BDM INTERNATIONAL INC /DE, 424B4, 1996-03-22

BDM INTERNATIONAL INC /DE
424B4, 1996-03-22
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE>
[BDM LOGO]
2,800,000 SHARES
BDM INTERNATIONAL, INC.

COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------

Of the 2,800,000 shares of Common Stock offered, 2,240,000 shares are being
offered hereby in the United States and 560,000 shares are being offered in a
concurrent international offering outside the United States. The public offering
price and the aggregate underwriting discount per share will be identical for
both Offerings. See "Underwriting".

Of the 2,800,000 shares of Common Stock offered, 450,000 shares are being
sold by the Company and 2,350,000 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders.

The last reported sale price of the Common Stock, which is quoted under the
symbol "BDMI", on the Nasdaq National Market on March 21, 1996 was $37.25 per
share. See "Price Range of Common Stock".

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share........... $36.50 $1.71 $34.79 $34.79
Total(3)............ $102,200,000 $4,788,000 $15,655,500 $81,756,500
</TABLE>

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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.

(2) Before deducting estimated expenses of $500,000 payable by the Company.

(3) One of the Selling Stockholders has granted the U.S. Underwriters an option
for 30 days to purchase up to an additional 336,000 shares of Common Stock
at the price to public, less the underwriting discount, solely to cover
over-allotments. Additionally, such Selling Stockholder has granted the
International Underwriters a similar option with respect to an additional
84,000 shares as part of the concurrent international offering. If such
option is exercised in full, the total price to public, underwriting
discount, proceeds to Company and proceeds to Selling Stockholders will be
$117,530,000, $5,506,200, $15,655,500 and $96,368,300, respectively. See
"Underwriting".

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

The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
March 27, 1996, against payment therefor in immediately available funds.

GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
OPPENHEIMER & CO., INC.

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The date of this Prospectus is March 21, 1996.
<PAGE>

[BDM Logo]

..... A MULTINATIONAL INFORMATION TECHNOLOGY
COMPANY THAT OPERATES PRIMARILY IN:

. SYSTEMS AND SOFTWARE INTEGRATION
. COMPUTER AND TECHNICAL SERVICES
. ENTERPRISE MANAGEMENT AND OPERATIONS

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Reports and other
information filed by the Company with the Commission can be inspected and copied
at 450 Fifth Street, N.W., Washington, DC 20549, and at the following regional
offices of the Commission: 7 World Trade Center, New York, New York 10048, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Common Stock is listed on the Nasdaq National Market System, and
these records and other information can also be inspected at the reading room of
the library of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., 2nd Floor, Washington, D.C. 20006.

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

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE SHARES ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING".
<PAGE>

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless the context otherwise requires, references
herein to the "Company" or "BDM" include BDM International, Inc. and its
subsidiaries. Unless otherwise indicated, all information in this Prospectus
assumes that the Underwriters' over-allotment options are not exercised.

THE COMPANY

BDM is a multinational information technology ("IT") company that provides
Systems and Software Integration, Computer and Technical Services and Enterprise
Management and Operations to both public and private sector clients. Building on
its core competencies developed over 36 years, the Company is pursuing a
strategy of growth and diversification through its decentralized
subsidiaries--BDM Federal, BDM Technologies, BDM Europe and Vinnell. Total
revenue has grown from $297 million in 1991 to $890 million in 1995, a compound
annual growth rate of 32% (15% excluding acquisitions).

The aggregate stated award value of new contracts won by the Company in 1995
exceeded $1 billion for the third consecutive year and led to a record year-end
backlog of $1.7 billion on December 31, 1995. BDM has a diversified business
base with no single contract representing more than 10% of total revenue in
1995.

BDM operates in three interrelated markets:

. SYSTEMS AND SOFTWARE INTEGRATION. The Company creates information and
other computer-based systems that are tailored to specific public and
private sector client needs. BDM assists its clients in consolidating
computer operations and migrating from older mainframe-based computer
systems to newer, more flexible, standardized open systems based on
client/server architectures and linked by local and wide-area networks.
The Company implements its solutions by utilizing commercial off-the-shelf
hardware and software, purchased from multiple vendors, integrated with
software developed by the Company. Typical systems and software projects
include development and delivery of client/server, as well as
mainframe-based management information and transaction processing systems,
large scale control systems (such as air traffic control systems), health
care and medical information systems, automated distribution systems and
manufacturing systems. A current opportunity in communications network
design and integration involves the use of Internet and "Intranet"
capabilities to help clients improve their business processes and
performance. In 1995, Systems and Software Integration revenue was
approximately $274 million (31% of total revenue) and has grown at a
compound annual growth rate of 35% since 1991 (32% excluding
acquisitions).

. COMPUTER AND TECHNICAL SERVICES. The Company provides a broad range of
scientific, engineering, technical assistance and consulting services.
Typical assignments involve requirements analysis, computer migration
analysis, system concept development, training and systems testing.
Specific examples include advanced modeling and simulation services to
help clients improve planning, testing and training; the use of image
technology to enhance security and intelligence; numerous programs in
command, control, communications, computers and intelligence to assist the
U.S. military services and other clients; and technology support services
to augment the information systems capabilities of commercial clients.
Through this work, BDM also gains insights into its clients' operations,
identifies potential cost-effective systems solutions and thereby
positions itself to capture systems and

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software integration opportunities. In 1995, Computer and Technical
Services revenue was approximately $505 million (57% of total revenue) and
has grown at a compound annual growth rate of 27% since 1991 (4% excluding
acquisitions).

. ENTERPRISE MANAGEMENT AND OPERATIONS. The Company manages and operates
facilities devoted to data processing, research and development, testing,
logistics and training. Examples include managing and operating commercial
in-house data processing centers; various European test facilities for
vehicles, aircraft and spacecraft; and six Job Corps Centers. In 1995,
Enterprise Management and Operations revenue was approximately $111
million (12% of total revenue) and has grown at a compound annual growth
rate of 59% since 1991 (26% excluding acquisitions).

BDM attributes its recent performance to the following strategies and
strengths:

EMPHASIS ON INFORMATION TECHNOLOGY SYSTEMS MARKETS. BDM has placed an
emphasis on strengthening its ability to compete in the fast-growing systems and
software integration marketplace, focusing on large multi-year contracts ranging
upward from $50 million. The Company has pursued its information systems
strategy through such actions as the establishment of BDM Technologies, an IT
company focused on commercial and state and local government clients, and the
acquisition of European and U.S. companies that possess significant IT systems
capabilities. To enhance the Company's ability to compete in targeted vertical
information systems markets, the Company has developed a common IT strategy and
standardized software development methodologies and has significantly expanded
recruitment and training of its IT professional staff.

EXPANSION INTO TARGETED MARKETS. The Company has successfully transitioned
its expertise gained from work with the Department of Defense ("DOD") into such
vertical markets as air traffic control, workforce development and training,
education technologies, health and human services information management,
manufacturing and distribution automation and environmental/waste management for
civil government and commercial clients. BDM has penetrated the civil government
business through systems development and integration contracts, such as its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system for the SEC,
and has built market positions in health and welfare systems for state
governments and education systems for state and local school districts.

GLOBAL DIVERSIFICATION. In 1995, BDM generated more revenue from
international clients ($342 million) than from all sources in 1991 ($297
million). The Company believes that its ability to serve clients on a global
basis differentiates it from its competitors. The Company's overseas presence
allows it to project its core competencies into less competitive IT markets,
which the Company believes will afford significant growth and margin expansion
opportunities. BDM has expanded vigorously into European and Middle Eastern
markets, aided by two key acquisitions, and has begun marketing in the Pacific
Rim. International marketing has been strengthened by synergies between the
Company's U.S. and foreign-based subsidiaries in such areas as air traffic
control, warehouse automation, agile manufacturing and military logistics.

ABILITY TO MEET FULL-SERVICE/FULL-CYCLE REQUIREMENTS. Most of the Company's
major programs cross at least two of the three primary market areas (Systems and
Software Integration, Computer and Technical Services, Enterprise Management and
Operations) and a growing number involve all three. The Company is able to seize
specific opportunities across the full program cycle and also handle
large-scale, full-cycle projects from beginning to end. For example, a Company
initiative in the education technologies area began with consulting services,
progressed to a major system design and integration and ultimately involved
outsourcing of the school system's information services department to BDM.

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FOCUSED ACQUISITION PROGRAM. The Company is experienced in identifying and
consummating acquisitions and subsequently integrating acquired businesses into
existing operations. The Company is pursuing an acquisition program, primarily
focused on providing new and expanded market opportunities by strengthening its
core competencies and expanding its position in global information technology
markets. BDM concentrates on identifying acquisition targets, particularly those
focusing on the IT needs of commercial clients, that have strong existing
management teams in place and can be integrated into BDM's decentralized
operating structure within a common overall strategy. The Company's February
1996 acquisition of CW Systems, Inc., IG Systems, Inc. and Melco Systems, Inc.,
now operating collectively as the IT Services Group of BDM Technologies, is an
example of the execution of BDM's acquisition strategy in the commercial IT
sector.

THE OFFERINGS

Common Stock offered by the Company:
U.S. Offering........................................... 360,000 shares
International Offering.................................. 90,000 shares
-----------
Total................................................. 450,000 shares
Common Stock offered by the Selling Stockholders (1)(2):
U.S. Offering........................................... 1,880,000 shares
International Offering.................................. 470,000 shares
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Total................................................. 2,350,000 shares
Total Common Stock to be outstanding after
the Offerings (2)(3).................................... 13,562,285 shares
Nasdaq National Market Symbol............................. BDMI
Use of proceeds........................................... For general
corporate purposes,
including working
capital and
acquisitions.

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(1) Does not include 420,000 shares of Common Stock that are subject to the
over-allotment options granted by one of the Selling Stockholders to the
Underwriters. See "Underwriting."

(2) Includes 400,000 shares of Common Stock which will be obtained upon the
conversion of an equal number of shares of Class B Common Stock into Common
Stock immediately prior to the Offerings. See "Description of Capital
Stock--Common Stock and Class B Common Stock."

(3) Based on shares outstanding as of February 23, 1996. Does not include
1,630,885 shares of Common Stock issuable upon exercise of options
outstanding at such date under the Company's stock option plans.

As used in this Prospectus, references to the "U.S. Offering" shall mean the
offering of shares of Common Stock in the United States, and references to the
"International Offering" shall mean the offering of such shares outside the
United States. The U.S. Offering and the International Offering are referred to
herein collectively as the "Offerings."

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993(1) 1992(2) 1991(3)
-------- -------- -------- -------- --------

(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $889,974 $774,249 $558,292 $424,389 $296,798
Cost of sales................................. 752,107 643,728 460,186 348,191 236,165
Selling, general and administrative........... 80,804 82,950 63,847 41,940 32,328
Depreciation, amortization and other.......... 18,154 20,627 12,089 14,802 18,650
-------- -------- -------- -------- --------
Operating profit.............................. 38,909 26,944 22,170 19,456 9,655
Interest expense, net......................... 1,474 3,481 4,178 5,302 6,425
Equity in earnings of affiliates.............. (1,835) (1,841) (2,223) (1,852) --
Minority interest............................. 5,863 2,526 1,555 -- --
-------- -------- -------- -------- --------
Income before income taxes.................... 33,407 22,778 18,660 16,006 3,230
Provision for income taxes.................... 15,015 9,700 7,632 6,552 2,710
-------- -------- -------- -------- --------
Income before extraordinary gain and
cumulative effect of accounting change....... 18,392 13,078 11,028 9,454 520
Extraordinary gain, net of tax................ -- -- 413 -- --
Cumulative effect of accounting change........ -- -- -- (115) --
-------- -------- -------- -------- --------
Net income.................................... $ 18,392 $ 13,078 $ 11,441 $ 9,339 $ 520
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
EARNINGS PER SHARE:
Income before extraordinary gain and
cumulative effect of accounting change....... $ 1.56 $ 1.20 $ 0.92 $ 0.81 $ 0.05
Extraordinary gain............................ -- -- 0.03 -- --
Cumulative effect of accounting change........ -- -- -- (0.01) --
-------- -------- -------- -------- --------
Net income.................................... $ 1.56 $ 1.20 $ 0.95 $ 0.80 $ 0.05
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
<TABLE><CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995(4) 1994(5) 1993(1) 1992(2) 1991(3)
-------- -------- -------- -------- --------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Current assets................................ $294,654 $270,079 $242,800 $135,775 $105,220
Total assets.................................. 363,793 335,551 303,436 174,816 133,577
Current liabilities........................... 178,530 175,165 161,052 81,033 48,525
Long-term debt................................ 25,900 82,750 48,480 38,423 40,940
Stockholders' equity.......................... 115,469 41,105 62,909 54,932 44,112
</TABLE>

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(1) On November 16, 1993, the Company acquired a 45% interest in
Industrieanlagen-Betriebsgesellschaft mbH ("IABG"), a company formerly owned
indirectly by the German government, and entered into an agreement which
gives the Company voting control of IABG and permits the Company to manage
IABG's operations. The Company's financial statements consolidate IABG's
financial position and results of operations and report the remaining
owners' 55% interest as a minority interest. This acquisition was accounted
for as a purchase, and the Company's consolidated results of operations
include IABG from the date of its acquisition through its subsidiary, BDM
Europe.

(2) On March 13, 1992, the Company acquired the outstanding common stock of
Vinnell Corporation ("Vinnell") for approximately $29.6 million, including
transaction expenses. This acquisition was accounted for as a purchase, and
the Company's consolidated results of operations include Vinnell from the
date of its acquisition.

(3) In October 1990, The Carlyle Group, L.P. ("Carlyle") invested $40.0 million
in the equity securities of the Company. The acquisition was accounted for
as a purchase, and $93.5 million of indebtedness of the Company related to
the buyout was incurred. The results of operations for the year ended
December 31, 1991 reflect certain one-time acquisition-related expenses.

(4) The increase in stockholders' equity and the decrease in long-term debt
reflect the impact of net proceeds of $49.4 million from the Company's
initial public offering of 2.875 million shares of Common Stock on June 28,
1995.

(5) The decline in stockholders' equity and the increase in long-term debt
reflect the impact of the repurchase of 2.6 million shares of Common Stock
and Class B Common Stock for $36.4 million on May 27, 1994.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in "Management Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" including
statements regarding the U.S. Government budget impasse, the percentage growth
of fixed-price contracts, sources of present and future liquidity, the effect of
U.S. Government audits and the conversion of backlog into revenue, and other
statements contained herein regarding matters that are not historical facts are
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995); and because such statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those discussed
under "Risk Factors."

RISK FACTORS

In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered when evaluating an
investment in the shares of Common Stock offered hereby.

CONCENTRATION OF REVENUE

Approximately 50%, 49% and 69% of the Company's total revenue in 1995, 1994
and 1993, respectively, was derived from contracts or subcontracts funded by the
U.S. Government, which includes contracts funded by the DOD that accounted for
approximately 37%, 32% and 47% of the Company's total revenue in such years,
respectively. The Company believes that the success and development of its
business will continue to be dependent upon its ability to participate in U.S.
Government contract programs. Accordingly, the Company's financial performance
may be directly affected by changes in U.S. Government contracting policies.
Among the factors that could materially adversely affect the Company's
government contracting business are budgetary constraints, changes in fiscal
policies or available funding, changes in government programs or requirements,
including proposals to abolish certain government agencies or departments,
curtailment of the U.S. Government's use of technology services firms, the
adoption of new laws or regulations, technological developments and general
economic conditions. These factors could cause U.S. Government agencies to
exercise their right to terminate existing contracts for convenience or not to
exercise options to renew.

Certain of the Company's contracts individually contribute a significant
percentage of the Company's revenue. In 1995, the Company's largest contract (by
revenue) generated approximately 8% of the Company's total revenue, and the ten
largest and 30 largest contracts (by revenue) generated approximately 42% and
60% of the Company's total revenue, respectively. Termination of such contracts,
or the Company's inability to renew or replace such key contracts when they
expire, could have a material adverse effect on the Company.

Approximately 14% of the Company's revenue in 1995 was derived from
contracts funded by each of the Saudi and the German governments. See
"--International Operations".

CONTRACTS WITH U.S. FEDERAL, STATE AND LOCAL GOVERNMENTS

U.S. Government contracts, by their terms, generally can be terminated at
any time by the U.S. Government, without cause, for the convenience of the U.S.
Government. If a U.S. Government contract is so terminated, the Company would be
entitled to receive compensation for the services provided or costs incurred
through the time of termination and a negotiated amount of profit on the
contract. Government contractors who fail to comply with applicable government
procurement-

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related statutes and regulations may also be subject to potential contract
termination, suspension or debarment from contracting with the Government, or
other remedies. Most U.S. Government contracts are also subject to modification
in the event of changes in funding, and the Company's contractual costs and
revenue are subject to adjustment as a result of audits by the Defense Contract
Audit Agency ("DCAA") and other U.S. Government auditors. Further, U.S.
Government contract awards may be protested by competitors.

The Company in the ordinary course of its business occasionally performs
services for U.S. Government clients in advance of receiving a funded
contractual document. The Company does so with the expectation that such
contractual authorization will be obtained. As of December 31, 1995, the Company
had recognized no material amounts of revenue for U.S. Government clients for
which funding had not been obtained; however, no assurance can be given that the
Company will not experience material losses relating to this practice in the
future.

Approximately $49.7 million in revenue (6% of total revenue) in 1995 was
derived from subcontracts with prime contractors on U.S. Government contracts.
Accordingly, the Company may be adversely affected if a prime contractor fails
to perform satisfactorily or is unable or unwilling, for financial or other
reasons, to meet its obligations to the Company.

Many of the types of provisions governing U.S. Government contracts
described above also apply to the Company's contracts with state and local
governments and their agencies. In addition, with respect to state and local
government clients, budgeting pressures and other financial constraints may
result in reductions in funding of various state and local government programs,
which may affect the ability of the Company to obtain new contracts with state
and local governments, cause state and local governments to exercise their right
to terminate existing contracts for convenience or not to exercise their options
thereunder and may result in the extension of the procurement and contract
funding process over a longer period of time.

CONTRACT PROFIT EXPOSURE

The Company's services are provided primarily through three types of
contracts: fixed-price, time-and-material and cost-reimbursable contracts.
Approximately 28% of the Company's total revenue in 1995 was attributable to
fixed-price contracts which require the Company to perform services under a
contract at a stipulated price. The Company derived approximately 33% of its
total revenue during the same period from time-and-material contracts which
reimburse the Company for the number of labor hours expended at established
hourly rates negotiated in the contract, plus the cost of materials incurred.
The balance of the Company's contracts (approximately 39%) are cost-reimbursable
contracts under which the Company is reimbursed for all actual costs incurred in
performing the contract to the extent that such costs are within the contract
ceiling and allowable under the terms of the contract, plus a fee or profit.

The Company assumes greater financial risk on fixed-price contracts than on
either time-and-material or cost-reimbursable contracts. As the Company
increases its commercial and state government business, it believes that an
increasing percentage of its contracts will be fixed-price. Failure to
anticipate technical problems, estimate costs accurately or control costs during
performance of a fixed-price contract may reduce the Company's profit or cause a
loss. Greater risks are involved under time-and-material contracts than under
cost-reimbursable contracts because the Company assumes the responsibility for
the delivery of specified skills at a fixed hourly rate. Although management
believes that adequate provision for its fixed-price and time-and-material
contracts is reflected in the Company's financial statements, no assurance can
be given that this provision is adequate or that losses on fixed-price and
time-and-material contracts will not occur in the future.

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INTERNATIONAL OPERATIONS

The Company continues to build its presence in international markets. The
Company recognized approximately $342 million in revenue (38% of total revenue)
in 1995 from contracts funded by international clients. While management
believes that BDM's experience serving the domestic market translates into an
ability to serve international markets, no assurance can be given that the
Company's efforts will succeed.

The Company recognized approximately $223 million in revenue (25% of total
revenue) in 1995 from contracts with foreign defense agencies and approximately
$31 million in revenue (3% of total revenue) in 1995 from contracts with other
foreign government agencies. A significant amount of the foreign defense revenue
was derived from contracts funded by foreign governments under the U.S.
Government's Foreign Military Sales ("FMS") program. FMS contracts involve the
provision of services to certain foreign governments, procured through U.S.
Government contracting mechanisms, but funded by the foreign governments
themselves. The Company could be materially adversely affected as a result of
any political instability or financial constraints experienced, or decisions to
decrease funding, by such foreign governments. In addition, the Company's
operations in foreign jurisdictions are subject to uncertainty in the
enforcement and application of various laws by foreign governments, including,
without limitation, tax and environmental laws.

In 1993, the Company acquired a 45% interest in IABG pursuant to a plan of
privatization by the German Government. In connection with the acquisition, the
Company entered into an agreement by which the Company votes 53% of the shares
of IABG except in those instances in which the German Federal Ministry of
Defense determines that an issue before the shareholders affects German national
security interests. In addition, BDM has received an informal commitment from
the German Government to use its best efforts to continue to direct business to
IABG through 1996, although there can be no assurance that IABG will receive
such business. This commitment will terminate at the end of 1996.

FOREIGN CURRENCY EXCHANGE RATE RISK

In connection with its international operations, the Company is subject to
various risks inherent in foreign activities. The Company is exposed to risks
associated with fluctuations in exchange rates, including the German Mark, the
Saudi Riyal, the Kuwaiti Dinar, the Turkish Lira and the Dutch Guilder. The
Company limits its exposure to these risks by incurring and paying for its
expenses in the same currencies as those of its revenue. Although the Company
has engaged in hedging activities in the past and may do so in the future, it is
not currently engaged in hedging activities with respect to its foreign source
operating income and cash flows.

COMPETITION

The markets for the Company's services are highly competitive. The
information services industry in which the Company operates is highly fragmented
with no single company or small group of companies in a dominant position. The
Company's competitors include large, diversified firms with substantially
greater financial resources and larger technical staffs than the Company, as
well as firms which receive preferences under set-aside programs. Some of the
Company's competitors also operate in international markets, along with other
concerns which operate exclusively or primarily outside the United States. Some
of the larger competitors offer services in a number of markets which overlap
many of the same areas in which the Company offers services, while certain
companies are focused on only one or a few of these markets. The firms which
compete with the Company are consulting firms, computer services firms,
applications software companies and accounting firms, as well as the computer
service arms of computer manufacturing companies and

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defense and aerospace firms. In addition, the internal staffs of client
organizations, non-profit federal contract research centers and universities
are, in effect, competitors of the Company.

ACQUISITIONS AND STRATEGIC ALLIANCES

The Company has made several acquisitions since its formation and is likely
to make additional acquisitions in areas related to its current lines of
business. The Company has no present commitments or agreements as to any
specific acquisition transactions. However, the Company is regularly evaluating
potential acquisition candidates. No assurance can be given that the Company
will make additional acquisitions, that past or future acquisitions will prove
to be successful or that the Company will successfully manage the growth
attributable to such acquisitions. Moreover, the Company has incurred, and may
incur, substantial debt and non-cash amortization expenses in making
acquisitions.

The Company has formed strategic alliances in the form of joint ventures to
gain access to markets in Oman, Saudi Arabia, Turkey and Egypt. As the Company
seeks to expand internationally, it may be necessary to form new strategic
alliances to gain access to particular foreign markets. No assurance can be
given, however, that the Company will be able to maintain its existing alliances
or form new desirable alliances in the future.

ENVIRONMENTAL MATTERS

One of the Company's subsidiaries, Vinnell, along with another potentially
responsible party ("PRP"), entered into a consent decree with the Environmental
Protection Agency ("EPA") in 1992, by which Vinnell and the other PRP are
obligated to reimburse the EPA for costs incurred in its assessment and
monitoring and to undertake work to address the environmental exposure as
defined in the consent decree relating to an asbestos mine owned by Vinnell
prior to the time Vinnell was acquired by the Company. Operations at such mine
ceased in May 1974. Although management believes that its accrual for this
contingency is sufficient to cover costs to be incurred related to the
subsidiary's performance pursuant to the consent decree, there can be no
assurance that additional costs will not be incurred. Another of the Company's
subsidiaries was previously notified by the Massachusetts Department of
Environmental Protection that it is also one of several PRPs in an environmental
matter arising as a result of work performed on a contract with the United
States Air Force ("USAF") in 1986. The Company has been, and management believes
the Company will continue to be, reimbursed by the USAF for all costs incurred
in connection with addressing the claimed environmental hazard associated with
the former contract. See Note 17 of the Notes to Consolidated Financial
Statements. In addition, the Company anticipates increasing its environmental
consulting activity, which includes work related to environmental remediation.
Such business may expose the Company to additional environmental risks in the
future.

STAFFING REQUIREMENTS

The Company's business is dependent on its ability to attract, retain and
mobilize a highly trained technical staff. An inability to maintain a sufficient
number of trained personnel or to relocate or position such personnel on certain
contracts performed at remote locations could have a material adverse effect on
the Company's contract performance or its ability to capitalize on market
opportunities.

10
<PAGE>
relating to corporate operations, particularly those having a direct impact on
workers. No assurance can be given that this law will not adversely affect the
Company's ability to continue to operate IABG.

PROPRIETARY INFORMATION

The Company believes that its business is dependent on its technical and
organizational knowledge, practices and procedures. The Company claims a
proprietary interest in certain of its work products, software programs,
methodologies and know-how. Some of the proprietary information is protected by
confidentiality agreements and other means. There can be no assurance, however,
that these measures will prevent the unauthorized disclosure or use of the
Company's technical knowledge, practices and procedures or that others may not
independently develop similar knowledge, practices or procedures.

The U.S. Government has certain proprietary rights to software programs and
other products that result from the Company's services under U.S. Government
contracts or subcontracts. The U.S. Government may disclose such information to
third parties, including competitors of the Company. In the case of
subcontracts, the prime contractors may also have certain rights to such
programs and products.

CONCENTRATION OF OWNERSHIP

Upon completion of the Offerings, The Carlyle Partners Leveraged Capital
Fund I, L.P. ("The Carlyle Fund"), BDM Acquisition Partners II, L.P. ("BDM
Partners II") and BDM Acquisition Partners, L.P. ("BDM Partners I"), three
limited partnerships controlled by Carlyle, will have, in the aggregate,
approximately 31% of the Company's voting power (or 28% if the Underwriters'
over-allotment options are exercised in full). Consequently, since it will have
approximately 31% of the Company's voting power upon completion of the
Offerings, Carlyle will continue to exercise significant influence on the
election of the directors of the Company and on the outcome of all matters
submitted to a vote of the Company's stockholders, as well as on the Company's
management, operations and policies.

Certain agreements to which the Company is a party contain provisions that
may have the effect of deterring a change in control of the Company. Options
granted under the 1990 and 1994 Stock Option Plans will immediately vest upon a
merger in which the Company is not the surviving entity or upon a sale of
substantially all the assets or more than 80% of the then outstanding capital
stock of the Company. In addition, an Investor Stock Purchase Agreement, dated
October 23, 1990, between the Company and certain stockholders, as amended (the
"Investor Agreement") restricts the transferability of the Company's securities
held by Carlyle and such stockholders. See "Certain Transactions--Investor
Agreement."

POSSIBLE VOLATILITY OF STOCK PRICE

The market price for the Common Stock may be highly volatile. The Company
believes that factors such as announcements by it, or its competitors or
suppliers, or quarterly variances in financial results could cause the market
price of the Common Stock to fluctuate substantially. In addition, the stock
market may experience extreme price and volume fluctuations which often are
unrelated to the operating performance of specific companies. Market
fluctuations or perceptions regarding the Company's industry, as well as general
economic or political conditions, may adversely affect the market price of the
Common Stock.

11
<PAGE>
USE OF PROCEEDS

Net proceeds from the sale of the 450,000 shares of the Common Stock by the
Company estimated to be approximately $15.2 million (after deduction of
underwriting discounts and commissions and estimated expenses payable by the
Company), will be available for general corporate purposes, including, but not
limited to, working capital and acquisitions. The Company has no present
commitments or agreements as to any specific acquisition transactions. However,
the Company is regularly evaluating potential acquisition candidates. Pending
application of the net proceeds, the Company will invest such net proceeds in
short-term marketable securities. The Company will not receive any of the
proceeds from the sale of the shares of Common Stock by the Selling
Shareholders.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Since June 29, 1995, the Common Stock has been traded on the Nasdaq National
Market under the symbol "BDMI". The following table sets forth the high and low
sale prices of the Common Stock as reported by the Nasdaq National Market for
each of the quarters indicated.

HIGH LOW
------- -------
1996
First (through March 21)............................... $41.125 $25.438

1995
Second (June 29-30).................................... $21.500 $19.875
Third.................................................. 28.500 20.250
Fourth................................................. 30.500 23.750

On March 21, 1996, the last reported sale price of the Common Stock as
reported by the Nasdaq National Market was $37.25. As of February 23, 1996,
there were approximately 769 stockholders of record of the Common Stock.

The Company does not have a policy of paying regular dividends and has no
present intention of paying any dividends. The payment of dividends is subject
to the discretion of the Board of Directors of the Company and will depend on
the Company's results of operations, financial position and capital
requirements; general business conditions; restrictions imposed by financing
arrangements, if any; legal restrictions on the payment of dividends; and other
factors, such as continued growth opportunities in which to invest, which the
Board of Directors deem relevant. In addition, pursuant to the Company's credit
facility, dividends can only be paid after September 1, 1996 and are not to
exceed 20% of the Company's cumulative net income subsequent to July 1, 1996.
The Company paid a dividend on December 15, 1993, of $.50 per share of Common
Stock and Class B Common Stock. The payment of future dividends by the Company
should not be assumed.

12
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1995 and as adjusted to reflect the sale of the 450,000 shares of
Common Stock by the Company at the public offering price of $36.50 per share and
the application of the net proceeds therefrom. See "Use of Proceeds." This table
should be read in conjunction with the Selected Consolidated Financial
Information, the Consolidated Financial Statements and the related notes thereto
included elsewhere in this Prospectus.

DECEMBER 31, 1995
-----------------------
AS
ACTUAL ADJUSTED
-------- -----------

(IN THOUSANDS)
Current portion of Long-term debt...................... $ 449 $ 449
-------- -----------
-------- -----------
Long-term debt......................................... $ 25,900 $ 25,900
Stockholders' equity
Preferred stock, $.01 par value; 500,000 shares
authorized, none issued............................ -- --
Common stock, $.01 par value; 52,000,000 shares
authorized; 12,962,342 issued and outstanding
at December 31, 1995 (13,412,342 issued and
outstanding as adjusted)(1)........................ 130 134
Additional paid-in capital........................... 68,535 83,686
Retained earnings...................................... 46,804 46,804
-------- -----------
Total stockholders' equity....................... 115,469 130,624
-------- -----------
Total capitalization............................. $141,369 $ 156,524
-------- -----------
-------- -----------

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

(1) Does not include 1,630,885 shares of Common Stock issuable in connection
with options outstanding as of February 23, 1996 granted to certain
employees of the Company.

13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION

The consolidated statement of operations data set forth below with respect
to the calendar years ended December 31, 1995, 1994, 1993, 1992 and 1991 and the
consolidated balance sheet data at December 31, 1995, 1994, 1993, 1992 and 1991
have been derived from, and are qualified by reference to, the Company's
consolidated financial statements and notes thereto audited by Coopers & Lybrand
L.L.P., 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 included elsewhere in this Prospectus.

<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993(1) 1992(2) 1991(3)
-------- -------- -------- -------- --------

(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................................... $889,974 $774,249 $558,292 $424,389 $296,798
Cost of sales................................... 752,107 643,728 460,186 348,191 236,165
Selling, general and administrative............. 80,804 82,950 63,847 41,940 32,328
Depreciation, amortization and other............ 18,154 20,627 12,089 14,802 18,650
-------- -------- -------- -------- --------
Operating profit................................ 38,909 26,944 22,170 19,456 9,655
Interest expense, net........................... 1,474 3,481 4,178 5,302 6,425
Equity in earnings of affiliates................ (1,835) (1,841) (2,223) (1,852) --
Minority interest............................... 5,863 2,526 1,555 -- --
-------- -------- -------- -------- --------
Income before income taxes...................... 33,407 22,778 18,660 16,006 3,230
Provision for income taxes...................... 15,015 9,700 7,632 6,552 2,710
-------- -------- -------- -------- --------
Income before extraordinary gain and cumulative
effect of accounting change.................... 18,392 13,078 11,028 9,454 520
Extraordinary gain, net of tax.................. -- -- 413 -- --
Cumulative effect of accounting change.......... -- -- -- (115) --
-------- -------- -------- -------- --------
Net income...................................... 18,392 $ 13,078 $ 11,441 $ 9,339 $ 520
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
EARNINGS PER SHARE:
Income before extraordinary gain and cumulative
effect of accounting change.................... $ 1.56 $ 1.20 $ 0.92 $ 0.81 $ 0.05
Extraordinary gain.............................. -- -- 0.03 -- --
Cumulative effect of accounting change.......... -- -- -- (0.01) --
-------- -------- -------- -------- --------
Net income...................................... $ 1.56 $ 1.20 $ 0.95 $ 0.80 $ 0.05
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
<TABLE><CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995(4) 1994(5) 1993(1) 1992(2) 1991(3)
-------- -------- -------- -------- --------

(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Current assets.................................. $294,654 $270,079 $242,800 $135,775 $105,220
Total assets.................................... 363,793 335,551 303,436 174,816 133,577
Current liabilities............................. 178,530 175,165 161,052 81,033 48,525
Long-term debt.................................. 25,900 82,750 48,480 38,423 40,940
Stockholders' equity............................ 115,469 41,105 62,909 54,932 44,112
</TABLE>
- ------------
(1) On November 16, 1993, the Company acquired a 45% interest in IABG and
entered into an agreement which gives the Company voting control of IABG and
permits the Company to manage IABG's operations. The Company's financial
statements consolidate IABG's financial position and results of operations
and report the remaining owners' 55% interest as a minority interest. This
acquisition was accounted for as a purchase, and the Company's consolidated
results of operations include IABG from the date of its acquisition through
its subsidiary, BDM Europe.

(2) On March 13, 1992, the Company acquired the outstanding common stock of
Vinnell for approximately $29.6 million, including transaction expenses.
This acquisition was accounted for as a purchase, and the Company's
consolidated results of operations include Vinnell from the date of its
acquisition.

(3) In October 1990, Carlyle invested $40.0 million in the equity securities of
the Company. The acquisition was accounted for as a purchase, and $93.5
million of indebtedness of the Company related to the buyout was incurred.
The results of operations for the year ended December 31, 1991 reflect
certain one-time acquisition-related expenses.

14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

In 1995, BDM achieved its fourth consecutive year of double-digit growth in
revenue, net income and earnings per share. Revenue totaled $890.0 million, a
15% increase over 1994. Net income of $18.4 million represented a 41% increase
over the prior year, and earnings per share of $1.56 represented a 30% increase.
These results reflect the continuing progress the Company has made in moving
toward its goal of increasing its systems and software integration business,
which generally provides higher profit margins. This migration has occurred in
both the commercial and the U.S. Government business sectors.

All of the Company's 1995 increases resulted from internal growth. Although
no acquisitions were made during 1995, the Company announced on February 20,
1996, the acquisition of three affiliated companies, CW Systems, Inc., IG
Systems, Inc. and Melco Systems, Inc., which specialize in providing information
technology systems and services in the oil and gas, telecommunications,
financial, insurance, health care, public utility and entertainment sectors. The
Company continues to pursue a growth and diversification strategy which places
emphasis on acquisitions, especially in the commercial information technology
("IT") area. Acquisitions of companies in the United States and abroad have been
integral to BDM's growth and diversification strategy since 1992. This includes
the acquisitions of Vinnell Corporation (1992), FACE and IABG (1993) and
Geoscience Consultants, Ltd. ("GCL") (1994).

In June 1995, the Company completed a public offering of common stock which
provided net proceeds of $49.4 million. These proceeds were used to reduce
outstanding debt, resulting in lower interest expense and an improved
debt-to-equity ratio. The strengthened balance sheet provides available
borrowing capacity to continue the pursuit of business combinations for the
Company's growth and the development of strategically important areas of the
business.

RESULTS OF OPERATIONS

The following table sets forth certain financial data, expressed as a
percentage of revenue:

FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1995 1994 1993
----- ----- -----
Revenue............................................. 100.0% 100.0% 100.0%
Cost of sales....................................... 84.5 83.1 82.4
Selling, general and administrative................. 9.1 10.7 11.4
Depreciation, amortization and other................ 2.0 2.7 2.2
----- ----- -----
Operating profit................................ 4.4 3.5 4.0
Interest expense, net............................... 0.2 0.4 0.7
Equity in earnings of affiliates.................... (0.2) (0.2) (0.4)
Minority interest................................... 0.6 0.3 0.3
----- ----- -----
Income before taxes............................. 3.8 3.0 3.4
Provision for income taxes.......................... 1.7 1.3 1.4
----- ----- -----
Income before extraordinary gain, net of tax.... 2.1 1.7 2.0
Extraordinary gain, net of tax...................... -- -- 0.1
----- ----- -----
Net income...................................... 2.1% 1.7% 2.1%
----- ----- -----
----- ----- -----

15
<PAGE>
REVENUE. Revenue increased 15% in 1995 compared to the preceding year. All
subsidiaries contributed to this growth, particularly BDM Federal, which
reported significant revenue growth for the year of 16%, and BDM Technologies,
which grew 48%. Revenue for 1994 was 39% higher compared to the preceding year
due primarily to the inclusion of the results of IABG in BDM Europe for 12
months in 1994 versus six weeks in 1993.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
------------- ------------- -------------
CLIENTS SERVED (IN MILLIONS, EXCEPT PERCENTAGES)
- -------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Department of Defense..................... $331.6 37% $244.6 32% $261.0 47%
International Defense.......................... 222.8 25 193.5 25 122.2 22
Civil Governments.............................. 199.8 23 227.3 29 144.9 26
Commercial..................................... 135.8 15 108.8 14 30.2 5
------ --- ------ --- ------ ---
Total.................................... $890.0 100% $774.2 100% $558.3 100%
------ --- ------ --- ------ ---
------ --- ------ --- ------ ---

SERVICES PROVIDED
- -----------------
Systems and Software Integration............... $273.5 31% $197.0 26% $164.1 29%
Computer and Technical Services................ 505.0 57 490.9 63 345.3 62
Enterprise Management and Operations........... 111.5 12 86.3 11 48.9 9
------ --- ------ --- ------ ---
Total.................................... $890.0 100% $774.2 100% $558.3 100%
------ --- ------ --- ------ ---
------ --- ------ --- ------ ---

SUBSIDIARY
- ----------
BDM Federal(1)................................. $475.5 53% $411.6 53% $386.9 69%
BDM Technologies............................... 57.5 7 38.8 5 17.7 3
BDM Europe(2).................................. 215.8 24 197.5 26 31.5 6
Vinnell Corporation............................ 141.2 16 126.3 16 122.2 22
------ --- ------ --- ------ ---
Total.................................... $890.0 100% $774.2 100% $558.3 100%
------ --- ------ --- ------ ---
------ --- ------ --- ------ ---
</TABLE>

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

(1) BDM Federal's revenue includes revenue from GCL from its date of acquisition
on February 1, 1994.

(2) BDM Europe's revenue includes revenue from IABG and FACE from their dates of
acquisition, November 16, 1993 and January 1, 1993, respectively.

The growth in 1995 for U.S. Department of Defense revenue was primarily
driven by increased systems and software integration services performed by BDM
Federal. One significant contributor to this growth was the Defense Enterprise
Integration Services program to support the Defense Information Systems Agency.
Due to the nature of the work, these services have been at higher profit margins
than other types of services provided to the U.S. Government in the past. In
addition, this type of work has been in a strategically important growth area
for the Company. BDM Federal also recognized higher defense equipment
procurement revenue compared to 1994, contributing to an increase in the revenue
for computer and technical services compared to the previous year.

At the end of 1995 and the beginning of 1996, as a result of the failure to
enact certain appropriations bills to fund the operations of several U.S.
Government departments and agencies for fiscal year 1996, the U.S. Government
furloughed a portion of its work force. This furlough did not materially impact
BDM's operations and cash flow in 1995. Because three of BDM's largest U.S.
Government clients (Department of Defense, Department of Energy and Department
of Transportation), representing greater than 80% of BDM's 1995 U.S. Government
revenue, have their funding in place for fiscal year 1996, the Company does not
expect the current budget impasse to have a material impact on BDM's operations.

Services provided to international defense clients in 1995 grew 15% while
remaining a level 25% of total revenue. This growth is reflective of the
continued expansion of Vinnell's international

16
<PAGE>
defense and technical training efforts for each of the last two years. Also a
factor in this growth was the increase in revenue reported by BDM Europe in
support of the German Ministry of Defense, although much of this increase was
due to fluctuations in exchange rates.

Civil government revenue declined in BDM Federal in the services provided to
the U.S. Department of Energy and NASA, as well as in BDM Europe as a result of
a reduction in pass-throughs of certain amounts collected by IABG on behalf of
the German government. The decline in civil government revenue was partially
offset by increases in systems integration and consulting services performed for
various state governments by BDM Technologies and growth in the Company's
education technologies business.

Commercial revenue grew 25% from 1994 to 1995 as a result of the expansion
of systems and software integration services. This growth reflects increased
activity in the automation of warehouse and distribution operations,
manufacturing modernization, business process re-engineering and related IT
services performed mainly by BDM Technologies.

COST OF SALES. Cost of sales, which includes salaries, employee benefits,
subcontractor expenses, material purchases and overhead costs, increased as a
percentage of revenue in each of 1995, 1994 and 1993. The increase in 1995 is
generally reflective of increased equipment purchases on behalf of clients which
tend to generate lower profit margins. Equipment purchases as a percent of
revenue were 11.6%, 10.3% and 12.5% for 1995, 1994 and 1993, respectively. The
increase in cost of sales as a percentage of revenue from 1993 to 1994 is due
largely to the acquisition and consolidation of IABG which has profit margins
lower than other sectors of BDM's business.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense ("SG&A"), which includes the Company's research and development costs
("R&D"), decreased as a percentage of revenue for each of the years 1995, 1994
and 1993. These decreases are partially attributable to a single R&D project
which was started in 1993 and was discontinued in 1994. SG&A included $3.9
million and $5.3 million for such R&D activities in 1994 and 1993, respectively.
Excluding these nonrecurring costs, SG&A as a percentage of revenue was 9.1%,
10.2% and 10.5% in 1995, 1994 and 1993, respectively. In addition, the decrease
in SG&A as a percentage of revenue also reflects the growth of revenue of BDM
Technologies in relation to its infrastructure that was created in 1993 when BDM
Technologies was formed. Cost controls at several of the Company's subsidiaries
also contributed to the decrease in SG&A as a percentage of revenue.

DEPRECIATION, AMORTIZATION AND OTHER. There were no significant changes to
fixed assets of the Company; accordingly, depreciation expense was relatively
flat in 1995 compared to 1994. Depreciation expense increased $5.1 million in
1994 over 1993 due primarily to the inclusion of a full year of operations of
BDM Europe.

Amortization expense increased in 1995 reflecting the write-off of the
unamortized goodwill for FACE totaling $1.6 million, as it was determined to be
no longer recoverable. Several factors contributed to this change in
recoverability. The acquired company's anticipated utilization of its technology
for other industries was not realized, and synergies between BDM technologies
and acquired technologies did not result in an expansion of the customer base as
expected. In addition, an economic downturn in the Netherlands contributed to a
deterioration in the revenue base. These factors resulted in a negative cash
flow projection for this particular business. Amortization expense increased
from 1993 to 1994 as a result of goodwill associated with acquisitions.

Other expenses consist largely of certain indirect non-cash charges incurred
by the Company which are typically not allocable to government contracts,
including pension charges required by Statement of Financial Accounting
Standards No. 87--Employers' Accounting for Pensions (FAS 87) in excess of
funding. In 1995, other expenses decreased as a result of a decrease in the
Company's unallocable pension charge of $2.7 million. In addition, approximately
$0.6 million was expensed in 1994 as a result of the Company's decision to delay
its initial public offering until 1995.

17
<PAGE>
INTEREST EXPENSE, NET. Interest expense in 1995 decreased substantially
compared to the preceding year primarily as a result of applying the $49.4
million net proceeds from the public offering to reduce outstanding borrowings.
Slightly offsetting this reduction of interest expense was a one-time charge of
$0.5 million related to the write-off of capitalized financing costs on the
credit facility which was replaced during the year. A new revolving credit
agreement, executed with more favorable terms, also contributed to the lower
interest expense in 1995 compared to 1994. Net interest expense also declined
from 1993 to 1994. While debt balances increased during 1994, lower interest
rates and the inclusion of a full year of interest income from BDM Europe more
than offset higher interest expense.

MINORITY INTEREST. The Company began deducting minority interest from
earnings with the acquisition of 45% of IABG in November of 1993. Minority
interest increased $1.0 million in 1994 reflecting a full year of IABG minority
interest and approximately $0.6 million from a new 60% owned Vinnell joint
venture that began performance on a contract in May 1994. Minority interest
continued to increase in 1995 due to improved IABG profitability, the full-year
effect of the 60% Vinnell joint venture and Vinnell's contract with the Saudi
Arabian National Guard ("SANG"), which was converted to a 51% owned joint
venture in July 1995.

PROVISION FOR INCOME TAX EXPENSE. The provision for income tax expense
increased as a percentage of income before income taxes to 44.9% in 1995 from
42.6% in 1994. The higher effective tax rate in 1995 reflects the write-off of
$1.6 million in goodwill from the FACE acquisition which is not deductible for
income tax purposes. In addition, an increase in the provision for income taxes
was recognized for the write-off of a deferred tax benefit relating to net
operating loss carryforwards at FACE which are no longer expected to provide a
future tax benefit. The effective tax rate also increased in 1994 to 42.6% from
40.9% in 1993 as a result of the effects of certain acquisitions which resulted
in non-deductible goodwill. Additionally, certain tax benefits derived from the
acquisition of IABG were fully realized in the 1993 income tax provision.
Historically, the Company has been able to offset the effects of income
generated in high tax rate foreign jurisdictions with income earned in low tax
rate foreign jurisdictions, so that the overall effect of foreign earnings on
the Company's tax provision has been minimal. However, to the extent that the
Company's growth in international operations occurs in high tax rate
jurisdictions, the portion of the income tax provision which is attributable to
foreign earnings is likely to increase.

EXTRAORDINARY ITEMS. In 1993, the Company recognized two extraordinary items
having the net effect of increasing net income by approximately $0.4 million, or
$.03 per share. In connection with the negotiation of the credit facility, the
Company expensed the carrying value of debt issue costs incurred with the prior
credit agreement of $2.3 million less a related income tax benefit of $1.0
million. In addition, the Company recognized an extraordinary gain related to
the elimination of a liability recognized at the time of the 1990 Acquisition,
resulting in a benefit of $3.0 million less a related income tax expense of $1.3
million.

18
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS

The following table sets forth certain unaudited consolidated statement of
operations data expressed in dollars and as a percentage of total revenue for
the eight most recently ended fiscal quarters. This data has been derived from
unaudited consolidated financial statements of the Company that, in the opinion
of management, include all adjustments necessary for a fair presentation in
accordance with generally accepted accounting principles. The Company's results
of operations for a particular quarter are not necessarily indicative of the
results of operations for any future period. The Company's quarterly results
have varied considerably in the past and are likely to vary from quarter to
quarter in the future.

<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------------
1995 1994
------------------------------------------- -------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
-------- --------- -------- --------- -------- --------- -------- ---------
(IN MILLIONS, EXCEPT PERCENTAGES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $269.1 $ 215.9 $213.1 $ 191.9 $239.2 $ 195.5 $174.4 $ 165.2
Operating profit....... 10.9 9.3 8.8 9.9 8.3 7.3 5.8 5.6
Net income............. 5.9 5.3 3.9 3.3 4.1 3.1 3.0 2.9
Earnings per share..... $ 0.44 $ 0.40 $ 0.38 $ 0.33 $ 0.41 $ 0.31 $ 0.26 $ 0.24
Weighted average shares
outstanding............. 13.6 13.4 10.2 10.0 9.9 9.9 11.4 12.3

AS A PERCENTAGE OF
REVENUE:
Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating profit....... 4.0 4.3 4.1 5.2 3.5 3.8 3.3 3.4
Net income............. 2.2 2.5 1.8 1.7 1.7 1.6 1.7 1.8
</TABLE>

VARIABILITY OF QUARTERLY RESULTS

Fluctuations in the Company's quarterly revenue depend on a number of
factors, some of which are beyond the Company's control. These factors include,
among others, the timing of contracts, the timing of equipment shipments, delays
in client acceptance of the Company's services, the length of the revenue cycle
and client budget changes.

IMPACT OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS 123 (FAS 123)

The Financial Accounting Standards Board has issued FAS 123, "Accounting for
Stock-Based Compensation." FAS 123 encourages, but does not require, companies
to recognize compensation expense for grants of stock, stock options, and other
equity instruments to employees based on new fair value accounting rules.
Companies that choose not to adopt the new accounting rules will continue to
apply the existing rules, but will be required to disclose in the footnotes to
the financial statements the pro forma net income and earnings per share as if
the new rules had been adopted. As permitted by FAS 123, BDM will adopt the new
standard in 1996, choose to continue the current accounting for stock-based
compensation and disclose in the footnotes to the financial statements the pro
forma net income and earnings per share calculated using the new accounting
rules.

INTERNATIONAL OPERATIONS

In connection with its international operations, the Company is subject to
various risks inherent in foreign activities. These risks may include unstable
economic and political conditions, changes in trade policies and regulations of
countries involved, fluctuations in currency exchange rates and requirements for
letters of credit or bank guarantees. Certain of the Company's contracts are
foreign military sales, which mitigate such risks because the contracts are
governed by U.S.

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<PAGE>
Government procurement regulations. Much of the Company's other international
operations are in Western European countries, mainly in Germany and The
Netherlands, which have experienced relatively stable political conditions and
regulatory environments. The Company is exposed to risks associated with
fluctuations in exchange rates, including the German Mark, the Saudi Riyal, the
Kuwaiti Dinar, the Turkish Lira and the Dutch Guilder. The Company limits its
exposure to these risks by incurring and paying for its expenses in the same
currencies as those of its revenue. In addition, certain contracts performed
overseas have provisions which provide for reimbursement of losses arising from
currency fluctuations. It is the Company's policy not to enter into derivative
financial instruments for speculative purposes. There were no derivative
financial instruments outstanding as of December 31, 1995.

EFFECTS OF INFLATION

The Company's contract mix includes cost-reimbursable contracts which
represented 39%, 43% and 68% of total contract revenue in 1995, 1994 and 1993,
respectively, under which inflationary increases are passed on to the customer.
The decline in the percentage of cost-reimbursable contracts reflects higher
levels of work at BDM Federal performed under time-and-material contracts. In
addition, the companies that comprise BDM Europe have a contract portfolio
consisting of primarily time-and-material contracts. Total 1995 revenue from
time-and-material contracts increased to 33% compared to 27% in 1994 and only 3%
in 1993. These time-and-material contracts, as well as the Company's long-term
fixed price contracts, expose BDM to the risks of inflationary pressures on its
costs. The Company believes the percentage of fixed-price contracts will
increase as it shifts to serving more commercial and state government clients.

LIQUIDITY AND CAPITAL RESOURCES

Over the past several years BDM's operations have provided a positive cash
flow which, along with maintaining an available credit facility, has provided
adequate liquidity and working capital to meet the Company's operational needs
and support the acquisition program. In addition, the Company received net
proceeds of $49.4 million in mid-1995 from a public offering of common stock.
These proceeds were applied to reduce outstanding borrowings under the credit
facility and to extinguish the $3.7 million of subordinated debt.

The Company generated $30.5 million, $5.9 million, $34.1 million, $26.2
million and $30.2 million of cash from operating activities for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991, respectively. This cash has
provided funding for internal growth and contributed to the reduction of debt
outstanding. Specifically, the Company repaid $93.5 million of debt assumed as
part of the 1990 Acquisition in two years rather than the originally planned
five years. In addition, the Vinnell acquisition debt of $25.0 million, which
was incurred in 1992, was repaid in less than three years. Cash flow from credit
facilities has been utilized to fund other non-operating activities, including
capital expenditures, acquisitions, a dividend and a stock buyback.

Related to the IABG transaction, significant advance payments, customary for
that operation, continue to be received from a large percentage of IABG's
customer base, which payments have been partially offset by severance payments
and a rental deposit made pursuant to the privatization plan.

Other factors impacting cash flow from operations included increased income
tax payments in 1995 and 1994 due to the use of the remaining net operating loss
carryforwards in 1993. Cash flow from operations may fluctuate from period to
period based on the timing of payments from clients and payments to suppliers.

Cash flow provided by investing activities has been primarily related to
amounts received in accordance with the IABG acquisition agreement. In March
1995, based on 23% of the shares held in trust, IABG received 23% of a required
capital infusion of $1.9 million. In addition, BDM received

20
<PAGE>
$1.1 million for the reimbursement of 23% of the transaction costs incurred by
the Company in acquiring IABG. The terms of the original acquisition also
required the owners to provide IABG with three guaranteed equity infusions. The
final equity guarantee of approximately $8.9 million was paid on November 16,
1995, of which BDM paid its 45% share.

On February 16, 1994, the Company acquired GCL for $4.3 million. Financing
for the acquisition and a covenant not-to-compete, totaling $4.5 million, was
obtained from the working capital credit facility and is expected to be repaid
from cash generated by the acquired company's operations.

Other investing cash flow activities included fluctuations in the timing of
infusions to and distributions from Vinnell's unconsolidated joint ventures, as
well as capital expenditures. Included in 1995 capital expenditures was
approximately $4.8 million related to a new financial and program management
system (SAP) to be implemented at BDM Federal in 1996. Expenditures for capital
equipment increased in 1994 over 1993 primarily due to the full year effect of
consolidating BDM Europe's activities.

Financing activities in 1995 included the replacement of the Company's
credit facility with a new revolving credit agreement and an initial public
offering of the Common Stock. The new credit agreement provides an unsecured
multicurrency revolving credit line of $150 million for a term of five years, at
an interest rate based on LIBOR plus margins. The agreement includes covenants
which limit the amount of the Company's debt compared to total capitalization
and compared to earnings before interest, taxes, depreciation and amortization.
In addition, dividends can only be paid after September 1, 1996, and are not to
exceed 20% of the cumulative net income subsequent to July 1, 1996. As of
December 31, 1995, the Company had $113.4 million available for borrowing under
this new credit agreement. The Company had $137.9 million available for
borrowing as of February 29, 1996.

On May 27, 1994, the Company repurchased 2,250,000 shares of its outstanding
Common Stock and 350,000 shares of its outstanding Class B Common Stock, from
its institutional investors at $14.00 per share. To effect the purchase, the
Company borrowed a total of $36.4 million from its working capital credit
facility.

Other financing activities principally relate to employee benefits. The
Company has continued the employee benefit of enabling employees to purchase
shares of common stock through stock option exercise and an employee stock
purchase plan. On June 28, 1995, the Company established a new qualified
non-compensatory employee stock purchase plan (the "Plan") which has reserved
750,000 shares of common stock for issuance under the Plan. The Plan allows all
employees of the Company's domestic subsidiaries to purchase a limited amount of
common stock at a discount during the offering period of July 1, 1995 to June
30, 1996. The purchase price of the Company's common stock is the lesser of
$15.725, which is 85% of the initial offer price of $18.50 per share in the
public offering, or 85% of the market value at the end of each month. During
1995, the Company received $5.0 million from shares purchased under the Plan.

The Company paid a dividend on December 15, 1993 of $.50 per share to all
holders of record as of November 15, 1993. Pursuant to the Company's credit
facility, dividends can only be paid after September 1, 1996 and are not to
exceed 20% of the Company's cumulative net income subsequent to July 1, 1996.
The payment of future dividends by the Company should not be assumed.

During 1995, the fluctuation in the value of the German Mark relative to the
U.S. dollar resulted in a $3.0 million increase in cash as reported in U.S.
dollars in the accompanying financial statements due to the significant balance
of cash maintained by IABG.

The Company's existing sources of liquidity and cash flow should continue to
provide sufficient funds for the Company's operations, debt service
requirements, planned investments and capital expenditures for the foreseeable
future.

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<PAGE>
BUSINESS

COMPANY OPERATIONS

BDM is a multinational information technology company that operates in three
interrelated markets: Systems and Software Integration, Computer and Technical
Services, and Enterprise Management and Operations. The Company serves public
and private sector clients, including the DOD (approximately 37% of total
revenue in 1995), international defense agencies (approximately 25%), civil
government agencies (approximately 23%), and commercial clients (approximately
15%). The Company provides its services through four decentralized subsidiaries.
These subsidiaries offer their services in specific markets using their
specialized expertise and market knowledge, while drawing upon the market
access, technical breadth and management capability of the entire BDM
organization. BDM's subsidiaries are:

BDM FEDERAL: represents the evolution of a core business that dates back
36 years, serving primarily U.S. Government clients. Included in BDM Federal
totals, for reporting purposes, are the results recognized by GCL, an
environmental services company acquired in 1994.

BDM TECHNOLOGIES: began operations in January 1993 as part of BDM's
evolution to a diversified company by applying its core competencies to
serve commercial and state and local government clients. In 1996, three
affiliated information technology companies serving commercial and state
government clients were acquired and integrated into BDM Technologies.

BDM EUROPE: largely consisting of a 45% interest in IABG, acquired in
November 1993 from a company principally owned by the German Government,
serves German and European governmental and industrial clients.

VINNELL: a 64-year old company that BDM acquired in March 1992,
specializes in international on-site operations and maintenance and training
services in the Middle East. Additionally, Vinnell operates certain Job
Corps Centers located in the United States for the Department of Labor.

BDM FEDERAL

The largest of BDM's subsidiaries, BDM Federal performs Systems and Software
Integration, Computer and Technical Services, and Enterprise Management and
Operations for both defense and civil government clients. Pursuing a balanced
strategic mix of traditional and new markets, BDM Federal has successfully
transitioned and transferred its growing expertise to target markets in air
traffic control and other transportation sectors, education technologies,
environmental remediation and waste management, and energy research and
development, while continuing to serve many sectors of national defense and
security. Information systems is an area of special emphasis, with such diverse
clients as the SEC, the Defense Information Systems Agency, various state and
local school districts and foreign civil government agencies. In representative
contract and program areas, BDM Federal:

. Modernizes the way information is managed by both defense and civil
government agencies under the Defense Enterprise Integration Services
("DEIS") Program contract. The work includes developing an overall
enterprise architecture to integrate disparate information systems, known
as legacy systems, introducing modern information technologies, and re-
engineering information management processes. BDM is one of six prime
contractors on the DEIS contract, along with Computer Sciences
Corporation, Electronic Data Systems, Lockheed Martin, Boeing and Unisys,
and has received the second highest dollar volume of

22
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delivery order awards (approximately $200 million) among the six
contractors since the program began in 1994. 1995 revenue was
approximately $72.5 million.

. Provides systems and software integration services to the SEC as the
developer of the Electronic Data Gathering Analysis and Retrieval System
("EDGAR"). This system permits publicly held companies to file periodic
reports electronically with the SEC, thus replacing paper filings, and
provides for immediate public dissemination of financial filing and
reporting data. EDGAR is now operational, and all public companies will
make the transition to filing via EDGAR by the end of 1996. 1995 revenue
was approximately $9.5 million.

. Consolidates defense logistics computer systems for the United States Air
Force ("USAF") under the $362 million DMRD-924 Program. The Company
provides systems and software integration services, ranging from hardware
acquisition to large-scale systems integration, pursuant to a DOD
directive mandating consolidation of computer sites to enhance performance
and reduce costs. 1995 revenue was approximately $46.4 million.

. Developed and implemented for the Federal Aviation Administration ("FAA")
and the DOD a Terminal Radar Approach Air Traffic Control ("TRACON")
system for the High Desert TRACON facility in Southern California. The
Company believes that this system, based on open system architecture and
the use of commercial off-the-shelf hardware and software, represents a
major technological step forward in air traffic control systems. BDM is a
key member of a team headed by Boeing, one of three teams selected to
compete for a major FAA air traffic control replacement system contract
(known as "STARS"), that is expected to be awarded in 1996. 1995
development revenue from the Company's air traffic control and air space
management projects was approximately $2.0 million.

. Provides comprehensive systems integration services to various state and
local school districts in the areas of financial and administrative
software applications, instructional applications, system architecture and
network design, teacher and administrator training and management
consulting. The Company is working to advance the productivity and
efficiency of administrative systems and improve student performance. The
Company's largest contract in this area ($27.5 million), awarded in 1995,
combines systems integration with outsourcing of the school district's
information services department. 1995 revenue in this area was
approximately $13.3 million.

. Supports the Department of Energy ("DOE") in development of plans and
technologies and the implementation of strategies to advance its waste
management, technology development and environmental restoration programs.
The Company performs information systems support, technical assessments
and other services to help the DOE meet federally-mandated responsibility
for waste management and site cleanup under the Resource Conservation
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and other laws and regulations. 1995 revenue was
approximately $22.7 million.

. Provides logistic support services to the Royal Saudi Air Force
encompassing IT services, logistics and supply, training, engineering and
systems maintenance, administration and other areas. 1995 revenue was
approximately $21.6 million.

. Provides the Ballistic Missile Defense Organization with comprehensive
engineering and technical systems assistance in areas such as systems
architecture and design, system simulation and modeling, command, control,
communications and intelligence, systems testing and logistics planning.
1995 revenue was approximately $20.7 million.

. Manages and operates elements of the Joint Readiness Training Center of
the U.S. Army Training and Doctrine Command, where approximately 50,000
soldiers a year are trained on

23
<PAGE>
integrated battlefields with near-real-time performance feedback. Systems
designed and operated by BDM collect data through lasers, electronics and
videos to provide the U.S. Army with the most comprehensive experience and
data feedback short of actual combat. 1995 revenue was approximately $14.3
million.

. Creates and implements systems and processes to improve blood collections,
processing and distribution for the American Red Cross. Tasks involve
developing standard operating procedures, installing hardware and
software, and providing training to Red Cross personnel. This is a joint
activity with BDM Technologies. Aggregate 1995 revenue was approximately
$13.0 million.

BDM TECHNOLOGIES

This subsidiary, established in 1993, has a dual strategic objective:
penetrating selected vertical markets in the commercial sector and building
business with state and local governments, primarily in information systems
integration. These include the automation of warehouse and distribution
operations, manufacturing modernization, business process re-engineering,
network design and integration and related IT services to strengthen companies
and their management. BDM Technologies provides both strategic business services
and implementation and integration services in which it leverages IT to achieve
strategic and operational benefits for its clients. In early 1996, three
affiliated IT companies (CW Systems, IG Systems and Melco Systems) were acquired
and integrated into this subsidiary. BDM Technologies:

. Designs and integrates state-wide information systems aimed at
strengthening welfare and human services management and provides tested
solutions in such areas as child welfare and child support enforcement.
Major programs are underway in Alabama, Iowa, Missouri, Montana and other
states. In Montana, the BDM-designed child support enforcement system was
the nation's first to achieve the federal certification that all such
systems are required to have. 1995 revenue in this area was approximately
$35.6 million.

. Automates warehouse distribution and control operations to improve
distribution process efficiencies for major national and international
clients including Ford Motor Company ("Ford"), Franklin Mint, Merck and
Co., Ortho-McNeil, Bell Canada, Federal Express, Dot Foods and Spalding.
Using the Company's proprietary MARCTM system, BDM helps clients achieve
increased inventory accuracy, improved response time and other benefits.
1995 revenue in this area was approximately $7.8 million.

. Performs application outsourcing, maintenance and support and develops
critical software enhancements to various information systems for Ford.
BDM Technologies has been directly involved in the development and
implementation of Computer Integrated Manufacturing applications for
Ford's Electronics Division. In addition, BDM Technologies has also
designed, developed and implemented several key client/server applications
for Ford. 1995 revenue was approximately $6.5 million.

. Delivers business process re-engineering, project management and
Internet/Intranet services to U S West to implement communications and
process improvements in this client's large project management systems. A
current focus of BDM development activity is U S West's "Global Village"
network which uses the Internet's World Wide Web for both internal and
customer support communications. 1995 revenue was approximately $3.2
million.

. Provides systems integration and manufacturing execution systems to
support clients in the semiconductor manufacturing industry.
Representative clients include Advanced Micro Devices, Sony
Semiconductors, National Semiconductor, Hitachi Semiconductor and Zilog.
1995 revenue was approximately $2.5 million.

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<PAGE>
. Provides IT systems and services, through its newly acquired companies (CW
Systems, IG Systems and Melco Systems), to Fortune 1000 companies and
other large organizations in the oil and gas, telecommunications,
financial, insurance, health care, public utility and entertainment
sectors. The acquired companies also served state government agencies in
Texas, Florida, California, Georgia and Oklahoma. These acquired
companies' 1995 revenue aggregated approximately $35.2 million.

BDM EUROPE

Two 1993 acquisitions make up the principal elements of BDM Europe. The
acquisition of IABG brings important strengths to the Company in IT, technical
and environmental services and test facilities management and operation. The
Company believes IABG's prospects and opportunities in Europe are similar in
scope and potential to those BDM enjoyed in the 1980s in the United States. BDM
Europe also includes FACE, a Netherlands-based firm experienced in information
systems integration and advanced manufacturing services. BDM Europe:

. Provides information technology and systems support in software
standardization, development and integration of management information
systems for government and commercial clients and strengthening of
command, control, communications and intelligence systems for the German
Ministry of Defense. 1995 revenue was approximately $35.7 million.

. Performs environmental assessments, both to meet requirements at
contaminated sites (site inventory, investigation, assessment and
remediation engineering) and to support environmental planning and the
development of improved remediation systems and techniques. One project
underway involves surveying and environmental risk assessment for former
Soviet military sites in the former East Germany. 1995 revenue was
approximately $25.0 million.

. Analyzes, tests, evaluates and simulates defense systems, missions and
operations for the German Ministry of Defense. Typical programs involve
engineering assessments of new weapons systems and platforms, support of
Battlefield Training Centers, fatigue testing of military aircraft, design
and simulation of camouflage measures and development and implementation
of computer-based models for operational analysis and training. 1995
revenue was approximately $68.1 million.

. Tests commercial and military aircraft structures, such as the Airbus
A330/340 airliners and the Tornado and new Eurofighter aircraft; programs
include testing of major assemblies, components and structural elements to
identify structural weaknesses and improve safety and service life. 1995
revenue was approximately $17.7 million.

. Performs comprehensive testing of satellites and other space structures,
space simulation, thermal vacuum testing, vibration and shock-testing and
project monitoring for the German Ministry of Research and Technology, the
European Space Agency and private clients at the Space Test Center in
Ottobrunn, Germany. 1995 revenue was approximately $22.5 million.

. Tests vehicles and their components for various German automobile
manufacturers such as BMW, Audi and Volkswagen, including climatic
testing, emissions testing and mechanical tests of suspension and steering
elements. 1995 revenue was approximately $5.4 million.

. Operates the Magnetic Levitation ("MagLev") test facility in Elmsland,
Germany, including the performance of numerous technical investigations
and demonstration runs. The successful operation of this facility
contributed to the decision of the German Government to implement the
first MagLev service route in Germany connecting Hamburg and Berlin. 1995
revenue was approximately $11.7 million.

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VINNELL

Vinnell provides BDM important strengths in training and complementary
capabilities in technical services, as well as a history of successful
large-scale enterprise management and operations, both in the Middle East and
the United States. Vinnell:

. Provides training, logistical support and comprehensive developmental,
advisory and operational services under the Saudi Arabian National Guard
("SANG") Modernization Program. In April 1995, Vinnell was selected for an
award of a new three year contract with the SANG to continue this effort
through June 1, 1998. This work is performed by a joint venture, of which
Vinnell owns 51%. Aggregate 1995 revenue was approximately $67.2 million.

. Performs training, logistical support and comprehensive developmental,
advisory and operational services for FMC Arabia (an affiliate of FMC
Corporation) in connection with the fielding of the Bradley Fighting
Vehicle System for the Royal Saudi Land Forces. This work is being
performed through an affiliate, of which Vinnell owns 60%. Aggregate 1995
revenue was approximately $34.1 million.

. Manages and operates six Job Corps Centers in the United States for the
Department of Labor ("DOL") under a program designed to bring education
and vocational training to disadvantaged youth. Vinnell's Laredo, Texas,
center was ranked the nation's number one Job Corps Center by the DOL in
program year 1995. Aggregate 1995 revenue was approximately $26.3 million.

. Manages and operates U.S. military facilities in Turkey and three USAF
facilities in Oman and provides personnel support services in Egypt under
joint ventures with Brown & Root Services Corporation, Airwork Ltd. and
SEACOR Services, Inc., respectively. Total 1995 revenue earned by these
joint ventures was approximately $75.1 million. As a 50% partner in these
joint ventures, Vinnell reports earnings using the equity method.
Aggregate equity in earnings from these joint ventures was approximately
$1.8 million in 1995.

CONTRACTS

TYPES OF CONTRACTS

The Company's services are provided primarily through three types of
contracts: fixed-price, time-and-material and cost-reimbursable contracts.
Fixed-price contracts require the Company to perform services under the contract
at a stipulated price. Time-and-material contracts reimburse the Company for the
number of labor hours expended at established hourly rates negotiated in the
contract and the cost of materials incurred. Cost-reimbursable contracts
reimburse the Company for all actual costs incurred in performing the contract
to the extent that such costs are within the contract ceiling and allowable
under the terms of the contract, plus a fee or profit.

The Company assumes greater financial risk on fixed-price contracts than on
either time-and-material or cost-reimbursable contracts. Commercial and state
government contracts are generally fixed-price contracts. Failure to anticipate
technical problems, estimate costs accurately or control costs during contract
performance may reduce the Company's profit or cause a loss. Greater risks are
involved under time-and-material contracts than under cost-reimbursable
contracts because the Company assumes the responsibility for the delivery of
specified skills at a fixed hourly rate. Higher profit margins are generally
negotiated with the government for fixed-price and time-and-material contracts
because the Company bears the risk that increased or unexpected costs may reduce
the Company's profit or cause a loss, while lower than anticipated costs may
result in increased profit.

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The following table shows the approximate percentage of revenue by contract
type recognized by the Company during the indicated periods:

YEARS ENDED DECEMBER 31,
--------------------------
TYPE OF CONTRACT 1995 1994 1993
- ---------------- ---- ---- ----
Cost-reimbursable........................ 39 % 43 % 68 %
Fixed-price.............................. 28 30 29
Time-and-material........................ 33 27 3
---- ---- ----
Total.............................. 100 % 100 % 100 %
---- ---- ----
---- ---- ----

AWARD OF CONTRACTS

The Company may obtain a government contract after the solicitation by the
relevant government agencies, in open and free competition, of sealed bids from
various suppliers or through the process of negotiation with the Government.
Under certain circumstances, most government agencies are authorized to enter
into contracts based on negotiation rather than sealed bids.

Negotiated contracts may or may not involve the solicitation of competitive
proposals. Generally, negotiated contracts are entered into without competitive
solicitation when the services or supplies desired by the government can be
obtained from only one available source. In most non-competitive procurements,
the government solicits a proposal from the contractor and then negotiates the
price and other terms in accordance with the applicable federal regulations.

GOVERNMENT CONTRACT OPERATIONS

Many of the government programs in which the Company participates as a
contractor or subcontractor may extend for several years, but they are normally
funded on an annual basis. The Company's government contracts and subcontracts
are subject to modification, curtailment and termination in the event of changes
in government funding. Accordingly, all of the Company's contracts and
subcontracts involving the U.S. Government may be terminated at any time by the
U.S. Government, without cause, for the convenience of the U.S. Government. If a
U.S. Government contract is terminated for convenience, the Company would be
entitled to receive compensation for the services provided or costs incurred at
the time of termination and a negotiated amount of the profit on the contract.

The Company's costs and revenue under government contracts are subject to
adjustment as a result of audits by the DCAA. Audits have been completed of
costs incurred on all years through 1987. Audits for 1988 through 1995 have not
been completed. However, management does not believe the results of these audits
will have a material effect on the Company's financial position or results of
future operations.

BACKLOG

The Company's backlog at December 31, 1995 was approximately $1.7 billion
compared to approximately $1.5 billion at December 31, 1994. Approximately 42%
of the Company's backlog at December 31, 1995 is expected to be converted to
revenue within the current fiscal year.

The Company's backlog amounts are composed of funded and unfunded
components. Funded backlog consists of the dollar portion of contracts that is
currently appropriated by the government client or other clients and allocated
to the contract by the purchasing government agency or otherwise authorized for
payment by the client upon completion of a specified portion of work. The
Company's funded backlog was approximately $667 million and $535 million as of
December 31, 1995 and December 31, 1994, respectively. Although unfunded backlog
can include up to the stated award value of the contract including renewals or
extensions that have been priced but still

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<PAGE>
remain at the discretion of the client whether to fund, BDM, to be conservative,
often recognizes only a portion of stated award values on multi-year contracts
into its backlog records. Because many of BDM's contracts are multi-year
contracts, total backlog may include revenue expected to be realized several
years into the future. The unfunded backlog may not be an indicator of future
contract revenue or earnings because there is no assurance that the unfunded
portion of the Company's backlog will be funded. In addition, most of the
contracts included in backlog are subject to termination for the convenience of
the government client.

BACKLOG SUMMARY BY COMPONENT

AS OF DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------

(IN MILLIONS)
Funded............................ $ 667 $ 535 $ 326
Unfunded.......................... 1,021 1,003 961
------ ------ ------
Total......................... $1,688 $1,538 $1,287
------ ------ ------
------ ------ ------

MARKETING

The Company's marketing activities are conducted by its professional
managers who have technical expertise and whose efforts are supplemented by the
Company's staff of engineers, scientists and analysts. The Company supports the
marketing efforts of its personnel through the direct participation of senior
management and supervisory employees. These marketing efforts are further
supported by a corporate proposal center, organized team reviews of proposals
and a formal corporate training program. The Company believes that this
marketing approach enables it to anticipate and serve the needs of its clients
and ensures that those who are seeking to obtain business for the Company have
the necessary technical expertise and resources both to develop proposals that
satisfy clients' requirements and to participate in or supervise the performance
of services that ultimately may be provided.

COMPETITION

The information services industry in which the Company operates is highly
fragmented with no single company or small group of companies in a dominant
position. The Company's competitors include large, diversified firms with
substantially greater financial resources and larger technical staffs than the
Company as well as firms which receive preferences under set-aside programs.
Some of the Company's competitors also operate in international markets, along
with other concerns which operate exclusively or primarily outside the United
States. Some of the larger competitors offer services in a number of markets
which overlap many of the same areas in which the Company offers services, while
certain companies are focused on only one or a few of these markets. The firms
which compete with the Company are consulting firms, computer services firms,
applications software companies and accounting firms, as well as the computer
service arms of computer manufacturing companies and defense and aerospace
firms. In addition, the internal staffs of client organizations, non-profit
federal contract research centers and universities are, in effect, competitors
of the Company. The primary factors of competition in the business in which the
Company is engaged include technical, management and marketing competence, as
well as price.

EMPLOYEES AND EMPLOYEE REPRESENTATION

As of March 1, 1996, the Company had approximately 7,900 full-time and
part-time employees. Joint ventures, in which the Company is a partner, employed
approximately 2,900 additional

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individuals as of this date. In addition, the Company enters into agreements
with a large number of consultants on a project-specific basis who are engaged
by the Company to perform specialized work on contracts or to provide expertise
in support of marketing and contract activities. With the exception of
approximately 125 Vinnell employees and except as discussed in the next
paragraph, no other employees of the Company are represented by a union and, to
the knowledge of the Company, no union organizing activities are in progress.

As a corporation organized under the laws of and operating in Germany, IABG
is subject to the German Co-Determination Law. Under this law, certain German
workers have a right to representation on supervisory boards of a company and,
through Workers' Councils, have a say in issues relating to corporate
operations, particularly those having a direct impact on workers. Approximately
40% of IABG's employees are covered by the tariff agreements of the German metal
workers union, IG Metall. The tariff negotiations determine the annual raises
and weekly working hours for the people covered by this tariff agreement.
Negotiations have been completed to cover the period through December 31, 1996.

FACILITIES

The Company leases all of its offices and other facilities. The Company's
corporate headquarters are located in McLean, Virginia. The Company also leases
office buildings as principal offices in Fairfax, Virginia; Albuquerque, New
Mexico; Houston, Texas; Denver, Colorado; Germantown, Maryland; Kettering, Ohio;
Huntsville, Alabama; Falls Church, Virginia; Boulder, Colorado; Eindhoven, The
Netherlands; and Ottobrunn, Germany.

In addition to these principal offices, as of March 1, 1996, the Company
maintained offices or facilities in connection with the performance of its
contracts in over 80 other locations. A portion of these premises is subleased
to others. In addition to the Company's offices and facilities, Company
personnel are frequently assigned to client locations throughout the country and
overseas.

For additional information on the Company's leases and rental expenses
thereunder, see Note 17 of the Notes to Consolidated Financial Statements.

LEGAL PROCEEDINGS

The Company is a party to various legal actions, claims, government
inquiries and audits resulting from the normal course of business. The Company
believes that any resulting liability should not have a material adverse effect
on the Company.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
directors and executive officers of the Company as of March 1, 1996.

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Frank C. Carlucci...................... 65 Chairman of the Board and Director
William E. Conway, Jr.................. 46 Vice Chairman and Director
Philip A. Odeen........................ 60 President, Chief Executive Officer and Director
C. Thomas Faulders, III................ 46 Executive Vice President, Treasurer and Chief
Financial Officer; President, BDM
Technologies
Dr. William E. Sweeney, Jr............. 57 Chairman of the Board, BDM Europe; General
Manager and Chairman of the Management
Board, IABG and Director
Roy V. Woodle.......................... 60 President and Chief Executive Officer, Vinnell
Dr. Jeanette Grasselli Brown........... 67 Director
Neil Goldschmidt....................... 55 Director
Walther Leisler Kiep................... 70 Director
Dr. Hans Mark.......................... 66 Director
Thomas G. Ricks........................ 42 Director
John M. Slosar......................... 57 Director
Helmut Sonnenfeldt..................... 69 Director
Earle C. Williams...................... 66 Director
</TABLE>

The terms of all of the Directors expire upon the next annual meeting of
shareholders in 1996 or when their successors are elected and qualify or, if
earlier, until their retirement during the year in which they turn 70. All
directors are elected for a one-year term. Executive officers are appointed by
the Board and hold office until their successors are chosen and qualify or until
their death, resignation or removal.

Set forth below is certain information regarding the backgrounds of each of
the directors and executive officers of the Company.

Frank C. Carlucci has served as Chairman of the Board of Directors of the
Company since October 1990. Mr. Carlucci has been Chairman and a Managing
Director of Carlyle since 1993 and served as Vice Chairman of Carlyle from 1989
to 1993. Mr. Carlucci served as U.S. Secretary of Defense from 1987 to 1989 and
has served in a number of other government positions, including Ambassador to
Portugal, Deputy Secretary of Defense and Assistant to the President for
National Security Affairs.

Mr. Carlucci presently serves on the Board of Directors of the following
corporations: Ashland Oil, Inc., Bell Atlantic Corporation, CB Commercial Real
Estate Group, Inc., General Dynamics Corporation, Kaman Corporation, Neurogen
Corporation, Northern Telecom, Ltd., The Quaker Oats Company, SunResorts, Ltd.,
N.V., Texas Biotechnology Corporation, Pharmacia & Upjohn, Inc. and Westinghouse
Electric Corporation. He also presently serves on the Board of Directors of
several privately-held companies controlled by Carlyle.

William E. Conway, Jr. has served as Vice Chairman of the Board of Directors
of the Company since October 1990. Mr. Conway has been a Managing Director of
Carlyle since 1987. Mr. Conway presently serves on the Board of Directors of GTS
Duratek, Inc., Tracor, Inc., HighwayMaster Communications, Inc. and several
privately held companies controlled by Carlyle.

30
<PAGE>
Philip A. Odeen has served as President, Chief Executive Officer and a
Director of the Company since May 1992. Mr. Odeen served with Coopers & Lybrand,
an international auditing and consulting company, as Vice Chairman, Management
Consulting Services from 1991 to 1992, and as Managing Partner from 1978 to
1991. Mr. Odeen has served in a number of government positions, including
Director, Program Analysis, National Security Council, and Principal Deputy
Assistant Secretary of Defense.

C. Thomas Faulders, III joined the Company as Executive Vice President,
Treasurer and Chief Financial Officer on April 24, 1995. He has also served as
President of BDM Technologies since October 20, 1995. Mr. Faulders served with
Comsat Corporation, a provider of international communications and
entertainment, as Vice President and Chief Financial Officer from 1992 to 1995.
From 1985 to 1992, he served in several senior management positions with MCI
Communications Corporation, a long distance service provider.

Dr. William E. Sweeney, Jr. has served as Executive Vice President and a
Director of the Company since October 1990 and as Chairman of the Board of BDM
Europe and General Manager and Chairman of the Management Board of IABG since
1993. Dr. Sweeney joined the Predecessor Company in 1977 and has held a number
of positions, including senior management positions in the Communications,
Command and Control Division, the Communications Technology Group and the
Systems Engineering and Development Organization.

Roy V. Woodle has served as President and Chief Executive Officer of Vinnell
since June 1993 and January 1994, respectively. Mr. Woodle joined Vinnell in
1983 as Vice President, Program Development and from 1988 to 1993, he served as
Senior Vice President.

Dr. Jeanette Grasselli Brown has served as a Director of the Company since
May 1995.
Dr. Brown is a member of the Ohio Board of Regents. She was a Distinguished
Visiting Professor and Director of Research Enhancement at Ohio University from
1989-1995. From 1950 until her retirement in 1988, she was employed by BP
America (formerly The Standard Oil Company) in various research positions. She
retired as director of corporate research, environmental and analytical
sciences. She is a member of the Board of Directors of AGA Gas, Inc., The BF
Goodrich Company, McDonald & Company Investments, and USX Corporation.

Neil Goldschmidt has served as a Director of the Company since July 1993.
Mr. Goldschmidt is currently President of Neil Goldschmidt, Inc., a company
focusing on strategic planning and problem solving for national and
international businesses. From 1987 to 1991, Mr. Goldschmidt was Governor of
Oregon. From 1981 to 1986, he served as Vice President of Nike International and
President of Nike Canada. Mr. Goldschmidt served as Secretary of Transportation
from 1979 to 1981 and as Mayor of Portland, Oregon, from 1972 to 1979.

Walther Leisler Kiep has served as a Director of the Company since January
1995. Mr. Kiep has been Managing General Partner of Gradmann & Holler, an
insurance brokerage firm based in Stuttgart, Germany, since 1968. He is
currently Chairman of the Supervisory Board of IABG and Zeneca GmbH. He is a
member of the Supervisory Board of Volkswagen AG, Glunz AG, CS-Interglass, AG,
and Bau Assekuranz-Vermittlungs GmbH. He is a member of the Advisory Council of
the Deutsche Bank AB and of Grunelius KG Privatbankiers, is Chairman of the
International Advisory Board of Marsh & McLennan Companies, and is a member of
the International European Advisory Board of Fuji-Wolfensohn International.

Dr. Hans Mark has served as a Director of the Company since August 1991. Dr.
Mark is a Professor in the Department of Aerospace Engineering and Engineering
Mechanics at the University of Texas at Austin and holder of the John J. McKetta
Centennial Energy Chair in Engineering. He served as Chancellor of The
University of Texas System from 1984 until 1992 and as Deputy

31
<PAGE>
Administrator of NASA from 1981 until 1984. From 1977 until 1979, he was
Undersecretary of the USAF and was named Secretary of the USAF in 1979.

Thomas G. Ricks has served as a Director of the Company since December 1992.
Mr. Ricks became President and Chief Executive Officer of University of Texas
Investment Management Company on March 1, 1996. He served as Vice Chancellor for
Asset Management for The University of Texas System from 1992 to 1996. From 1988
to 1992, he served as Executive Director of Finance and Private Investments for
The University of Texas System. Mr. Ricks is a member of the Board of Directors
of DTM Corporation, LifeCell Corporation and Newfield Exploration Co.

John M. Slosar has served as a Director of the Company since March 1991. Mr.
Slosar is a Senior Vice President and Director of Canny, Bowen Inc., an
executive search firm. Previously, Mr. Slosar held key human resources and
business planning positions within Ford in a career which spanned nearly 35
years. He also served as Vice President--Administration for Rouge Steel Company,
a wholly owned subsidiary of Ford, and Vice President, Employee Relations and
Planning, at Ford Aerospace.

Helmut Sonnenfeldt has served as a Director of the Company since March 1991.
Mr. Sonnenfeldt is a Guest Scholar at the Brookings Institution and a recognized
researcher, author and commentator on East-West issues, national security and
other public policy concerns. Mr. Sonnenfeldt is a trustee of The Johns Hopkins
University and is a member of the International Institute of Strategic Studies
(London), The Council on Foreign Relations (New York) and various other
professional associations. As President of Helmut Sonnenfeldt, Inc., he has
provided consulting services on international political and economic issues
since 1978.

Earle C. Williams has served as a Director of the Company since October
1990. From 1990 until his retirement in 1992, Mr. Williams served as President
and Chief Executive Officer of the Company. From 1972 to 1990, Mr. Williams
served as President and Chief Executive Officer of the Predecessor Company. Mr.
Williams is presently a member of the Board of Directors of GAMMA-A
Technologies, GTS Duratek, Inc., Nortel Federal Systems, Inc. and The Parsons
Corporation.

32
<PAGE>
CERTAIN TRANSACTIONS

THE CARLYLE GROUP, L.P.

Messrs. Carlucci and Conway are Chairman and Vice Chairman of the Company,
respectively, stockholders of the Company and Managing Directors of Carlyle. Mr.
Conway owns more than 10% of the capital stock of the general partner of
Carlyle. Carlyle is the general partner of The Carlyle Fund, BDM Partners I and
BDM Partners II, stockholders of the Company.

The Company has retained Carlyle to provide certain financial and
investor-relations services, to assist management in evaluating corporate
acquisition opportunities and financial strategies and to provide similar other
services. In consideration of such services, the Company pays Carlyle an annual
fee of $500,000 plus expenses, a portion of which is offset by the amount which
ordinarily would be payable to Mr. Conway for services rendered in his capacity
as a Director of the Company. In addition, Carlyle serves as a financial advisor
to the Company in connection with any acquisition, corporate reorganization,
financing, stock offering or similar transaction by the Company, and has
received fees commensurate with its services in connection with any such
transaction. However, Carlyle has waived its rights to receive a financial
advisory fee in connection with the Offerings. The Company paid Carlyle
approximately $506,000, $505,000 and $535,000 for the provision of these
services for the years ended December 31, 1995, 1994 and 1993, respectively. In
addition, in connection with the acquisition of Vinnell in 1992, the Company
paid an advisory fee of $250,000, plus expenses.

All future transactions (other than ordinary course transactions such as
fixing salaries or awarding employee benefits) and loans between the Company and
its directors, officers and principal stockholders will be ratified by a
majority of the members of the Board of Directors not having any interest in the
transactions and will be on terms believed to be no less favorable to the
Company than those generally available from unaffiliated third parties.

INVESTOR AGREEMENT

On October 23, 1990, The Carlyle Fund, Richard King Mellon Foundation
("Mellon"), Equitable Capital Private Income and Equity Partnership, II, L.P.
and Equitable Deal Flow Fund, L.P. (together, the "Equitable Funds" and
collectively, with The Carlyle Fund and Mellon, the "Investor Group") entered
into the Investor Agreement with the Company which contains certain provisions
with respect to the transfer of shares of Common Stock by the Investor Group. As
a result of the sale of Common Stock by The Carlyle Fund to BDM Partners II, BDM
Partners I, the Board of Regents of The University of Texas System (the "Board
of Regents") and the Permanent University Fund of The State of Texas (the
"Permanent University Fund") (together, "The University of Texas"), such parties
(together with the Investor Group, the "Principal Stockholders") became subject
to the Investor Agreement.

Pursuant to the terms of the Investor Agreement, if an Investor Group
member, or a transferee of a member pursuant to a transaction not involving a
public offering or an offering not made pursuant to Rule 144 under the
Securities Act (a "Transferee"), desires to sell any shares of Common Stock
purchased under the Investor Agreement other than (i) to another Investor Group
member, the Company or an affiliate, (ii) to a prospective purchaser in a
transaction made pursuant to an effective registration statement or (iii)
pursuant to Rule 144 under the Securities Act or pursuant to certain pledges,
grants of security interests or other encumbrances effected by an Investor Group
member or Transferee with respect to its shares of Common Stock (an "Exempt
Transaction"), then the Company and the other Investor Group members have the
right (a "first refusal" right) to purchase all, but not less than all, of those
shares on the same terms and conditions as those offered by the prospective
purchaser.

33
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock at January 31,
1996, as adjusted to reflect the sales of the Common Stock in the Offerings, by
(i) each stockholder known by the Company to be the beneficial owner of more
than five percent of Common Stock, (ii) each Director of the Company, (iii) each
Named Executive Officer of the Company, (iv) all executive officers and
directors of the Company as a group, and (v) each Selling Stockholder (based
upon 13,086,156 shares outstanding as of January 31, 1996). Unless otherwise
indicated, all shares are owned directly and the indicated owner has sole voting
and dispositive power with respect thereto.

<TABLE>
<CAPTION>
SHARES OWNED SHARES SHARES TO BE OWNED
BENEFICIALLY TO BE BENEFICALLY
DIRECTORS, NAMED EXECUTIVE OFFICERS PRIOR TO OFFERINGS(1) SOLD AFTER OFFERINGS(1)
AND ------------------------ --------- ------------------------
FIVE PERCENT STOCKHOLDERS NUMBER PERCENTAGE(2) NUMBER NUMBER PERCENTAGE(2)
- ------------------------------------ --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Carlyle............................. 5,750,000(3) 43.9% 1,500,000(4) 4,250,000 31.4%
Equitable Funds(6).................. 400,000 3.1 400,000 0 *
Mellon.............................. 300,000 2.3 150,000 150,000 1.1
The University of Texas(5).......... 250,000 1.9 250,000 0 *
Dr. William E. Sweeney, Jr.(7)...... 185,223 1.4 50,000 135,223 1.0
Philip A. Odeen(8).................. 163,877 1.2 163,877 1.2
Earle C. Williams................... 74,000 * 74,000 *
William E. Conway, Jr............... 61,715 * 61,715 *
Frank C. Carlucci(9)................ 37,116 * 37,116 *
Roy V. Woodle(10)................... 32,627 * 32,627 *
C. Thomas Faulders, III(11)......... 19,646 * 19,646 *
Neil Goldschmidt.................... 6,349 * 6,349 *
John M. Slosar(12).................. 5,133 * 5,133 *
Helmut Sonnenfeldt.................. 2,000 * 2,000 *
Dr. Hans Mark....................... 1,623 * 1,623 *
Dr. Jeanette Grasselli Brown........ 1,343 * 1,343 *
Walther Leisler Kiep................ 0 * 0 *
Thomas G. Ricks..................... 0 * 0 *
All Directors and Executive Officers
as a group (total 14 persons)..... 590,652 4.5 50,000 540,652 4.0
</TABLE>

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

* Less than 1% of the outstanding Common Stock.

(1) Pursuant to SEC regulations, shares are deemed to be "beneficially owned"
by a person if such person directly or indirectly has or shares the power
to vote or dispose of such shares or the right to acquire the power to vote
or dispose of such shares within 60 days, including any right to acquire
through the exercise of any option, warrant or right, whether or not such
person has any pecuniary interest in such shares.

(2) Percentages are calculated based on the number of shares of Common Stock
outstanding as of January 31, 1996 and options exercisable within 60 days
of such date and include 400,000 shares of Class B Common Stock outstanding
as of such date.

(3) Includes 4,875,000 shares of Common Stock held by The Carlyle Fund, 750,000
shares of Common Stock held by BDM Partners II and 125,000 shares of Common
Stock held by BDM Partners I. Carlyle is the sole General Partner of The
Carlyle Fund, BDM Partners II and BDM Partners I. Frank C. Carlucci is
Chairman and a Managing Director and William E. Conway, Jr. is a Managing
Director of Carlyle. Messrs. Carlucci and Conway are each directors and
stockholders of the Company. The University of Texas is the sole limited
partner of BDM Partners II.

34
<PAGE>
(4) Includes 30,000 shares offered by BDM Partners I, 250,000 shares offered by
BDM Partners II and 1,220,000 shares offered by The Carlyle Fund.

(5) Includes 218,750 shares held by the Permanent University Fund, 31,250
shares held by the Board of Regents and excludes 750,000 shares held by BDM
Partners II, the sole limited partner of which is The University of Texas.

(6) Equitable Funds' beneficial ownership of 400,000 shares of Common Stock
consists of their ownership of 400,000 shares of Class B Common Stock,
which is convertible on a one-to-one basis into Common Stock. Immediately
prior to the Offerings, Equitable Funds will convert their 400,000 shares
of Class B Common Stock into the 400,000 shares of Common Stock to be sold
by them in the Offerings.

(7) Includes 156,000 shares held by the William E. Sweeney, Jr. & Elizabeth W.
Sweeney Revocable Trust, of which Dr. Sweeney and his wife are the sole
trustees. Also includes options to purchase 28,667 shares of Common Stock
granted under the 1990 Plan which are currently exercisable.

(8) Includes 6,000 shares held by The Philip and Marjorie Odeen Charitable
Remainder Unitrust, of which Mr. Odeen is the sole trustee. Also includes
options to purchase 42,970 shares of Common Stock granted under the 1990
Plan which are currently exercisable.

(9) Voting power for 37,116 of these shares is shared with Mr. Carlucci's wife.

(10) Includes options to purchase 24,084 shares of Common Stock granted under
the 1990 Plan which are currently exercisable.

(11) Includes options to purchase 5,790 shares and 6,250 shares of Common Stock
granted under the 1994 Plan and the MISO Plan, respectively, which are
exercisable in May 1996.

(12) Voting power for 5,133 of these shares is shared with Mr. Slosar's wife.

35
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The following is a summary of certain of the detailed provisions of the
Certificate of Incorporation regarding the capital stock of the Company. Such
summary is not complete and is qualified in its entirety by reference to the
Certificate of Incorporation and to the By-laws, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus is a part.

GENERAL

The authorized Common Stock of the Company consists of 50,000,000 shares of
Common Stock, 2,000,000 shares of Class B Common Stock and 500,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). As of
February 23, 1996, there were 769 holders of record of Common Stock and two
holders of Class B Common Stock. Upon completion of the Offerings, there will be
13,562,285 shares of Common Stock outstanding and no shares of Class B Common
Stock outstanding. As of February 23, 1996, options were outstanding for
1,630,885 shares of Common Stock.

Preferred Stock may be issuable in one or more series from time to time at
the discretion of the Board of Directors. The Board of Directors is authorized
to establish the number of shares to be included in each series and fix the
respective designations, powers, preferences, rights, qualifications,
restrictions and limitations of each series. The issuance of Preferred Stock
could be used as an "anti-takeover" device without requiring further action on
the part of the holders of the Common Stock or the Class B Common Stock. The
Company has no current plans to issue another series of the Preferred Stock.

COMMON STOCK AND CLASS B COMMON STOCK

Immediately prior to the consummation of the Offerings, the Equitable Funds
will convert 400,000 shares of Class B Common Stock into 400,000 shares of
Common Stock and will sell all of such Common Stock in the Offerings. After such
conversion there will be no shares of Class B Common Stock outstanding.

The holders of Common Stock are entitled to one vote per share for each
share held of record in elections for directors and on all other matters
required or permitted to be approved by a vote of stockholders of the Company.
Each share of the Common Stock and each share of the Class B Common Stock are
equal in respect of rights in liquidation and rights to dividends or
distributions, except that in the case of dividends or other distributions
payable in securities of the Company, only non-voting securities will be
distributed with respect to the Class B Common Stock.

The Class B Common Stock is non-voting except with respect to matters for
which class voting is required by the DGCL. The Company is required to convert
any shares of Class B Common Stock into shares of Common Stock upon the
disposition of such shares by the holder thereof as part of: (1) a sale of all
or substantially all of the Common Stock of the Company; (2) a merger or
consolidation of the Company in which the stockholders of the Company receive
cash and/or marketable securities in exchange for their stock; (3) an
underwritten public offering of Common Stock of the Company pursuant to a
registration statement filed with, and declared effective by, the SEC (other
than a registration statement filed in connection with an employee benefit
offering or a merger or acquisition, or an offering of securities in connection
with an exchange offer or solely to existing security holders of the Company or
present and former employees of the Company or consultants or independent
contractors performing substantial services for the Company); (4) a sale
pursuant to Rule 144 under the Securities Act, following a public offering as
described above; or (5) any other transaction if the conversion of the Class B
Common Stock has been approved by a majority of the Board of Directors of the
Company.

36
<PAGE>
Stockholders of the Company do not and will not have any preferential or
preemptive rights to subscribe for, purchase or receive additional shares of any
class of capital stock of the Company, or any options or warrants for such
shares, or any rights to subscribe for or purchase such shares, or any
securities convertible into or exchangeable for such shares, which may be
issued, sold or offered for sale by the Company.

PREFERRED STOCK

The Company's Board of Directors has the authority, without further
stockholder approval, to provide for the issuance of up to 500,000 shares of
Preferred Stock in one or more series, to establish the number and designation
of shares to be included in each series, and to determine the dividend rights,
conversion rights, voting rights, rights and terms of redemption and liquidation
or dissolution rights of such shares. Because the Board of Directors has the
power to establish the preferences and rights of each series, it may afford the
holder of any Preferred Stock preferences, powers and rights (including voting
rights) senior to the rights of the holders of common stock. No shares of
Preferred Stock are currently outstanding. Although the Company currently has no
intention to issue Preferred Stock, the issuance of shares of Preferred Stock or
the issuance of rights to purchase such shares, may have the effect of delaying,
deferring or preventing a change in control of the Company.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

Upon completion of the Offerings, the Company's authorized but unissued
capital stock will consist of 36,437,715 shares of Common Stock, 2,000,000
shares of Class B Common Stock and 500,000 shares of Preferred Stock. All of the
foregoing authorized but unissued shares of capital stock will be available for
future issuance without stockholder approval. These additional shares may be
utilized for a variety of corporate purposes, including issuance pursuant to
stock options granted to certain members of management and key employees and
other employee plans, and future public offerings to raise additional capital or
to facilitate corporate acquisitions.

The Company does not presently have any plans to issue additional shares of
Common Stock other than shares of Common Stock which may be issued upon exercise
of existing options or options which may be granted in the future under the
Management Incentive Stock Purchase Program, the 1990 Stock Option Plan or the
1994 Stock Option Plan.

TRANSFER AGENT AND REGISTRAR

First Chicago Trust Company of New York serves as the Transfer Agent and
Registrar for the Common Stock.

37
<PAGE>
VALIDITY OF COMMON STOCK

The validity of the Common Stock offered hereby will be passed upon for the
Company by Willkie Farr & Gallagher, New York, New York, and for the U.S.
Underwriters by Sullivan & Cromwell, Washington, D.C.

EXPERTS

The audited consolidated balance sheets as of December 31, 1995 and 1994 and
the consolidated statements of operations, stockholders' equity and cash flow
for each of the three years in the period ended December 31, 1995, included in
this prospectus, have been included herein on reliance on the report of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.

INCORPORATION OF DOCUMENTS BY REFERENCE

The Company hereby incorporates by reference into the Registration Statement
of which this Prospectus is a part the following documents previously filed with
the Commission pursuant to the Exchange Act:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and;

2. The Company's Current Report on Form 8-K dated March 5, 1996.

In addition, all reports and other documents filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the Offering hereby shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of filing
of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or supersedes for purposes of this Prospectus to the extent that a
statement contained herein, or in any other subsequently filed document that
also is incorporated or deemed to be incorporated by reference herein, modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon written or oral request from such person, a copy of any and all of the
documents incorporated by reference in this Prospectus (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into the documents that this Prospectus incorporates). Written or oral requests
for such copies should be directed to Todd A. Stottlemyer at BDM International,
Inc., 1501 BDM Way, McLean, Virginia 22102, (703) 848-5115.

38
<PAGE>
ADDITIONAL INFORMATION

The Company has filed with the SEC under the Securities Act a Registration
Statement with respect to the Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement in
accordance with the rules and regulations of the SEC. The Registration Statement
may be inspected and copied at the public reference facilities maintained by the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's Regional
Offices in New York (7 World Trade Center, New York, New York 10007) and Chicago
(Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60611). Copies of such material can be obtained from the public
reference section of the SEC, Washington, D.C. 20549, at prescribed rates. For
further information pertaining to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto and the financial statements, notes and schedules filed as a part
hereof.

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGES
-----

<S> <C>
BDM International, Inc.

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

Consolidated Balance Sheets as of December 31, 1995 and 1994........................ F-3

Consolidated Statements of Operations for the years ended December 31, 1995, 1994
and 1993........................................................................... F-4

Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995, 1994 and 1993................................................................. F-5

Consolidated Statements of Cash Flow for the years ended December 31, 1995, 1994
and 1993............................................................................. F-6

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

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders
BDM International, Inc.

We have audited the accompanying consolidated balance sheets of BDM
International, Inc.
and Subsidiaries (the Company) as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flow for
each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
BDM International, Inc. and Subsidiaries as of December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flow for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.

Washington, D.C.
February 15, 1996, except for Notes 3
and 12, for which the date is February 23, 1996 COOPERS & LYBRAND L.L.P.

F-2
<PAGE>
BDM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 69,143 $ 45,314
Accounts receivable, net.................................... 219,354 215,923
Prepaid expenses and other.................................. 6,157 8,842
------------ ------------
Total current assets.................................... 294,654 270,079
Property and equipment, net..................................... 45,722 40,569
Intangible assets, net.......................................... 9,615 13,814
Deposits and other.............................................. 8,580 5,896
Equity in and advances to affiliates............................ 5,222 5,193
------------ ------------
Total assets............................................ $363,793 $335,551
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....................... $168,253 $166,298
Debt currently payable...................................... 449 426
Income taxes payable........................................ 3,465 3,000
Deferred tax liability...................................... 6,363 5,441
------------ ------------
Total current liabilities............................... 178,530 175,165
Deferred tax liability.......................................... 3,638 5,243
Long term debt.................................................. 25,900 82,750
Severance and other............................................. 12,099 17,248
Minority interest............................................... 28,157 14,040
------------ ------------
Total liabilities....................................... 248,324 294,446
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 500,000 shares authorized, none
issued.......................................................... -- --
Common stock, $.01 par value; 12,962,342 shares issued and
outstanding at December 31, 1995; 9,473,275 shares issued and
outstanding at December 31, 1994................................ 130 95
Additional paid in capital...................................... 68,535 12,336
Retained earnings............................................... 46,790 28,398
Deferred compensation........................................... (395) (279)
Cumulative translation adjustment............................... 409 555
------------ ------------
Total stockholders' equity.............................. 115,469 41,105
------------ ------------
Total liabilities and stockholders' equity.............. $363,793 $335,551
------------ ------------
------------ ------------
</TABLE>

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

F-3
<PAGE>
BDM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue................................................... $889,974 $774,249 $558,292
-------- -------- --------
Cost of sales............................................. 752,107 643,728 460,186
Selling, general and administrative....................... 80,804 82,950 63,847
Depreciation, amortization and other...................... 18,154 20,627 12,089
-------- -------- --------
Operating profit.......................................... 38,909 26,944 22,170

Interest expense, net..................................... 1,474 3,481 4,178
Equity in earnings of affiliates.......................... (1,835) (1,841) (2,223)
Minority interest......................................... 5,863 2,526 1,555
-------- -------- --------
Income before taxes....................................... 33,407 22,778 18,660
Provision for income taxes................................ 15,015 9,700 7,632
-------- -------- --------
Income before extraordinary gain.......................... 18,392 13,078 11,028
Extraordinary gain, net of tax............................ -- -- 413
-------- -------- --------
Net income................................................ $ 18,392 $ 13,078 $ 11,441
-------- -------- --------
-------- -------- --------
Earnings per common share:
Income before extraordinary gain.......................... $ 1.56 $ 1.20 $ 0.92
Extraordinary gain........................................ -- -- 0.03
-------- -------- --------
Net income per share...................................... $ 1.56 $ 1.20 $ 0.95
-------- -------- --------
-------- -------- --------
Weighted average shares outstanding....................... 11,818 10,941 11,983
-------- -------- --------
-------- -------- --------
</TABLE>

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

F-4
<PAGE>
BDM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS B TREASURY
COMMON COMMON ADDITIONAL STOCK
-------------- -------------- PAID IN RETAINED DEFERRED ---------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS COMPENSATION SHARES AMOUNT
------ ------ ------ ------ ---------- -------- ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993................... 10,590 $106 750 $7 $ 46,731 $ 9,859 $ (1,771) -- $ --
Issuance of common stock.................... 709 7 -- -- 1,205 -- -- -- --
Deferred compensation....................... -- -- -- -- 131 -- 955 -- --
Tax benefits applicable to stock option
plans........................................ -- -- -- -- 793 -- -- -- --
Cancellation of deferred stock options...... -- -- -- -- (11) -- 11 -- --
Purchase of treasury stock.................. -- -- -- -- -- -- -- (100) (800)
Cash dividend of $.50 per share............. -- -- -- -- -- (5,980 ) -- -- --
Foreign currency translation adjustments.... -- -- -- -- -- -- -- -- --
Net Income.................................. -- -- -- -- -- 11,441 -- -- --
-
------ ------ ------ ---------- -------- ------ ------ -------
Balance at December 31, 1993................. 11,299 113 750 7 48,849 15,320 (805) (100) (800)
Issuance of common stock.................... 251 3 -- -- 2,262 -- -- -- --
Deferred compensation....................... -- -- -- -- -- -- 497 -- --
Tax benefits applicable to stock option
plans........................................ -- -- -- -- 11 -- -- -- --
Cancellation of deferred stock options...... -- -- -- -- (29) -- 29 -- --
Purchase of treasury stock.................. -- -- -- -- -- -- -- (2,728) (37,985)
Cancellation of treasury stock.............. (2,478) (25) (350) (3) (38,757) -- -- 2,828 38,785
Foreign currency translation adjustments.... -- -- -- -- -- -- -- -- --
Income tax provision on translation
adjustment................................... -- -- -- -- -- -- -- -- --
Net income.................................. -- -- -- -- -- 13,078 -- -- --
-
------ ------ ------ ---------- -------- ------ ------ -------
Balance at December 31, 1994................. 9,072 91 400 4 12,336 28,398 (279) -- --
Issuance of common stock.................... 3,581 36 -- -- 56,880 -- -- -- --
Costs of stock issuance..................... -- -- -- -- (774) -- -- -- --
Deferred compensation....................... (12) -- -- -- 501 -- (116) -- --
Tax benefits applicable to stock option
plans........................................ -- -- -- -- 688 -- -- -- --
Purchase of treasury stock.................. -- -- -- -- -- -- -- (79) (1,097)
Cancellation of treasury stock.............. (79) (1) -- -- (1,096) -- -- 79 1,097
Foreign currency translation adjustments.... -- -- -- -- -- -- -- -- --
Net income.................................. -- -- -- -- -- 18,392 -- -- --
-
------ ------ ------ ---------- -------- ------ ------ -------
Balance at December 31, 1995................. 12,562 $126 400 $4 $ 68,535 $46,790 $ (395) -- $ --
-
-
------ ------ ------ ---------- -------- ------ ------ -------
------ ------ ------ ---------- -------- ------ ------ -------

<PAGE>

CUMULATIVE TOTAL
TRANSLATION STOCKHOLDERS'
ADJUSTMENT EQUITY
---------- -------------
<S> <C> <C>
Balance at January 1, 1993...................... -$- $ 54,932
Issuance of common stock....................... -- 1,212
Deferred compensation.......................... -- 1,086
Tax benefits applicable to stock option
plans........................................... -- 793
Cancellation of deferred stock options......... -- --
Purchase of treasury stock..................... -- (800)
Cash dividend of $.50 per share................ -- (5,980)
Foreign currency translation adjustments....... 225 225
Net Income..................................... -- 11,441

--- -------------
Balance at December 31, 1993.................... 225 62,909
Issuance of common stock....................... -- 2,265
Deferred compensation.......................... -- 497
Tax benefits applicable to stock option
plans........................................... -- 11
Cancellation of deferred stock options......... -- --
Purchase of treasury stock..................... -- (37,985)
Cancellation of treasury stock................. -- --
Foreign currency translation adjustments....... 643 643
Income tax provision on translation
adjustment...................................... (313) (313)
Net income..................................... -- 13,078

--- -------------
Balance at December 31, 1994.................... 555 41,105
Issuance of common stock....................... -- 56,916
Costs of stock issuance........................ -- (774)
Deferred compensation.......................... -- 385
Tax benefits applicable to stock option
plans........................................... -- 688
Purchase of treasury stock..................... -- (1,097)
Cancellation of treasury stock................. -- --
Foreign currency translation adjustments....... (146) (146)
Net income..................................... -- 18,392

--- -------------
Balance at December 31, 1995.................... $409 $ 115,469

--- -------------
--- -------------
</TABLE>

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

F-5
<PAGE>
BDM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flow from operating activities:
Cash received from clients............................ $ 889,900 $ 746,335 $ 530,785
Cash paid to suppliers and employees.................. (846,920) (725,312) (486,465)
Income taxes paid..................................... (11,514) (11,204) (5,584)
Interest received..................................... 2,689 1,142 223
Interest paid......................................... (3,641) (5,087) (4,824)
--------- --------- ---------
Net cash provided by operating activities............. 30,514 5,874 34,135
--------- --------- ---------
Cash flow from investing activities:
Additions to property and equipment................... (17,754) (9,641) (7,046)
Proceeds from disposals of equipment.................. -- 21 328
Purchases of new businesses........................... -- (4,479) (9,038)
Cash acquired in business combination................. -- -- 20,165
Reimbursement of acquisition costs.................... 1,535 1,362 --
Contributions from minority owners.................... 7,097 2,482 4,171
Distributions from unconsolidated affiliates.......... 2,850 2,775 3,216
Investment in unconsolidated affiliates............... (1,589) (1,936) (500)
--------- --------- ---------
Net cash (used in) provided by investing activities... (7,861) (9,416) 11,296
--------- --------- ---------
Cash flow from financing activities:
Net (repayments of) proceeds from borrowings.......... (53,169) 31,835 35,451
Repayment of term debt................................ (3,700) -- (25,972)
Proceeds from issuance of common stock................ 56,142 2,265 1,061
Payment of debt issuance costs........................ -- (234) (580)
Payment of dividend................................... -- -- (5,980)
Acquisition of common stock........................... (1,097) (37,985) (800)
--------- --------- ---------
Net cash (used in) provided by financing activities... (1,824) (4,119) 3,180
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................. 3,000 4,100 179
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... 23,829 (3,561) 48,790
Cash and cash equivalents, beginning of period.......... 45,314 48,875 85
--------- --------- ---------
Cash and cash equivalents, end of period................ $ 69,143 $ 45,314 $ 48,875
--------- --------- ---------
--------- --------- ---------
</TABLE>

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

F-6
<PAGE>
BDM INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

BDM International, Inc. ("BDM" or "the Company") was privately owned from
its inception in 1959 until 1980, when it became a publicly owned company. BDM
was purchased by and became a wholly-owned subsidiary of Ford Aerospace
Corporation ("Ford Aerospace") in June 1988. BDM remained a wholly-owned
subsidiary of Ford Aerospace until members of senior management and an investor
group led by The Carlyle Group, L.P. ("Carlyle"), a Washington, D.C.-based
private merchant bank, acquired substantially all of the assets, liabilities and
business of BDM on October 23, 1990. On June 28, 1995, BDM completed a public
offering of common stock in which 2.875 million shares were sold at $18.50 per
share. BDM's stock has since been traded on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq").

BDM is a multinational information technology company that operates
primarily in three interrelated markets: systems and software integration,
computer and technical services and enterprise management and operations. The
Company provides its services through four decentralized subsidiaries. The
Company operates principally in the United States, Europe and the Middle East.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include all majority-owned or
controlled subsidiaries and joint ventures of the Company. All significant
intercompany accounts and transactions have been eliminated. The Company's
earnings in unconsolidated joint ventures are accounted for using the equity
method.

Revenue Recognition

The Company's revenue is derived primarily from long-term contracts of
various types. Revenue on cost reimbursable contracts is recognized to the
extent of costs incurred plus a proportionate amount of the fee. Revenue on
fixed-price contracts is recognized using the percentage-of-completion method
based on the relationship of actual costs incurred to total costs estimated to
be incurred over the duration of the contract. Revenue on time-and-material
contracts is recognized based on actual hours delivered at the contracted hourly
rate plus the cost of any materials incurred. The fees under certain government
contracts may be increased or decreased in accordance with cost or performance
incentive provisions which measure actual performance against established
targets or other criteria. Such incentive fee awards or penalties are included
in revenue at the time the amounts can be reasonably determined. Provisions for
anticipated contract losses are recognized at the time they become known.

Progress payments received in advance from customers are applied first to
any amount of unbilled accounts receivable on the related contracts. Any excess
of the payments received in advance over the related unbilled accounts
receivable is recorded as an advance payment liability.

Foreign Currency Translation

The results of operations from foreign subsidiaries are translated to U.S.
dollars using the average exchange rates during the period. Assets and
liabilities are translated to U.S. dollars at

F-7
<PAGE>
BDM INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
the exchange rate in effect at the balance sheet date. The resulting cumulative
translation adjustments are reflected in stockholders' equity.

Statements of Cash Flow

Cash flow from the operations of the Company's foreign subsidiaries are
calculated based on their reporting currencies. The effect of exchange rate
changes on the cash balances held in foreign currencies is reported separately
in the Statements of Cash Flow.

The Company considers all highly liquid financial instruments with purchased
maturities of three months or less to be cash equivalents.

Property and Equipment

Property, equipment and furniture are recorded at cost, or assigned fair
value if acquired through an acquisition. Furniture and equipment are
depreciated over their estimated useful lives, ranging from three to ten years,
primarily using the declining balance method. Leasehold improvements are
amortized over their estimated useful lives or lease terms, whichever is
shorter, using the straight-line method. Maintenance and repairs are charged to
expense as incurred.

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 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 quarterly based on current undiscounted cash flow projections of each
specific acquired business. To date, the Company has limited the period of
amortization of goodwill to fifteen years, even though most of the Company's
acquisitions would project positive cash flows from operations for a much longer
period. Goodwill is amortized over periods ranging from ten to fifteen years.

Intangible assets are recorded at cost, or assigned fair value if acquired
through a business acquisition. Intangible assets are amortized on a
straight-line basis over the term of the underlying asset or the estimated
period of benefit, currently ranging from three to five years, or in the case of
contract backlog, over the remaining terms of the acquired contracts in relation
to the recognition of related contract revenue.

Research and Development Costs

Research and development costs are expensed as incurred and are included in
selling, general and administrative costs. Research and development costs
amounted to $2.0 million, $7.1 million and $7.8 million for the years ended
December 31, 1995, 1994 and 1993, respectively.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recorded in the financial
statements or tax returns.

F-8
<PAGE>
BDM INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Deferred tax assets and liabilities represent the tax effects of differences
between the financial statement carrying amounts and the tax basis carrying
amounts of the Company's assets and liabilities. These differences are
calculated based upon the statutory tax rates in effect in the years in which
the differences are expected to reverse. The effect of subsequent changes in tax
rates on deferred tax balances is recognized in the period in which a tax rate
change is enacted.

Foreign income taxes that are reimbursable pursuant to the related contract
terms are classified as contract costs rather than as a component of the
Company's provision for income taxes.

Earnings Per Share

Earnings per share is computed by dividing net income by the sum of the
weighted average number of common and common equivalent shares outstanding. The
Company's common equivalent shares, consisting entirely of options to purchase
common stock, are calculated using the treasury stock method which assumes the
exercise of all outstanding stock options with the hypothetical proceeds being
used to repurchase shares for treasury.

Financial Instruments

The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash equivalents and accounts receivable. The
carrying value of financial instruments approximates fair value since all such
instruments are either short-term in nature or bear interest at rates which are
indexed to current market interest rates.

The Company's cash management policy is to use available cash balances,
primarily of its domestic subsidiaries, to reduce the outstanding balance of the
revolving line of credit. To mitigate exposures to foreign currency risks
associated with using the available cash of foreign subsidiaries or joint
ventures, only the portion of available cash balances deemed not to be needed
for short-term operations of the foreign subsidiary are considered eligible for
inclusion in the centralized cash management activities of the Company. The
majority of the cash balance at December 31, 1995, belongs to IABG (the
Company's German subsidiary) (See Note 3). At December 31, 1995, approximately
$36 million was invested primarily in deposits with various German banks of high
credit ratings, with purchased maturities of one month or less. These
investments are insured up to amounts prescribed by German law. Although there
were no other investments as of December 31, 1995, significant excess cash
balances of domestic subsidiaries not used to extinguish debt are routinely
invested in high quality commercial paper for periods ranging from overnight to
one week. It is the Company's policy to hold such investments to maturity.

In connection with its international operations, the Company is exposed to
risks associated with fluctuations in currency exchange rates, including the
German Mark, the Saudi Riyal, the Kuwaiti Dinar, the Turkish Lira and the Dutch
Guilder. The Company limits its exposure to these risks by incurring and paying
for its expenses in the same currencies as those of its revenue. In addition,
certain contracts performed overseas have provisions which provide for
reimbursement of losses arising from currency fluctuations. It is the Company's
policy not to enter into derivative financial instruments for speculative
purposes. There were no derivative financial instruments outstanding as of
December 31, 1995.

F-9
<PAGE>
BDM INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The Company generally provides uncollateralized credit to its customers.
Advance payments are secured from a large portion of foreign government
customers pursuant to the appropriation practices of the related governments.
The Company also continually assesses the financial strength of commercial
companies for whom significant subcontracts are performed.

Reclassifications

Certain reclassifications have been made to the prior year financial
statements and disclosures to conform them to the current year presentation.

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 contingencies as of the dates of the financial statements, and the
reported amounts of revenue and expenses during the reporting periods. Actual
results could differ from management's estimates.

3. ACQUISITIONS

Geoscience Consultants, Ltd.

On February 16, 1994, the Company acquired Geoscience Consultants, Ltd., an
environmental services consulting business, for an acquisition price of
approximately $4.3 million. The acquisition was financed with borrowings from
the Company's working capital facility. Goodwill resulting from the transaction,
accounted for as a purchase, approximated $3.2 million and is being amortized on
a straight-line basis over ten years. A three year covenant not-to-compete for
$150,000 was also issued in connection with the acquisition.

Industrieanlagen-Betriebsgesellschaft mbH

On November 16, 1993, the Company acquired management control, through a 45%
ownership interest, in Industrieanlagen-Betriebsgesellschaft mbH ("IABG"),
located in Ottobrunn, Germany. The interest was acquired primarily from IVG, a
company then owned by the German government, pursuant to a privatization plan
initiated by the German government. IABG performs diversified technical services
in the areas of defense technology, information systems, organizational
analysis, structural analysis and testing and environmental programs on behalf
of ministries of the German government as well as other governmental and private
sector clients.

On the original acquisition date, IVG retained a 15% ownership interest in
IABG and held the remaining 40% ownership interest in trust, for sale to
employees and other investors, subject to the Company's approval. In October
1994, 12% of the trust was sold to Buck Werke GmbH & Co. KG, a German services
company, and an additional 5% was acquired by IVG. The Company has completed the
privatization of the remaining 23% trust balance through a sale to IABG's
employees and other investors at the original cost of the acquisition in 1993.

The Company and IVG had originally entered into a voting rights agreement,
which gave the Company control of IVG's 15% voting authority enabling the
Company to exercise 60% in total voting authority. In connection with the sale
of an additional 5% of IABG to IVG in October 1994, the

F-10
<PAGE>
BDM INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. ACQUISITIONS--(CONTINUED)
original voting rights agreement was revised to provide IVG with direct control
of 12% of IABG's total voting authority while ensuring that the Company would
retain the right to vote IVG's remaining 8% ownership for a total voting
authority by the Company of 53%. IVG cannot unilaterally terminate the voting
rights agreement. In the event that BDM and IVG cannot agree on a vote, BDM will
be required to acquire the 8% portion of IABG at a price based on a previously
accepted valuation method contained in the original acquisition agreement. The
Company's majority voting authority enables it to manage the operations of IABG;
therefore, the accompanying financial statements consolidate the financial
statements of IABG and present the 55% ownership as minority interest. No owner
other than BDM will ever have voting authority exceeding their ownership
percentage.

The total consideration paid for the acquisition included the purchase price
of $1.7 million, a finders fee of $2.1 million and transaction costs of
approximately $2.1 million. The transaction, accounted for as a purchase,
generated an excess of the purchase price over the book value of net assets
acquired of approximately $10.6 million. Due to the unique nature of certain
acquired equipment, additional time subsequent to the acquisition was needed for
extensive analysis by technical experts to appropriately ascertain a fair value
of this equipment. This subsequent valuation, completed in September 1994,
resulted in the allocation of the entire excess purchase price to certain
acquired technical equipment and buildings with fair values exceeding their
respective acquisition date carrying values. Effective January 1, 1994, the
allocated excess purchase price is being depreciated over the estimated useful
lives of the specific underlying assets averaging nine years, and ranging from
three to thirteen years.

In addition to the purchase price consideration, the privatization plan
required the owners to guarantee equity infusions in IABG of $22.7 million
during the first two years of ownership. Installment payments against this
requirement were made by the owners at the acquisition date and on the first
anniversary thereof totaling $6.5 million and $6.2 million, respectively,
representing 100% and 77% of the equity infusions actually required as of those
dates. The remaining 23% portion of the second infusion, $1.9 million, was made
in March 1995 when the trust ownership transfer was completed. The third
installment commitment of $8.9 million, was made from all of the owners in
November of 1995. The above dollar amounts have been calculated at the then
prevailing exchange rates. The Company's share of all of the above acquisition
costs and equity guarantees was 45%.

Subsequent Event--Acquisition

On February 20, 1996, the Company completed the acquisition of three
affiliated companies-- CW Systems, Inc., IG Systems, Inc. and Melco Systems,
Inc.--for $18.5 million, which was paid out of existing cash balances. The
acquired companies specialize in providing information technology systems and
services to Fortune 1000 companies and other large organizations in the oil and
gas, telecommunications, financial, insurance, health care, public utility and
entertainment sectors. They have also served state government agencies in Texas,
Florida, California, Georgia and Oklahoma. The firms had aggregate 1995 revenue
of approximately $35.2 million.

F-11
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. SUPPLEMENTAL CASH FLOW INFORMATION

The following is a reconciliation of net income to net cash provided by
operating activities for the years ended December 31, (dollars in thousands):

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net income.................................................... $18,392 $13,078 $11,441
Non cash adjustments to net income:
Extraordinary items....................................... -- -- 413
Depreciation and amortization............................. 17,761 16,466 10,488
Loss on disposal of property.............................. 376 -- 208
Equity in earnings of affiliates.......................... (1,835) (1,841) (2,223)
Minority interest......................................... 3,797 2,526 1,555
Deferred taxes............................................ (684) 2,563 5,261
Provision for contract losses............................. 4,400 5,138 1,633
Deferred compensation expense............................. 349 497 1,086
Other..................................................... 89 (749) 691
Cash effect of changes in current assets and liabilities:
Accounts receivable....................................... (9,525) (36,543) (28,674)
Prepaid expenses and other................................ 1 (10,265) 2,579
Accounts payable.......................................... (3,072) 13,204 28,477
Income taxes payable...................................... 465 1,800 1,200
------- ------- -------
Net cash provided by operating activities..................... $30,514 $ 5,874 $34,135
------- ------- -------
------- ------- -------
</TABLE>

5. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at December 31, (dollars in
thousands):

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
U.S. Government contracts:
Billed............................................................. $134,847 $118,727
Unbilled:
Retention........................................................ 16,866 28,642
Other............................................................ 3,841 20,173
-------- --------
Total.............................................................. 155,554 167,542

Other contracts:
Billed............................................................. 52,570 42,597
Unbilled:
Retention........................................................ 5,402 4,598
Other............................................................ 22,338 10,962
-------- --------
Total.............................................................. 80,310 58,157

Other.............................................................. 4,220 7,760
Allowance for possible contract losses and uncollectible amounts... (20,730) (17,536)
-------- --------
Net accounts receivable............................................ $219,354 $215,923
-------- --------
-------- --------
</TABLE>

F-12
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. ACCOUNTS RECEIVABLE--(CONTINUED)
As of December 31, 1995 and 1994, approximately $7.8 million and $12.1
million, respectively, in advance payments from customers had been applied
against the unbilled portion of applicable contract receivables.

Unbilled retention balances are billable at contract completion or upon
attainment of other specified contract milestones. Other unbilled amounts
consisted primarily of: contractually earned services not yet billable because
of stipulated installment billing provisions, approximately $19.4 million and
$8.4 million at December 31, 1995 and 1994, respectively; revenue recognized
pursuant to customer authorizations prior to the execution of contractual
documentation, approximately $1.7 million and $2.4 million at December 31, 1995
and 1994, respectively; and a specific receivable related to a contract
performed in Saudi Arabia whereby the Company will owe severance to terminated
employees at contract completion, approximately $1.9 million and $7.8 million at
December 31, 1995, and 1994, respectively. This liability is included in accrued
severance. Management anticipates that substantially all unbilled receivables as
of December 31, 1995, exclusive of retention balances, will be billed and
collected in 1996. Based on the Company's experience with similar contracts in
recent years, retention balances of approximately $9.1 million at December 31,
1995, are not expected to be collected within the coming year. It is common
industry practice to include such amounts in working capital.

6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, (dollars
in thousands):

1995 1994
-------- --------
Equipment and office furniture......................... $ 58,563 $ 52,492
Leasehold improvements................................. 9,559 10,965
-------- --------
68,122 63,457
Accumulated depreciation and amortization.............. (22,400) (22,888)
-------- --------
Net property and equipment............................. $ 45,722 $ 40,569
-------- --------
-------- --------

Depreciation expense was $13.4 million, $12.5 million and $7.3 million for
the years ended December 31, 1995, 1994 and 1993, respectively (See Note 7
regarding IABG).

F-13
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. INTANGIBLE ASSETS

Intangible assets consisted of the following at December 31, (dollars in
thousands):

1995 1994
------- -------
Goodwill............................................... $11,480 $13,326
Less: Accumulated amortization....................... (2,695) (2,124)
------- -------
8,785 11,202
------- -------
Intangible Assets:
Covenant not-to-compete.............................. 3,850 3,850
Debt issue costs..................................... -- 814
Contract backlog..................................... 3,752 3,752
Software licenses.................................... 1,770 1,309
------- -------
9,372 9,725
Less: Accumulated amortization....................... (8,542) (7,113)
------- -------
830 2,612
------- -------
Total................................................ $ 9,615 $13,814
------- -------
------- -------

Goodwill recorded in connection with the IABG acquisition in 1993 of $10.9
million was reallocated to the excess of the fair values over the acquisition
date carrying values of certain acquired technical equipment and test facilities
as a result of a valuation of all acquired assets and liabilities, completed in
September 1994.

Unamortized goodwill for the acquisition of FACE totaling $1.6 million was
expensed during 1995, as it was determined to be no longer recoverable. Several
factors contributed to this change in recoverability. The acquired company's
anticipated utilization of its technology for other industries was not realized,
and synergies between BDM technologies and acquired technologies did not result
in an expansion of the customer base as expected. In addition, an economic
downturn in the Netherlands contributed to a deterioration in the revenue base.
These factors resulted in negative cash flow projected for this particular
business.

In addition, unamortized goodwill from a separate acquisition totaling
$440,000 was expensed during 1994 as it was determined to be no longer
recoverable. The change in recoverability was driven primarily by the loss of a
significant contract performed by the acquired company, which resulted in
negative cash flow projected for that particular business.

F-14
<PAGE>
BDM INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The components of accounts payable and accrued expenses were as follows at
December 31, (dollars in thousands):

1995 1994
-------- --------
Accounts payable...................................... $ 63,567 $ 74,357
Accrued expenses:
Advance payments.................................... 31,876 24,096
Accrued salaries/benefits........................... 39,967 33,131
Accrued vacation.................................... 18,838 15,548
Restructuring/severance............................. 10,245 12,030
Environmental matters............................... 1,356 2,381
Other............................................... 2,404 4,755
-------- --------
$168,253 $166,298
-------- --------
-------- --------

Restructuring/Severance Liability/Debt Forgiveness

Prior to the Company's acquisition of IABG (See Note 3), IABG found it
necessary to reduce its reliance on the German government for the majority of
its revenue. In addition to redirecting marketing efforts in non-defense areas,
IABG sought means to reduce operating costs. IABG therefore determined that it
would be necessary to reduce its workforce through involuntary terminations. As
prescribed by German law and pursuant to the German government's plan for
privatization of IABG, a severance plan was developed by IABG providing for the
estimated number of involuntary employee reductions, the conditions for
termination and the method for determining the amount of severance due to the
terminating employees. IABG's workforce reductions began in 1994 and will
continue through 1997. In connection with the approval of the plan by the German
government and prior to acquisition of IABG by the Company, an estimate for the
severance totaling $34.2 million was accrued. Benefits paid through 1995
totaling $13.7 million have been applied against the original accrual.
Management believes the remaining liability will be adequate to cover future
benefits claimed pursuant to the plan. The remaining liability as of December
31, 1995 has been classified among current and long-term liabilities according
to IABG's plan for effecting the actual employee reductions.

As an incentive to investors acquiring IABG, the German government
privatization plan agreed to fund a portion of the above severance liability in
an amount equal to the principal balance of two notes held by IABG payable to
the German government's Ministry of Defense (MOD), for a total amount of $10
million. As payments for the severance liability were made to terminated
employees, the MOD forgave an equivalent amount of the debt, all of which has
been satisfied. The balance due on these notes was included as part of the
accrued severance liability.

F-15
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. DEBT

Long-term debt consisted of the following at December 31, (dollars in
thousands):

1995 1994
------- -------
Revolving line of credit................................ $25,830 $79,000
Subordinated seller note................................ -- 3,700
Other................................................... 519 476
------- -------
26,349 83,176
Less: current portion................................... (449) (426)
------- -------
Total long-term debt.................................... $25,900 $82,750
------- -------
------- -------

Revolving Line of Credit. In July 1993, the Company entered into a credit
agreement which provided for a working capital facility of up to $100 million
for an original term of three years with two options to extend the term for one
additional year. The facility was amended in May 1994, increasing the borrowing
capacity to $125 million and extending the term of the facility for one of the
option years. The aggregate amount of borrowing was limited to a percentage of
the Company's eligible receivables as defined in the agreement. The Company had
the option to borrow principal at interest rates based either on the bank's
prime rate or the LIBOR rate plus margins, with unused credit also accruing a
standard interest charge. The outstanding borrowings were collateralized by a
security interest in the Company's accounts receivable. Costs incurred to obtain
the facility were capitalized and were being amortized over the term of the
agreement.

During 1995, the Company replaced the credit agreement with a new revolving
credit agreement. The new agreement provides an unsecured multicurrency
revolving credit line of $150 million for a term of five years, at an interest
rate based on LIBOR plus margins. The agreement includes covenants which limit
the amount of the Company's debt compared to total capitalization and compared
to earnings before interest, taxes, depreciation and amortization. In addition,
dividends can only be paid after September 1, 1996, and are not to exceed 20% of
the cumulative net income subsequent to July 1, 1996. Conditions also exist
which limit the investments which can be made in existing subsidiaries and
non-subsidiaries. As of December 31, 1995, the Company had $113.4 million
available for borrowing under this new credit agreement and was in compliance
with all covenants. In connection with the replacement of the previous facility,
the Company expensed $0.5 million of capitalized financing costs.

In connection with the early termination of a previous credit facility, the
Company recorded an extraordinary loss, net of the related tax benefit, of $1.3
million during the year ended December 31, 1993, in connection with the
expensing of unamortized debt issuance costs incurred in obtaining the
predecessor facility.

The Company had also entered into an interest rate swap agreement to reduce
exposure to changes in interest rates. This agreement, which matured on October
23, 1993, required the payment of interest on a $30 million notional amount at
the spread between the prevailing LIBOR interest rate and 8.01%.

Subordinated Seller Note. In connection with the acquisition of Vinnell in
1992, the Company issued a subordinated promissory note to the former owner in
the amount of $3.7 million. The note had an interest rate of 10% per annum, and
was payable semi-annually. The principal balance and unpaid accrued interest was
due the earlier of: (1) the fourth anniversary of the acquisition date on

F-16
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. DEBT--(CONTINUED)
March 13, 1996, or (2) six months after the death of the former owner. However,
this note was repaid in July 1995 using a portion of the proceeds from the
public offering of stock.

FACE Acquisition Note. Effective January 1, 1993, the Company acquired FACE
Holding BV (a Netherlands Company). To finance the acquisition, the Company
executed a line of credit arrangement in April 1993 with a Netherlands bank for
up to $2.7 million. The outstanding balance incurred interest at 2% above the
prime rate of the Dutch Central Bank. In August 1994, this amount was repaid
with borrowings from the Company's credit facility.

Subordinated Conditional Note. In connection with the acquisition of the
Company in 1990, in exchange for $3 million in consideration, the Company issued
the right to additional future consideration based upon the Company's actual
earnings before interest and taxes (EBIT) for the years 1991 through 1993. The
Company reflected the $3 million consideration as an estimate for this
liability, thereafter termed the Subordinated Conditional Note. At the
conclusion of 1993, it became evident that the EBIT level necessary to trigger
the additional purchase price consideration would not be attained for any of the
years 1991 through 1993. The Subordinated Conditional Note included a provision
that if the EBIT levels were not met, the Company would not be liable for any
conditional amount, or interest thereon, including the amount paid as
consideration. Accordingly, during the year ended December 31, 1993, the Company
recognized an extraordinary gain of $1.7 million, net of related income tax
expense, on the reversal of the amount initially assigned to the conditional
principal liability. Interest expense had not been accrued on the assigned value
of the right to the conditional principal amount.

Maturities. Maturities of debt outstanding at December 31, 1995, were as
follows: 1996--$0.5 million; 1997--$0.1 million; 2000--$25.8 million.

Interest Expense. Total interest expense incurred during 1995, 1994 and 1993
was $4.4 million, $5.1 million and $4.6 million, respectively. The weighted
average interest rate incurred for the years ended December 31, 1995, 1994 and
1993, was 9.25%, 7.04% and 10.33%, respectively.

10. INCOME TAXES

The components of income before taxes were as follows for the years ended
December 31, (dollars in thousands):

1995 1994 1993
------- ------- -------
Domestic...................................... $25,890 $12,335 $10,648
Foreign....................................... 7,517 10,443 8,012
------- ------- -------
Income before taxes......................... $33,407 $22,778 $18,660
------- ------- -------
------- ------- -------

F-17
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. INCOME TAXES--(CONTINUED)

The provision for income taxes included the following for the years ended
December 31, (dollars in thousands):

1995 1994 1993
------- ------ ------
Current provision:
Federal....................................... $ 9,530 $3,193 $ 138
State......................................... 1,634 942 1,033
Foreign....................................... 4,535 3,000 1,200
------- ------ ------
Total current provision................... 15,699 7,135 2,371
------- ------ ------

Deferred (benefit) provision:
Federal....................................... (3,745) 1,629 3,365
State......................................... (642) 223 97
Foreign....................................... 3,703 713 1,799
------- ------ ------
Total deferred (benefit) provision........ (684) 2,565 5,261
------- ------ ------
Total provision for income taxes.......... $15,015 $9,700 $7,632
------- ------ ------
------- ------ ------

The actual provision for income taxes as a percentage of pre-tax income
varies from the U.S. Federal statutory income tax rate for the following
reasons:

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory income tax rate............................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefits............... 6.0 6.0 6.0
Tax effect relating to non-deductible goodwill amortization.......... 2.7 1.6 1.6
Tax effect relating to write off of tax benefits on foreign
subsidiary........................................................... 1.2 -- --
Differences between U.S. Federal statutory and foreign income
tax rates.......................................................... -- -- (2.8)
Effect of U.S. Federal tax rate increase on cumulative deferred tax
liability............................................................ -- -- 1.1
---- ---- ----
Effective income tax rate............................................ 44.9% 42.6% 40.9%
---- ---- ----
---- ---- ----
</TABLE>

F-18
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. INCOME TAXES--(CONTINUED)
The sources and tax effects of temporary differences which result in a net
deferred income tax liability were as follows as of December 31, (dollars in
thousands):

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Financial reporting basis of net assets acquired........................ $ 5,532 $ 4,725
Other................................................................... 308 480
Revenue recognition..................................................... 23,251 26,531
------- -------
Gross deferred tax liability.......................................... 29,091 31,736
------- -------
Financial reporting depreciation in excess of tax depreciation.......... 735 646
Accrued expenses........................................................ 9,215 7,994
Foreign operating loss carryforward..................................... 669 4,400
Accruals in excess of deductible write-offs............................. 5,981 3,797
Tax credit carryforwards................................................ 2,490 4,215
------- -------
Gross deferred tax asset.............................................. 19,090 21,052
------- -------
Net deferred liability.............................................. $10,001 $10,684
------- -------
------- -------
</TABLE>

As of December 31, 1995, the Company had foreign tax credit carryforwards
(FTC's) of $2.5 million expiring in various years through 1999. Utilization of
the FTC's is subject to certain limitations, including the future amount of
taxable foreign source income, the effective tax rate on such income and the
amount of future U.S. taxable income. The Company also has a net operating loss
carryforward of $1.6 million generated by IABG prior to its acquisition in 1993
by the Company to offset future taxable income in Germany. The temporary
differences between depreciation expense for financial reporting purposes and
income tax reporting purposes resulting from the fixed asset write-up for the
IABG acquisition provides assurance of future taxable income sufficient to
utilize the remaining net operating loss carryforward. Accordingly, no valuation
allowance is necessary. The term of the net operating loss carryforward is not
limited.

11. STOCKHOLDERS' EQUITY

Description of Capital Stock

The Company is authorized to issue a total of 52,500,000 shares of capital
stock, consisting of 500,000 shares of Preferred Stock, 50,000,000 shares of
Common Stock and 2,000,000 shares of Class B Common Stock, all shares with $.01
par value. The Preferred Stock may be issuable in one or more series from time
to time at the discretion of the Board of Directors. The Board of Directors is
authorized to fix the respective designation, relative rights, preferences,
qualifications, restrictions and limitations of each series.

Each share of Common Stock is entitled to one vote in elections of directors
and all other matters required or permitted to be submitted to a vote of the
stockholders. The holders of Class B Common Stock have no voting rights. Holders
of both Common Stock and Class B Common Stock are entitled to receive dividends,
when and if declared by the Board of Directors of the Company. The shares of
Class B Common Stock are convertible into the same number of shares of Common
Stock upon their dispostion in connection with the occurrence of certain events
including a sale of all or substantially all of the Common Stock of the Company;
a merger or consolidation of the

F-19
<PAGE>
BDM INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. STOCKHOLDERS' EQUITY--(CONTINUED)
Company in which the stockholders of the Company receive cash and/or marketable
securities in exchange for their stock; and an underwritten public offering of
Common Stock of the Company.

Fair Value of Common Stock

Since the acquisition of the Company in October 1990, through June 28, 1995,
there was no public market for the Company's Common Stock. The fair value of the
Company's Common Stock was determined by the Board of Directors based primarily
on periodic valuations performed by an independent valuation company. On June
28, 1995, the Company's public offering was effective, and its Common Stock
began trading on June 29, 1995, on the Nasdaq. The fair value of the Company's
Common Stock has since been determined based on Nasdaq quotation systems.

Stockholders Agreement

At the time of the purchase of the Company in October 1990, certain members
of the Company's then senior management (the Management Group) and the outside
investors (the Investor Group) entered into a Stockholders Agreement. As
subsequently amended, the Stockholders Agreement required the Investor and
Management Groups to vote their shares to provide for a fourteen member Board of
Directors consisting of seven members designated by the Investor Group, four
members designated by the Management Group, and three members designated jointly
by both groups. The Stockholders Agreement terminated in accordance with its
terms following the 1995 offering, when at least 33% of the aggregate number of
the Company's outstanding shares of Common Stock were distributed publicly.

Investor Stock Purchase Agreement

An Investor Stock Purchase Agreement, also executed at the time of the
purchase of the Company in October 1990, provides the Company and members of the
Investor Group with the right of first refusal in the event any member of the
Investor Group desires to sell the shares purchased under the agreement, subject
to certain exceptions. The agreement also provides for anti-dilution, piggy-back
and demand registration rights. With the exception of the underwriters'
discount, most of the expenses incurred in connection with the exercise of such
registration rights by certain stockholders would be borne by the Company.

Common Stock Purchase

On May 27, 1994, the Company acquired 2,250,000 shares and 350,000 shares of
its outstanding Common Stock and Class B Common Stock, respectively, for its
then fair value of $14.00 per share from the Investor Group. Coincident with
this stock purchase, these common shares, as well as all previously acquired
treasury shares, were cancelled.

F-20
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. EQUITY PARTICIPATION PROGRAMS

Employee Stock Purchase Plans

The Company implemented an Employee Stock Purchase Plan in March 1993. The
Plan allowed participants to buy Common Stock at the fair market value through
payroll deductions. Each participating employee was able to purchase up to 26
shares of Common Stock per month at the fair market value per share. On various
occasions since inception of the Plan, the Company has acquired 282,072 shares
of its outstanding Common Stock at its then fair market value ranging from $8.00
through $17.25. During the years ended December 31, 1995, 1994 and 1993, the
Plan participants purchased 51,174, 127,120 and 78,229 shares for an average of
$16.17, $12.75 and $8.00 per share, respectively.

Effective July 1, 1995, the above plan was discontinued and replaced with
the 1995 Employee Stock Purchase Plan (the 1995 Plan). The 1995 Plan is a
qualified non-compensatory employee stock purchase plan which has reserved
750,000 shares of common stock for issuance under this plan. The 1995 Plan
allows all employees of the Company's domestic subsidiaries to purchase a
limited amount of common stock at a discount during the offering period of July
1, 1995 to June 30, 1996. The purchase price of the Company's stock is the
lesser of $15.725, which is 85% of the initial offer price of $18.50 per share
in the public offering, or 85% of the market value at the end of each month.
During 1995, participants in this plan purchased 317,699 shares at $15.725 per
share.

1990 Stock Option Plan

In 1990, the Company established a Stock Option Plan (the 1990 Plan) to
provide officers and key employees with up to 1,562,500 qualified or
non-qualified incentive stock options to purchase shares of Common Stock. The
1990 Plan provides that qualified incentive stock options (as defined in the
Internal Revenue Code) have an exercise price equal to the fair market value of
the Common Stock on the date of the option grant. Non-qualified incentive stock
options have exercise prices as determined by the Compensation Committee of the
Board of Directors. The 1990 Plan provides for adjustments in the number of
shares related to stock options and their respective exercise prices in the
event of stock dividends or stock splits, and for adjustments in the event that
the Company effects a recapitalization or other change in its capital structure.
Options granted pursuant to the 1990 Plan vest over periods ranging from one to
five years. All options pursuant to this plan have been granted. As of December
31, 1995, the Company had 1,068,846 shares of Common Stock reserved for issuance
upon exercise of this plan's remaining outstanding options and 41,314 shares of
Common Stock reserved for future option grants.

1994 Stock Option Plan

In 1994, the Company's Board of Directors reserved 1,000,000 shares of
Common Stock and established the 1994 Stock Option Plan to succeed the 1990
Plan. The continuation 1994 Plan has identical provisions as the predecessor
1990 Plan. At December 31, 1995, the Company had 208,950 shares of Common Stock
reserved for issuance upon exercise of outstanding options and 791,050 shares of
Common Stock reserved for future option grants.

Management Incentive Stock Purchase Program

In 1991, the Company established the Management Incentive Stock Purchase
Program (MIS Plan), which provides for the granting of up to 1,111,111
nonqualified options to purchase shares of Common Stock to certain senior
members of management. The option exercise price is $.01 per

F-21
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. EQUITY PARTICIPATION PROGRAMS--(CONTINUED)
share. Intended to serve as incentive compensation for management, a portion of
each option grant vested each year based on management's ability to meet defined
minimum performance criteria. The majority of remaining outstanding options
became fully vested on March 31, 1995 as the related performance criteria for
1994 was achieved. Upon option grant, the Company records deferred compensation
equal to the difference between the fair market value of the Company's Common
Stock on the date of grant and the option exercise price. The deferred
compensation is expensed over the vesting term of the underlying options. As of
December 31, 1995, the Company had 25,000 shares of Common Stock reserved for
issuance upon exercise of the outstanding options and 4,442 shares of Common
Stock reserved for future option grants.

Stock option activity pursuant to these plans has been as follows:
<TABLE>
<CAPTION>
MIS PLAN NON-MIS PLAN
-------------------------- ---------------------
EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE SHARES PER SHARE
-------- -------------- --------- ----------------

<S> <C> <C> <C> <C> <C>
Balance,
January 1, 1993..................... 612,811 $.01 632,440 $4.00- $ 5.25
Granted............................. 25,000 .01 429,925 5.25- 8.00
Exercised........................... (506,147) .01 (102,310) 4.00- 5.25
Forfeited........................... (2,811) .01 (19,540) 4.00- 8.00
-------- ---------
Balance,
December 31, 1993................... 128,853 .01 940,515 4.00- 8.00
Granted............................. -- -- 471,050 8.00- 14.00
Exercised........................... (17,291) .01 (99,678) 4.00- 8.00
Forfeited........................... (20,208) .01 (95,589) 4.00- 12.00
-------- ---------
Balance,
December 31, 1994................... 91,354 .01 1,216,298 4.00- 14.00
Granted............................. 30,000 .01 392,950 14.00- 26.38
Exercised........................... (96,354) .01 (238,892) 4.00- 12.00
Forfeited........................... -- .01 (92,560) 5.25- 14.00
-------- ---------
Balance,
December 31, 1995................... 25,000 $.01 1,277,796 $4.00- $26.38
-------- ----- --------- ----------------
-------- ----- --------- ----------------
</TABLE>

At December 31, 1995, 629,177 options were exercisable under the 1990 Plan,
and no options were exercisable under the 1994 Plan or the MIS Plan. On February
23, 1996, the Company granted options to purchase an aggregate of 401,950 shares
of Common Stock under the 1990 and 1994 Plans to certain employees at an
exercise price equal to the fair value of $35.50 per share at that date.

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards 123 (FAS 123), "Accounting for Stock-Based Compensation."
FAS 123 encourages, but does not require, companies to recognize compensation
expense for grants of stock, stock options, and other equity instruments to
employees based on new fair value accounting rules. Companies that choose not to
adopt the new accounting rules will continue to apply the existing rules, but
will be required to disclose in the footnotes to the financial statements the
pro forma net income and earnings per share as if the new rules had been
adopted. As permitted by FAS 123, BDM will adopt the new standard in 1996 and
will choose to continue the current accounting for

F-22
<PAGE>
BDM INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. EQUITY PARTICIPATION PROGRAMS--(CONTINUED)
stock-based compensation. Beginning in 1996, the Company will disclose in the
footnotes to the financial statements the pro forma net income and earnings per
share calculated using the new accounting rules.

Directors' Stock Purchase Plan

Members of the Company's Board of Directors are eligible to receive their
compensation in the form of Common Stock in lieu of cash. During 1995, 1994 and
1993, the Company issued 7,369, 14,296 and 23,018 shares, respectively, of
Common Stock for this purpose. During 1995 and 1994, the Company purchased 6,298
and 13,750 shares, respectively, of its outstanding Common Stock for $14.00 per
share for use by this plan. As of December 31, 1995, the Company had 10,318
shares of Common Stock reserved for issuance upon the exercise of the board
members' option to receive compensation in this form.

13. RETIREMENT PLANS

The Company maintains a 401(k) plan covering substantially all full-time
employees of the Company's domestic subsidiaries. Employees may direct the
investment of their contributions among several mutual fund options. Employees
may contribute up to the maximum allowed by federal regulations, currently, 15%
of their monthly salary or a maximum of $9,240. The Company contributes an
amount equal to 25% of the first 4% of the employee's salary contributed to the
plan by the employee. For the years ended December 31, 1995, 1994 and 1993, the
Company's contribution was approximately $907,000, $842,000 and $719,000,
respectively. At the time of the Company's change in ownership in 1990,
employees were allowed a one-time option to purchase the Company's Common Stock
with balances in their plan. Effective July 1, 1995, the BDM Stock Fund became
an active fund option in BDM's 401(k) Savings Plan. A total of 303,661 common
shares were held by the participants of the plan as of December 31, 1995.

The Company also sponsors several other defined contribution plans for
substantially all of the employees of IABG. Participation in the plans is
voluntary; however, participants are required to make contributions to the plans
equal to 50% of the amount of the Company contribution. Company contributions
are based on percentages of the employees' monthly salary up to maximum monthly
benefits. The plans are fully funded and assets of the plans are invested in
insurance company annuities. The Company incurred $3.8 million, $3.5 million and
$423,000 in plan contribution expense for the years ended December 31, 1995,
1994 and in 1993 since the November 16, 1993 acquisition date, respectively.

The Company has a defined benefit pension plan (the Retirement Plan) and a
supplemental executive retirement plan (SERP) providing noncontributory
retirement benefits for eligible employees. Benefits are determined based upon
years of service and employee compensation. The Company's funding policy is to
contribute annually, at a minimum, amounts required by applicable laws and
regulations. Retirement Plan assets are invested principally in a group annuity
contract with an insurance company, as well as in a portfolio of diversified
equity securities and mutual funds. In addition, one of the Company's
subsidiaries, BDM Oklahoma, Inc. , has a defined benefit pension plan which
mirrors the Retirement Plan.

F-23
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. RETIREMENT PLANS--(CONTINUED)
The net periodic pension expense for these defined benefit plans included
the following components for the years ended December 31, (dollars in
thousands):

<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Service cost.................................................. $ 4,883 $ 4,975 $ 3,686
Interest cost on projected benefit obligation................. 5,153 5,752 4,385
Actual return on plan assets.................................. (11,978) (526) (5,864)
Net amortization and deferral................................. 7,681 (5,590) 521
-------- ------- -------
Net periodic pension expense.................................. $ 5,739 $ 4,611 $ 2,728
-------- ------- -------
-------- ------- -------
</TABLE>

The funded status of the Company's defined benefit plans as well as other
disclosures required by Statement of Financial Accounting Standard No.
87--Accounting for Employee Benefit Plans (FAS 87) were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------- --------------------
RETIREMENT RETIREMENT
PLAN SERP PLAN SERP
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Actuarial present value of vested benefit obligation... $ 64,635 $ 1,804 $ 66,516 $ 1,593
---------- ------- ---------- -------
---------- ------- ---------- -------
Actuarial present value of accumulated benefit
obligation............................................. $ 68,216 $ 1,804 $ 68,774 $ 1,607
---------- ------- ---------- -------
---------- ------- ---------- -------
Plan assets at fair value.............................. $ 65,539 $ -- $ 66,073 $ --
Actuarial present value of projected benefit
obligation............................................. (74,626) 1,896 (73,700) (1,794)
---------- ------- ---------- -------
Plan assets less than projected benefit obligation..... (9,087) (1,896) (7,627) (1,794)
Unrecognized prior service cost........................ 2,761 54 3,588 6
Unrecognized net gain (loss)........................... 783 84 (1,331) 140
Adjustment required to recognize minimum liability..... -- (46) -- --
---------- ------- ---------- -------
Accrued pension cost................................... $ (5,543) $(1,804) $ (5,370) $(1,648)
---------- ------- ---------- -------
---------- ------- ---------- -------
</TABLE>

The actuarial present values of the vested benefit obligations shown above
represent the amount to which employees are entitled based on the employees'
expected dates of separation or retirement. Assumptions, based on actual
historical results, used in accounting for the defined benefit plans were as
follows as of December 31,:

<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Discount rate for projected benefits............................... 7.75% 8.5% 7.5%
Average wage increases............................................. 4.0% 4.0% 4.0%
Expected long-term return on plan assets........................... 9.5% 10.0% 10.0%
</TABLE>

On January 1, 1995, the Company made a disbursement of $16.7 million to
fully settle certain benefits of the Retirement Plan with the purchase of an
insurance contract. This resulted in a net loss of $349,000 recognized in 1995.

The Company also maintains another defined benefit pension plan covering
nine past and present members of the management board of IABG. Benefits are
determined based on the members' years of service and compensation. The Company
had an accrued balance of $5.9 million and $5.7 million for this pension
obligation as of December 31, 1995 and 1994, respectively. The contribution
expense amounted to $345,000 in 1995, $554,000 in 1994, and $128,000 for the

F-24
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. RETIREMENT PLANS--(CONTINUED)
period of ownership in 1993. No additional pension disclosures required by FAS
87 have been provided since the majority of the members covered by the plan have
retired and the liability reflected in these financial statements for this plan
will not increase significantly in the future.

The Company maintains a self-insurance plan to cover the costs of certain
employee health benefits. As of December 31, 1995 and 1994, the estimated
balance accrued for the cost of incurred but unreported claims was approximately
$2 million. The Company's annual liability for claims expense is contractually
limited pursuant to an agreement with an insurance company. The actual claims
expense for 1995 did not exceed the contractual maximum.

14. TRANSACTIONS WITH RELATED PARTIES

The Chairman and Vice Chairman of the Company's Board of Directors are the
Chairman and a Managing Director, respectively, of Carlyle. The Company retains
Carlyle to provide certain advisory and consulting services for an annual fee of
$500,000 plus expenses. Total amounts incurred by the Company related to these
services for the years ended December 31, 1995, 1994 and 1993 were approximately
$506,000, $505,000 and $535,000, respectively.

Prior to its privatization by the German government in 1993, IVG was
majority owned by the German government (See Note 3). Contract revenue derived
by IABG from the German government and its ministries totaled $120.4 million and
$118.5 million, respectively, for the years ended December 31, 1995 and 1994 and
$16.3 million for the period from November 16, 1993 through December 31, 1993.
The total amount receivable from the German government at December 31, 1995 and
1994 was $10.5 million and $3.3 million, respectively.

IABG leases most of its facilities from IVG (a 20% owner of IABG). Total
rent expense incurred with IVG for the years ended December 31, 1995, 1994 and
1993 was $8.1 million, $7.3 million and $1.1 million, respectively. IABG earns a
market rate of interest on a related $5 million lease deposit with IVG. Interest
income earned during 1995 amounted to $254,000. Interest earned during 1994
since the installment payments of the lease deposit in 1994 totaled $20,000.

15. UNCONSOLIDATED AFFILIATES

The Company has ownership interests ranging from 42% to 50% in certain
unconsolidated joint ventures. The Company's investments in and advances to the
unconsolidated joint ventures, as well as the location of the ventures'
operations, are summarized as follows (dollars in thousands):

DECEMBER 31,
OWNERSHIP AT ----------------
DECEMBER 31, 1995 1995 1994
----------------- ------ ------
VBR, Turkey........................ 50% $1,556 $1,880
AWV, Sultanate of Oman............. 50% 2,063 1,793
Seavin, Egypt...................... 50% 1,153 1,174
Others............................. 42% 450 346
------ ------
$5,222 $5,193
------ ------
------ ------

F-25
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

15. UNCONSOLIDATED AFFILIATES--(CONTINUED)
Combined summarized financial information of all of the Company's joint
ventures was as follows as of December 31, or for the years then ended (dollars
in thousands):

1995 1994
------- -------
Current assets................................ $14,951 $14,943
Non-current assets............................ 966 775
Current liabilities........................... 6,169 5,181
Non-current liabilities....................... 56 245
Revenue....................................... 75,092 72,946
Gross profit.................................. 4,545 4,663
Net income.................................... 2,995 3,681

16. MAJOR CLIENTS AND GEOGRAPHIC OPERATIONS

Major Clients

Revenue from major clients was as follows for the years ended December 31,
(dollars in thousands):

1995 1994 1993
-------- -------- --------
U.S. Government (including subcontract
revenue from government primes)............ $449,504 $376,980 $383,661
International defense agencies............. 222,755 193,523 122,227
Other government agencies.................. 81,878 94,966 22,332
Commercial................................. 135,837 108,780 30,072
-------- -------- --------
Total................................ $889,974 $774,249 $558,292
-------- -------- --------
-------- -------- --------

No contract individually represented more than 10% of total revenue in 1995
or 1994, while one contract individually represented more than 10% of total
revenue for the year ended December 31, 1993, totaling $74.8 million.

F-26
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

16. MAJOR CLIENTS AND GEOGRAPHIC OPERATIONS--(CONTINUED)
Geographic Operations

Revenue, operating profit and assets by geographic area of all consolidated
subsidiaries were as follows as of or for the years ended December 31, (dollars
in thousands):

1995 1994 1993
-------- -------- --------
Revenue:
United States............................. $547,660 $438,474 $414,528
Europe.................................... 216,738 201,418 32,940
Middle East............................... 125,576 134,357 110,824
-------- -------- --------
Total................................. $889,974 $774,249 $558,292
-------- -------- --------
-------- -------- --------
Operating profit:
United States............................. $ 29,867 $ 16,559 $ 14,923
Europe.................................... 1,838 2,064 2,965
Middle East............................... 7,204 8,321 4,282
-------- -------- --------
Total................................. $ 38,909 $ 26,944 $ 22,170
-------- -------- --------
-------- -------- --------
Assets:
United States............................. $221,488 $209,983 $167,851
Europe.................................... 127,009 103,582 96,240
Middle East............................... 15,296 21,986 39,345
-------- -------- --------
Total................................. $363,793 $335,551 $303,436
-------- -------- --------
-------- -------- --------

Europe's results for 1995 include a one-time write off of $1.6 million for
goodwill discussed in Note 7.

17. COMMITMENTS AND CONTINGENCIES

Government Audits

Payments to the Company on United States or foreign government contracts are
subject to adjustments upon audit by various agencies of the respective
governments. Audits currently in progress are in varying stages of completion;
however, management does not expect the results of these audits, or audits
related to any operations prior to December 31, 1995, subsequently initiated, to
have a material effect on the Company's financial position, results of
operations, or liquidity.

Litigation and Claims

Environmental Matters

One of the Company's wholly owned subsidiaries was previously notified by
the United States Environmental Protection Agency (EPA) that is one of several
potentially responsible parties (PRPs) for remediation in connection with
asbestos present at two sites. The subsidiary, along with

F-27
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

17. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
another PRP, entered into a consent decree with the EPA in 1992, by which the
subsidiary and the other PRP are obligated to reimburse the EPA for costs
incurred in its assessment and monitoring of approximately $1.6 million and to
undertake work to address the environmental exposure as defined in the consent
decree. The Company originally accrued $4.4 million which management believed to
be the best estimate of the liability for this claim. Amounts paid and charged
against this provision through 1995 totaled approximately $3 million. Management
believes that the remaining accrual for this contingency of $1.4 million is
sufficient to cover costs to be incurred related to the subsidiary's performance
pursuant to the consent decree.

Another of the Company's subsidiaries was previously notified by the
Massachusetts Department of Environmental Protection that it is also one of
several PRPs in an environmental matter arising as a result of work performed on
a contract with the U.S. Air Force. The U.S. Air Force reimbursed the company
for all costs incurred to date in connection with this matter. No costs were
incurred by the Company in 1995 or 1994 relative to this contingency. No accrual
has been recorded as of December 31, 1995 as the risk of loss to the Company is
considered to be remote, and the remaining potential amounts involved are
considered to be immaterial.

Lease Obligations

The Company leases office space and equipment under various operating lease
agreements. Leases for principal office space typically have terms of five to
twenty years and carry optional renewal periods of five to twenty years. Most
leases include provisions for periodic rent escalations based on changes in
various economic indices. Amounts representing aggregate rent expense on all
operating leases, excluding equipment rented for use on specific contracts and
reimbursed pursuant to the terms of those contracts, totalled $31.7 million,
$35.4 million and $23.9 million for the years ended December 31, 1995, 1994 and
1993, respectively.

Future minimum payments on non-cancellable operating leases were as follows
on December 31, 1995 (dollars in thousands):

WHOLLY-OWNED
SUBSIDIARIES IABG
------------------- ------------------
YEAR ENDING OFFICE OFFICE
DECEMBER 31, SPACE EQUIPMENT SPACE EQUIPMENT
----------- ------ --------- ------- --------

1996.............................. $17,866 $ 1,243 $ 9,633 $ 722
1997.............................. 13,244 946 8,194 290
1998.............................. 9,046 489 8,064 160
1999.............................. 2,613 70 7,616 105
2000.............................. 1,373 8 7,512 51
Thereafter...................... 1,464 -- 31,209 --
------- --------- ------- ---------
Total......................... $45,606 $ 2,756 $72,228 $ 1,328
------- --------- ------- ---------
------- --------- ------- ---------

The Company's share of the future minimum lease commitments of IABG is 45%.
The remaining 55% commitment is the responsibility of the subsidiary's other
owners.

IABG is required to provide cash collateral of $6.4 million to the lessor
for its facilities which are leased through the year 2004. Approximately $4.8
million of this commitment was paid in 1994 and the remaining $1.6 million was
paid on November 16, 1995. The amount of the collateral balance will be reduced
by the landlord by $2.4 million prior to the end of the lease term in

F-28
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

17. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
$600,000 increments paid every two years beginning on November 16, 1997. Cash on
deposit is interest-bearing and interest income will accrue at current market
rates payable quarterly.

After the termination of certain of the leases for operating facilities of
IABG, the Company is liable for costs to be incurred, cumulatively up to $7
million adjusted for inflationary changes in a specified economic index, for any
removal or repair of buildings and facilities deemed necessary by the lessor.
For any year that the related lease is extended beyond the year 2013, the
commitment is reduced by 1/10th per year to a minimum commitment of $1 million.
The Company's share of the reclamation costs would be 45%. No amounts have been
accrued for this contingency.

Sublease Commitments

Sublease rental income earned was $2.5 million, $4.4 million and $2.6
million during the years ended December 31, 1995, 1994 and 1993, respectively.
Future minimum payments on non-cancellable subleases were as follows as of
December 31, 1995 (dollars in thousands):

YEAR ENDING
DECEMBER 31,
- ------------
1996.............................. $1,327
1997.............................. 732
1998.............................. 441
1999.............................. 45
2000.............................. --
Thereafter........................ --
------
Total........................... $2,545
------
------

18. SELECTED QUARTERLY DATA (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA):
1994
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------

Revenue........................ $165,163 $174,421 $195,477 $239,188
Operating profit............... 5,557 5,761 7,347 8,279
Net income..................... 2,908 3,005 3,100 4,065
Earnings per share............. 0.24 0.26 0.31 0.41
[CAPTION]
1995
--------------------------------------------
SECOND
FIRST (1) THIRD FOURTH
-------- -------- -------- --------
Revenue........................ $191,901 $213,064 $215,900 $269,109
Operating profit............... 9,905 8,790 9,339 10,875
Net income..................... 3,334 3,870 5,291 5,897
Earnings per share............. 0.33 0.38 0.40 0.44
Sale prices of Common stock:
High......................... n/a 21 1/2 28 1/2 30 1/2
Low.......................... n/a 19 7/8 20 1/4 23 3/4

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

(1) Sale price of common stock commencing June 29, 1995.

F-29

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom Goldman,
Sachs & Co., Lehman Brothers Inc. and Oppenheimer & Co., Inc., are acting as
representatives, has severally agreed to purchase from the Company and the
Selling Stockholders, the respective number of shares of Common Stock set forth
opposite its name below:

NUMBER OF
SHARES
UNDERWRITER OF COMMON STOCK
----------- ---------------
Goldman, Sachs & Co. ................................... 560,000
Lehman Brothers Inc. ................................... 560,000
Oppenheimer & Co., Inc.................................. 560,000
Ferris, Baker Watts, Incorporated....................... 140,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated...... 140,000
Robertson, Stephens & Company LLC....................... 140,000
Stephens Inc............................................ 140,000
---------------
Total............................................. 2,240,000
---------------
---------------

Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The U.S Underwriters propose to offer the shares of Common Stock in part
directly to the public at the public offering price set forth on the cover page
of this Prospectus and in part to certain securities dealers at such price less
a concession of $.95 per share. The U.S. Underwriters may allow, and such
dealers may reallow, a concession not in excess of $.10 per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the representatives.

The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters of
the International Offering (the "International Underwriters") providing for the
concurrent offer and sale of 560,000 shares of Common Stock in an international
offering outside of the United States. The offering price and aggregate
underwriting discounts and commissions per share for the two offerings are
identical. The closing of the offering made hereby is a condition to the closing
of the International Offering, and vice versa. The representatives of the
International Underwriters are Goldman Sachs International, Lehman Brothers
International (Europe) and Oppenheimer International Ltd.

This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including the shares initially sold in the
international offering, to persons located in the United States.

Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the International
Offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b)

U-1
<PAGE>
to any person who it believes intends to reoffer, resell or deliver the shares
in the United States or to any U.S. persons, and (ii) cause any dealer to whom
it may sell such shares at any concession to agree to observe a similar
restriction.

Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.

The Carlyle Fund has granted the U.S. Underwriters an option exercisable for
30 days after the date of the Prospectus to purchase up to an aggregate of
336,000 additional shares of Common Stock solely to cover over-allotments, if
any. If the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
2,240,000 shares of Common Stock offered hereby. The Carlyle Fund has granted
the International Underwriters a similar option exercisable up to an aggregate
of 84,000 additional shares of Common Stock.

The Company, the Selling Stockholders and certain directors and executive
officers have agreed that during the period beginning from the date of this
Prospectus and continuing to and including the date 90 days after the date of
the Prospectus, not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities of the Company which are substantially
similar to the shares of Common Stock, including but not limited to securities
which are convertible into or exchangeable for, or represent the right to
receive, Common Stock or any such substantially similar securities (other than,
with respect to the Company, pursuant to employee stock option plans, employee
stock purchase plans, 401(k) plans or any other employee plans of similar
nature, including, without limitation, any such plans for the benefit of
directors or officers of the Company, which are described in this Prospectus or
in an acquisition in which the person or persons receiving the Common Stock or
substantially similar securities agree in writing to be bound by such clause)
without the prior written consent of the representatives, except for the shares
of Common Stock offered in connection with the concurrent U.S. and international
offerings.

The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.

U-2

<PAGE>

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<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE 2,800,000 SHARES
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES
OR ANY OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES UNDER ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE BDM INTERNATIONAL, INC.
DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NOCHANGE IN THE AFFAIRS COMMON STOCK
OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS (PAR VALUE $.01 PER SHARE)
OF ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS
--------------

PAGE [BDM LOGO]
----
--------------

Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 12
Price Range of Common Stock and
Dividend Policy....................... 12
Capitalization........................ 13
Selected Consolidated Financial
Information........................... 14
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................ 15
Business.............................. 22
Management............................ 30
Certain Transactions.................. 33
Principal and Selling Stockholders.... 34 GOLDMAN, SACHS & CO.
Description of Capital Stock.......... 36
Validity of Common Stock.............. 38 LEHMAN BROTHERS
Experts............................... 38
Incorporation of Documents by 38 OPPENHEIMER & CO., INC.
Reference............................. 38
Additional Information................ 39 Representatives of
Index to Consolidated Financial The Underwriters
Statements............................ F-1
Underwriting.......................... U-1

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