of
operations for the years ended June 30, 1996 and 1995 assumes that the
acquisitions occurred as of July 1, 1994. The nonsignificant business and
maintenance contract acquisitions are not considered material individually
or in the aggregate. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the
results of operations which actually would have resulted had the
significant acquisitions been in effect on the dates indicated or which may
result in the future.

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
YEARS ENDED JUNE 30,
---------------------------
1996 1995
(UNAUDITED)
<S> <C> <C>
Revenues $697,676 $679,284
Income from continuing operations before extraordinary item 31,080 20,153
Net income 29,153 21,266

Primary Income Per Common Share:
Income from continuing operations before extraordinary item
per shares $ 1.23 $ 0.88
Net income per common share 1.16 0.93

Fully Diluted Income Per Common Share:
Income from continuing operations before extraordinary item
per share $ 1.22 $ 0.87
Net income per common share 1.15 0.92
</TABLE>

F-11
<PAGE>

5. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
------------------------
1996 1995
<S> <C> <C>
Trade receivables $ 99,762 $33,843
Other 2,468 531
-------- -------

102,230 34,374
Less allowance for uncollectible accounts (9,580) (6,616)
-------- -------

$ 92,650 $27,758
======== =======
</TABLE>

6. INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
------------------------
1996 1995
<S> <C> <C>
Consumable parts $ 40,564 $ 15,243
Finished goods 360 569
-------- --------
40,924 15,812
Less allowance for obsolescence (10,794) (11,788)
-------- --------

$ 30,130 $ 4,024
======== ========
</TABLE>

7. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
------------------------
1996 1995
<S> <C> <C>
Land and buildings $ 2,055
Equipment 13,858 $ 5,682
Computer hardware and software 27,277 8,359
Furniture and fixtures 8,051 4,306
Leasehold improvements 4,125 1,450
-------- --------

55,366 19,797
Accumulated depreciation and amortization (22,936) (15,368)
-------- --------

$ 32,430 $ 4,429
======== ========
</TABLE>

The principal lives (in years) used in determining depreciation and
amortization rates of various assets are: buildings (40); equipment (3-10);
computer hardware and software (3-5); furniture and fixtures (5-10) and
leasehold improvements (term of related leases).

F-12
<PAGE>

Depreciation and amortization expense was approximately $8,310,000,
$1,779,000 and $1,781,000 for the fiscal years ended 1996, 1995 and 1994.

8. INTANGIBLES

Intangibles consisted of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
----------------------
1996 1995
<S> <C> <C>
Goodwill $ 82,355 $16,074
Customer contracts 64,758 20,248
Contractual profit participation rights 25,000
Noncompete agreement 4,500 3,000
Other intangibles 7,671 2,250
Tradename 1,500
-------- -------

184,284 43,072
Accumulated amortization (19,625) (8,504)
-------- -------

$164,659 $34,568
======== =======
</TABLE>

Based upon the results of an impairment evaluation for the years ended June
30, 1995 and 1994, management determined that customer contracts should be
written down $70,000 and $2,932,000, respectively. There were no write-
downs of intangibles in 1996.

Amortization expenses relating to intangibles were approximately
$15,673,000, $6,776,000 and $2,448,000, for the fiscal years ended 1996,
1995 and 1994.

9. ACCRUED EXPENSES

Accrued expenses consisted of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
--------------------
1996 1995
<S> <C> <C>
Compensation and benefits $22,115 $11,046
Interest 1,505 2,246
Unused leases 3,485 857
Pension accrual 1,258 1,262
Accrued accounting and legal fees 1,073 920
Other accrued expenses 6,781 5,442
------- -------

$36,217 $21,773
======= =======
</TABLE>

Prior to 1994, the Company received $2,600,000 in tax bills (primarily
interest) from the Internal Revenue Service related to claims for tax and
interest for the years ended 1981 through 1987. The Company paid
approximately $500,000 of the claims upon receipt of the bills. As the
Company disputes the tax bills, no payments were made in 1994 nor 1995. In
1996, an IRS mandated payment of $828,000 was made. As of June 30, 1996 and
1995, the Company has an accrued liability of $1,883,000 and $2,500,000,
respectively. Subsequent to June 30, 1996, the Company provided the IRS
with a letter of credit in the amount of $1,768,000 to collateralize the
outstanding balance.

F-13
<PAGE>

In connection with the acquisition of BABSS, which has been accounted for
using the purchase method of accounting (see Note 4), the Company recorded
approximately $11,000,000 in liabilities resulting from planned actions
with respect to BABSS, which included the costs to exit certain leased
facilities and to involuntarily terminate employees. The provision of
approximately $3,500,000 for the costs to exit certain leased facilities
principally relates to future lease payments on a warehouse in California
which has been made idle. Approximately $4,000,000 was provided for
severance and termination benefits of approximately 210 employees in the
field, operations support, sales and administration. Approximately
$3,000,000 was provided in connection with the exit plan for write-downs of
inventory and equipment at two California facilities which will not be
utilized in future operations. The provision for various other charges of
approximately $500,000 consisted of costs to complete the exit plan. As of
June 30, 1996, the Company has settled all of these liabilities, except for
the lease liabilities on idle facilities approximating $1,200,000 for which
payments will continue through 1999.

As a result of successful negotiations of unutilized leased facilities,
during 1996, the Company recorded a reduction of approximately $975,000 to
both the provisions for leased facilities and goodwill.

10. REVOLVING CREDIT LOAN AND LONG-TERM DEBT

Debt consists of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
-------------------------------------
1996 1995
<S> <C> <C>
Revolving credit loan $186,400
Bank debt $21,000
Promissory note, noninterest-bearing,
due August 31, 1998 2,256
Seller noninterest-bearing notes payable 2,118 2,122
Capitalized lease obligations, payable in varying
installments amounting to $1,413,000 and
$972,000 in 1997 and respectively, at interest
rates ranging from 7.25% to 13.01% at June 30,
1996, net of interest of approximately $187,000
and $6,000 in 1996 and 1995, respectively 2,385 193
-------- -------

190,903 25,571
Less current portion 2,321 19,414
-------- -------

$188,582 $ 6,157
======== =======
</TABLE>

BANK DEBT

On October 20, 1995, in connection with the BABSS acquisition (see Note 4)
the Company entered into a Credit Agreement which provided for a term loan
(the "1995 Term Loan") of $230,000,000 and a revolving credit facility of
up to a maximum of $30,000,000. The 1995 Term Loan provided for 19 equal
quarterly principal payments of $10,000,000 to be due and payable on the
last day of each calendar quarter commencing December 31, 1995 with a final
payment due on September 30, 2000. Loans under the revolving credit
facility were to mature on September 30, 2000. Interest on the 1995 Term
Loan and the revolving credit facility were at varying rates based, at the
Company's option, on the Eurodollar rate or the Alternative Base Rate
(NationsBanc prime rate), plus the Applicable Margins. Margins were based
on the ratio of Total Funded Debt to EBITDA; the Eurodollar Margin ranged
from 1.75% to 2.5%, while the Alternative Base Rate Margin ranged from 0.5%
to 1.25%.

F-14
<PAGE>

In April 1996, the Company completed an initial public offering (see Note
15). The Company used a portion of the proceeds to repay approximately $70
million of the 1995 Term Loan.

Also in April 1996, the Company converted the 1995 Term Loan and the
existing $30 million Revolving Credit Facility into a $225 million variable
rate, unsecured revolving credit facility ("the 1996 Revolving Credit
Facility"). The 1996 Revolving Credit Facility is at floating interest
rates, based either on the LIBOR or prime rate, in either case plus an
Applicable Margin, at the Company's option. As of June 30, 1996, the
applicable rate was LIBOR plus .75% or 6.32%. The 1996 Revolving Credit
Facility enables the Company to borrow up to $225 million in the form of
revolving credit loans with a maturity date of April 26, 2001 and with
interest periods determined principally on a quarterly basis. To offset the
variable rate characteristics of the borrowings, the Company has entered
into interest rate swap agreements with two banks resulting in fixed
interest rates of 5.4% on $40.0 million notional principal amount through
December 1997 and 5.5% on another $40.0 million notional principal amount
through December 1998, thereby leaving approximately $100 million subject
to floating rates under the 1996 Revolving Credit Facility.

Under the swap agreements, the Company receives interest payments at a
floating rate based on the pricing of the three-month LIBOR and pays
interest on the same notional amounts at an average fixed rate of 5.45%.
The floating rate is 5.44% for the three-month period ended June 30, 1996.
For the three-month period ending September 30, 1996, the floating rate is
5.57%. The agreements convert a portion of the Company's debt obligation
from a floating rate to a fixed rate basis. The fair value of the interest
rate swap agreements generally reflects the estimated amount that the
Company would receive or pay to terminate the agreements. As of June 30,
1996, the Company would receive approximately $1,100,000 to terminate the
swap agreements.

The Company attempts to minimize its credit exposure by entering into
interest rate swap agreements only with major financial institutions.
Although the Company may be exposed to losses in the event of
nonperformance by counterparties, the Company does not expect such losses,
if any, to be significant.

Under the terms of the 1996 Revolving Credit Facility, the Company may use
up to $25,000,000 for letters of credit, subject to the limitation of
$225,000,000 in total credit. As of June 30, 1996, letters of credit in the
face amount of $3,498,000 were outstanding.

The loan agreement relating to the 1996 Revolving Credit Facility contains
various terms and covenants which provide for certain restrictions on the
Company's indebtedness, liens, investments, disposition of assets and
mergers and acquisitions and require the Company, among other things, to
maintain minimum levels of consolidated net worth and certain minimum
financial ratios.

The borrower under the 1996 Revolving Credit Facility is DecisionOne
Corporation. Repayment of the debt is guaranteed by the Company and its
other subsidiaries except for its Canadian subsidiary.

The Company had average borrowings of $172,065,000 and $24,379,000 during
1996 and 1995, respectively, at an average interest rate of 8.69% and
10.34%, respectively. Maximum borrowings during 1996 and 1995 were
$268,748,000 and $32,648,000, respectively.

SELLER NOTES PAYABLE

In connection with various acquisitions, the Company issued noninterest-
bearing notes, the principal of which is payable monthly, primarily based
upon a percentage of monthly maintenance contract revenues billed during
the previous month (ranging from 12.5% to 30.0%). Aggregate maturities of
these notes are as follows: 1997-$908,000; 1998-$647,000; 1999-$475,000 and
2000-$88,000. As of June 30, 1996,

F-15
<PAGE>

the notes are presented at their estimated net present value based on
imputed interest rates ranging from 7.25% to 11.00%.

PROMISSORY NOTE

As part of the August 31, 1994 acquisition of certain assets and
liabilities of Servcom, the Company issued a $2,600,000 noninterest-bearing
note which was due in annual installments of $650,000 over four years. The
liability was reflected on the Company's books, net of a $506,000 discount
calculated at the Company's then incremental borrowing rate of 9.50%. The
loan was scheduled to mature on August 31, 1998. During the year ended June
30, 1996, the Company prepaid the entire outstanding loan balance. The
resulting gain from prepayment was not material.

SUBORDINATED DEBENTURES

In connection with the BABSS acquisition (see Note 4) on October 20, 1995,
the Company issued and sold to its principal shareholders, an aggregate
$30,000,000 principal amount of 10.101% Debentures (the "Affiliate Notes")
due on October 20, 2001. The Affiliate Notes were subordinated to the 1995
Term Loan and the revolving credit facility. Interest on the Affiliate
Notes was payable semiannually on the last business day of June and
December of each year commencing on December 31, 1995.

In connection with the issuance of the debentures, the Company issued
468,750 Common Stock Purchase Warrants (the "Warrants"). Each Warrant
initially entitled the owner to buy one share of Common Stock for $0.10.
The number of shares that can be purchased per Warrant steps up over 24
months in conjunction with the increasing conversion privilege applicable
to the Preferred Stock such that, at the end of 24 months, each Warrant
entitled the holder to buy approximately 1.21 shares of Common Stock at a
price of $0.10 per share. The Warrants were exercisable from October 20,
1997 until October 20, 2001, provided that if the Company had a public
offering of its Common Stock meeting certain requirements before October
20, 1997, the Warrants became exercisable at the time of the public
offering and the number of shares that could be purchased on exercise was
fixed at that time and no longer increased in steps. The Warrants also
became exercisable upon retirement of the Debentures. Each Warrant had an
assigned value of $7.25333 which resulted in an original issue discount of
$3,400,000 which was being amortized over the term of the Affiliate Notes.
Upon consummation of its initial public offering in April 1996, the Company
was required to pay up to the total amount outstanding under the Affiliate
Notes and, accordingly, the Company used $30,000,000 of the proceeds to
retire the Affiliate Notes. As a result, the Company recorded an
extraordinary loss in the amount of $3,211,000, net of taxes of $1,284,000,
due to the acceleration of the amortization of original issue discount.

1994 DEBT RESTRUCTURING

On January 27, 1994, the Company amended its then current Credit Agreement
to provide an $11,000,000 term loan and an $8,000,000 Revolving Credit
Facility. The term loan provided for 29 equal monthly payments of $350,000
beginning January 31, 1994 through May 31, 1996. Interest was at the "Base
Rate" (the higher of the bank's base rate or 1/2 percent above the Federal
Funds Effective Rate) plus 1 1/2 percent. The Revolving Credit Facility was
due on demand and bore interest at the Base Rate plus 1 1/2 percent. The
loans were collateralized by all of the Company's assets. The proceeds of
the term loan were used to extinguish certain subordinated notes. The term
loan was prepaid in June 1994. There were no borrowings under the Revolving
Credit Facility through June 30, 1994.

Also, on January 27, 1994, the Company agreed with certain noteholders to
restructure its equity capitalization and subordinated debt. The
noteholders forgave debt approximating $46,698,000 of principal and
interest in exchange for cash and equity interest in the Company which
resulted in a net gain

F-16
<PAGE>

of approximately $20,031,000 to the Company, which was recorded as
additional paid-in capital. The outstanding indebtedness as of January 27,
1994 was restructured as follows:

Senior Subordinated Noteholders exchanged $38,068,000 principal amount of
notes, $2,008,000 in accrued but unpaid interest, 2,570,160 shares of the
Company's common stock and warrants to purchase 210,369 shares of the
Company's common stock for $19,625,000 in cash and 40,000 shares of the
Company's Series B Convertible Preferred Stock, $1.00 par value, with a
redemption value of $100 per share (see Note 15).

The Junior Subordinated Noteholders exchanged $6,556,000 principal amount
of notes, $64,000 in accrued interest and warrants to purchase 55,707
shares of the Company's common stock for 2,617,612 shares of the Company's
common stock, $.01 par value. The shares of Common Stock issued were deemed
at such time to have a fair value of $.50 per share.

As part of previous credit agreements and the 1994 Debt Restructuring, the
Company issued warrants to purchase shares of the Company's common stock at
a price of $10 per share. At June 30, 1995, due to antidilution adjustment,
warrants to purchase 235,735 shares at an exercise price of $5.90 were
outstanding. During 1996, warrants to purchase 101,257 shares of Common
Stock were exercised. At June 30, 1996, warrants to purchase 134,478 shares
of Common Stock were outstanding. These warrants expire in the year 2000.

11. INCOME TAXES

The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED JUNE 30,
-------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ 2,892 $ 16,065 $ 2,485
State 1,595 4,599 760
Foreign 548 (1,272)
Deferred:
Federal 8,945 (29,897)
State 641 (3,617)
Foreign (499)
Benefit of operating loss carryforwards:
Federal (7,729) (1,861)
State (1,253) (360)
Foreign (252)
------- -------- -------

Provision (benefit) for income taxes $13,870 $(23,104) $ 1,024
======= ======== =======
</TABLE>

F-17
<PAGE>

The tax effects of temporary differences consisted of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
---------------------
1996 1995
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable $ 1,341 $ 1,443
Inventory 2,586 3,299
Accrued expenses 6,378 3,761
Unused leases 1,353
Fixed assets 299 100
Goodwill and other intangibles 5,670 598
Operating loss carryforwards 14,252 25,482
Minimum tax carryforward 1,170 632
------- -------

Gross deferred tax asset 31,696 36,668
Net valuation allowance (686)

Gross deferred tax liabilities - (7,273) (2,468)
repairable spare parts ------- -------

Net deferred tax asset $24,423 $33,514
======= =======
</TABLE>

The change in the valuation allowance from 1995 to 1996 is principally due
to the utilization of foreign net operating loss carryforwards.

Net operating loss and minimum tax credit carryforwards available at June
30, 1996 expire in the following years:

<TABLE>
<CAPTION>
(IN THOUSANDS) YEAR OF
AMOUNT EXPIRATION
<S> <C> <C>
Federal operating losses $38,136 2002-2009

State operating losses 15,223 1997 - 2009

Minimum tax credit 1,170 INDEFINITE
</TABLE>

As a result of the Company's initial public offering, an "ownership change"
occurred pursuant to Section 382 of the Internal Revenue Code. Accordingly,
net operating loss and tax credit carryforwards are limited during any
future period to approximately $20.0 million per annum.

F-18
<PAGE>

A reconciliation between the provision (benefit) for income taxes, computed
by applying the statutory federal income tax rate of 35% for 1996, 35% for
1995 and 34% for 1994 to income before income taxes, and the actual
provision (benefit) for income taxes follows:

<TABLE>
<CAPTION>
1996 1995 1994

<S> <C> <C> <C>
Federal income tax provision at
statutory tax rate 35.0 % 35.0 % 34.0 %
State income taxes, net of federal
income tax provision 4.6 3.5 4.5
Foreign income taxes (6.9)
Unused lease credit (0.1) (18.1)
Write-off of intangibles 12.6
Benefit of operating loss carryforward (0.8) (49.1) (19.9)
Change in valuation allowance (1.4) (108.9)
Other 2.6 0.3 (3.9)
----- ------ -----

Actual income tax provision (benefit)
effective tax rate 40.0 % (126.2)% 9.2 %
===== ====== =====
</TABLE>

12. OTHER LIABILITIES

Other liabilities consisted of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
--------------------
1996 1995

<S> <C> <C>
Accrued rent, unused facilities and
deferred revenues $ 4,237 $ 2,334
Other noncurrent liabilities 10,049 10,049
------- -------

$14,286 $12,383
======= =======
</TABLE>

Other noncurrent liabilities include provisions for possible liabilities
relating to various tax matters.

13. STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN

Under the 1988 Stock Option and Restricted Stock Purchase Plan, the name of
which was subsequently changed to DecisionOne Stock Option and Restricted
Stock Purchase Plan (the "Plan"), the Company, at the discretion of the
Board of Directors, may issue restricted stock, incentive stock options and
non-qualified options for shares of the Company's common stock. Vesting of
the restricted stock and stock options is at the discretion of the Board of
Directors and generally occurs at a rate of 25% per year.

During 1994, the Board of Directors amended the Plan increasing the total
number of shares issuable to approximately 2,350,000. Additionally, in
November 1995 the Board of Directors amended the Plan increasing the total
number of shares issuable to approximately 3,350,000.

The price of the incentive stock options issued to employees under the Plan
is not less than 100% of the fair market value of the common shares at the
date of issuance. The option price for nonqualified options is determined
by the Board of Directors at the time of grant and may be less than the
fair market value of the common shares at the time of grant. However, no
such options were granted at prices less then 100% of the fair value of
common shares at the date of issuance.

Options expire through May 2006. Restricted shares which are not vested
upon an employee's termination are subject to a repurchase right of the
Company at a price equal to the amount paid by the employee.

F-19
<PAGE>

Presented below is the activity in the Plan for the years ended June 30,
1996, 1995 and 1994:

<TABLE>
<CAPTION>
OPTIONS PRICE RANGE

<S> <C> <C>
Balance, July 1, 1993 436,606 $.50 - 100.00
Options granted 1,507,089 .50
Options canceled (100) .50
---------

Balance, June 30, 1994 1,943,595 .50 - 100.00
Options exercised (15,000) .50
Options granted 410,000 1.25 - 6.00
Options cancelled (75,275) .50 - 100.00
---------

Balance, June 30, 1995 2,263,320 .50 - 6.00
Options exercised (329,850) .50 - 6.00
Options granted 803,000 8.00 - 27.50
Options cancelled (125,000) 1.25 - 8.00
---------

Balance, June 30, 1996 2,611,470 $.50 - 27.50
=========
</TABLE>

As of June 30, 1996, 1,274,877 options were vested and 382,808 options
remained available for issuance. As of June 30, 1995, 977,454 options were
vested and 40,901 options remained available for issuance.

14. LEASE COMMITMENTS

The Company conducts its operations primarily from leased warehouses and
office facilities and uses certain computer, data processing and other
equipment under operating lease agreements expiring on various dates
through 2005. The future minimum lease payments for operating leases having
initial or remaining noncancelable terms in excess of one year for the five
years succeeding June 30, 1996 and thereafter are as follows (in
thousands):

<TABLE>
<S> <C>
1997 $20,477
1998 16,080
1999 13,300
2000 10,811
2001 4,621
Thereafter 12,150
-------

$77,439
=======
</TABLE>

On December 29, 1993, the Company entered into a settlement agreement to
terminate an existing lease on an unused facility, resulting in a payment
to the lessor amounting to $1,000,000. The payment was structured in the
form of cash and a $250,000 five-year, noninterest-bearing note payable.
The settlement resulted in a credit of approximately $8,000,000 recorded in
the consolidated statement of operations net of the provision of $1,599,000
for additional unused leases for the year ended June 30, 1994. The
outstanding balance of the $250,000 five-year, noninterest-bearing note
payable was repaid in full during the year ended June 30, 1995.

Rental expense, exclusive of unused rental expense and credits under all
noncancelable operating leases, amounted to approximately $13,149,000,
$5,878,000 and $5,128,000, for the fiscal years ended 1996, 1995 and 1994,
respectively.

F-20
<PAGE>

15. SHAREHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK

In January 1994, as part of its debt restructuring (see Note 10), the
Company authorized the issuance of 22,500 shares of Series A redeemable
preferred stock, $1.00 par value, and 40,000 shares of Series B redeemable
preferred stock, $1.00 par value. The Series A redeemable preferred stock
("Series A Preferred Stock") was issued in exchange for $2,250,000 in cash
and the Series B redeemable preferred stock ("Series B Preferred Stock")
was issued in connection with the settlement of the senior subordinated
notes (see Note 10). On October 17, 1995, the Board of Directors and the
shareholders amended the Company's Certificate of Incorporation to
authorize the issuance of 300,000 shares of Series C Preferred Stock, $1.00
par value (herein called the "Series C Preferred Stock" and together with
the Series A Preferred Stock and the Series B Preferred Stock, herein
called the "Preferred Stock"). On December 8, 1995, the Board of Directors
and shareholders further amended the Company's Certificate of Incorporation
to authorize 376,416 shares of preferred stock; consisting of 23,499 shares
designated Series A; 41,776 shares designated Series B; and 311,141 shares
designated Series C.

The holders of Series A Preferred Stock voted as a class (each holder of
Series A Preferred Stock entitled to one vote for each share of common
stock that would be issuable to such holder upon the conversion of the
Series A Preferred Stock); each share of the Series B and Series C
Preferred Stock was nonvoting. Cash dividends were cumulative and accrued
at the rate of $6.00 per share per annum for Series A and Series B and
$4.00 per share per annum for Series C from the date of issuance. Dividends
were paid when and as declared by the Board of Directors. Series A was
junior to Series C and senior to Series B. No dividends (except dividends
payable in common stock) were permitted on Series A and Series B Preferred
Stock or on common stock, and no redemption of Series A and B Preferred
Stock or common stock was permitted unless all accrued dividends of Series
C Preferred Stock had been paid and Series C Preferred Stock had been fully
redeemed. The Series A, B and C redeemable preferred stock was assigned a
value of $100 per share.

The Series A and B preferred stock were to be automatically converted if
the Company completed a public offering in which the total price paid for
shares of common stock was at least $12.5 million, the price per share of
common stock was at least $2.75, and the common stock was authorized for
trading on Nasdaq or listed on the New York or American Stock Exchange. The
Series C Preferred Stock was to automatically convert if the Company
completed a public offering of shares of its common stock in which (i) the
aggregate price paid for such shares by the public was at least $50
million, (ii) the price per share paid by the public for such shares was at
least $10 per share, and (iii) the common stock after such public offering,
was authorized for trading on Nasdaq or was listed on the New York or
American Stock Exchange. Accordingly, as of June 30, 1996 all outstanding
preferred stock has been converted into common stock.

F-21
<PAGE>

The following table summarizes certain matters relating to Series A, B and
C preferred stock activity from July 1, 1993 to June 30, 1996:

<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
------------------------------------------- ----------------
(IN THOUSANDS) SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1993
Issuance of Series A and B Preferred
Stock 22,500 $ 2,250 40,000 $ 4,000 $ 6,250
Accretion of accruing dividends 67 119 186
------- ------- ------- ------- --------

Balance, June 30, 1994 22,500 2,317 40,000 4,119 6,436
Accretion of accruing dividends 135 240 375
------- ------- ------- ------- --------

Balance, June 30, 1995 22,500 2,452 40,000 4,359 6,811
Issuance of Series A, B and C
Preferred Stock 999 100 1,776 178 311,141 $ 31,114 31,392
Accretion of accruing dividends 107 190 588 885
Payment of accrued dividends (309) (549) (588) (1,446)
Conversion to Common Stock (23,499) (2,350) (41,776) (4,178) (311,141) (31,114) (37,642)
------- ------- ------- ------- -------- -------- --------

Balance, June 30, 1996 0 $ 0 0 $ 0 0 $ 0 $ 0
======= ======= ======= ======= ======== ======== ========
</TABLE>

During the year ended June 30, 1996, certain shareholders exercised their
preemptive right to subscribe for and purchase additional shares of Common
Stock or other securities so issued at the same price as originally issued
on certain occasions from 1992 through 1995. On December 4, 1995, the
following securities were purchased: (a) 382,578 shares of Common Stock at
a price of $4 per share; (b) 999 shares of Series A Preferred Stock, at a
price of $100 per share; (c) 1,776 shares of Series B Preferred Stock, at a
price of $100 per share; (d) 1,924 shares of Common Stock at a price of
$.50 per share; (e) 11,141 shares of Series C Preferred Stock, at a price
of $100 per share; and (f) 17,407 Common Stock Purchase Warrants at a price
of $7.25333 per warrant which entitles the holder to purchase 17,407 shares
of Common Stock at an exercise price of $.10 per share. The 17,407 Common
Stock Purchase Warrants were exercised in 1996.

On February 9, 1996, the Company amended its Certificate of Incorporation
to increase the number of authorized shares of Common Stock to 100,000,000
shares and to authorize 5,000,000 shares of Preferred Stock.

In April 1996, the Company completed a public offering of 6,300,000 shares
of common stock at $18.00 per share (the "Offering"). Prior to the
Offering, there was no public market for the Company's common stock. The
common stock is listed on the Nasdaq National Market under the symbol
"DOCI".

The net proceeds of the offering, after deducting applicable issuance costs
and expenses were $104,740,000. The proceeds were used to repay
approximately $70,000,000 of the 1995 Term Loan, $30,000,000 in Affiliate
Notes, approximately $1,446,000 in accrued dividends to holders of the
Redeemed Preferred Stock and for other general corporate purposes.

In connection with the Company's initial public offering in April 1996, all
of the preferred shares were automatically converted to common stock at the
conversion price of $.4928 per Series A share, $1.6560 per Series B share,
and $7.8161 per Series C share. Preferred shares were converted into
11,271,924 shares of common stock. Additionally, dividends in arrears of
$309,000 for Series A, $549,000 for Series B, and $588,000 for Series C
were declared and paid by the Company.

In connection with his service as a director and Chairman of the Board
prior to 1994, the Company granted an individual warrants to purchase an
aggregate of 66,667 shares of common stock at an exercise price of $4.00
per share. The warrants which expire on March 15, 2003 remain outstanding
at June 30, 1996.

F-22
<PAGE>

For further information regarding warrants attached to affiliate notes, and
other outstanding warrants, see Note 10.

16. RETIREMENT PLANS

The Company maintains a 401(k) plan for its employees which is funded
through the contributions of its participants. A similar plan exists for
former employees of an acquired company for which eligibility and
additional contributions were frozen in September 1988.

In addition, the Company assumed the liability of the defined benefit
pension plan applicable to employees of a company acquired in 1986. The
eligibility and benefits were frozen as of the date of the acquisition.

Pension expense for the defined benefit pension plan was computed as
follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED JUNE 30,
------------------------
1996 1995 1994

<S> <C> <C> <C>
$ 495 $ 482 $ 461
Interest cost (449) (312) (271)
Actual return on plan assets 72 (42) (72)
Net amortization and deferral ----- ----- -----

Periodic pension costs $ 118 $ 128 $ 118
===== ===== =====
</TABLE>

The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% and the expected long-term rate of
return on assets was 8.5% for 1996, 1995 and 1994.

The following table sets forth the funded status of the frozen pension plan
as of May 1, 1996 and 1995:

<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------
1996 1995

<S> <C> <C>
Accumulated benefits (100% vested) $ 7,116 $ 6,757
Fair value of plan assets 5,800 5,432
------- -------

Unfunded projected benefit 1,316 1,325
obligation

Unrecognized net loss 1,848 1,705
Unrecognized net transition obligation 504 536
Adjustment to recognized minimum liability (2,352) (2,241)
------- -------

Accrued pension costs $ 1,316 $ 1,325
======= =======
</TABLE>

17. RESTRUCTURING EXPENSES

In the second quarter of fiscal year 1996, in connection with the BABSS
acquisition, the Company recorded a restructuring expense of $7.0 million
for $6.9 million of leases of duplicate facilities (the former
headquarters, several large repair depots, and numerous field offices of
the Company) and $0.1 million of severance of former employees of the
Company. Such amounts were based on management estimates.

F-23
<PAGE>

In the fourth quarter of fiscal year 1996, the Company reversed $3.4
million of the restructuring expense. The reversal was the result of the
Company's ability to utilize and sublease various facilities identified in
the original restructuring charge. Such information was unknown to the
Company when the original charge was recorded.

18. COMMITMENTS AND CONTINGENT LIABILITIES

The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible
parties in respect to three waste disposal sites that have been identified
by the United States Environmental Protection Agency as Superfund sites. In
addition, the Company received a notice several years ago that it may be a
potentially responsible party with respect to a fourth, related site, but
has not received any other communication with respect to that site. Under
applicable law, all parties responsible for disposal of hazardous
substances at those sites are jointly and severally liable for clean-up
costs. The Company originally estimated that its share of the costs of the
clean-up of one of these sites would be approximately $500,000 which is
provided for in liabilities related to the discontinued products division
in the accompanying consolidated balance sheet as of June 30, 1996 and
1995. Complete information as to the scope of required clean-up at these
sites is not yet available and, therefore, management's evaluation may be
affected as further information becomes available. However, in light of
information currently available to management, including information
regarding assessments of the sites to date and the nature of involvement of
the Company's predecessor at the sites, it is management's opinion that the
Company's share, if any, of the cost of clean-up of these sites will not be
material to the consolidated financial position, results of operations or
liquidity of the Company.

The Company is also party to various legal proceedings incidental to its
business. Certain claims, suits and complaints arising in the ordinary
course of business have been filed or are pending against the Company. In
the opinion of management, these actions can be successfully defended or
resolved without a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.

19. RELATED PARTY TRANSACTIONS

Prior to 1994, the Company entered into an agreement to purchase printer
products from Genicom Corporation (Genicom). The Company and Genicom are
under common ownership. The initial term of the agreement is for five years
with an option to extend based on mutual agreement of the parties.
Purchases from Genicom for the years ended June 30, 1996, 1995 and 1994
were approximately $1,512,000, $1,972,000 and $1,421,000, respectively.
Accounts payable to Genicom amounted to approximately $14,000 and $42,000
as of June 30, 1996 and 1995.

During the year ended June 30, 1996, the Company entered into a contract
with a related party for cleaning services. The approximate annual value of
the contract approximates $150,000.

During the year ended June 30, 1996, the Company paid approximately
$125,000 for expense reimbursements to certain shareholders for services
rendered in connection with an acquisition in 1988. The amount was accrued
for in prior years.

In connection with the Company's financing of the BABSS acquisition on
October 20, 1995, the Company issued subordinated debentures and redeemable
preferred stock to certain related parties (see Notes 10 and 15).

F-24
<PAGE>

20. INCOME (LOSS) PER COMMON SHARE

Primary income (loss) per common share is computed using the weighted
average number of shares of common stock and dilutive common stock
equivalents outstanding during the period. Common stock equivalents are
computed on the applicable outstanding options and warrants using the
average price for the period under the treasury stock method. For the years
ended June 30, 1996, 1995 and 1994, the effect upon the primary income per
share of common stock equivalents was dilutive and is included in the
computations. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, primary income (loss) per share when presented during
periods which include a Company's initial public offering, also include
amounts computed on options and warrants issued within twelve months of the
filing date as if they were outstanding for all periods presented, even
when the result is anti-dilutive, using the treasury stock method and the
assumed initial public offering price. For these options and warrants, the
determination of common stock and equivalents outstanding for the remainder
of the year, subsequent to initial public offering, assumes computation
using average prices for the period under the treasury stock method.
Additionally, the computation of primary income (loss) per common share
includes the conversion of all preferred stock, which automatically
converts to shares of common stock as of the closing of the initial public
offering, as if they were outstanding for all periods prior to the initial
public offering, even when the result is anti-dilutive.

The fully diluted income (loss) per common share computation assumes common
stock equivalents are computed on the applicable outstanding options and
warrants using the end of the period price under the treasury stock method.

21. SUPPLEMENTARY DATA (UNAUDITED)

The unaudited supplementary primary and fully diluted income per common
share data gives effect to the Company's initial public offering and
recapitalization and the assumed use of predominately all of the proceeds
from the Company's sale of 6,300,000 shares of common stock therefrom to
principally reduce by approximately $70 million the outstanding amount of
its 1995 Term Loan due September 30, 2000, and to repay the $30 million
face amount of the Affiliate Notes in each case as if such transactions had
occurred on October 20, 1995, the date of the aforementioned debt
transactions. Supplementary weighted average number of common and common
equivalent shares outstanding reflects additional shares of 3,647,368
assumed to be outstanding to effect these transactions. The supplementary
extraordinary item results from the write-off of unamortized original issue
discount related to the warrants issued in conjunction with the Affiliate
Notes, which occurred in April 1996, and is assumed as of October 20, 1995.

The unaudited supplementary per share data for the year ended June 30, 1996
are as follows:

<TABLE>
<S> <C>
SUPPLEMENTARY PRIMARY INCOME PER SHARE DATA:

Supplementary income from continuing operations before extraordinary item $ 0.81
Supplementary extraordinary item - early extinguishment of debt $(0.07)
Supplementary weighted average number of common and common
equivalent shares outstanding 28,843,235

SUPPLEMENTARY FULLY DILUTED INCOME PER SHARE DATA:

Supplementary income from continuing operations before extraordinary item $ 0.80
Supplementary extraordinary item - early extinguishment of debt $(0.07)
Supplementary weighted average number of common and common
equivalent shares outstanding 29,077,329
</TABLE>

F-25
<PAGE>

22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of the unaudited quarterly financial information
for the fiscal years ended 1996 and 1995:

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
(Dollars in thousands except per share SEPTEMBER DECEMBER 31, MARCH 31, JUNE 30, /(1)/
amounts) 30,

1996

<S> <C> <C> <C> <C>
Revenues $46,791 $149,703 $172,673 $171,024
Gross profit 15,524 38,224 42,711 41,416
Income before extraordinary item 4,386 638 5,842 9,923
Net income 4,386 638 5,842 7,996
Primary income per common share:
Income before extraordinary item 0.19 0.03 0.25 0.34
Net income 0.19 0.03 0.25 0.27
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
(Dollars in thousands except per share SEPTEMBER DECEMBER 31, MARCH 31, JUNE 30, /(2)/
amounts) 30,

1995

<S> <C> <C> <C> <C>
Revenues $32,044 $41,730 $41,660 $47,586
Gross profit 8,334 13,221 13,245 14,737
Income before extraordinary item 1,476 4,043 4,660 32,349
Net income 1,476 4,043 4,660 32,349
Primary income per common share:
Income before extraordinary item 0.06 0.18 0.20 1.42
Net income 0.06 0.18 0.20 1.42
</TABLE>

(1) Net income for the fourth quarter of 1996 includes (a) a $3.4 million
reversal of the previously recorded restructuring charge for unutilized
leases (Note 17); and (b) a $1.5 million adjustment related to recoveries
of previously reserved receivables.

(2) Net income for the fourth quarter of 1995 includes a tax benefit of $24.9
million primarily related to the future utilization of tax loss
carryforwards.

******

F-26
<PAGE>

Schedule II

DecisionOne Holdings Corp. and Subsidiaries

Valuation and Qualifying Accounts
(In Thousands)

Additions
-------------------------
Description Balance of Charges to Charges to Balance at
Beginning of Corp. and Other End of
Period Expenses Accounts Deductions Period
------------ -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1996
Accounts Receivable--
Allowance for Uncollectible
Accounts........................ $ 6,616 $3,434 $ (470)(a) $ 9,580

Inventory--
Allowance of Obsolescence....... $11,788 $1,171 $1,450(b) $(3,615) $14,794

Year Ended June 30, 1995
Allowance for
uncollectible accounts......... $ 1,481 $1,930 $3,225(a) $ 6,616

Inventory--
Allowance for Obsolescence... $ 8,370 $1,995 $1,423(b) $11,788

Year Ended June 30, 1994
Accounts Receivable--
Allowance for
uncollectible
accounts................ $ 2,170 $ (162) $ (547)(a) $ 1,461
Inventory-
Allowance for
Obsolescence................ $ 6,196 $1,580 $ 594(b) $ 8,370
</TABLE>

(a) Amount represents net recoveries (writeoffs) during the year and allowances
recorded as a result of acquisitions during the year.

(b) Amount primarily represents allowance recorded as a result of acquisitions
during the year.

23
<PAGE>

Exhibits
- --------

Exhibit No. Exhibit
----------- -------

3.1 Amended and Restated Certificate of Incorporation (Exhibit 3.1)(1)

3.2 Amended and Restated Bylaws (Exhibit 3.2)(1)

10.1*+ Amended and Restated Stock Option and Restricted Stock Purchase
Plan, subject to approval at the next annual meeting of
stockholders