FEDERAL DATA CORP /FA/, 10-K405, 1999-03-31

FEDERAL DATA CORP /FA/
10-K405, 1999-03-31
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

Previous: NEWMARK HOMES CORP, 10-K, 1999-03-31

Next: BROUGHTON FOODS CO, 10-K, 1999-03-31

<PAGE>

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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K 405

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FEDERAL DATA CORPORATION
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 333-36447 52-0940566
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer Identification
incorporation) Number)
</TABLE>

4800 HAMPDEN LANE BETHESDA, MD 20814
(Address of principal executive offices) (Zip Code)

(301) 986-0800
(Registrant's telephone number, including area code)

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

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

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 [ ]

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. [X]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 25, 1999 is $223,587. Because the Company is
privately held, the aggregate value of such voting stock was computed on the
basis of a $27 per share price, the price paid for the common stock of the
Company by investors in August 1998, the time of the most recent purchase and
sale of such common stock.

As of the close of business February 28, 1999, the registrant had
outstanding 2,927,521 shares of Common Stock, par value $.01 per share.

Documents Incorporated By Reference

None

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

<PAGE>

PART I

Item 1. Business.

Federal Data Corporation and its subsidiaries (collectively, the
"Company") are major suppliers of information technology to a wide range of
customers within the U.S. federal government (the "Government"). The Company has
assembled, through internal growth and strategic acquisitions, comprehensive
information technology products and services capabilities to address the unique
needs of its Government clients. Management believes that the Company is
strategically positioned to benefit from the current trends in the Government
market for information technology and outsourcing of engineering, scientific and
other professional services. The Government is among the world's largest
purchasers of information technology with estimated total expenditures in fiscal
1998 in excess of $31 billion. For the year ended December 31, 1998, the
Company's total revenue was $520.3 million, loss before income taxes was $5.4
million, net loss was $6.7 million and EBITDA (as defined herein) was $27.4
million. Contributing to the Company's loss before income taxes for 1998 were
non-cash charges totaling $10.1 million related to amortization of certain
intangible assets and the vesting of stock options. These non-cash charges had a
$9.0 million after-tax effect on the net loss. The Company's pretax charge for
other intangible assets amounted to $8.0 million for 1998. The intangible assets
being amortized represent identifiable assets recorded in connection with the
Company's acquisitions in 1997 and 1998, including contract backlog, covenants
not to compete, work force, trade names and trademarks. The Company recorded
$16.5 million related to the acquired contract backlog which is equal to the
present value of the pretax profits projected to be earned as a result of the
Company's performance of such acquired contracts. This amount is being amortized
over the remaining terms of the acquired contracts in the same manner and at the
same time as the Company recognizes the related contract revenues. The value
assigned to the other acquired intangible assets is $5.5 million and is being
amortized over periods up to three years. Excluding the impact of future
acquisitions, the Company expects that its non-cash charge for amortization of
other intangible assets will not be significantly different in 1999 than it was
in 1998 but should decline in 2000 and thereafter. In 1998, the Company amended
and restated its Stock Option Plan for Executives and Key Employees by
accelerating the vesting of certain performance based options. Accordingly, the
Company recorded non-cash compensation of $2.1 million and a related increase in
capital in excess of par value based on the difference between the exercise
price of the stock options and the current fair market value. Without regard to
any future changes in its Stock Option Plan, the Company expects that it will
record non-cash compensation related to this change of approximately $0.5
million in 1999, $0.2 million in 2000 and none thereafter.

Founded in 1969, the Company serves a diverse and expanding customer base
representing over 20 Government agencies including the National Aeronautics and
Space Administration ("NASA"), the Department of Veterans Affairs, the
Department of the Navy, the Internal Revenue Service ("IRS"), the Federal
Aviation Administration ("FAA"), the National Institutes of Health ("NIH") and
the Department of State. Management believes that the Company's established
reputation and long-standing relationships with Government customers, and the
extensive knowledge gained from those relationships, have been critical to the
Company's strong record of growth and provide a key competitive advantage in
pursuing business opportunities with new and existing customers.

TC Group, L.L.C. d/b/a/ The Carlyle Group ("Carlyle"), a Washington
D.C.-based global private merchant bank founded in 1987, through its
affiliates became the Company's controlling stockholder in a 1995
recapitalization of the Company. Carlyle and its affiliates currently manage
over $3 billion of private equity capital including a $1.3 billion domestic
private equity fund. Carlyle has made over 30 majority owned investments in
select industries including aerospace, defense, information technology and
related services and telecommunications. Some of these investments include
United Defense L.P., a leading manufacturer of tracked, armored combat
vehicles for the United States and its allies; BDM International, Inc., a
multinational information technology company (later sold to TRW, Inc.);
Vought Aircraft Company, a leading supplier of

<PAGE>

major aircraft structures and Prime Communications, an operator of cable systems
in the metropolitan Chicago and Washington, DC areas.

Prior to December 1, 1995, a substantial majority of the Company's common
stock was owned by its employees. On December 1, 1995, the Company effected a
recapitalization, through which FDC Holdings, Inc. ("Holdings") merged with and
into Federal Data Corporation with Federal Data Corporation continuing as the
surviving corporation (the "Recapitalization"). Holdings was a company organized
by Carlyle to facilitate the Recapitalization and had no operating activity or
history. The Recapitalization resulted in a charge to stockholders' equity of
$58.8 million to reflect redemption of certain common stock. Carlyle has
supported the Company's acquisition strategy with its financial expertise and
provided a critical source of equity capital for the implementation of the
Company's growth strategy.

ACQUISITIONS AND REFINANCING

Consistent with its strategy of providing a complete range of information
technology offerings to its Government customers, the Company has pursued
strategic acquisitions to broaden and strengthen key skill areas. In May 1997,
the Company purchased NYMA, Inc. ("NYMA"), a provider of sophisticated
engineering and information technology services. NYMA complemented and
significantly expanded the Company's core capabilities in the technology and
engineering services sector, providing the Company with the ability to bid
effectively on new contracts with a higher component of technical services
requirements. In June 1997, the Company acquired Sylvest Management Systems
Corporation ("Sylvest"), a value-added reseller of commercial off-the-shelf
("COTS") hardware, software and technical services supporting open systems
architectures within the Government marketplace. Through the Sylvest
acquisition, the Company has become a leading reseller of COTS hardware and
software to the Government and has substantially expanded the number of
customers to which it can market its systems integration offerings.

To effect the acquisitions of NYMA and Sylvest and to secure the
availability of additional capital for future acquisitions, in July 1997, the
Company sold $105 million in aggregate principal amount of 10 1/8% Senior
Subordinated Notes due 2005 (the "Private Notes") in a transaction exempt
from the registration requirements of the Securities Act of 1933, as amended,
(the "Private Placement"). The Company used the proceeds of the Private
Placement to (i) prepay $7.7 million of FDC Notes and $4.0 million of notes
originally issued in connection with the acquisition of Sylvest, (ii) repay
(the "Refinancing") all amounts (approximately $80.4 million) of long-term
debt ("Refinanced Bank Debt") owing under the Prior Senior Credit Facility,
(iii) pay $7.0 million in fees and expenses associated with the Private
Placement and the new senior secured revolving credit facility (the "New
Senior Credit Facility") and (iv) generate $5.9 million in additional cash
for working capital purposes. None of the proceeds of the Private Placement
are remaining. In addition, the Company terminated the Prior Senior Credit
Facility and executed the New Senior Credit Facility, which provides
revolving borrowing availability up to $75.0 million, subject to a borrowing
base limitation. In December 1997, the Company completed an offer to exchange
$1,000 principal amount of its 10 1/8% Senior Subordinated Notes Due 2005
(the "Exchange Notes") for each $1,000 principal amount of its outstanding
Private Notes (the "Exchange Offer"), which exchange was registered under the
Securities Act of 1933, as amended, pursuant to a registration statement on
Form S-4. As a result of such Exchange Offer, the Company issued $105 million
in aggregate principal amount Exchange Notes in exchange for all of the
issued and outstanding Private Notes.

The Company has continued its strategy of expanding its core customer base
and strengthening its capability to service existing customers through
acquisitions in 1998. In February 1998, the Company acquired R.O.W. Sciences,
Inc. ("R.O.W."), a provider of information technology and health science
research services. The acquisition of R.O.W. expanded and strengthened the
Company's already substantial presence at the NIH and also broadened the
Company's ability to offer professional services and information technology

3
<PAGE>

solutions to federal and commercial health science research organizations. In
February 1998, the Company also acquired Telos Information Systems ("TIS"), a
division of the Telos Corporation. TIS provides information technology and
engineering services principally to NASA and Jet Propulsion Laboratory
("JPL"). TIS expands the Company's Pasadena, CA operations making it one of
the leading information technology contractors at JPL and provides additional
capability to service NASA, one of the Company's long-standing customers. In
March 1998, the Company purchased Technical and Management Assistance, Inc.
("TMA"), a provider of software development services to Lockheed Martin
Corporation, Computer Sciences Corporation, and the FAA. TMA specializes in
air traffic control software and complements the Company's FAA business base.

The acquisitions have significantly enhanced the Company's presence in the
Government marketplace. Management believes the information technology industry,
particularly the portion serving Government customers, has and will continue to
consolidate, resulting in additional opportunities for the Company to make
attractive acquisitions that complement or expand its core capabilities.

INDUSTRY OVERVIEW

According to Federal Sources, Inc., an independent market research firm
specializing in the federal information technology market, the Government is
the world's largest single buyer of information technology services and
products. Federal Sources, Inc. estimated fiscal 1998 Government spending
specifically designated for information technology to have been in excess of
$31 billion. Despite continual budget pressures, Government outlays for
third-party technology services and outsourcing have increased steadily as
the Government has sought to control its spending and gain the efficiencies
and flexibility experienced by commercial purchasers of these services. The
General Services Administration ("GSA") anticipates a continuation of this
trend toward increased Government use of outside information technology
providers and estimates that the majority of all Government agencies
operating in-house data systems may eventually outsource information
technology services to the private sector at a significant cost savings. The
current legislative and regulatory environment has supported and been
successful with initiatives in the Government information technology sector
to change procurement practices and become more like the private sector.
Several statutory and regulatory changes have brought about a significant
transition in Government procurement practices, dramatically increasing the
number of procurement "vehicles" available to Government customers and
generally reducing the lead time required to buy information technology
products and services. The use of these vehicles, whether indefinite
delivery, indefinite quantity ("IDIQ") contracts awarded to multiple
contractors or teams of contractors, or established GSA Schedules and
multi-agency contracts ("MAC"), allows the Government to address an
increasing portion of its information technology needs through relatively
inexpensive, open architecture systems based on COTS hardware and software.
This trend toward commercialization of Government procurements will continue
to change the marketplace enabling the mission critical operations of the
Government to be met in a timely and efficient manner. See "--Government
Contracts."

BUSINESS AND GROWTH STRATEGY

The Company's goal is to be a leading one-stop information technology
solutions supplier, providing high-quality products and services that meet the
complete needs of its Government client base. The Company's strategies to meet
this objective are the following:

- CREATE COMPREHENSIVE SKILL AND PRODUCT BASE. The Company seeks to
continuously add new information technology capabilities and strategically
expand existing business areas to meet the changing information technology needs
and buying patterns of its clients. By expanding its extensive technical skill
base and ability to supply a broad and diverse set of COTS hardware and
software, the Company can provide its customers with the widest possible range
of cost effective solutions and engender a high level of customer satisfaction.
Management believes that such capabilities, together with the Company's in-depth
knowledge of

<PAGE>

changing Government procurement practices, should continue to create new
opportunities for the Company.

- STRONG CUSTOMER KNOWLEDGE AND FOCUS. The Company strives to understand the
full range of each of its customers' information technology needs. This includes
in-depth vertical expertise in selected high-potential markets such as space
systems, air traffic management and health science research. The Company's
strategy is to continue to leverage its strong customer knowledge, advanced
technical skills and supplier relationships to tailor optimal solutions to its
customers' specific needs and to offer technology infrastructures that
anticipate its customers' rapidly evolving needs.

- PURSUE STRATEGIC ACQUISITIONS. The Company seeks to continue expanding the
breadth and quality of the information technology products and services it
offers. The acquisitions have added important complementary skills to the
Company's information technology capabilities and vertical customer expertise.
Management expects to continue to pursue strategic acquisitions, which it
believes can contribute significantly to the Company's future business growth.

- MAXIMIZE FLEXIBILITY OF GOVERNMENT CUSTOMERS. A key component of the
Company's success has been its ability to quickly adapt to the rapidly evolving
Government procurement process. The Company continually pursues means of
maximizing its customers' flexibility in acquiring a range of products and
services with competitive prices and minimal bureaucratic delay by selecting the
best methods available in the current, more streamlined procurement climate.

- CAPITALIZE ON OUTSOURCING OPPORTUNITIES. The Company seeks to pursue new
opportunities created by changes in the Government information technology
industry. In particular, although the Government has frequently hired service
providers to fill specific roles in the past, the Government is increasingly
considering opportunities to outsource entire functions to private industry. As
part of this strategy, the Company intends to leverage its client relationships,
technical skills and access to COTS hardware and software in pursuing emerging
opportunities in the outsourcing of certain Government information technology
functions.

PRODUCTS AND SERVICES

The Company focuses on providing a comprehensive array of high
technology professional services in combination with hardware and software
products from a variety of manufacturers. Although the Company is engaged in
a single business activity, it delivers these services and products to its
Government customers through three operating units as described below. For
financial reporting purposes, these operating units have been aggregated. See
Notes 1 and 3 to the consolidated financial statements. The Systems
Integration Group integrates diverse hardware and software components into a
single turnkey system, usually selling COTS hardware and software products as
an element of the integrated solution. The Science & Engineering Group
focuses primarily on providing sophisticated technical, scientific and
engineering services to enhance information technology performance and
productivity and to support the missions of its customers. The Systems &
Technology Group is a leading value-added reseller of hardware, software and
related services to the Government.

SYSTEMS INTEGRATION GROUP

Systems integration refers to the integration of diverse information
technology products, frequently including the combination of existing custom
systems with COTS hardware and software into a single turnkey system. The
Company's Systems Integration Group provides large-scale, tailored integrated
solutions to its customers, generally including design, construction, and
implementation, as well as the sale of any COTS hardware and software required
for completion. The Company is a prominent systems integrator, having been a
pioneer in systems integration for the Government since its founding in 1969.
The Company has over 29 years of experience supplying custom turnkey systems to
various departments and agencies of the Government. The

<PAGE>

contracts completed during this period have ranged from national defense
programs to administrative, payroll and inventory control functions of various
Government departments and agencies.

The Company's systems integration projects are characterized by complex
features such as multi-year systems life, multiple vendors, technical
complexity, the application and integration of leading-edge technology and the
selection and management of subcontractors and teaming partners with expertise
specific to the system solution required by the customer. The Company acts as
both a prime contractor and as a subcontractor on a broad range of systems
integration projects for the Government. In performing these duties, the Company
generally procures equipment, software, networking components and services from
several manufacturers or suppliers to produce a single, program specific turnkey
system. When no "off-the-shelf" solution or product exists, the Company on
occasion develops software to provide a total compliant solution. The Company
also generally provides installation, maintenance, training and technical
support services throughout the life of the contract. Most systems integration
contracts specify initial system requirements to be covered by the contract
amount; as technology and customer needs change over the life of the contracts,
they function as IDIQ contracts that permit the Company to supply equipment
upgrades and customer support in response to changing customer requirements and
improvements in technology. Management believes that such long-term contracts
have permitted the Company to develop strong partnerships with its customers and
have contributed to the Company's success with long-term programs in an
environment of rapidly changing procurement requirements and technological
growth.

The Systems Integration Group consists of over 200 dedicated technical and
management personnel trained to provide COTS integration, mainframe, midrange
and microcomputer integration, communications and networking, software
development, help desk and support services.

In 1998, the Company was awarded two major contracts for Government
outsourcing. These contracts are the Outsourcing Desktop Initiative for NASA
("ODIN") and the GSA Seat Management contract ("SEAT") with GSA. Both ODIN and
SEAT represent a significant change in acquisition strategy for Government
information technology buyers. Under the contracts, the Company is one of 14
contract awardees able to compete for Government outsourcing business over the
next 10 years. The total potential value of the contracts for all awardees is
over $19 billion.

In 1998, the Company realigned its Solutions Group into the Systems
Integration Group to facilitate synergies between the groups. The Solutions
Division of the Systems Integration Group provides information technology
solutions designed to address five discrete customer needs: Microsoft
consulting, executive management consulting, electronic commerce, financial
systems implementations and training. In providing these solutions, the Company
combines its in-house expertise with appropriate products of different vendors.
Management believes the Company's expertise in these key substantive areas
provides an effective marketing tool in sales of other products and services.

In 1998, the Company and Microsoft Corporation announced their cooperation
in forming an Alliance to provide Government customers with comprehensive
systems solutions and consulting in the areas of messaging/collaboration,
electronic commerce, network/intranet integration and systems accessibility.
This Alliance combines the Company's 29 years of information technology
experience in the Government marketplace with Microsoft's advanced technologies,
reputation and quality products. The Company and Microsoft utilize the new
Alliance to exchange technical expertise and information relating to the needs
of Government customers, particularly in the areas of electronic commerce,
collaborative systems and data center operations. As part of this agreement, the
Company has agreed to host Federal Executive Roundtable Discussions in order to
identify the technology requirements of Government agencies. The Company will
also open a joint Microsoft/Federal Data Corporation Solutions Center at the
Company's headquarters in

<PAGE>

Bethesda, Maryland to demonstrate the use of Microsoft products in providing
information technology solutions to Government customers.

The Company operates an authorized and certified training and education
center for Microsoft and maintains four fully-equipped classrooms devoted to
Microsoft training. In on-site and off-site services combined, the Company
trained over 6,700 people in 1998, including Government and private sector
clients as well as Company personnel. Management believes that these training
services can play a large role in retaining customers and key Company
personnel.

The Company's executive management consulting group seeks to help
Government agencies respond to recent legislation including the Chief Financial
Officer Act, the Government Performance and Results Act and the Information
Technology Management Reform Act. Subject matter topics include integrated
financial management solutions, financial management improvement, financial
management operations, internal management controls, fraud detection and
prevention, strategic information management, software process improvement,
performance-based budgeting and strategic and performance plans. These projects
are often similar to the Company's systems integration activities but are
usually smaller and involve a higher content of pre-packaged systems or
specialized subject matter.

In 1998, the Company became an authorized Solutions Center for Navision
software. Navision is a complete financial package that can be tailored for
midrange commercial companies. The Company provides a full range of services to
include turnkey implementation, customization and on-going support to commercial
clients.

Listed below are summary descriptions of major contracts and programs for
the Systems Integration Group. Although the future status of any contract is
uncertain after contract expiration, management believes that certain support
and service functions being provided under many of these contracts may be
subject to recompetition and rebid upon expiration, either alone or in
combination with other products and/or services. However, the Company cannot
guarantee with respect to any particular contract to which it is a party, that
such contract will be rebid upon expiration or that if any such contract is
rebid, that the follow-on contract will be awarded to the Company. For a
description of Government contracts, see "--Government Contracts."

VETERANS BENEFITS ADMINISTRATION MODERNIZATION. This contract provides for
the modernization of the information technology environment in regional
offices of the Veterans Benefits Administration. Products and services
provided include hardware, software, maintenance, support desk, training,
installation and technical support. The Company is providing midrange
computing platforms, LAN servers and workstations which, in conjunction with
existing mainframes, provide claims processing infrastructure for the
Department of Veterans Affairs.

DEPARTMENT OF STATE. This contract calls for the Company to augment and
replace existing mainframe systems and their components at two Department of
State processing hubs. The Systems Integration Group is also providing
various technical services functions in support of those processing centers.

DEPARTMENT OF VETERANS AFFAIRS. This contract forms the basis of information
technology solutions for the Department of Veterans Affairs' Austin
Automation Center. The Systems Integration Group provides mainframe hardware,
software and services to the Austin Automation Center in support of their
customers' missions. The Systems Integration Group is currently providing
hardware, software and services to two new mission critical information
technology requirements.

7
<PAGE>

NIH CERTAN CORPORATE COMPUTING SYSTEMS. This IDIQ-type contract provides
state-of-the-art hardware, software, supplies, training, maintenance, and
professional services for NIH's Center for Information Technology and the
Clinical Center's Information Systems Department.

OUTSOURCING DESKTOP INITIATIVE FOR NASA. Under this contract, the Company
provides comprehensive desktop computer, server and intra-center
communications services to NASA and NASA contractors. Under the contract,
NASA will define the computer and communications capabilities for each job
within NASA and purchase a particular bundle of hardware, software and
communications equipment for each "seat." The price for each type of "seat"
will be fixed. Under the ODIN delivery-order process, each NASA facility is
required to place orders exclusively with one vendor. In addition to NASA and
NASA contractors, through the GSA other Government agencies will also be able
to use the ODIN contract vehicle to purchase products and services from the
Company and other vendors. The Company competes with six other contract
winners for agency delivery orders under the contract and accordingly, being
selected as a contract awardee does not guarantee the Company any volume of
sales under the contract.

GSA SEAT MANAGEMENT. Seat Management is a non-mandatory, multiple award,
firm-fixed, ceiling-price, IDIQ contract. This contract will provide
Government agencies with desktop computing encompassing the management,
operation and maintenance of the desktop and its associated network
infrastructure as a unified service. This service includes the entire suite
of hardware, software, connectivity and support services required to support
desktop computing in an administrative, engineering, scientific or mixed work
environment. The Company competes with seven other contract winners for
agency task orders under the contract and accordingly, being selected as a
contract awardee does not guarantee the Company any volume of sales under the
contract.

SCIENCE & ENGINEERING GROUP

The Company's technology services offerings are focused predominantly on
providing sophisticated high-technology professional services to various
Government agencies. These activities are concentrated in three key service
areas: information technology, engineering and scientific research. The 1998
acquisitions of R.O.W., TIS and TMA strengthened the Science & Engineering
Group's skill base concentrated in three key areas: information technology,
aerospace engineering and health science research and development. The Science &
Engineering Group has recognized expertise in space systems, air traffic
management systems, health science research and the application of leading-edge
information technology to the requirements of customers in these segments.

INFORMATION TECHNOLOGY SERVICES. The Company operates over 40 separate
contracts for information technology services, through which it provides project
management, software development, software maintenance and outsourcing functions
for various Government agencies and prime contractors to the Government.
Specific activities include providing software engineering services to support
the maintenance and modification of the FAA's Air Traffic Control Operational
Computer Program at seven FAA Enroute Centers and at the FAA Technical Center;
supporting the design, development, implementation and maintenance of systems
and programs for spacecraft mission operations at JPL; and development of an
online grant management system for NIH.

ENGINEERING SERVICES. The Company provides engineering services to support
NASA, JPL, FAA, other Government agencies, as well as commercial customers.
Operating under contracts to provide comprehensive engineering support for
NASA's Langley Research Center ("Langley") in Hampton, VA, and JPL in
Pasadena, CA, the Company provides engineering services in the areas of
aeromechanics, aerospace technology, space experimentation, structures,
materials, instrumentation, aeronautics and space mission operations.

<PAGE>

Research at NASA Langley, relating mainly to aeronautics, involves
approximately 100 employees, and is focused in the areas of aeronautical systems
analysis, spacecraft mission analysis and engineering and flight operations
support. The Langley unit provides a full range of systems analysis and
integration studies including systems analysis for advanced military and civil
aircraft designs, conceptual design studies of critical and high-payoff
technologies, multi-discipline studies of unique military aircraft
configurations, airframe and engine design studies on hypersonic vehicles,
scramjet integrated design studies and spacecraft mission and system performance
analysis. The Company provides engineering and operations support in such areas
as the design, engineering and development of flight projects; the development
of ground test systems and test techniques (such as the development of
innovative wind tunnels); and the maintenance and operations of aircraft and
aircraft systems including research vehicles and experimental avionics systems.

The acquisition of TIS increased the Company's Pasadena, CA staff to
approximately 225 employees supporting JPL. Services are provided to JPL under
three contracts and include information technology support, engineering support
to space research and planning, and engineering and information technology
support to the operation of space missions such as Voyager and Mars Explorer.

SCIENTIFIC RESEARCH SERVICES. The Company performs biomedical research and
supports biomedical and health research activities for clients which include
NIH, Centers for Disease Control and Prevention, Food and Drug Administration
and other federal agencies involved in health research and policy formulation.
In addition, the Company has begun to provide similar services on a small scale
to commercial biotechnology organizations and pharmaceutical companies. The
Company has over 300 employees engaged in health and biomedical research support
services at facilities in six states.

Listed below are summary descriptions of major contracts and programs of
the Science & Engineering Group. Although the future status of any contract is
uncertain after contract expiration, the Company expects the customer under each
of these contracts to continue to require the services being performed after the
contract expires and expects such services to be the subject of a new bidding
competition for a new contract, either alone or in combination with other
services. However, the Company cannot guarantee with respect to any particular
contract to which it is a party, that such contract will be rebid upon
expiration or that if any such contract is rebid, that the follow-on contract
will be awarded to the Company. For a description of different types of
Government contracts, see "--Government Contracts."

HOST SOFTWARE SUPPORT. The Company is a subcontractor to Lockheed Martin
Corporation under a fixed-price labor hour contract and provides software
support to FAA Enroute Air Traffic Control Centers east of the Mississippi
River. The Enroute system monitors and directs aircraft between airports.
Approximately 65 employees perform project activities including software
engineering and maintenance, systems enhancements, systems programming and
data reduction and analysis.

JOINT BASE OPERATIONS AND SUPPORT CONTRACT. The Company is a subcontractor to
Space Gateway Support, Inc. ("SGS"), a joint venture led by Northrop Grumman
Corporation, which provides facilities management support services to NASA's
Kennedy Space Center ("KSC") and related Government facilities. This
contract, awarded in 1998, contains cost-plus-award-fee and fixed-price
elements for the Company to provide information technology services and
products to SGS for use in contract performance. The Company has a staff of
approximately 65 personnel at KSC in support of this contract.

MISSION OPERATIONS SUPPORT SERVICES. This cost-plus-fixed-fee contract,
awarded in 1994, provides NASA flight project mission operations support
systems at JPL. Company personnel support Galileo, Voyager, Topex, Cassini,
New Millennium, Mars Global Surveyor and the Multi-Mission Ground System
Office.

<PAGE>

SERVICE OPERATIONS SUPPORT 4. This cost-plus-fixed-fee contract was awarded
in 1996 by the William J. Hughes Technical Center of the FAA. Under this
contract, the Company performs second-level software maintenance for the
FAA's automation-intensive systems, including air traffic control.

TECHNICAL AND APPLICATION PROGRAM SUPPORT. This cost-plus-fixed-fee contract
was awarded in 1993 by NASA. The contract provides software engineering,
systems integration, systems administration, hardware procurement, field
installation and support of various communication systems at JPL.

IMPAC/CRISP. This cost-plus-fixed-fee contract was awarded in 1994 by NIH.
The contract is in support of the modernization effort of the legacy
mainframe system to a state-of-the-art, client/server solution. The
IMPAC/CRISP system is a large-scale, mission critical grants
tracking/financial database management system.

SYSTEMS & TECHNOLOGY GROUP

The Company is a leading value-added reseller of hardware, software and
related services to the Government. Consistent with the Company's strategy of
offering solutions based on open computing architectures, the Company has
focused its reselling activities on workstations, servers, enterprise networking
hardware and related peripherals and software. Along with providing a broad
range of top quality products through supplier and teaming relationships with
hardware and software original equipment manufacturers ("OEMs"), the Company
makes its technical personnel available to provide its customers with customized
"value-added" technical support services. Information technology product sales
have been a core business for the Company and have provided it with the
marketing platform to become a major open systems solutions provider in the
Government marketplace.

The Systems & Technology Group employs approximately 95 sales, marketing,
business development and contract representatives and approximately 45 technical
personnel, each of whom has been recruited based on his or her extensive
knowledge of a particular customer group, particular products sold by the
Company, or both. The sales force's extensive training in various Government
procurement rules allows them to guide customers to the most efficient
acquisition vehicle for the Company's products, whether that vehicle is an
agency-specific IDIQ contract, a MAC or a GSA Schedule. See "--Government
Contracts." These representatives maintain regular contact and working
relationships with a set of vendors and existing or potential customers.

The Company's product reselling activities add value for both information
technology manufacturers and Government customers. Manufacturers gain access to
the Company's sales force and its experience in the Government procurement and
sales process, including capabilities and experience in electronic commerce,
order entry and invoicing. Customers benefit from the Company's technical
knowledge of available products and vendors, and also from the Company's
procurement expertise, which helps them select the optimal procurement vehicle
to meet their needs. The Company's procurement personnel also make it easier for
Government customers to place orders and configure and set-up new systems.
Management believes that the new contract vehicles resulting from Government
procurement reform (see "--Government Contracts") could enhance the Company's
opportunities to provide value-added services to both suppliers and customers by
allowing the Company to demonstrate how these vehicles can be used by suppliers
to sell more products and by customers to buy more products and services.

Management believes the Company is on the leading edge of electronic
commerce for sales of information technology to the Government. The Company has
developed Internet facilities including a World Wide Web Site to support
"paperless" contracting with the GSA Schedules and under the NIH Electronic
Computer Store II ("ECS II") contract. ECS II is a MAC vehicle providing

<PAGE>

an electronic catalog from which agencies may place individual orders ranging in
value from a few thousand dollars to several million dollars. The Company is one
of 45 vendors providing products under the ECS II vehicle and is able to quickly
add new products as they become available and requested by its customers.
Customers typically select from among the participating vendors based on prior
or existing service relationships, breadth of product offerings, reputation and
price. Management believes the Company is well positioned to benefit from its
electronic commerce capabilities as more and more Government procurement
vehicles are requiring these competencies as a condition of award.

The Company also provides expertise in the Government procurement process
as a subcontractor to OEMs, providing services including initial bid and
proposal preparation, contract management, customer support services, technical
management services and electronic commerce services. Under a NASA Scientific
and Engineering Workstation Program II subcontract, the Company will provide
several of these subcontracting services to a leading microcomputer and
workstation manufacturer for a specified percentage of revenues.

COMPETITION

In providing a broad range of services and products that address the
complete information technology needs of its customers, the Company
participates, to varying degrees, in multiple areas of the information
technology market, including markets for systems engineering, development and
integration, networking, and product and component sales. In each area, the
Company experiences vigorous competition with firms of varying size and
different specializations and skills. The number and size of competitors vary
among operating groups and within the individual divisions of each group.
Frequently, the number and identity of competitors vary even from program to
program within a given business area. While the recent trend toward increased
use of GSA and IDIQ contracts has changed some aspects of how companies sell to
the Government, the Company has experienced no material change in the overall
competitiveness of the federal market. Many of the Company's competitors are
significantly larger and have greater financial resources than the Company. Some
of these competitors are divisions or subsidiaries of large, diversified
companies that have access to the financial resources of their parent companies.
In the Systems & Technology Group, the Company competes with certain computer
manufacturers (including the Company's suppliers), who occasionally sell
directly to the Government market, as well as a substantial number of systems
integrators, resellers and distributors. To a lesser extent, the Company
competes with Government agencies themselves which are permitted to sell
services to other Government agencies as a result of procurement reform.

The Company believes that the principal competitive factors in the
Government services market are technical knowledge, management capability, past
contract performance, personnel qualifications and price. During its recent
history, the Company has been successful in winning new and repeat contract
awards in each of its businesses and in getting customers to exercise contract
option years in its services business, both of which the Company believes are
attributable to the strength of its past contract performance, its technical
knowledge, and its competitive prices. Further, the Company's senior management
team has extensive, industry-specific technical and managerial experience. As a
result, the Company believes that it has generally been able to compete
successfully on each of the principal competitive factors within each of its
business lines.

BACKLOG

The Company's total contract backlog is only a portion of the total
contract capacity (i.e., the maximum amount that the Government can purchase
under its contracts with the Company) and represents management's estimate of
the aggregate revenue that is likely to be earned by the Company over the life
of all of its contracts, including option periods. Because many of the

<PAGE>

Company's contracts are multi-year contracts and contracts with option years,
total contract backlog represents revenue expected to be realized over a number
of years into the future. The Company's estimated total contract backlog as of
December 31, 1998 was approximately $1.4 billion. The Company's estimates of
revenue from such contracts are based on the Company's history with such
contracts and similar contracts, and management believes such estimates to be
reasonable. However, because total contract backlog is based on management's
estimate as to the future potential of existing contracts, there can be no
assurances that all of such backlog will be recognized as revenue. In addition,
the Government's ability to select multiple winners under IDIQ contracts, as
well as its right to limit orders to any particular awardee, mean that there is
no assurance that unfunded contract backlog will result in actual orders.

Because the Government operates under annual appropriations, agencies of
the Government typically fund contracts on an incremental basis. Accordingly,
only a portion of the Company's total contract backlog is "funded." Funded
backlog consists of the aggregate dollar portion of contracts currently
appropriated by Government customers and allocated to contracts under delivery
orders by the purchasing Government agencies or otherwise allocated for payment
by customers upon completion of specified work. As of December 31, 1998, the
Company's funded contract backlog was approximately $125 million. Funded backlog
generally varies depending on procurement and funding cycles and other factors
beyond the Company's control. Accordingly, period-to-period comparisons are
difficult and not necessarily indicative of any future trends in revenue.

The preceding information regarding contract backlog and future revenue to
be derived therefrom, is forward-looking and is subject to certain risks and
uncertainties including, but not limited to, a dependence on the continued
funding of Government programs and contract procurements and the risk of
contract termination described elsewhere in this report.

GOVERNMENT CONTRACTS

The Company derives substantially all of its revenue from business
performed under Government contracts. These include services, systems
integration and other contracts obtained through a negotiated procurement
process, as well as product sales contracts made under GSA Schedules, MACs and
similar IDIQ vehicles.

Traditional negotiated procurement contracts typically authorize a single
contractor or team of contractors to provide a defined set of services and
products to a single Government agency. These contracts include
cost-reimbursement contracts (both cost-plus-fixed-fee and cost-plus-award-fee),
time and materials contracts, fixed-price contracts and IDIQ contracts.

Cost-plus-fixed-fee contracts generally provide for the reimbursement of
incurred costs during contract performance, to the extent that such costs are
allowable and allocable, and the payment of a fee, the size of which is fixed in
the contract. Cost-plus-award-fee contracts typically provide for the
reimbursement of costs with a base fee and an additional fee that is based upon
a periodic evaluation of the contractor's performance against specified
criteria. Under time and materials contracts, the contractor agrees to provide
certain categories of labor and materials at negotiated rates. To the extent a
contractor's costs differ from the negotiated rates, the contractor realizes all
of the benefit or detriment resulting from the difference between the contract
price and the contractor's cost for a unit of labor or product. Risks associated
with these fluctuations have been mitigated for information technology providers
by the consistent decline in product costs over time, although these reductions
must frequently be anticipated in the proposal process. Under fixed-price
contracts, the contractor agrees to perform specified work for a fixed price
and, accordingly, realizes all the benefit or detriment resulting from decreases
or increases in the cost of performing the work.

The IDIQ contracts historically negotiated by the Company typically
specify the prices at which certain services and/or products are to be provided.
These contracts have been and

<PAGE>

continue to be used for large-scale Government purchases of integrated systems
that include a significant service or maintenance component, along with the
provision of computer hardware and software. These IDIQ contracts are typically
awarded to a single bidder or team of bidders chosen through a formal
competitive bidding process. The periods of performance for IDIQ contracts
typically span a base year and a number of option years. IDIQ contracts do not
obligate the Government to purchase goods or services at the levels set out in
the request for proposal, and allow the Government to terminate the contract if
it is dissatisfied with the contractor's pricing or performance, or simply for
convenience. Alternatively, IDIQ vehicles offer both the Government and the
contractor flexibility to introduce new products and services as technology
changes over the life of the contract.

Over the past few years, reforms of the Government procurement process
have introduced a dramatic increase in the flexibility and alternatives
available to the federal information technology buyer. Onerous regulations that
effectively encouraged large scale, long term, single award procurements have
given way to a more "commercial" buying approach. Government customers,
particularly those buying computer hardware and software without a custom
service element, are spending an increasing share of their procurement budgets
through smaller scale, shorter term, multiple award, multiple agency contract
vehicles and task orders. While each of these flexible contract vehicles has its
own unique characteristics, they have several major elements in common. Because
these vehicles do not require the Government to make specific purchases, they
are generally characterized as IDIQ contracts, and function as procurement
"schedules" or catalogs. Although contractors must compete for the right to
participate in these multi-agency, multi-vendor vehicles, winning the right to
participate does not guarantee revenues, which require an effective post-award
sales effort.

In addition to purchasing from multiple IDIQ contracts, Government
agencies may also purchase from GSA Schedules or MACs. Historically, the GSA
would produce schedules for each agency, after extensive bidding and review
processes that would dictate the products, prices and vendors for all purchases
by that agency. As a result of recent changes to the rules governing use of GSA
Schedules for Government agency purchases of hardware, software and services,
GSA Schedules now frequently act as broadly defined IDIQ contracts under which
multiple Government agencies may procure hardware, software or related services
from contractors authorized to sell under such GSA Schedules without minimum or
maximum order limitations. Contractors participating in the GSA Schedule program
are eligible to market their products to a broad range of Government customers.
The GSA Schedules together with related basic purchasing agreements, for larger
volume purchases at reduced prices, offer Government agencies the advantage of
an established contracting infrastructure including staff who are expert in the
technologies offered by various vendors, volume driven pricing, access to the
latest technology and streamlined purchasing mechanisms.

At the time of initial award, prices to the end-users under the Company's
GSA Schedules are set, either at a specified level for the duration of the
contract or at specified levels varying over time. In addition, under certain
circumstances, the Company is required under the terms of its GSA Schedules to
pass on any savings, resulting from supplier discounts or other price
reductions, to the Government in the form of corresponding price reductions. GSA
Schedules do not have pre-set delivery schedules or minimum purchase levels. The
uncertainties related to future contract performance costs, quantities to be
shipped and dates of delivery make it difficult to predict the future revenue
and profitability performance that may be associated with any particular GSA
Schedule.

Similar to GSA Schedules, MACs offer multiple agencies the opportunity to
procure products from a broad range of vendors. For example, 45 contractors,
including the Company, now hold MACs through the NIH's ECS II, which is a series
of electronic hardware and software catalogs from which any Government agency
that elects to participate may order. MACs specify products and prices and are
issued by a specific Government agency to multiple contractors.

<PAGE>

The evolution of procurement methods has had the effect of making the
procurement of information technology in the Government more similar to that in
the commercial sector. The new procurement methods allow for more timely
purchases of information technology products and for multiple vendors selling
the same products and services, resulting in increasing competition for contract
orders. Thus, whereas historically a contract award typically assured the
winning bidder of a predictable amount of revenue, in the current environment
the contractor's post-award sales, marketing, and customer service effectiveness
frequently dictate the amount and timing of all revenue to be realized under the
contract or schedule. In effect, the new vehicles necessitate two selling
cycles: one to win participation as a vendor under the umbrella contract and a
second to actually win specific orders after contract award.

SUPPLIERS

The Company maintains strong relationships with many of its key suppliers.
These relationships allow the Company to work with these suppliers to fashion
joint solutions for its customers. Management believes that the Company provides
significant value to its suppliers by allowing them to take advantage of the
Company's extensive knowledge of the Government and its procurement regulations.
In addition, the Company's sales and marketing capabilities allow its suppliers
to access new end-user markets without expanding their marketing functions. The
Company currently has relationships with most leading hardware and software
suppliers. The Company does not rely on any single supplier of products or
services.

SALES AND MARKETING

Sales and marketing efforts are split into contract pre-award and
post-award activities. Employees in the Corporate Marketing Group focus on
pre-award sales and marketing, including identifying and qualifying new
contracts for the business units to bid on. Each business unit provides
resources to prepare proposals for qualified opportunities. Once a contract is
awarded, the business unit responsible for the new contract leads the technical
performance and/or post-award sales and marketing effort intended to maximize
sales. Under IDIQ contracts, the Company's post-award activities are the most
significant factor in determining the amount of revenue realized.

Within the Corporate Marketing Group, senior management and the Company's
own professional staff of marketing personnel, engineers and analysts conduct
the Company's sales and marketing activities for major proposal efforts. The
Corporate Marketing Group employs approximately 10 people. In total, the Company
employs over 150 sales and marketing professionals.

MAJOR CUSTOMERS

The Government accounted for substantially all the Company's revenue
during 1996, 1997 and 1998. The Company has derived and expects to continue
to derive substantially all of its revenue from Government contracts.
Contracts with NASA, Department of Veterans Affairs and Department of the
Navy represented approximately 12%, 7% and 6% of 1998 revenues, respectively.
Sales utilizing GSA schedules accounted for approximately 25% of 1998
revenue. The various Government customers exercise independent purchasing
decisions, and except for financial reporting purposes, sales to the
Government are generally not regarded as constituting sales to one customer.
Instead, each contracting entity is considered to be a separate customer.

EMPLOYEES

On December 31, 1998, the Company employed approximately 1,500 persons,
900 of these employees were technical personnel, 150 were marketing/sales
personnel and 450 were other administrative staff. The Company believes that it
is competitive in hiring and retaining qualified personnel. None of the
Company's employees are covered by collective bargaining agreements

<PAGE>

with labor unions. The Company considers its relations with its employees to be
good and has not experienced any significant labor problems.

Item 2. Facilities.

The Company leases substantially all of the offices and facilities used in
connection with its operations. The following table sets forth information
relating to the significant facilities leased by the Company. In addition, the
Company leases customer support offices near customer facilities in various
states.

<TABLE>
<CAPTION>
Expiration
of
Location Purpose Square Footage Lease(s)
<S> <C> <C> <C>
Bethesda, MD Corporate Headquarters and Systems 67,602 12/31/04
Integration Group Headquarters
Greenbelt, MD Systems & Technology Group Headquarters 66,746 12/31/04
Science & Engineering Group -Transportation Sector
Rockville, MD Science & Engineering Group Headquarters 57,198 1/7/03
and Health Sector
</TABLE>

Item 3. Legal Proceedings.

The Company is not involved in any material legal proceedings. From time
to time, the Company or its competitors file protests, as permitted under
procurement regulations, in connection with specific contract awards.
Historically, these proceedings have not had any material effect on the
Company's financial condition, results of operations, or cash flow. There can be
no assurance that the Company will not become involved in material legal
proceedings or contract bid protest proceedings in the future.

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

None

PART II

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

The Company's common stock is not traded on any established public trading
market. As of March 25, 1999, there were 29 holders of record and approximately
23 beneficial owners of the Company's common stock. The majority of the shares
of the Company's common stock are owned of record and beneficially by affiliates
of TC Group, L.L.C. d/b/a/ The Carlyle Group or the directors and officers of
the Company. The Company has not paid or announced a cash dividend on account of
its common stock during the two fiscal years preceding December 31, 1998 or
during the first quarter of 1999. The Company has no present intention to pay
cash dividends on its common stock for the foreseeable future in order to retain
all earnings for investment in the Company's business and the repayment of the
Company's indebtedness. The Company's Senior Credit Facility and the trust
indenture for the Exchange Notes include certain restrictions on the Company's
ability to pay cash dividends on the Company's common stock including, without
limitation an aggregate limitation on all dividends since July 25, 1997 in
excess of 50% of the Company's consolidated net income since the date thereof.

15
<PAGE>

Recent Sales of Unregistered Securities

Since January 1, 1998, the Company has sold and issued the following
unregistered securities:

On June 19, 1998, the Company issued 2,000 shares of the Company's common
stock for an aggregate offering price of $54,000. On July 1, 1998, the Company
issued 4,625 shares of the Company's common stock for an aggregate offering
price of $124,875. On August 18, 1998, the Company issued 10,000 shares of the
Company's common stock for an aggregate offering price of $270,000.

No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from the
registration provisions of the Securities Act set forth in Section 4(2) thereof
as transactions not involving a public offering, the respective purchasers
thereof having acquired such shares for their respective accounts without a view
to the distribution thereof.

<PAGE>

Item 6. Selected Financial Data.

The consolidated statement of operations data set forth below with respect
to the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and the
consolidated balance sheet data at December 31, 1994, 1995, 1996, 1997 and 1998
have been derived from, and are qualified by reference to, the Company's
consolidated financial statements and notes thereto audited by
PricewaterhouseCoopers LLP, independent accountants. The selected consolidated
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto in Items 7 and 8.

Year Ended December 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
--------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
(In thousands)

Income Statement Data:
Revenue....................................... $143,527 $129,819 $151,108 $336,306 $520,294
--------- --------- --------- --------- ----------
Expenses:
Cost of sales and services.................. 114,038 107,366 114,248 280,903 449,225
Selling, general and administrative......... 20,546 20,943 21,366 37,804 48,419
Goodwill and intangibles.................... - - - 5,031 12,035
Interest (a)................................ 3,580 3,663 7,564 10,947 16,029
--------- --------- --------- --------- ---------
Total expenses.................... 138,164 131,972 143,178 334,685 525,708
--------- --------- --------- --------- ---------
Income (loss) before extraordinary
item and income taxes.................. 5,363 (2,153) 7,930 1,621 (5,414)
Income tax provision (benefit).............. 1,171 (3,950) 3,202 1,368 1,282
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item..... 4,192 1,797 4,728 253 (6,696)
Extraordinary loss from early retirement of
debt, net of income tax benefit (b).... - - - (2,770) -
--------- --------- --------- --------- ----------
Net income (loss)........................... $4,192 $1,797 $4,728 ($2,517) ($6,696)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Operating Data (f):
EBITDA (c).................................. $6,734 ($847) $14,082 $18,213 $27,354
Net recourse interest expense (d)........... 44 40 5,370 9,493 15,469
Net cash recourse interest expense (e)...... 44 40 3,926 8,689 14,520
Depreciation and amortization............... 1,327 1,266 782 7,099 15,241
Non-cash stock compensation................. - - - - 2,058

Balance Sheet Data at End of Period:
Working capital............................. $17,195 $11,025 $16,249 $47,566 $55,044
Total assets................................ 120,947 150,102 83,286 192,966 231,921
Long-term debt.............................. 20,077 43,412 50,170 113,359 142,551
Stockholders' equity (deficit) (g).......... 19,399 (25,962) (22,826) 1,017 (3,172)

</TABLE>

(a) Interest expense includes interest on both recourse and nonrecourse notes
payable and obligations under capital leases.

(b) During the year ended December 31, 1997, the Company wrote off the deferred
financing fees related to the Recapitalization and the NYMA and Sylvest
acquisition debt that was refinanced in July 1997.

<PAGE>

(c) EBITDA represents the sum of income (loss) before extraordinary item and
income taxes, net recourse interest expense, depreciation and amortization and
one-time non-cash charges. EBITDA is not a measure of performance or financial
condition under generally accepted accounting principles, but is presented to
provide additional information related to debt service capability. EBITDA should
not be considered in isolation or as a substitute for other measures of
financial performance or liquidity under generally accepted accounting
principles. While EBITDA is frequently used as a measure of operations and the
ability to meet debt service requirements, it is not necessarily comparable to
other similarly titled captions of other companies due to the potential
inconsistencies in the method of calculation.

(d) Net recourse interest expense is interest expense minus interest expense on
nonrecourse notes payable and nonrecourse obligations under capital leases of
$3,188, $2,669, $2,015, $1,161 and $235 and minus interest income on cash
balances of $348, $954, $179, $293 and $325 for the years ended December 31,
1994, 1995, 1996, 1997 and 1998, respectively.

(e) Net cash recourse interest expense is net recourse interest expense minus
amortization of deferred financing costs of $817, $804 and $949 for the years
ended December 31, 1996, 1997 and 1998, respectively, and minus interest expense
of $627 for the year ended December 31, 1996 on FDC Notes that was paid through
the issuance of payment in kind notes.

(f) Net cash flows from operating activities was $19,242, ($2,767),
$1,452, $20,907 and $15,666 for the years ended December 31, 1994, 1995, 1996,
1997 and 1998, respectively. Net cash flows from investing activities was
($7,558), ($52,841), $49,703, ($58,471) and ($37,905) for the years ended
December 31, 1994, 1995, 1996, 1997 and 1998, respectively. Net cash flows
from financing activities was ($3,529), $50,327, ($60,275), $42,700 and $19,854
for the years ended December 31, 1994, 1995, 1996, 1997 and 1998, respectively.

(g) Stockholders' equity (deficit) includes the effect of the Recapitalization
which included a charge to stockholders' equity of $58.8 million. In connection
with the Recapitalization and the acquisitions of NYMA and Sylvest, Carlyle and
management have contributed approximately $43.1 million of cash to the Company.
See Notes 2 and 4 to the Company's consolidated financial statements.

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

THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S CONSOLIDATED
FINANCIAL CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS SHOULD BE READ IN
CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO APPEARING ELSEWHERE IN THIS REPORT. EXCEPT AS EXPRESSLY INDICATED, THE
FOLLOWING DISCUSSION DOES NOT GIVE EFFECT TO THE PRE-ACQUISITION OPERATIONS OF
NYMA, SYLVEST, R.O.W., TIS AND TMA (COLLECTIVELY, THE "ACQUISITIONS") OR INCLUDE
PRO FORMA FINANCIAL INFORMATION.

GENERAL

The Company is a major supplier of information technology to a wide
range of customers within the Government. The Company has assembled, through
internal growth and strategic acquisitions, comprehensive information
technology services and product capabilities to address the unique needs of
its Government clients.

Prior to December 1, 1995, the majority of the Company's common stock was
owned by its employees. On December 1, 1995, the Company effected the
Recapitalization wherein FDC Holdings, Inc. merged with and into the Company
with the Company continuing as the surviving corporation. Holdings was a company
organized by Carlyle to facilitate the Recapitalization and had no operating
activity or history. The merger was accounted for as a recapitalization, which

<PAGE>

resulted in a charge to stockholders' equity of $58.8 million to reflect the
redemption of common stock.

In May 1997, the Company purchased all of the outstanding shares of common
stock of NYMA for $34.6 million. The purchase price consisted of $29.6 million
in cash of which $1.8 million was paid in 1998 after certain operating
objectives related to new business activity were met, and $5.0 million in
subordinated notes. The Company financed the acquisition of NYMA through
additional borrowing of $28.0 million and the sale of 555,556 shares of the
Company's common stock, primarily to existing stockholders, for $15.0 million. A
portion of the new borrowings was used to retire existing Company and NYMA
indebtedness. NYMA is a provider of high technology engineering and information
technology services under contracts with various Government agencies and
subcontracts with large Government contractors. In June 1997, the Company
purchased all of the outstanding shares of common stock of Sylvest for $41.0
million. The purchase price consisted of $33.0 million in cash and subordinated
notes of $8.0 million of which $1.0 million was issued in 1998 after certain
earnings objectives were met. Subordinated notes of $4.0 million were prepaid in
August 1997. The Company financed the acquisition of Sylvest through additional
borrowing of $27.4 million and the sale of 444,444 shares of the Company's
common stock, primarily to existing stockholders, for $12.0 million. A portion
of the new borrowings was used to retire existing Sylvest indebtedness. Sylvest
is a leading reseller and technical services vendor supporting open systems
architecture within the federal marketplace. Of the total fees and expenses
related to these transactions, $1.0 million was paid to an affiliate of Carlyle.

In December 1997, the Company sold substantially all of the assets of its
wholly-owned subsidiary, DoxSys, Inc. for $7.0 million, of which $2.8 million
was recorded in 1998 as a result of DoxSys achieving certain earnings
objectives.

In February 1998, the Company purchased all of the outstanding common
stock of R.O.W. Sciences, Inc. ("R.O.W.") for $9.5 million. The purchase
price consisted of $8.5 million in cash, of which $0.6 million was paid later
in 1998 after certain revenue objectives were met and $1.0 million in
subordinated notes. The agreement also provides for additional cash payments
up to $0.4 million if certain revenue objectives are met. Such payments, if
any, will be accounted for as adjustments to the purchase price. In February
1998, the Company also purchased all of the assets of Telos Corporation's
Telos Information Systems Division ("TIS") for $14.7 million. The entire
purchase price was paid in cash. In March 1998, the Company purchased all of
the outstanding common stock of Technical and Management Assistance Inc.
("TMA") for $9.2 million. The purchase price consisted of $8.2 million in
cash and $1.0 million in subordinated notes. The Company financed the R.O.W.,
TIS, and TMA acquisitions through borrowings under its existing revolving
line of credit facility. R.O.W. provides services that combine expert
knowledge in life and health sciences with state-of-the-art computer based
technologies principally to Government agencies. TIS provides engineering and
information technology services to the Jet Propulsion Laboratory and other
Government customers. TMA provides information technology services
principally to the air traffic management function within the Federal
Aviation Administration.

Management believes the continuing consolidation within the information
technology industry, particularly among companies serving Government customers,
should result in additional opportunities for the Company to make attractive
acquisitions. As a result, the Company is continually involved in the
investigation and evaluation of potential acquisition candidates. Any such
transactions are typically subject to numerous conditions, including due
diligence investigations, contract reviews and negotiation of a definitive
purchase agreement in addition to arranging acceptable financing. In evaluating
acquisition targets, the Company considers, among other things, their
competitive market position, management teams, growth potential, technical
skills and contract base. As of March 25, 1999, the Company is not a party to
any definitive binding acquisition, however at any time the Company may have one
or more offers outstanding and may have executed one or more letters of intent.
There can be no assurance, however, that any such understandings, letters of
intent or discussions will result in any particular transaction being
consummated, or that acceptable financing will be available.

<PAGE>

The Company's operating performance is affected by the number of
Government contracts held, the types of contracts, the timing of installation or
delivery and the relative margins of the services performed or products sold, as
the case may be. In general, the Company earns its highest margins on its most
specialized systems integration work and lower margins on cost-plus services
contracts and on sales of COTS products, which tend to have a lower services
component associated with such sales and a more competitive after-award sales
environment. However, profitability regularly varies from contract to contract
and product to product over the contract term.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997

For the year ended December 31, 1998, the Company's total revenue was
$520.3 million, loss before income taxes was $5.4 million, net loss was $6.7
million and EBITDA (as defined herein) was $27.4 million. Contributing to the
Company's loss before income taxes for 1998 were non-cash charges totaling $10.1
million related to amortization of certain intangible assets and the vesting of
stock options. These non-cash charges had a $9.0 million after-tax effect on the
net loss. The Company's pretax charge for other intangible assets amounted to
$8.0 million for 1998. The intangible assets being amortized represent
identifiable assets recorded in connection with the Company's acquisitions in
1997 and 1998, including contract backlog, covenants not to compete, work force,
trade names and trademarks. The Company recorded $16.5 million related to the
acquired contract backlog which is equal to the present value of the pretax
profits projected to be earned as a result of the Company's performance of such
acquired contracts. This amount is being amortized over the remaining terms of
the acquired contracts in the same manner and at the same time as the Company
recognizes the related contract revenues. The value assigned to the other
acquired intangible assets is $5.5 million and is being amortized over periods
up to three years. Excluding the impact of future acquisitions, the Company
expects that its non-cash charge for amortization of other intangible assets
will not be significantly different in 1999 than it was in 1998 but should
decline in 2000 and thereafter. In 1998, the Company amended and restated its
Stock Option Plan for Executives and Key Employees by accelerating the vesting
of certain performance based options. Accordingly, the Company recorded non-cash
compensation of $2.1 million and a related increase in capital in excess of par
value based on the difference between the exercise price of the stock options
and the current fair market value. Without regard to any future changes in its
Stock Option Plan, the Company expects that it will record non-cash compensation
related to this change of approximately $0.5 million in 1999, $0.2 million in
2000 and none thereafter.

REVENUE

Revenue for the year ended December 31, 1998 was $520.3 million, up
$184.0 million or 55% over the comparable period of 1997. Revenue from
product sales was $341.6 million, up $130.5 million or 62% over the
comparable period of 1997. The Acquisitions accounted for $79.9 million of
the increase in product sales revenue over the comparable period of 1997. The
remaining increase in revenue from product sales is principally due to the
strong performance from the Company's sale of COTS products. Revenue from
professional and support services was $173.8 million, up $53.7 million or 45%
over the comparable period of 1997. The Acquisitions accounted for $85.7
million of the increase in professional and support services revenue over the
comparable period of 1997. This increase in professional and support services
revenue was offset by reductions in professional and support services revenue
due to the expiration of existing contracts. The largest contract that
expired during 1998 was a contract awarded to NYMA in 1993 under section 8(a)
of the Small Business Act, which is intended to foster growth of small
businesses owned and controlled by socially and economically disadvantaged
individuals. After the acquisition of NYMA by the Company, NYMA's continued
participation as a prime contractor required a waiver from the Administrator
of the Small Business Administration which was not received.

COST OF SALES AND SERVICES

Cost of sales and services for the year ended December 31, 1998 was $449.2
million, up $168.3 million or 60% over the comparable period of 1997. The
Acquisitions accounted for $146.4 million of the increase in cost of sales and
services over the comparable period of 1997.

<PAGE>

Cost of sales and services in 1998 was 87% compared with 85% of sales and
services revenue for the comparable period of 1997. Cost of sales and services
and margin analysis do not reflect the amortization of the present value of
contract profits acquired through the Acquisitions.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

Selling, general and administrative expense for the year ended December
31, 1998 was $48.4 million, up $10.6 million or 28% over the comparable
period of 1997. The Acquisitions accounted for a $12.1 million increase in
selling, general and administrative expense over the comparable period of
1997. In 1998, the Company amended and restated its Stock Option Plan for
Executive and Other Key Employees by accelerating the vesting of certain
performance options. Accordingly, the Company recorded non-cash compensation
of $2.1 million and a related increase in capital in excess of par value
based on the difference between the exercise price of the stock options and
the current fair market value. Excluding the effect of the Acquisitions and
the non-cash compensation, selling, general and administrative expense for
the year ended December 31, 1998 decreased $3.6 million from the comparable
period of 1997 primarily due to reductions associated with the expiration of
existing contracts. Excluding the effect of the Acquisitions and the non-cash
compensation, selling, general and administrative expense for the year ended
December 31, 1998 was 10% of revenue compared with 15% in the comparable
period of 1997. This decrease in selling, general and administrative expense
as a percent of revenue was due primarily to economies of scale achieved
during the period.

AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS

The excess of the cost of the Acquisitions over the fair value of
identifiable net tangible and intangible assets acquired was $64.4 million and
is being amortized on a straight-line basis over fifteen years. The present
value of the contract profits of $16.5 million acquired in the Acquisitions is
being amortized over the remaining terms of the acquired contracts in relation
to the recognition of related contract revenue. Other identified intangibles
including covenants not to compete, work force and trade names and trademarks of
$5.5 million acquired in the Acquisitions are being amortized over periods up to
three years. Amortization of goodwill and intangible assets for the year ended
December 31, 1998 was $12.0 million, up $7.0 million, or 139% over the
comparable period of 1997.

INTEREST EXPENSE

Interest expense for the year ended December 31, 1998 was $16.0 million, up
$5.1 million, or 46% over the comparable period of 1997. Recourse interest
expense increased $6.0 million for the year ended December 31, 1998 over the
comparable period of 1997 primarily due to increased recourse debt used to
partially finance the Acquisitions. Interest expense on nonrecourse debt
declined $0.9 million for the year ended December 31, 1998 from the comparable
period of 1997 due to a reduced average level of capital leases outstanding.

INCOME TAXES

The effective tax provision rate for the year ended December 31, 1998 was
24% as compared with the effective tax benefit rate of 12% for 1997. The 1998
tax provision resulted from the effect of the taxable loss incurred during the
year, offset by the non-deductibility of the amortization of goodwill and the
value assigned to other identified intangibles associated with the acquisitions
of NYMA and R.O.W. and the non-cash compensation related to stock options.

NET LOSS

Net loss for the year ended December 31, 1998 was $6.7 million, a $4.2
million increase from the net loss of $2.5 million recorded in the comparable
period of 1997 based on the reasons discussed above.

<PAGE>

YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996

REVENUE

Revenue for the year ended December 31, 1997 was $336.3 million, up
$185.2 million or 123% over 1996. The NYMA and Sylvest acquisitions accounted
for $147.6 million of the increase in revenue over 1996. Revenue from product
sales was $211.1 million, up $123.6 million or 141% from 1996. The NYMA and
Sylvest acquisitions accounted for $100.5 million of the increase in product
sales revenue over 1996. The remaining increase in revenue from product sales is
principally due to strong performance from the Company's sale of COTS products.
Revenue from professional and support services was $120.2 million, up $60.3
million or 101% from 1996. The NYMA and Sylvest acquisitions accounted for $47.0
million of the increase in professional and support services revenue over 1996.
The remaining increase in revenue from professional and support services is
principally due to increased professional services performed under existing
contracts and additional contracts under maintenance plans.

COST OF SALES AND SERVICES

Cost of sales and services for the year ended December 31, 1997 was
$280.9 million, up $166.7 million or 146% over 1996. The NYMA and Sylvest
acquisitions accounted for $131.7 million of the increase in cost of sales
and services over 1996. Cost of sales and services in 1997 was 85% of sales
and services revenue compared with 78% of sales and services revenue for
1996. The decrease in the gross margin percentage primarily relates to
increased influence of the sale of COTS products which generally have lower
gross margin percentages than specialized systems integration work and the
lower margins on NYMA's cost-

<PAGE>

plus-award fee business. This decrease was partially offset by the improved
margins from the professional services business, a greater percentage of which
is now being performed by the Company's employees instead of being subcontracted
to third parties. Cost of sales and services and margin analysis do not reflect
the current year's amortization of the present value of the contract profits
acquired in the NYMA and Sylvest acquisitions.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

Selling, general and administrative expense for the year ended December
31, 1997 was $37.8 million, up $16.4 million or 77% over 1996. The NYMA and
Sylvest acquisitions accounted for $9.6 million of the increase in selling,
general and administrative expenses over 1996. The remaining increase in
selling, general and administrative expense was due primarily to an increase in
the number of personnel. Excluding the effect of the NYMA and Sylvest
acquisitions, selling, general and administrative expense for the year ended
December 31, 1997 was 15% of revenues, compared with 14% in 1996.

AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS

The excess of the cost of acquiring NYMA and Sylvest over the fair value
of identifiable net tangible and intangible assets acquired was $48.5 million
and is being amortized on a straight-line basis over fifteen years. The present
value of the contract profits of $10.7 million acquired in the NYMA and Sylvest
acquisitions is being amortized over the remaining terms of the acquired
contracts in relation to the recognition of related contract revenue.
Amortization of goodwill and intangible assets for 1997 was $5.0 million.

INTEREST EXPENSE

Interest expense for the year ended December 31, 1997 was $10.9 million,
up $3.4 million, or 45% over 1996. Recourse interest expense increased $4.3
million for the year ended December 31, 1997 over 1996 primarily due to
increased recourse debt balances including term debt used to partially finance
the acquisitions of NYMA and Sylvest. Interest expense on nonrecourse debt
declined $0.9 million for the year ended December 31, 1997 from 1996 due to a
reduced level of capital leases.

INCOME TAXES

The effective tax benefit rate for the year ended December 31, 1997 was
12% as compared with the effective tax provision rate of 40% for 1996. The 1997
tax benefit resulted from the effect of the taxable loss incurred during the
year and other items which were partially offset by the non-deductibility of the
amortization of goodwill and the value assigned to contract backlog associated
with the NYMA acquisition in 1997.

EXTRAORDINARY LOSS

In 1997, the Company recorded a charge to earnings of $4.5 million related
to deferred financing fees associated with the debt incurred to finance the
Prior Senior Credit Facility and the NYMA and Sylvest acquisitions. This debt
was refinanced with proceeds from the Senior Subordinated Notes. This charge to
earnings was reduced by an income tax benefit of $1.7 million which produced an
extraordinary loss of $2.8 million.

NET LOSS/INCOME

Net loss for the year ended December 31, 1997 was $2.5 million, a $7.2
million decrease from the net income of $4.7 million recorded in 1996 based on
the reasons discussed above.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary source of liquidity is cash provided by
operations. The Company's liquidity requirements vary seasonally with
revenue, which is generally higher in the third and fourth quarters of each
year. Historically, cash flow from the collection of accounts receivable from
the Government has been predictable and dependable. Cash and cash equivalents
were $3.9 million at December 31, 1998, a $2.4 million decrease from December
31, 1997 primarily as a result of net cash flow from operating activities of
$15.7 million, and net cash flows from financing activities of $19.9 million,
being offset by net cash flow used in investing activities of $37.9 million.
Net cash flow from operating activities was primarily a result of decreases
in sales-type leases and inventory of $5.2 million and $4.5 million,
respectively, and depreciation and amortization of $15.2 million and non-cash
compensation of $2.1 million which was partially offset by the net loss of
$6.7 million. An increase in accounts receivable of $15.0 million was offset,
in part, by an increase in accounts payable and other liabilities of $9.3
million. In addition, the net change in other assets and liabilities
generated cash of $2.7 million. Net cash flow from financing activities was
$19.9 million for 1998 primarily as a result of net borrowings of $21.2
million under the line of credit. Net cash used in investing activities
amounted to $37.9 million for 1998, primarily as a result of acquisition
costs totaling $32.7 million and the purchases of equipment for sales-type
leases and property and equipment totaling $5.3 million.

As of December 31, 1998, the Company had outstanding recourse debt of
$141.0 million. This amount excludes $3.8 million of nonrecourse notes payable
and obligations under capital leases, which the Company has recorded in
connection with the financing of certain equipment sales and leases.

The Company's Senior Credit Facility includes certain restrictions as to
the Company's ability, among other things, to acquire or dispose of assets, to
pay dividends and to incur additional indebtedness. In addition, the Company is
required to maintain a minimum net worth and certain operating ratios,
including, among others, interest and leverage coverage. Such requirements could
limit the Company's ability to incur debt and could thereby limit the Company's
liquidity and ability to make certain acquisitions. All of the Company's assets
not otherwise pledged are utilized as collateral under the Company's credit
agreements. The Senior Credit Facility also provides for a maximum availability
based upon a borrowing base comprised of 85% of Eligible

24
<PAGE>

Receivables and 60% of Eligible Inventory (as defined in the Senior Credit
Facility), up to a maximum availability of $75.0 million. At March 25,1999 there
were borrowings of $27.7 million outstanding under the revolving line of credit.
The Senior Credit Facility bears interest at either (a) 1.25% plus the highest
of the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate
(4.07% at December 31, 1998) or the prime lending rate (7.75% at December 31,
1998) or (b) 2.25% plus the eurodollar rate. At March 25, 1999, the Company had
$34.7 million available under the Senior Credit Facility.

The Company also maintains an inventory and receivables financing facility
("Floor Plan Financing Facility") with an asset-based lender to facilitate the
purchase of inventory from approved vendors for prompt resale to customers. The
Company pays no interest on accounts drawn under such Floor Plan Financing
Facility for negotiated periods and such drawn amounts are reflected in accounts
payable and accrued contract expenses during such periods.

Upon the closing of the Acquisitions, all outstanding balances of NYMA,
Sylvest and R.O.W. under their respective lines of credit were repaid in full by
the Company and all lines of credit related to NYMA, Sylvest, R.O.W. and TMA
have been cancelled. TMA had no borrowing outstanding under its line of credit
upon closing.

Stockholders' deficit amounted to $3.2 million at December 31, 1998, a
reduction in stockholders' equity of $4.2 million from December 31, 1997. This
reduction is principally due to the net loss of $6.7 million in 1998. In 1998,
the Company amended and restated its Stock Option Plan for Executive and Other
Key Employees by accelerating the vesting of certain performance options.
Accordingly, the Company recorded non-cash compensation of $2.1 million and a
related increase in capital in excess of par value based on the difference
between the exercise price of the stock options and the current fair market
value. The stockholders' equity amounted to $1.0 million at December 31, 1997,
an increase in stockholders' equity of $23.8 million from December 31, 1996.
This increase is principally due to proceeds from the sale of common stock of
$27.0 million, less issuance costs of $0.9 million and the net loss for 1997 of
$2.5 million.

As of December 31, 1998, the Company had no significant capital expenditure
commitments.

Based on the Company's current level of operations, management believes
that available cash, together with the available borrowings under the Senior
Credit Facility and the Floor Plan Financing Facility, should be adequate to
meet the Company's anticipated future requirements for working capital, capital
expenditures and scheduled payments of interest on its debts through at least
the next twelve months.

INFLATION AND GENERAL ECONOMIC CONDITIONS

Although the Company cannot accurately anticipate the effect of inflation
on its operations, it does not believe that inflation has had, or is likely in
the foreseeable future to have, a material impact on its results of operations.
Unlike other service providers, the Company does not have a significant number
of fixed price service contracts where the Company bears the risk of cost
increases. The Company's operating results would be adversely affected by
increases in interest rates which would result in higher interest payments by
the Company under its variable rate credit facilities. As of March 25, 1999, the
Company had borrowings of $27.7 million outstanding under its variable rate
credit facilities. If interest rates rise, the Company's cost of capital and
debt service requirements would increase. The Company has not historically
entered into hedging transactions with respect to its variable rate debt, but
may do so in the future.

YEAR 2000 COMPLIANCE

State of Readiness: The Company is aware of the issues associated with the
programming code in existing computer systems as the year 2000 approaches.
Certain computer operations

<PAGE>

will be affected by the roll-over of the two-digit year value to 00. The issue
is whether computer systems will properly recognize date-sensitive information
when the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.

In order to attempt to identify and remediate any material Year 2000 issues
that may affect the Company, the Company has formed a Year 2000 Readiness Team
led by the Vice Presidents of its operating divisions and supported by
appropriate contracts and technical resources throughout the Company. The
Readiness Team's plan addresses internal systems and processes, critical
suppliers, and customers. A Year 2000 analysis of the Company's core software
and hardware systems is underway, focusing on the most critical systems first.
This process includes the following steps: inventory, classification of
criticality, assessment of compliance, remediation and testing. The Company
estimates that this effort is approximately 60% complete. The expected
completion date is June 30, 1999, for critical systems and September 30, 1999,
for non-critical systems. All of the Company's core administrative systems,
including payroll, human resources, operations and finance, are commercial
off-the-shelf products that are either Year 2000 compliant or have Year 2000
compliant versions of the software available under maintenance agreements. The
Company is currently in the process of upgrading its Deltek accounting system,
and expects that such upgrade will be completed during the second quarter of
1999. Although the Company has completed assessments of core administrative
systems and assets with embedded systems, assessments will continue to occur
until the year 2000. This ongoing assessment is needed to make sure new assets
and systems are compliant.

The Company is assessing the potential for Year 2000 issues with third
parties with whom the Company has a material relationship. The Company expects
to complete this assessment phase by August 1, 1999. The Company has been, and
continues to contact suppliers regarding such suppliers' potential Year 2000
issues. The Company has made reasonable efforts to incorporate the Year 2000
requirements and warranty provisions of its customer contracts into its material
supply agreements so as to achieve "back-to-back" warranties from its suppliers.
However, in some instances the customer's requirement may vary from a supplier's
commercial terms relative to the Year 2000. In the event that any key supplier's
products are not found to be Year 2000 compliant, the end-user customer will be
so notified, and the Company will work with such customer to identify a Year
2000 compliant alternative. Despite such efforts, the Company expects to have
only a limited understanding of the potential Year 2000 shortcomings of many of
its suppliers, and will therefore be uncertain as to the full nature and extent
of the potential supplier-derived impact on the Company. Should supplier Year
2000 issues arise, such issues could interrupt the flow of products and services
to the Company, which could in turn impact the Company's timely delivery under
its customer contracts.

Costs to Address the Company's Year 2000 Issues: The Company is incurring
internal staff costs as well as certain consulting expenses and product costs to
examine and address its Year 2000 readiness. The Company estimates that it will
incur approximately $700,000 to remediate any material Year 2000 issues, of
which approximately $500,000 has been incurred to date. Management does not
believe that future project costs will have a material adverse effect on the
Company's business or results of operations. Maintenance, modification costs and
software purchased with the express purpose of fixing the Year 2000 issue will
be expensed as incurred in accordance with the Emerging Issues Task Force of the
Financial Accounting Standards Board Issue No. 96-14, "Accounting for the Costs
Associated with Modifying Computer Software for the Year 2000". Network
components that may have Year 2000 compliance issues such as workstations,
printers and network components are being systematically repaired or replaced as
part of the normal information technology infrastructure replacement strategy.
The annual expenditures for these components are not significantly above levels
that the Company has historically incurred in the normal course of business. The
Company's Year 2000 program is an ongoing effort and the estimated costs and
completion dates set forth herein are subject to change. The Company cannot
assure that these estimates will prove accurate. Specific factors that could
cause material differences include, but are not limited to, the availability and
cost of

<PAGE>

personnel skilled in Year 2000 remediation, the ability to identify, assess,
remediate and test all relevant computer codes, third party remediation plans,
and similar uncertainties.

Risks of the Company's Year 2000 Issues: Due to the varying degrees of
Year 2000 readiness of the Government agencies with whom the Company does
business, the Company is unable to estimate the possible impact of the Year 2000
on its customers' operations or buying patterns. While such agencies have
indicated that they are working to resolve their year 2000 problems, the Company
regards their ability to achieve this objective as uncertain. Because the
Company's understanding of the ways in which the Government could experience
Year 2000 difficulties is inherently limited, the Company is uncertain as to the
full nature and extent of the potential Government-derived Year 2000 impact on
the Company. However, the Company is concerned that Year 2000 problems affecting
Government financial administration functions could interrupt or delay the
orderly flow of payments to the Company under its Government contracts. Because
of the Company's substantial debt service obligations and reliance on Government
contracts, any such interruption or delay could severely impact the Company's
financial condition.

The Company continues to receive requests for certifications,
representations or other commentary regarding Year 2000 issues from its
customers. In some cases, such requests have resulted in contract
modifications regarding statements about the Year 2000 compliance of the
Company's products. In addition, the Federal Acquisition Regulation requires
that each contract entered into with the Government after October 21, 1997
incorporate by reference a provision of the Federal Acquisition Regulations
which requires that all information technology acquired by Government
agencies be Year 2000 compliant. There can be no assurance that the Company
will not be adversely affected if its customers enforced Year 2000
requirements contained in the Company's prime contracts, whether through
incorporation of the Federal Acquisition Regulations or otherwise, which are
found to be inconsistent with the Company's suppliers' commitments with
respect to Year 2000 compliance or warranty or which are related to products
produced, or services performed, solely by the Company.

Contingency Plans: The Company will develop appropriate contingency plans
for any items which are not Year 2000 Compliant and which are deemed likely to
have a significant impact on the Company's business operations. The Company
intends to implement any such contingency plans by October 31, 1999. Management
believes it is expending appropriate efforts in addressing the Year 2000 issue
so that the Company's business operations will not be significantly disrupted.
However, there can be no assurance that the Company will not incur Year 2000
problems relating to its efforts or those involving its customers or suppliers
or that the costs of such efforts will not be greater than currently estimated.

###

This annual report on Form 10-K 405 contains statements which, to the
extent that they are not recitations of historical fact, constitute
"forward-looking statements" that are based on management's expectations,
estimates, projections and assumptions. Words such as "expects,"
"anticipates," "plans," "believes," "estimates," variations of such words and
similar expressions are intended to identify such forward-looking statements
that include, but are not limited to, projections of future performance,
assessment of contingent liabilities and expectations concerning liquidity,
cash flow and contract awards. Such forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements are not guarantees of future performance
and involve certain risks and uncertainties that are difficult to predict.
Therefore, actual future results and trends may differ materially from what
is forecast in forward-looking statements due to a variety of factors,
including the Company's successful execution of internal performance plans;
performance issues with key suppliers and subcontractors; developments with
respect to contingencies such as legal proceedings or administrative
proceedings challenging any contract award; labor negotiations; changing
priorities or reductions in the budgets of Government agencies who purchase

<PAGE>

products or services from the Company; termination of Government contracts due
to unilateral Government action; and the impact of the "Year 2000" issue on the
Company and its customers and suppliers. For additional information, see "Risk
Factors" in the Company's Registration Statement on Form S-4, SEC File Number
333-36447.

The previous discussion and analysis should be read in conjunction with the
financial statements and related notes and the other financial information,
included elsewhere in this report.

###

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to market risks from adverse changes in interest
rates. See Notes 3 and 9 to the consolidated financial statements.

Item 8. Consolidated Financial Statements.

INDEX TO FINANCIAL STATEMENTS

<TABLE>

<S> <C>
Report of Independent Accountants................................... F-1

Consolidated Balance Sheets as of December 31, 1997 and 1998........ F-2

Consolidated Statements of Operations for the Years
Ended December 31, 1996, 1997 and 1998.............................. F-3

Consolidated Statements of Changes in Stockholders' (Deficit) Equity
for the Years Ended December 31, 1996, 1997 and 1998................ F-4

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998.................................... F-5

Notes to Consolidated Financial Statements.......................... F-6

</TABLE>

Financial statement schedules are omitted because they are not applicable
or the required information is shown in the consolidated financial statements or
notes thereto.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Federal Data Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' (deficit)
equity and of cash flows present fairly, in all material respects, the
financial position of Federal Data Corporation and its subsidiaries (the
Company) at December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PricewaterhouseCoopers, LLP

Washington, D.C.
March 24, 1999

F-1

<PAGE>

FEDERAL DATA CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

December 31,
------------------------
1997 1998
--------- ---------
<S> <C> <C>

Assets

Cash and cash equivalents .................................. $ 6,327 $ 3,942
Accounts receivable ........................................ 96,984 126,840
Net investment in sales-type leases ........................ 6,839 5,221
Inventory .................................................. 5,436 963
Other assets ............................................... 8,376 8,156
--------- ---------
Total current assets .......................... 123,962 145,122

Net investment in sales-type leases ........................ 1,203 2,997
Leased and other property and equipment .................... 3,746 5,120
Goodwill and intangibles ................................... 54,161 69,411
Other assets ............................................... 9,894 9,271
--------- ---------
Total assets .................................. $ 192,966 $ 231,921
--------- ---------
--------- ---------
Liabilities and stockholders' equity (deficit)

Nonrecourse notes payable .................................. $ 478 $ 0
Nonrecourse obligations under capital leases ............... 2,636 2,232
Accounts payable and other liabilities ..................... 73,282 87,846
--------- ---------
Total current liabilities ..................... 76,396 90,078

Recourse notes payable ..................................... 113,000 141,000
Nonrecourse obligations under capital leases ............... 359 1,551
Other liabilities .......................................... 2,194 2,464
--------- ---------
Total liabilities ............................. 191,949 235,093
--------- ---------
Stockholders' equity (deficit)

Common stock, $.01 par value: 8,000,000 shares authorized;
shares issued and outstanding, 2,910,896 in 1997 and
2,927,521 in 1998 ...................................... 29 29
Capital in excess of par value ............................. 40,300 42,807
Accumulated deficit ........................................ (39,312) (46,008)
--------- ---------
Total stockholders' equity (deficit) .......... 1,017 (3,172)
--------- ---------
Commitments and contingencies (Note 15)

Total liabilities and stockholders' equity (deficit) ...... $ 192,966 $ 231,921
--------- ---------
--------- ---------

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-2

<PAGE>

FEDERAL DATA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

Year Ended December 31,
--------------------------------------
1996 1997 1998
--------- --------- ---------

Revenue
Product sales ............................. $ 87,543 $ 211,118 $ 341,592
Professional and support services ......... 59,871 120,150 173,818
Interest and other ........................ 3,694 5,038 4,884
--------- --------- ---------
Total revenue ................ 151,108 336,306 520,294
--------- --------- ---------
Expenses
Cost of sales and services ................ 114,248 280,903 449,225
Selling, general and administrative ....... 21,366 37,804 48,419
Goodwill and intangibles .................. -- 5,031 12,035
Interest .................................. 7,564 10,947 16,029
--------- --------- ---------
Total expenses ............... 143,178 334,685 525,708
--------- --------- ---------
Income (loss) before extraordinary item and
income taxes ............................. 7,930 1,621 (5,414)
Income tax provision .............................. 3,202 1,368 1,282
--------- --------- ---------
Income (loss) before extraordinary item ........... 4,728 253 (6,696)

Extraordinary loss from early retirement of debt,
net of income tax benefit of $1,697 ....... -- (2,770) --
--------- --------- ---------
Net income (loss) ................................. $ 4,728 ($ 2,517) ($ 6,696)
--------- --------- ---------
--------- --------- ---------

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3

<PAGE>

FEDERAL DATA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

Common Stock Capital in
------------ Excess of Accumulated
Shares Par Value Par Value Deficit Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>

Balance, December 31, 1995 ............. 1,910,896 $ 19 $ 13,932 ($ 39,913) ($ 25,962)
Net income ............................. -- -- -- 4,728 4,728
Additional merger expenses ............. -- -- (53) -- (53)
Distribution to be made to former
stockholders ...................... -- -- -- (1,610) (1,610)
Deferred compensation .................. -- -- 71 -- 71
--------- --------- --------- --------- ---------
Balance, December 31, 1996 ............. 1,910,896 19 13,950 (36,795) (22,826)
Net loss ............................... -- -- -- (2,517) (2,517)
Proceeds from sale of common stock,
net of expenses of $882 ........... 1,000,000 10 26,108 -- 26,118
Deferred compensation .................. -- -- 242 -- 242
--------- --------- --------- --------- ---------
Balance, December 31, 1997 ............. 2,910,896 29 40,300 (39,312) 1,017
Net loss ............................... -- -- -- (6,696) (6,696)
Proceeds from sale of common stock ..... 16,625 -- 449 -- 449
Non-cash compensation related to
stock options ..................... -- -- 2,058 -- 2,058
--------- --------- --------- --------- ---------
Balance, December 31, 1998 ............. 2,927,521 $ 29 $ 42,807 ($ 46,008) ($ 3,172)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4

<PAGE>

FEDERAL DATA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

Year Ended December 31,
---------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>

Cash flows from operating activities:
Net income (loss) ...................................... $ 4,728 ($ 2,517) ($ 6,696)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Extraordinary loss from early retirement of debt,
net of income tax benefit of $1,697 .............. -- 2,770 --
Depreciation and amortization .......................... 782 7,099 15,241
Amortization of deferred financing cost ................ 817 804 949
Non-cash compensation related to stock options ......... -- -- 2,058
Gain on sale of subsidiaries ........................... -- (1,600) (2,825)
(Income) loss recorded on sales-type leases ............ (1,738) 465 357
Collections from sales-type leases ..................... 6,075 5,655 5,189
(Increase) decrease in inventory ...................... -- (1,347) 4,473
(Increase) decrease in accounts receivable ............. (5,569) 11,511 (15,000)
Increase in accounts payable
and accrued expenses .............................. 2,180 1,626 9,250
Net change in other assets and liabilities ............. (5,823) (3,559) 2,670
--------- --------- ---------
Net cash flows from operating activities ............... 1,452 20,907 15,666
--------- --------- ---------
Cash flows from investing activities:
Sale of short-term investments ......................... 51,762 -- --
Acquisitions of businesses, net of cash received ....... -- (54,175) (32,638)
Purchase of equipment for sales-type leases ............ (1,156) (2,151) (3,271)
Purchase of property and equipment ..................... (903) (2,145) (1,996)
--------- --------- ---------
Net cash flows from investing activities ............... 49,703 (58,471) (37,905)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings ............................... 1,916 160,400 --
Repayments of borrowings ............................... (15,797) (99,650) (801)
Net borrowings (repayments) under line of credit ....... 10,800 (29,058) 21,246
Payments to selling stockholders ....................... (51,762) -- --
Proceeds from sale of common stock ..................... -- 27,000 449
Recapitalization, stock issuance and debt
acquisition costs ................................. -- (10,988) --
Repayments of capital lease obligations ................ (5,432) (5,004) (1,040)
--------- --------- ---------
Net cash flows from financing activities ............... (60,275) 42,700 19,854
--------- --------- ---------
Net change in cash and cash equivalents ........................ (9,120) 5,136 (2,385)

Cash and cash equivalents, beginning of period ................. 10,311 1,191 6,327
--------- --------- ---------
Cash and cash equivalents, end of period ....................... $ 1,191 $ 6,327 $ 3,942
--------- --------- ---------
--------- --------- ---------

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5

<PAGE>

FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)

Note 1 - Nature of Business

The accompanying consolidated financial statements include the accounts of
Federal Data Corporation and its wholly-owned subsidiaries (collectively, the
Company). The Company engages in the sale of high technology professional
services in combination with hardware and software products from a variety of
manufacturers to the United States Government (Government). The Government
accounted for substantially all of the Company's revenue during 1996, 1997,
and 1998. The Company, which is engaged in a single business activity,
delivers these services and products through three operating units. For
financial reporting purposes, these operating units have been aggregated (see
Note 3).

The Company's data processing solutions are sold or leased to the Government
under various types of agreements providing for, in certain cases, purchase
options or other lease to ownership arrangements. Most contracts with
Government agencies expire on September 30 of each year (the Government's
fiscal year end) and are renewable for additional fiscal years subject to the
appropriation of funding. While the Company's Government contracts provide
for fiscal funding termination, the Company has not experienced any early
terminations of significant contracts since its inception.

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

Note 2 - Merger

In December 1995, FDC Holdings, Inc. (Holdings) merged with and into the Company
with the Company continuing as the surviving corporation (the Merger). Holdings
was a company organized by The Carlyle Group (Carlyle) to facilitate the Merger
and had no operating activity or history. The Merger was accounted for as a
recapitalization which resulted in a charge to stockholder's equity of $58,795
to reflect the redemption of common stock.

At December 31, 1995, the Merger consideration was invested in money market
funds. In January 1996, the Company liquidated this investment and paid the
selling shareholders $49,448 of the Merger consideration in cash and issued
subordinated notes amounting to $7,033. The remaining balance of the Merger
consideration of $2,314 was paid in cash in April 1996. The subordinated notes
were paid in full in August 1997.

As part of the consideration for the purchase of the common stock of the selling
stockholders outlined in the Merger agreement, the Company prepaid $1,610 of
premiums during 1996 under a Split Dollar life insurance policy to fund future
additional distributions to the selling shareholders. The Company recorded a
reduction of $1,610 in retained earnings during 1996 based on the distribution
that will be made to the selling shareholders in 1999 when the Split Dollar
payments are received.

Concurrent with the acquisition of a controlling interest in the Company by
Carlyle in 1995, the Company entered into a management agreement with an
affiliate of Carlyle for certain management and financial advisory services to
be provided to the Company and its subsidiaries. The agreement provides for the
payment of annual management fees in an amount equal to $300. In addition,
concurrent with the acquisition of Carlyle's controlling interest, the Company
entered into a three-year consulting agreement with the former majority
shareholder and a three-year agreement to lease a corporate aircraft with an
affiliate of the former majority shareholder. The consulting agreement provided
for annual payments of $200 and the lease of the aircraft provided for annual
payments of $300 plus a usage charge which amounted to $56, $48 and $95 during
1996, 1997 and 1998, respectively. The consulting agreement and lease of the
aircraft expired January 15, 1999 and November 30, 1998, respectively.

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

F-6

<PAGE>

Note 3 - Summary of Significant Accounting Policies

The accounting policies of the Company conform to generally accepted accounting
principles. All significant intercompany accounts and transactions have been
eliminated in consolidation. Those policies significantly affecting the
consolidated financial statements are summarized below.

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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.

Revenue Recognition

Revenue from fixed price sales and sales-type leases is recorded upon
installation or shipment to the customer's site, depending on contractual terms.
On cost reimbursable contracts, revenue is recorded as contract costs are
incurred, plus a proportionate amount of the fee expected to be realized on the
contract. Professional and support service revenue is recognized as services are
provided.

Depreciation and Amortization

Leased and other property and equipment are stated at original cost, net of
accumulated depreciation and amortization, and are depreciated and amortized by
the Company using principally straight-line methods over their estimated useful
lives. The estimated useful lives of principal items of computer, furniture,
office and other equipment range from three to ten years. Leasehold improvements
are amortized over the term of the related lease. Deferred financing fees are
being amortized over the terms of the related notes payable.

Cash, Cash Equivalents and Short-term Investments

Cash and cash equivalents consist primarily of short-term, highly liquid
investments with insignificant interest rate risk and original maturities of
three months or less at date of acquisition. Similar investments with original
maturities beyond three months are considered short-term investments and are
carried at cost, which approximates market value.

Inventory

Inventory of computer equipment and software is carried at the lower of cost or
market, using the specific identification method.

Fair Value of Financial Instruments

The fair value of cash and cash equivalents, receivables, accounts payable, and
accrued expenses approximate their carrying value because of their short-term
nature. The fair value of long-term debt has been estimated using quoted market
prices or discounted cash flow analysis using rates currently available to the
Company for debt with similar terms and maturities.

The carrying and fair value of the Company's long-term debt including current
maturities consist of the following as of December 31:

1997 1998
-------------------- --------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------- --------- -------

<S> <C> <C> <C> <C>
Long-term debt including current maturities ........ $113,478 $110,853 $141,000 $142,050

</TABLE>

F-7

<PAGE>

Income Taxes

The Company recognizes deferred income taxes for the expected future tax
consequences of "temporary differences" by applying enacted statutory tax rates
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of
credit risk consist of cash and accounts receivable. The Company maintains its
cash principally in one United States bank. Accounts receivable result primarily
from contracts with the Government. Contracts with the Government do not require
collateral or other arrangements. The Company does not believe significant
credit risk exists at December 31, 1998.

Goodwill and Intangible Assets

Goodwill represents the excess of the cost of acquiring businesses over the fair
value of identifiable net tangible and intangible assets acquired. Goodwill is
amortized on a straight-line basis over the period for which the Company
estimates it will benefit directly from the acquisition. Although the period of
benefit from the goodwill can be difficult to estimate, the Company considers
goodwill to be recoverable as long as the acquisition generates positive cash
flow from operations after implementation of the Company's strategic plan or
completion of reorganization efforts, if any. Recoverability of goodwill is
evaluated periodically based on current undiscounted cash flow projections of
each specific acquired business. Goodwill related to the acquisitions described
in Note 4 amounted to $64,382 and is being amortized over fifteen years.
Goodwill amortization expense for the years ended December 31, 1996, 1997 and
1998 was $0, $1,784 and $4,036, respectively.

Other intangible assets represents covenants not to compete, work force, trade
names and trademarks and contract backlog which is recorded at the present value
of the projected pretax profits. The present value of the contract profits
relating to the acquisitions described in Note 4 of $16,519 is being amortized
over the remaining terms of the acquired contracts in relation to the
recognition of related contract revenue. The value assigned to covenants not to
compete, work force and trade names and trademarks of $5,576 acquired in the
acquisitions is being amortized over periods up to three years. The amortization
of these intangible assets amounted to $0, $3,247 and $7,999 for the years ended
December 31, 1996, 1997 and 1998, respectively.

Earnings per Share

The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). Under SFAS 128, the Company is not required
to present earnings per share for as long as the common stock of the Company
is not publicly held.

Comprehensive Income

The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes standards for
the reporting and presenting of comprehensive income and its components
(revenue, expenses, gains and losses) in a full set of general-purpose financial
statements. For the years ended December 31, 1996, 1997 and 1998, there was no
impact on the Company's financial reporting as a result of its adoption of SFAS
130.

Segment Data

The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 defines segments under the "management" approach, which
designates the internal reporting that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS 131 also requires disclosures about products and
services, geographic areas and major customers. The adoption of SFAS 131 did not
affect the Company's results of operations or financial position. The
Company's three operating units have been reflected as a single reporting
segment in accordance with the aggregation criteria of SFAS 131.

F-8

<PAGE>

Reclassification

Certain amounts have been reclassified in the prior years to conform to the
current year presentation. These reclassifications had no effect on net income
(loss) or retained earnings as previously reported.

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

Note 4 - Acquisitions

In May 1997, the Company purchased all of the outstanding shares of common stock
of NYMA, Inc. (NYMA) for $34,582. The purchase price consisted of $29,582 in
cash, of which $1,802 was paid in 1998 after certain new business activity
objectives were met and $5,000 in subordinated notes. The Company financed the
acquisition of NYMA through additional borrowing of $28,000 and the sale of
555,556 shares of the Company's common stock, primarily to existing
stockholders, for $15,000. A portion of the new borrowings was used to retire
existing Company and NYMA working capital debt. NYMA is a provider of high
technology engineering and information technology services under contracts with
various Government agencies and subcontracts with large government contractors.
In June 1997, the Company purchased all of the outstanding shares of common
stock of Sylvest Management Systems Corporation (Sylvest) for $41,017. The
purchase price consisted of $33,017 in cash and subordinated notes of $8,000, of
which $1,000 was issued during 1998 after certain earnings objectives were met.
Subordinated notes of $4,000 were paid in August 1997. The Company financed the
acquisition of Sylvest through additional borrowing of $27,400 and the sale of
444,444 shares of the Company's common stock, primarily to existing
stockholders, for $12,000. A portion of the new borrowings was used to retire
existing Sylvest working capital debt. Sylvest is a leading reseller and
technical services vendor supporting open systems architecture within the
federal marketplace. Of the total fees and expenses related to these
transactions, $1,000 was paid to an affiliate of Carlyle.

In February 1998, the Company purchased all of the outstanding common stock
of R.O.W. Sciences, Inc. (R.O.W.) for $9,537. The purchase price consisted of
$8,537 in cash, of which $625 was paid later in 1998 after certain revenue
objectives were met and $1,000 in subordinated notes. The agreement also
provides for additional cash payments up to $375 if certain revenue
objectives are met. Such payments, if any, will be accounted for as
adjustments to the purchase price. In February 1998, the Company also
purchased all of the assets of Telos Corporation's Telos Information Systems
Division (TIS) for $14,740. The entire purchase price was paid in cash. In
March 1998, the Company purchased all of the outstanding common stock of
Technical and Management Assistance Inc. (TMA) for $9,187. The purchase price
consisted of $8,187 in cash and $1,000 in subordinated notes. The Company
financed the R.O.W., TIS, and TMA acquisitions through borrowings under its
existing revolving line of credit facility. R.O.W. provides services that
combine expert knowledge in life and health sciences with state-of-the-art
computer based technologies principally to Government agencies. TIS provides
engineering and information technology services to the Jet Propulsion
Laboratory and other Government customers. TMA provides information
technology services principally to the air traffic management function within
the Federal Aviation Administration.

Condensed unaudited pro forma operating data which gives effect to the
acquisitions of NYMA, Sylvest, R.O.W., TMA and TIS for the years ended
December 31, 1997 and 1998 is provided below. Such unaudited pro forma
operating data has been prepared as if the acquisitions occurred as of the
beginning of the reporting period.

1997 1998
--------- ---------
<S> <C> <C>
Revenue ............................................ $ 505,283 $ 529,890
--------- ---------
--------- ---------
Loss before extraordinary item and income taxes .... ($ 5,056) ($ 5,510)
--------- ---------
--------- ---------
Net loss ........................................... ($ 5,306) ($ 6,828)
--------- ---------
--------- ---------

</TABLE>

In the opinion of management, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred had
the acquisitions been consummated at the beginning of 1997 or at the beginning
of 1998 or of future operations of the combined companies under the ownership
and management of the Company.

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

F-9

<PAGE>

Note 5 - Accounts Receivable

Accounts receivable consisted of the following as of December 31:

1997 1998
--------- ---------

<S> <C> <C>
Billed .................................. $ 85,240 $ 114,674
Unbilled ................................ 10,976 9,150
Other ................................... 1,396 3,471
Less allowance for doubtful accounts .... (628) (455)
--------- ---------
Total accounts receivable ............... $ 96,984 $ 126,840
--------- ---------
--------- ---------

</TABLE>

Unbilled accounts receivable consisted primarily of revenue not yet billable
because of contract terms, differences between actual and provisional indirect
rates for years open to Government audit and contract retainages. Retainages are
generally billable upon acceptance of work by customers or completion of
contract audits by the Government.

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

Note 6 - Net Investment in Sales-Type Leases

Net investment in sales-type leases consisted of the following as of
December 31:

1997 1998
------- -------

<S> <C> <C>
Minimum lease payments receivable ................ $ 8,782 $ 8,909
Less unearned income ............................. (740) (691)
------- -------
Total net investment in sales-type leases ........ 8,042 8,218

Less current portion ............................. 6,839 5,221
------- -------
Long-term net investment in sales-type leases .... $ 1,203 $ 2,997
------- -------
------- -------

</TABLE>

Future minimum lease payments receivable as of December 31, 1998 are due as
follows:

<TABLE>

<S> <C>
1999 ........................... $5,811
2000 ........................... 3,098

</TABLE>

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

F-10

<PAGE>

Note 7 - Other Assets

Other assets consisted of the following as of December 31:

1997 1998
------------------- ------------------
Current Long-term Current Long-term
------- --------- ------- --------
<S> <C> <C> <C> <C>
Deferred financing fees ............... $ 0 $7,196 $ 0 $6,241
Receivable from sale of subsidiary .... 4,000 215 3,100 --
Prepaid expenses ...................... 2,716 403 2,823 559
Deferred taxes ........................ -- 1,237 -- 2,156
Refundable income taxes ............... 1,448 -- 1,467 --
Other ................................. 212 843 766 315
------ ------ ------ ------
Total other assets .................... $8,376 $9,894 $8,156 $9,271
------ ------ ------ ------
------ ------ ------ ------

</TABLE>

In 1997, the Company recorded a charge to earnings of $4,467 related to deferred
financing fees associated with the debt incurred to finance the Merger and the
NYMA and Sylvest acquisitions. This debt was refinanced with proceeds from the
Senior Subordinated Notes. This charge to earnings was reduced by an income tax
benefit of $1,697 which produced an extraordinary loss of $2,770. Amortization
of deferred financing fees which is included in interest expense amounted to
$817, $804 and $949 during 1996, 1997 and 1998, respectively.

In 1997, the Company sold substantially all the assets and business of its
wholly-owned subsidiaries, DoxSys, Inc. (DoxSys) and VAD International, Inc.
(VAD) resulting in a pretax gain of $1,600. The operations of DoxSys and VAD
were not material to the Company's financial condition or results of operations.
During 1998, the Company recorded an additional pretax gain of $2,825 as a
result of DoxSys achieving certain earnings objectives.

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

Note 8 - Leased and Other Property and Equipment

Leased and other property and equipment consisted of the following as of
December 31:

1997 1998
-------- --------

<S> <C> <C>
Furniture, office and other equipment ............. $ 12,445 $ 15,643
Leasehold improvements ............................ 3,821 4,577
Less accumulated depreciation and amortization .... (12,520) (15,100)
-------- --------
Total leased and other property and equipment ..... $ 3,746 $ 5,120
-------- --------
-------- --------

</TABLE>

Total depreciation and amortization expense related to leased and other property
and equipment during 1996, 1997 and 1998 was $782, $1,326 and $2,315,
respectively.

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

F-11

<PAGE>

Note 9 - Notes Payable

Recourse notes payable consisted of the following as of December 31:

1997 1998
-------- --------

<S> <C> <C> <C>
Senior Subordinated Notes payable in August 2005 .... $105,000 $105,000
Revolving line of credit ............................ -- 25,000
Other subordinated notes ............................ 8,000 11,000
-------- --------
Total recourse notes payable ........................ 113,000 141,000
Less current portion ................................ -- --
-------- --------
Long-term recourse notes payable .................... $113,000 $141,000
-------- --------
-------- --------

</TABLE>

In July 1997, the Company issued $105,000 of Senior Subordinated Notes and
utilized the proceeds to repay its indebtedness under its existing term loans as
well as the additional borrowings incurred to finance the NYMA and Sylvest
acquisitions. All of the Company's direct and indirect wholly-owned subsidiaries
have fully and unconditionally guaranteed, on a joint and several basis, the
Company's obligations under the Senior Subordinated Notes. The Company is a
holding company with no assets or operations other than its investments in its
subsidiaries. The separate financial statements of the subsidiary guarantors are
not presented because the Company's management believes that such financial
statements are not material to investors.

The Senior Subordinated Notes bear interest at 10.125% per annum with interest
payable semi-annually in February and August of each year, commencing in
February 1998. The principal of the Senior Subordinated Notes is due in August
2005. The Company may redeem a portion of the Senior Subordinated Notes at any
time prior to August 2001 with the net proceeds of one or more public equity
offerings. At any time after August 2001, the indenture provides that a portion
of the Senior Subordinated Notes may be redeemed upon a change of control and
also provides for other optional redemptions. All redemptions prior to August
2005 require the Company to pay a premium. The indenture includes certain
restrictions as to the Company's ability, among other things, to acquire or
dispose of assets, incur additional debt, or to pay dividends. In addition, the
Company is required to maintain a minimum net worth and certain operating
ratios, including among others, interest and leverage coverage.

At December 31, 1998, the Company had a $75,000 revolving line of credit
facility which expires in July 2002. Interest accrues on borrowings under the
revolving line of credit at either (a) 1.25% plus the highest of the rate which
is 1/2 of 1% in excess of the Federal Funds Effective Rate (4.07% at December
31, 1998) or the prime lending rate (7.75% at December 31, 1998) or (b) 2.25%
plus the eurodollar rate. In addition, the Company pays a commitment fee of 0.5%
of the unused line of credit facility. At December 31, 1998, the Company had
outstanding borrowings of $20,000 at 7.82% and $5,000 at 9.0%. The Company's
revolving line of credit agreement includes certain restrictions as to the
Company's ability, among other things, to acquire or dispose of assets or to pay
dividends. In addition, the Company is required to maintain a minimum net worth
and certain operating ratios, including among others, interest and leverage
coverage. All of the Company's assets not otherwise pledged are utilized as
collateral under the Company's credit agreements.

The other subordinated notes outstanding as of December 31, 1998 were issued by
the Company in connection with the NYMA, Sylvest, R.O.W. and TMA acquisitions.
The NYMA and Sylvest subordinated notes bear interest payable semi-annually at
increasing rates starting at 9% per annum and increasing to 13% per annum. The
principal of these notes is due in 2004. The R.O.W. and TMA subordinated notes
bear interest payable semi-annually at 9% per annum and the principal is due in
2000. These subordinated notes can be repaid at any time without penalty at the
option of the Company.

The Company finances certain equipment leases to Government customers with
borrowings or capital leases that are recourse only to the related payment
stream and property leased. In most circumstances, the Company's future
obligation under nonrecourse agreements, in the event of default by the end user
lessee, would be limited to ensuring the return of the associated assets to the
lender.

F-12

<PAGE>

Nonrecourse notes payable consisted of the following as of December 31:

1997 1998
---- ----
<S> <C> <C>

Notes secured by equipment and minimum lease
payments receivable from customers,
repayable through March 1998, with
interest at 6.75 to 12.75% .............. $478 $ 0

Less current portion ....................... 478 --
---- ----
Long-term nonrecourse notes payable ........ $ 0 $ 0
---- ----
---- ----

</TABLE>

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

Note 10 - Nonrecourse Obligations Under Capital Leases

Nonrecourse obligations under capital leases consisted of the following as of
December 31:

1997 1998
------- -------
<S> <C> <C>
Minimum lease payments .................................... $3,167 $4,077
Less deferred interest .................................... (172) (294)
------ ------
Total nonrecourse obligations under capital leases ........ 2,995 3,783
Less current portion ...................................... 2,636 2,232
------ ------
Long-term nonrecourse obligations under capital leases .... $ 359 $1,551
------ ------
------ ------

</TABLE>

Future minimum lease payments under nonrecourse obligations under capital leases
as of December 31, 1998 are due as follows:

<TABLE>

<S> <C>
1999 ........................................ $2,557
2000 ........................................ 1,520

</TABLE>

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

F-13
<PAGE>

Note 11 - Accounts Payable and Other Liabilities

Accounts payable and other liabilities consisted of the following as of
December 31:

1997 1998
--------------------- ---------------------
Current Long-term Current Long-term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Accounts payable ........................... $23,425 $ 0 $50,829 $ 0
Other accrued expenses ..................... 7,809 1,164 14,188 1,316
Accrued contract expenses .................. 29,143 -- 11,730 --
Accrued interest payable ................... 5,030 -- 4,657 --
Deferred income ............................ 4,608 1,030 3,309 1,148
Income taxes payable ....................... 733 -- 2,496 --
Deferred income taxes payable .............. 843 -- 57 --
Other ...................................... 1,691 -- 580 --
------- ------ ------- ------
Total accounts payable and other liabilities $73,282 $2,194 $87,846 $2,464
------- ------ ------- ------
------- ------ ------- ------

</TABLE>

As of December 31, 1998, accounts payable and accrued contract expenses include
approximately $6,500 in amounts payable to an asset-based lender under an
arrangement established to facilitate the purchase of inventory. Under this
arrangement, the lender directly pays the vendors for purchases made by the
Company. The arrangement provides the Company with up to $30,000 in credit from
the lender for inventory purchases. The terms of the arrangement enable the
Company to repay outstanding amounts paid by the lender, interest free, within a
stipulated time period from the initial purchase from the vendors. After the
stipulated time period, interest under this arrangement accrues at the prime
rate plus 2.0% as determined by the lender (9.75% at December 31, 1998). This
arrangement requires the Company to maintain a minimum net worth and certain
operating ratios, including among others, interest and leverage coverage.

In connection with this arrangement, the asset-based lender entered into an
Intercreditor and Subordination Agreement (the Intercreditor Agreement) with the
bank group that has extended the Company a revolving line of credit facility
(see Note 9). Under the Intercreditor Agreement, all advances made by the
asset-based lender are collateralized by the Company's inventory and accounts
receivable resulting from the sale of inventory purchased under the above
arrangement.

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

Note 12 - Income Taxes

The income tax provision (benefit) consisted of the following for the years
ended December 31:

1996 1997 1998
------- ------- -------
<S> <C> <C> <C>

Current income tax provision:

Federal ..................................... $1,370 $ 364 $1,552
State ....................................... 418 157 1,041
------ ------ ------
Total current income tax
provision ................................... 1,788 521 2,593
------ ------ ------
Deferred income tax provision (benefit):

Federal ..................................... 1,228 (723) (1,114)
State ....................................... 186 (127) (197)
------ ------ ------

Total deferred income tax provision (benefit) 1,414 (850) (1,311)
------ ------ ------

Total income tax provision (benefit) ........ $3,202 ($ 329) $1,282
------ ------ ------
------ ------ ------

</TABLE>

F-14
<PAGE>

Income tax provision (benefit) as reflected on the consolidated statements of
operations consisted of the following:

1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Income (loss) before extraordinary item
and income taxes .................. $3,202 $1,368 $1,282
Extraordinary loss ..................... -- (1,697) --
------ ------ ------

Total income tax provision (benefit) ... $3,202 ($ 329) $1,282
------ ------ ------
------ ------ ------
</TABLE>

Deferred tax assets and liabilities consisted of the following as of
December 31:

1997 1998
------ ------
<S> <C> <C>
Deferred tax assets:
Deferred income .................... $2,143 $1,641
Compensation and employee benefits.. 1,502 1,458
Accounts receivable reserves ....... 239 102
Goodwill and intangibles ........... 226 1,157
Property and equipment ............. 45 --
Other .............................. 321 1,017
------ ------

Total deferred tax assets .......... 4,476 5,375
------ ------

Deferred tax liabilities:
Contractually unbilled revenue ..... 2,797 2,266
Accrual to cash conversion ......... 1,118 559
Other .............................. 167 451
------ ------

Total deferred tax liabilities ..... 4,082 3,276
------ ------

Net deferred tax asset .................. $ 394 $2,099
------ ------
------ ------

</TABLE>

Net deferred income taxes as reflected on the consolidated balance sheets
consisted of the following as of December 31:

1997 1998
------ ------
<S> <C> <C>
Current deferred income tax
(liability) asset............... ($4,082) $2,867
Less current deferred income tax
asset (liability)............... 3,239 (2,924)
------- ------

Net current deferred income tax
liability....................... (843) (57)

Long-term deferred income tax
asset........................... 1,237 2,559
Less long-term defered income tax
liability....................... -- (403)
------- ------

Net long-term deferred income tax
asset........................... 1,237 2,156
------- ------

Net deferred income tax asset..... $ 394 $2,099
------- ------
------- ------

</TABLE>

F-15
<PAGE>

A reconciliation between the provision for income taxes computed on income
before tax at the statutory federal tax rate and the provision for income taxes
is as follows for the years ended December 31:

1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate... 34.0% -34.0% -34.0%
State income taxes, net of federal
benefit.......................... 2.6% 3.6% 12.7%
Nondeductible goodwill ............. -- 37.8% 37.3%
Other nondeductible expenses ....... 0.2% 1.4% 1.1%
Other .............................. 3.5% -20.4% 6.6%
---- ------ ------
40.3% -11.6% 23.7%
---- ------ ------
---- ------ ------

</TABLE>

At December 31, 1996, 1997 and 1998, the Company has not recorded any tax
valuation allowance to reflect management's assessment that the realization of
the deferred tax asset is more likely that not.

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

Note 13 - Stockholders' Equity and Transactions with Stockholders

In 1984, a principal stockholder of the Company transferred shares of the
Company's common stock to certain key employees. The Company has accounted for
this transaction as if the Company, and not the principal stockholder, had
transferred the stock. At December 31, 1997, the Company has fully amortized the
compensation expense related to this transaction.

In 1987, the Company adopted a Stock Incentive Plan under which stock options
were granted to officers and key employees at an exercise price established
at the discretion of the Plan Committee at the date of award. Options granted
under this plan were nontransferable and were exercisable immediately for a
period of ten years following the date of grant. Prior to the Merger, options
to purchase 93,500 shares of the Company's common stock at a weighted average
exercise price of $7.53 per share were outstanding and exercisable under this
plan. Subject to the provisions of the Merger agreement, these options are to
be replaced with new options to acquire shares of common stock of the
surviving corporation. The terms of the new options, including the number of
shares and exercise price will be equitably adjusted to reflect the
consummation of the Merger, provided that the new options will provide
substantially the same economic benefits to the option holders as the
benefits provided prior to the Merger. During 1997, options to purchase
20,000 shares at an exercise price of $9.00 per share were cancelled. As of
March 24, 1999, the new options related to the remaining 73,500 shares have
not been issued.

In 1996, the Company adopted a Stock Option Plan for Executives and Key
Employees of Federal Data Corporation (the Plan). Under the Plan, options may
be granted at not less than fair value to purchase up to 415,000 shares of
common stock. Options granted under the Plan have vesting periods of up to
ten years and all expire ten years from the date of grant or in accordance
with other terms as specified by the Company's Board of Directors. In 1998,
the Company amended and restated the Plan by accelerating the vesting of
certain performance based options. Accordingly, the Company recorded non-cash
compensation of $2,058 and a related increase in capital in excess of par
value based on the difference between the exercise price of the stock options
and the current fair market value. As of December 31, 1998, options to
purchase 9,780 shares were available for granting.

F-16

<PAGE>

The following is a summary of stock option activity for outstanding options
under the Plan:

Weighted Average Number of
Exercised Price Shares
---------------- ---------
<S> <C> <C>
Balance at December 31, 1995 .............. $ 0 --

Granted ................................... 10.00 253,000
Exercised ................................. -- --
Forfeited ................................. 10.00 (10,000)
Cancelled ................................. -- --
---------
Balance at December 31, 1996 .............. 10.00 243,000

Granted ................................... -- --
Exercised ................................. -- --
Forfeited ................................. 10.00 (12,000)
Cancelled ................................. -- --
---------
Balance at December 31, 1997 .............. 10.00 231,000

Granted ................................... 29.21 192,000
Exercised ................................. -- --
Forfeited ................................. 15.39 (20,500)
Cancelled ................................. -- --
---------
Balance at December 31, 1998 .............. $18.89 402,500
---------
---------

</TABLE>

The following is a summary of stock options outstanding and exercisable under
the Plan at December 31, 1998:

Outstanding Exercisable
---------------------------------------------------------- ---------------------------
Average
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Range Options Life (Yrs.) Price Options Price
------------- ------------- ------------- ------------ ------------ ------------

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-based Compensation." Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant date for awards in 1996 and 1997, there would not
have been a material impact on the Company's results of operations. In 1998, net
income would have been reduced by $1,100.

F-17

<PAGE>

The fair value was estimated using the Minimum Value Approach based on the
weighted average assumptions of:

1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
Expected life in years........................ 5 5 5
Risk-free interest rate....................... 5.7% 5.7% 5.7%
Dividend yield................................ 0.0% 0.0% 0.0%
</TABLE>

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

Note 14 - Supplemental Disclosure of Cash Flow Information

1996 1997 1998
-------- -------- ---------

<S> <C> <C> <C>
Cash paid during the year for:
Interest........................... $7,546 $ 5,621 $ 15,453
Income taxes....................... 628 1,452 567

Details of acquisitions (Note 4):
Fair value of assets acquired...... $ 0 $127,572 $42,563
Liabilities assumed................ - 54,775 9,724
Subordinated notes issued and paid. - 4,000 -
Subordinated notes issued.......... - 8,000 2,000
-------- -------- --------

Cash paid at acquisition........... - 60,797 30,839
Earnout payments................... - - 2,427
Less cash acquired................. - 6,622 628
-------- -------- --------

Net cash paid for acquisitions..... $ 0 $54,175 $32,638
-------- -------- --------
-------- -------- --------
</TABLE>

In 1998, the Company issued additional subordinated notes amounting to $1,000 in
connection with an earnout associated with the Sylvest acquisition after
certain earning objectives were met.

During 1996, 1997 and 1998, the Company financed through capital leases the
acquisition of computer equipment which was sold to customers of $779, $0 and
$1,828, respectively.

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

Note 15 - Commitments and Contingencies

The Company leases office space and equipment under various operating lease
agreements. Leases for principal office space typically have terms of five to
seven years and carry optional renewal periods of three to five years. Most
leases include provisions for fixed annual increases to base rent payments and
escalations based on increases in operating expenses and real estate taxes.

Future minimum payments at December 31, 1998, for all noncancellable operating
leases with initial terms of one year or more are as follows:

1999............................. $6,748
2000............................. 6,738
2001............................. 6,584
2002............................. 4,365
2003............................. 4,275
Thereafter....................... 4,387

Operating lease expense was $1,782, $3,879 and $4,165 during 1996, 1997 and
1998, respectively. The Company received $146, $0 and $316 from sublease rentals
during 1996, 1997 and 1998, respectively.

F-18

<PAGE>

The Company is subject to contract audits by Government agencies. Completed and
future audits may result in various billed and unbilled costs being disallowed.
At December 31, 1998, audits have been completed through 1996. In the opinion of
management, adequate reserves have been provided for the remaining open audit
periods.

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

Note 16 - Retirement Plans

The Company sponsors several defined contribution plans that provide all
salaried employees that meet certain age and minimum length of service
requirements and certain hourly employees an opportunity to accumulate funds for
their retirement. The Company's contributions to these plans are based on either
a percentage of employee contributions or an amount at the discretion of the
Company. The Company recognized expense of $302, $1,029 and $2,548 during 1996,
1997 and 1998, respectively.

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

F-19

<PAGE>

Item 9. Disagreements on Accounting and Financial Disclosure.

None

PART III

Item 10. Directors and Executive Officers of the Registrant.

The following table sets forth certain information with respect to the
members of the Board of Directors and the executive officers of the Company.
Executive officers of the Company are chosen by the Board of Directors and serve
at its discretion. Directors of the Company serve until the election and
qualification of their successors.

Name Title Age

William E. Conway, Jr...... Chairman of the Board 49
C. Robert Hanley........... Director and Chairman Emeritus 66
Daniel R. Young............ Vice Chairman and CEO 65
Harry T. Marren............ Director, President and COO 64
Peter J. Clare............. Director 33
Allan M. Holt.............. Director and Secretary 47
Peter C. Belford, Sr....... Senior Vice President 52
Paul A. Taltavull.......... Senior Vice President, Corporate
Marketing Group 44
John W. Wayne.............. Senior Vice President, Systems
Integration Group 42
Charles M. Mathews, Jr..... Senior Vice President, Systems &
Technology Group 39
James M. Dean.............. Vice President, Chief Financial Officer
and Treasurer 51
Sterling E. Phillips, Jr... Vice President, Science & Engineering Group 52
Maggie M. Hird............. Vice President, Human Resources 41

</TABLE>

William E. Conway, Jr. was elected as a Director of the Company in
1996. He has been a Managing Director of The Carlyle Group, a Washington,
D.C.-based private merchant bank, since 1987. Mr. Conway was Senior Vice
President and Chief Financial Officer of MCI Communications Corporation from
1984 until 1987, and was a Vice President and Treasurer of MCI from 1981 to
1984. Mr. Conway presently serves on the Board of Directors of Nextel
Communications, Inc. and several privately held companies.

C. Robert Hanley has been a Director of the Company since its founding in
1969. Mr. Hanley was President and Chief Executive Officer of the Company from
1969 until 1985, when he became its Chairman and Chief Executive Officer. He
retired in January 1996, and served as a consultant to the Company until January
1999.

Daniel R. Young has been a Director of the Company since 1977 and was
named Vice Chairman of the Board of Directors in 1998. He has been the Chief
Executive Officer since 1996 and its President from 1985 through 1998. Mr. Young
joined the Company in 1976 as its Executive Vice President and became its
President and Chief Operating Officer in 1985. Prior to joining the Company, Mr.
Young was employed by Data Transmission Company as Executive Vice President and
held various management positions at Texas Instruments Incorporated.

<PAGE>

Harry T. Marren was elected as a Director of the Company in 1997 and
became its President and Chief Operating Officer in 1998. He has been
President of FDC Technologies, Inc. and its predecessor organization, Federal
Data Systems Corporation, since 1989. Mr. Marren joined the Company in 1977
as General Manager of Operations and was promoted to Vice President in 1980
and Senior Vice President in 1988.

Peter J. Clare was elected as a Director of the Company in 1996. He is
currently a Managing Director with The Carlyle Group, a Washington, D.C.-based
private merchant bank which he joined in 1992. Mr. Clare was previously with
First City Capital, a private investment group. From 1987 to 1989, he worked in
the mergers and acquisitions and merchant banking groups at Prudential-Bache.
Mr. Clare currently serves on the boards of several privately held companies.

Allan M. Holt was elected as a Director of the Company in 1996. He is a
Managing Director of The Carlyle Group, a Washington, D.C.-based private
merchant bank which he joined in 1991. He was previously with Avenir Group, a
private investment and advisory group, and from 1984 to 1987 was Director of
Planning and Budgets at MCI Communications Corporation, which he joined in 1982.
Mr. Holt currently serves on the boards of several privately held companies.

Peter C. Belford, Sr. has been Senior Vice President of the Company since
1998, having previously been Senior Vice President of the Science & Engineering
Group since 1997, and President and Chief Operating Officer of NYMA, Inc. since
1994. Mr. Belford joined NYMA in 1985 as its Executive Vice President. Mr.
Belford was previously employed by Computer Sciences Corporation ("CSC") as Vice
President, Product Management and Product Assurance. He joined CSC in 1977 as a
Program Manager and became Assistant to the President of the System Sciences
Division of that company, with executive management responsibilities.

Paul A. Taltavull has been Senior Vice President of the Corporate
Marketing Group since 1998, having previously been Senior Vice President of the
Solutions Group since April 1997. Mr. Taltavull joined the Company in 1982 as a
Federal Marketing Representative and has held a series of marketing management
positions with the Company, including Senior Vice President of Marketing from
1992 to 1997. Before joining the Company, Mr. Taltavull was a sales
representative for Hewlett-Packard Company and a practicing engineer for the
U.S. Government.

John W. Wayne has been Senior Vice President of the Systems Integration
Group since 1998, having previously been Vice President of the Systems
Integration Group since 1990. He previously directed the Company's systems
design and engineering group. He joined Federal Data Corporation in 1981 as an
Operations Project Manager and was subsequently promoted to Director of
Technical Services. Prior to joining the Company, Mr. Wayne was employed as a
Systems Engineer with Inforex Incorporated and by TRW Data Systems as a Customer
Engineer.

Charles M. Mathews, Jr. has been Senior Vice President of the Systems &
Technology Group since 1998, having previously been Vice President of the
Systems & Technology Group since 1996. From 1990 through 1994, Mr. Mathews was
President of Bohdan Associates, Inc. and President of the Atlantic region of
AmeriData, Inc. from 1994 through 1995.

James M. Dean has been Vice President and Chief Financial Officer of the
Company since 1986 and its Treasurer since 1987. Mr. Dean joined Federal Data
Corporation in 1983 as its Controller. He was previously employed by Price
Waterhouse from 1969 through 1983.

Sterling E. Phillips, Jr. has been Vice President of Science & Engineering
Group since 1998, having previously been Vice President of Corporate Marketing
since April 1997. He joined FDC Technologies, Inc. in 1996 as Vice President of
its Services Group. He was previously employed as Chief Operating Officer of
TRI-COR Industries, Inc. and President of Business Development of the federal
business unit of Computer Sciences Corporation. From 1968 through 1992, Mr.
Phillips held various positions in management, sales and marketing with the IBM
Corporation.

<PAGE>

Maggie M. Hird has been Vice President of Human Resources since June of
1998. From 1996 through June 1998, she served as Vice President of Human
Resources for AMERICOM, Inc. From 1989 through 1996, Ms. Hird served as Vice
President and Chief Administrative Officer of KCI Technologies, Inc., where she
was also a member of the Board of Directors.

The Company does not currently pay any fees or remuneration to its
directors for service on the Board.

CONSULTING AGREEMENTS

In January 1996, the Company and C. Robert Hanley entered into a
three-year consulting agreement. Under the terms of the agreement, Mr. Hanley
consulted on certain aspects of the Company's business and received a consulting
fee of $200,000 per year. He maintained an office at the Company's Bethesda
headquarters and participated in the Company's health insurance plan. The
consulting agreement required Mr. Hanley to be available to provide such
consulting services as the Company may reasonably request. Mr. Hanley has
regularly provided consulting services to the Company pursuant to the consulting
agreement, which expired and was not renewed in January 1999, and continues to
serve as director to the Company without compensation.

<PAGE>

Item 11. Executive Compensation.

The following table sets forth information with respect to the
compensation paid by the Company for services rendered in the years ended
December 31, 1996, 1997, and 1998 to the Chief Executive Officer and to each of
the four other most highly compensated executive officer of the Company (the
"Named Executive Officers"), and two additional employees for whom disclosure
would have been required if they were executive officers.

Annual Compensation Long-Term Compensation
------------------------------------------ ------------------------------

Awards Payouts
------------------------------
Securities
Other Under-
Annual Restricted Lying All Other
Compen- Stock Options/ OLTIP Compen-
Salary Bonus (1) sation(2) Award(s) SARs(3) Payouts sation(4)
Name Year ($) ($) ($) ($) (#) ($) ($)
- -------------------------------- -------- ---------- ---------- --------- --------- ----------- -------- ----------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel R. Young................. 1998 300,000 150,000 - - 10,000 - -
Vice Chairman and 1997 300,000 200,000 - - - - -
Chief Executive Officer 1996 225,012 300,000 - - 75,000 - 430,351
Harry T. Marren................. 1998 200,000 100,000 - - 10,000 - -
President and Chief 1997 200,000 175,000 - - - - -
Operating Officer 1996 150,000 250,000 - - 40,000 - 168,086
Paul A. Taltavull............... 1998 175,000 100,000 - - - - -
Senior Vice President 1997 175,000 100,000 - - - - -
1996 150,000 150,000 - - 25,000 - -
Peter C. Belford, Sr. (5)....... 1998 250,000 - - - 25,000 - -
Senior Vice President 1997 148,130 - - - - - -
1996 - - - - 15,000 - -
Charles M. Mathews, Jr.......... 1998 150,000 275,000 - - 10,000 - -
Senior Vice President 1997 150,000 130,923 - - - - -
1996 118,200 60,000 - - 10,000 - -
Lorraine A. Guevara............. 1998 57,000 333,246 - - 1,000 - -
Account Manager 1997 50,004 143,137 - - - - -
1996 49,250 162,650 - - - - -
R. Patrick Krause (5)........... 1998 86,250 186,928 - - 8,000 - -
Asst. Vice President 1997 59,615 140,481 - - - - -
1996 - - - - - - -
</TABLE>

(1) Bonus awards include commissions and other incentive compensation and
are reflected in the year to which they are attributable and not the year in
which they are actually paid. Bonuses are awarded at the discretion of
management subject to review by the Board of Directors.

(2) Fringe benefit amounts are omitted to the extent the aggregate value
of such benefits is less than 10% of the salary and bonus, or $50,000.

(3) The options listed were awarded in 1996 and 1998 and pursuant to the
Company's Stock Option Plan for Executives and Other Key Employees (the "Plan").
Options granted under the Plan have vesting periods of up to 10 years and all
expire 10 years from the date of grant or in accordance with other terms as
specified by the Company's Board of Directors. In 1998, the Company amended and
restated this Plan by accelerating the vesting of certain performance based
options.

(4) Amounts shown include the dollar value of life insurance premiums paid
on behalf of Messrs. Young ($430,351) and Marren ($168,086).

<PAGE>

(5) Messrs. Belford and Krause joined the Company in May 1997 and January
1997, respectively.

The following table sets forth information regarding the Company's
Option Grants during the fiscal year ended December 31, 1998. The Company has
granted no stock appreciation rights.

OPTION GRANTS IN LAST FISCAL YEAR

Individual Grants Potential Realizable
-------------------------------- Value at Assumed
Number of Percent of Total Annual Rates of
Securities Options/SARs Stock Price
Underlying Granted To Exercise or Appreciation for
Option/SARs Employees in Base Price Expiration Option Term
Name Granted (#) Fiscal Year ($/sh) Date 5% ($) 10% ($)
- ------------------------- ----------- --------------- ----------- -------------- --------- -----------

Daniel R. Young............. 10,000 5% 27 April 24, 2008 169,802 430,310
Harry T. Marren............. 10,000 5% 27 April 24, 2008 169,802 430,310
Paul A. Taltavull........... - 0% 27 April 24, 2008 - -
Peter C. Belford, Sr........ 25,000 13% 27 April 24, 2008 424,504 1,075,776
Charles M. Mathews, Jr...... 10,000 5% 10 April 24, 2008 62,889 159,374
R. Patrick Krause........... 8,000 4% 27 July 7, 2008 135,841 344,248
Lorraine A. Guevara......... 1,000 1% 27/54 April 24, 2008 25,470 64,547

</TABLE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

Number of Securities Value of Unexercized
Underlying Unexercized In the Money
Options Options at Fiscal
At Fiscal Year-End (#) Year-End ($) (1)
----------------------------------- ------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------- ---------------- ---------------- ---------------- ----------------

<S> <C> <C> <C> <C>
Daniel R. Young.............. 43,875 41,125 675,750 599,250
Harry T. Marren.............. 25,325 24,675 360,400 319,600
Paul A. Taltavull (2)........ 13,250 11,750 225,250 199,750
Peter C. Belford, Sr......... 10,313 14,688 - -
Charles M. Mathews, Jr....... 10,600 9,400 180,200 159,800
R. Patrick Krause............ 3,300 4,700 - -
Lorraine A. Guevara.......... 331 669 - -

</TABLE>

(1) As a privately held Company not then engaged in any transaction
requiring a current valuation of its shares, the Company did not determine the
value of its common stock at year-end. Accordingly, the Company has assumed for
purposes of this table a value of $27.00 per share, the most recent price paid
for the common stock by investors in August 1998.

33
<PAGE>

(2) Excludes options to purchase 30,000 shares granted prior to the
Recapitalization pursuant to the Company's 1987 Stock Incentive Plan, which
options will be replaced with immediately exercisable options to purchase shares
of the Company in a quantity and at a price that will preserve the economic
value of the options prior to the Recapitalization.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth the ownership of common stock of the
Company by each person known by the Company to be the owner of 5% or more of the
Company's outstanding common stock, by each person who is a director or Named
Executive Officer of the Company and by all directors and executive officers of
the Company as a group.

PERCENTAGE OF
ALL OUTSTANDING NUMBER
BENEFICIAL OWNER (1) COMMON STOCK OF SHARES
- ----------------------------------------------------------- -------------------- --------------------

<S> <C> <C>
TCG Holdings, L.L.C. (2)................................... 2,485,356 84.9
William E. Conway, Jr. (3)................................. - -
C. Robert Hanley (4) (7)................................... 73,172 2.5
Daniel R. Young (5) (6).................................... 155,407 5.3
Harry T. Marren (6)........................................ 31,000 1.1
Peter J. Clare (3)......................................... - -
Allan M. Holt (3).......................................... - -
Paul A. Taltavull (6)...................................... 15,880 *
Peter C. Belford, Sr. (6).................................. 47,208 1.6
Charles M. Mathews, Jr. (6)................................ 13,000 *
All directors and executive officers as a group (13 persons) 356,087 12.2
</TABLE>

* less than one percent

(1) Except as otherwise indicated, each beneficial owner has the sole
power to vote, as applicable, and to dispose of all units owned by such
beneficial owner.

(2) TCG Holdings, L.L.C., a Delaware limited liability company, is the
sole managing member of TC Group, L.L.C., a Delaware limited liability
company, which is the sole general partner of Carlyle Partners II, L.P., a
Delaware limited partnership, Carlyle Partners III, L.P., a Delaware limited
partnership, Carlyle International Partners II, L.P., a Cayman Islands
limited partnership, Carlyle International Partners III, L.P., a Cayman
Islands limited partnership, and certain other partnerships formed by
Carlyle, each of which is record holder of the Company's common stock. TC
Group, L.L.C. or an affiliate also exercises investment discretion and
management with respect to the shares of common stock held of record by
certain other investors. The address of TCG Holdings L.L.C. is c/o The
Carlyle Group, 1001 Pennsylvania Avenue, N.W., Washington, D.C. 20004.
William E. Conway, Jr., Daniel A. D'Aniello and David M. Rubenstein, as the
managing members of TCG Holdings, L.L.C., may be deemed to share beneficial
ownership of the shares shown as beneficially owned by TCG Holdings, L.L.C.
Such persons disclaim such beneficial ownership.

(3) The address of such person is c/o The Carlyle Group, 1001 Pennsylvania
Avenue, N.W., Washington, D.C. 20004.

(4) The address of C. Robert Hanley is 2808 Tarflower Way, Naples, Florida
34105.

(5) 7,000 of these shares (0.2% of the total outstanding shares of the
Company) are owned by the Daniel R. Young Irrevocable Unitrust U/A dated
November 16, 1994, for which Daniel R. Young is the trustee.

(6) The address of such person is c/o Federal Data Corporation, 4800
Hampden Lane, Bethesda, Maryland 20814.

(7) All of these shares are owned by the C. Robert Hanley Grantor
Retained Annuity Trust dated July 15, 1998, for which C. Robert Hanley is the
trustee.

34
<PAGE>

Item 13. Certain Relationships and Related Transactions.

Concurrently with the acquisition of the Company by Carlyle in 1995, the
Company entered into a management agreement (the "Management Agreement") with TC
Group, L.L.C. for certain management and financial advisory services to be
provided to the Company. In consideration of the management and financial
advisory services, the Company pays TC Group, L.L.C. an annual management fee of
$300,000. Based on fees being paid by comparably situated companies, the Company
believes that this Management Agreement is on terms no less favorable to the
Company than could have been obtained from an independent third party.

In connection with the Recapitalization, the Company sold an airplane
to an entity controlled by C. Robert Hanley, a Director of the Company and
its former chief executive officer. Mr. Hanley purchased the airplane for
approximately $1.5 million, its aggregate estimated value. The Company
entered into a three-year consulting agreement with Mr. Hanley, which expired
and was not renewed in January 1999, and a three-year agreement for use of
the airplane from an affiliate of Mr. Hanley, which expired and was not
renewed in December 1998. The consulting agreement provided for annual
payments of $200,000, and the lease of the airplane provided for annual
payments of $300,000 plus a usage charge which amounted to approximately
$95,000 in the year ended December 31, 1998. The consulting agreement
required Mr. Hanley to be available to provide such consulting services as
the Company may reasonably request. Mr. Hanley regularly provided consulting
services to the Company pursuant to the consulting agreement and serves as
director to the Company without compensation.

In connection with the Recapitalization, the stockholders of the Company
executed a Holders Agreement dated as of November 30, 1995 (as amended,
supplemented or replaced, the "Holders Agreement"). The Holders Agreement
restricts transfer of the common stock of the Company (except to affiliates, to
the public in a registered offering or pursuant to Rule 144 under the Securities
Act, transfers in a merger or sale of the Company, or transfer pursuant to
certain rights under the Holders Agreement). The Holders Agreement also provides
for tag-along rights on transfers of more than 15% of the common stock, bring
along rights with respect to more than 50% of the common stock and registration
rights.

PART IV

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

(1) -- Financial Statements

The following Consolidated Financial Statements of the Company and its
subsidiaries are included in this Report:

1. Financial Statements:

Report of Independent Accountants

Consolidated Balance Sheets as of December 31, 1997 and 1998

Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998

Consolidated Statements of Changes in Stockholders' (Deficit) Equity for
the years ended December 31, 1996, 1997 and 1998

Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998

35
<PAGE>

Notes to Consolidated Financial Statements

2. Financial Statement Schedules:

All schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or the notes
thereto under Item 8.

3. Exhibits:

EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------

<S> <C>
(d)2.5 Stock Purchase Agreement by and among Federal Data Corporation and Ralph O. Williams, Frederic M.
Cullen, Trustees of R.O.W. Sciences ESOP, John C. Smith, Paul H. Tardif and R.O.W. Sciences, Inc. dated
as of February 17, 1998

(e)2.5 Asset Purchase Agreement dated as of February 20, 1998 by and among Telos Corporation and NYMA, Inc.

(e)2.6 Interim Agreement dated as of February 28, 1998 by and among Telos Corporation and NYMA, Inc.

(f)2.7 Stock Purchase Agreement among Federal Data Corporation and Harry P. Headley, as Trustee, Dorothy
Headley, as Trustee, Michael K. Headley, Kathleen Kowis, George Kowis and Technical and Management
Assistance, Inc. dated March 11, 1998

(a)3.1 Certificate of Incorporation of Federal Data Corporation

(a)3.2 By-laws of Federal Data Corporation

(a)3.3 Certificate of Incorporation of FDCT Corp.

(a)3.4 By-laws of FDCT Corp.

(a)3.5 Articles of Incorporation of NYMA, Inc.

(a)3.6 By-laws of NYMA, Inc.

(a)3.7 Articles of Incorporation of Sylvest Management Systems Corporation

(a)3.8 By-laws of Sylvest Management Systems Corporation

(a)3.9 Certificate of Incorporation of FDC Technologies, Inc.

(a)3.10 By-laws of FDC Technologies, Inc.

(f)3.15 Certificate of Incorporation of R.O.W. Sciences, Inc.

(f)3.16 By-laws of R.O.W. Sciences, Inc.

(f)3.17 Articles of Incorporation of Technical and Management Assistance, Inc.

(f)3.18 By-laws of Technical and Management Assistance, Inc.
</TABLE>

36
<PAGE>

<TABLE>

<S> <C>
(a)4.1 Indenture dated as of July 15, 1997 among Federal Data Corporation, FDCT Corp., NYMA, Inc., Sylvest
Management Systems Corporation, FDC Technologies, Inc., DoxSys, Inc., VAD International, Inc. and
Norwest Bank Minnesota, National Association

(a)4.2 Specimen Certificate of 10 1/8% Senior Subordinated Notes due 2005 (included in Exhibit 4.1 hereto)

(a)4.3 Purchase Agreement dated as of July 18, 1997 among Federal Data Corporation, BT
Securities Corporation and Lehman Brothers

(a)4.4 Registration Rights Agreement dated as of July 25, 1997 among Federal Data
Corporation, BT Securities Corporation and Lehman Brothers

(b)4.5 Credit Agreement dated as of July 25, 1997 among Federal Data
Corporation, various lending institutions signatories thereto and
Bankers Trust Company as Agent, as amended by First Amendment to Credit
Agreement dated as of August 4, 1997 among Federal Data Corporation,
various lending institutions signatory thereto and Bankers Trust
Company as Agent

(a)4.6 Form of 9% Increasing Rate Subordinated Note due 2004 dated May 21, 1997

(a)4.7 Form of 9% Increasing Rate Subordinated Note due 2004 dated June 30, 1997

(f)4.8 Form of 9% Rate Subordinated Note due 2000 dated February 17, 1998

(f)4.9 Form of 9% Rate Subordinated Note due 2000 dated March 13, 1998

4.10 The Company is a party to several non-recourse financing agreements
evidenced by promissory notes, none of which exceed 10 percent of the
total assets of the Company and its subsidiaries on a consolidated
basis. The Company hereby agrees to furnish a copy of such agreements
to the Commission upon request.

(c)4.11 Security Agreement-Inventory dated September 5, 1997 among Federal Data Corporation, Sylvest Management
Systems Corporation, FDC Technologies, Inc. and Nationscredit Commercial Corporation of America

(c)4.12 Intercreditor Agreement dated as of September 11, 1997 between Bankers Trust Company, as Agent, and
Nationscredit Commercial Corporation of America

(c)4.13 First Supplemental Indenture dated as of December 19, 1997 between Federal Data Corporation and Norwest
Bank, Minnesota, National Association

(a)10.1 +Employment Agreement dated April 30, 1997 between NYMA, Inc. and Peter C. Belford

(b)10.2 +Stock Option Plan dated February 16, 1996 for Executives and Other Key Employees

(b)10.3 +Form of Executive Management Incentive Stock Option Agreement

(a)10.4 Agreement of Lease dated December 5, 1984 between Federal Data Corporation and
Community Motor Property Associates Limited Partnership
</TABLE>

<PAGE>

<S> <C>
(a)10.6 Lease Agreement dated February 2, 1988 between Second Trade Center
Office Associates Limited Partnership and NYMA, Inc., as modified by
Lease Modification Agreement dated December 22, 1988 between Second
Trade Center Office Associates Limited Partnership and NYMA, Inc.

(f)10.7 Lease Assignment, Modification and Extension Agreement

(a)10.9 Trust Agreement dated December 27, 1994 among Federal Data Corporation, Charles R.
Hanley, II, Daniel Young, Harry Marren, Marvin Haber and Paul Taltavull

(b)10.10 +Management Agreement dated as of December 1, 1995 among FDC
Technologies, Inc., the subsidiaries listed on Schedule A thereto
and TC Group, L.L.C.

* 21.1 Subsidiaries of Federal Data Corporation

* 27 Financial Data Schedule

* Filed herewith

(a) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-1, filed on September 26, 1997.
(b) Incorporated by reference to exhibits to the Company's Amendment No. 1
to Registration Statement on Form S-1, filed on November 26, 1997.
(c) Incorporated by reference to exhibits to the Company's Amendment No. 2
to Registration Statement on Form S-1, filed on December 19, 1997.
(d) Incorporated by reference to the exhibits to the Company's Report on form
8-K, filed on March 3, 1998.
(e) Incorporated by reference to the exhibits to the Company's Report on form 8-K,
filed on March 16, 1998.
(f) Incorporated by reference to the exhibits to the Company's Report on form 10-K
405, filed on March 31, 1998.
+ Executive Compensation Plan or Arrangement
</TABLE>

(4) Reports on Form 8-K

None.

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Bethesda, Maryland
on March 25, 1999.

FEDERAL DATA CORPORATION

By: /s/ JAMES M. DEAN
---------------------------------------------
James M. Dean
Vice President, Chief Financial Officer
and Treasurer

<PAGE>

Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and the dates indicated.

SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------------ -------------------

<S> <C> <C>
/s/ WILLIAM E. CONWAY, JR. Chairman of the Board March 25, 1999
- -----------------------------------------------
William E. Conway, Jr.

/s/ DANIEL R. YOUNG Vice Chairman and Chief March 25, 1999
- ----------------------------------------------- Executive Officer
Daniel R. Young

/s/ JAMES M. DEAN Vice President, Chief March 25, 1999
- ----------------------------------------------- Financial Officer and
James M. Dean Treasurer (Principal
Financial and Accounting
Officer)

/s/ ALLAN M. HOLT Director and Secretary March 25, 1999
- -----------------------------------------------
Allan M. Holt

/s/ PETER J. CLARE Director March 25, 1999
- -----------------------------------------------
Peter J. Clare

/s/ HARRY T. MARREN Director, President March 25, 1999
- ----------------------------------------------- and Chief Operating
Harry T. Marren Officer

/s/ C. ROBERT HANLEY Director and Chairman Emeritus March 25, 1999
- -----------------------------------------------
C. Robert Hanley

</TABLE>

<PAGE>

EXHIBIT 21.1

SUBSIDIARIES OF FEDERAL DATA CORPORATION

State of Doing
Subsidiaries Incorporation Business Name
- ------------ ------------- -------------
<S> <C> <C>
FDCT Corp. Delaware FDCT Corp.

FDC Technologies, Inc. Delaware FDC Technologies, Inc.

NYMA, Inc. Maryland NYMA, Inc.

Sylvest Management Maryland Sylvest Management
Systems Corporation Systems Corporation

R.O.W. Sciences, Inc. Delaware R.O.W. Sciences, Inc.

Technical and Management New Jersey Technical and Management
Assistance, Inc. Assistance, Inc.
</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K 405 FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,942
<SECURITIES> 0
<RECEIVABLES> 127,295
<ALLOWANCES> 455
<INVENTORY> 963
<CURRENT-ASSETS> 145,122
<PP&E> 20,220
<DEPRECIATION> 15,100
<TOTAL-ASSETS> 231,921
<CURRENT-LIABILITIES> 90,078
<BONDS> 141,000
0
0
<COMMON> 29
<OTHER-SE> (3,201)
<TOTAL-LIABILITY-AND-EQUITY> 231,921
<SALES> 515,410
<TOTAL-REVENUES> 520,294
<CGS> 449,225
<TOTAL-COSTS> 525,708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 210
<INTEREST-EXPENSE> 16,029
<INCOME-PRETAX> (5,414)
<INCOME-TAX> 1,282
<INCOME-CONTINUING> (6,696)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,696)
<EPS-PRIMARY> 0 <F1>
<EPS-DILUTED> 0 <F1>
<FN>
<F1> NOT REQUIRED TO PRESENT EPS FOR AS LONG AS THE COMPANY IS NOT
PUBLICLY HELD.
</FN>

</TABLE>